TMI Blog2012 (10) TMI 1059X X X X Extracts X X X X X X X X Extracts X X X X ..... ed fact that the software was not ultimately implemented and the project had failed. 2. The CIT(A) erred in fact and in law in confirming the action of the A.O. by making an addition of R D expenses amounting to ₹ 2,35,743/- u/s 35(1) of the Act, despite the fact that the appellant had furnished complete details for substantiating the claim. 2.1 The CIT(A) erred in fact and in law in confirming the action of the A.O. in not allowing the deduction of the said amount u/s 37(1) of the Act, though there was no doubt about its eligibility of deduction under the said section. 3. The CIT(A) erred in fact and in law in confirming the action of the A.O. in making adhoc disallowance to the extent of ₹ 2,38,973/- being 10% of sales promotion expenses on the ground that these have not been incurred for the purpose of business. 4. The CIT(A) erred in fact and in law in confirming the action of the A.O. in making disallowance of ₹ 1,51,431/- on the ground that the said amount represents excess provision for leave encashment despite the fact the said amount represents provision for the year and not excess provision. 5. The CIT(A) erred in fact and in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. At the implementation stage several complexities were noticed and the project was dropped. Since the software ultimately was not implemented, the assessee has written off the entire cost of software. It was also informed that out of total sum of ₹ 3.54 lacs payable, the assessee paid only 1.96 lacs. The balance sum of ₹ 2.54 lacs was reversed in the books of account and offered for taxation. Reliance was also placed on the following decisions:- 1. Addl. CIT Vs. Asahi India Safety Glass 6 SOT 656 (Del) 2. CIT Vs Southern Roadways Ltd. 202, CTR 279 (Mad) 3. Bank of Punjab Ltd. Vs. JCIT, 91, TTJ 422 (Chd) 4. Business information processing Services Vs. ACIT, 239 ITR 19 (Jai) 5. CIT Vs. Citicorp Overseas Softwares Ltd, 85 TTJ 87 (Mum) 6. Bajaj Temp Ltd. Vs. CIT 207 ITR 1017 (Mum) 7. Thomas Cook (India) Ltd Vs. JCIT, TTJ 317 (Mum) 8. ACIT Vs. India Metronics P. Ltd. - Bombay However ld. CIT(A) confirmed the action of the A.O. 6. Before us ld. counsel of the assessee reiterated the same submissions as made before ld. CIT(A) while ld. D.R. relied on the order of the lower authorities. 7. After hearing both the parties and per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the counsel and facts of the case. It is not in dispute that the amount represents purchase of spares and pumps of the competitors. In the absence of any research activities or research report, the said expense cannot be considered as incurred for the purpose of business. Further, the same is not capital asset or business assets used for the purpose of business on which depreciation is allowable. Considering this, the disallowance made by the Assessing Officer is confirmed. 10. Before us ld. counsel of the assessee submitted that the A.O. has disallowed a sum of ₹ 2,35,743/- out of R D expenses treating them as capital in nature. He further submitted that even if these expenditure are considered as capital in nature, these are allowable u/s 35(1)(iv) read with Section 35(2) of the Act. He placed reliance on the decision of CIT Vs. Engineering Innovation Ltd. 218 CTR 596 (HP). Ld. D.R., on the other hand, relied on the order of lower authorities. 11. After hearing both the parties and perusing the record we find that assessee during the year under appeal has incurred total expenses of ₹ 4,05,125/- towards R D expenses. Out of these expenses the A.O. disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e explanation to Section 198 of the Companies Act, 1956 for the purpose of determining their remuneration u/s 309 of the Companies Act. Even if there was personal use by Directors, that is covered in terms and conditions of the services and in so far as assessee was concerned, it was business expenditure and no part of expenditure should be disallowed in the hands of the assessee company. Ld. CIT(A), after taking into consideration the submissions of the assessee restricted this disallowance to 10% of the total expenses claimed by the assessee by observing as under:- I have considered the submissions of the counsel and facts of the case. The expenses debited in this head also includes purchase of gift items, payment made to associate concerns for incentive given to dealer etc. Vouchers are not supported by documentary evidences in some cases and these expenses have increased substantially as compared to earlier year. Considering all these facts the disallowance was made by the Assessing Officer. The personal element was also mentioned along with these reasons. I agree with the appellant that in the case of company disallowance on account of personal element cannot be made. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific disallowance is mentioned us 43B w.e.f. 1-4-2002, provision for the same cannot be allowed. Accordingly the disallowance made by the Assessing Officer is as per the provisions of I.T. Act. With due respect to the decision of Calcutta High Court, the same is on the applicability of section 43B to such claims. Since the provision of section 43B(f) exists, the appellant s claim cannot be allowed. The addition made by the Assessing Officer is therefore confirmed. 18. At the time of hearing ld. counsel of the assessee submitted that no disallowance u/s 43B of the Act can be made in view of the decision of Hon ble Calcutta High Court in the case of Exide Industries Ltd. Others (supra). Ld. D.R., on the other hand, relied on the order of lower authorities. 19. After hearing both the parties and perusing the record we find that there is no dispute about the fact that the A.O. has disallowed a sum of ₹ 1,51,431/- by invoking the provisions of clause-F of Section 43B of the Income Tax Act and the same has been confirmed by ld. CIT(A) also on the basis of Section 43B of the Act. We further find that Hon ble Calcutta High Court in the case of Exide Industries Ltd. Others ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny evidence to prove that the expense debited during the year were crystallized during the year. Further no basis of making claim during the year was given. In view of this, the prior period claim is not allowable. The decision referred by the appellant requires crystallization of the claim during the year. In the absence of the same, it is not allowable. Accordingly the disallowance made by the Assessing Officer is confirmed. As regards reducing the credit made by the appellant, this is not correct since the credit was not taken into profit and loss account but profit and loss appropriation account. This goes against the appellant s claim since it is claiming the debit whereas not taking credit to the income. The Assessing Officer has rightly rejected the appellant s alternative claim. 22. Before us ld. counsel of the assessee reiterated the submissions made before ld. CIT(A) and also took an alternate plea that in case the expenses are considered as not allowable in the year under consideration the A.O. may be directed to allow the same in respective years. Ld. D.R., on the other hand, relied on the order of the lower authorities. 23. After hearing both the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er unit cost with the previous year per unit cost of job work. However, the pumps may be of different size of capacity and also of different thickness and weights. Therefore, the comparison made by A.O. was not correct way of looking into the things. Ld. CIT(A), however, confirmed the action of the A.O. by observing as under:- I have considered the submissions of the counsel and facts of the case. It is not in dispute that the associated concern is covered u/s 40A(2)(b). The labour charges have substantially increased as compared to last year. The onus to prove that the expenses paid is not excessive and unreasonable as compared to market rate is on the appellant as held by Hon. Bombay High Court in the case of CIT Vs. Shatrunjay Diamonds reported in 261 ITR 258. The appellant has not discharged its burden by comparing market rate of services received by it from associated concern. Therefore, the Assessing Officer was justified in comparing the rate charged for different years and the disallowance u/s 40A(2)(b) is correct. The arguments given by the appellant that gross profit has improved and sister concern is not enjoying any tax benefit etc are not relevant. When number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges paid to them during the immediately preceding years without bringing any material on record to show that payment is in excess of fair market value of job work done by M/s S.J. Clear Water Pump Ltd. and ignoring the fact that in the earlier year the job work was done only for the last quarter while in the year under appeal the job work has been done for the entire year. In the absence of such material on record no addition u/s 40A(2)(b) for excessive or unreasonable payment can be made in view of various decisions relied by the assessee. As the onus of proving that the payment is excessive or unreasonable is on the Revenue and not on the assessee as per the provision of Section 40A(2)(b) of the Act and the same has not been discharged in this case by the Revenue, the addition made by the A.O. and sustained by ld. CIT(A) is hereby deleted. This ground of the assessee is allowed. 28. In the result, assessee s appeal is partly allowed for statistical purpose. I.T.A. No.126/Ahd/2009 29. The grounds raised by the assessee are as under:- 1. The CIT(A) erred in fact and in law in confirming the action of the A.O. by making an addition of research expenditure amounti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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