TMI Blog2019 (12) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure on the trial run production and the stocks were transferred to the trading account, it is incumbent upon the assessee to establish the transfer of stocks. However, the assessee did not establish the sales or transfer of stock relating to trial run production to the stock account with the stock and sales registers. - Matter restored before AO for re-consideration. Commission paid to the Director - Held that:- Payment of commission is the business decision of the company and the assessing officer has no role in it. Therefore, there is no reason to make the disallowance of payment of commission - Decided in favor of assessee. Claim of weighted deduction u/s.35(2AB) - The assessee has furnished Form No.3CK to the Department of Scientific and Industrial Research(DSIR) but till date the approval of expenditure in form 3CL was not received by the department. - The AO allowed the actual expenditure and disallowed the weighted deduction claimed by the assessee for want of Form 3CL. - Held that:- quantification of expenditure required to be verified and certified by DSIR to prevent the misuse of the benefit. For this purpose, assessee has to submit the audit report al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar under consideration. - Matter restored before the AO. Depreciation on computer software - Held that:- Assessee has purchased the computer operating system, which is part and parcel of the computer. Without the operating system, the computer cannot be operated and the purpose would not be served. It is a settled issue that the computer software is not intangible asset and forms part of the computer. - assessee is entitled for depreciation @60% - 1701 to 1703/Hyd/14, 647/Hyd/19, 555/Hyd/17 - - - Dated:- 22-11-2019 - Shri V. Durga Rao, Judicial Member And Shri D.S. Sunder Singh, Accountant Member For the Assessee : Shri A.V.Raghu Ram, AR For the Revenue : Shri Y.V.S.T.Sai, CIT-DR ORDER PER D.S. SUNDER SINGH, A.M. : These appeals filed by the assessee are directed against the orders of the Commissioner of Income Tax(Appeals),Hyderabad Guntur, for the respective assessment years. Since the facts and issues involved in all these appeals are common, all these appeals are clubbed, heard and are being disposed-of by way of this common order as under. I.T.A. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of payee and the provisions of section shall apply. Accordingly, Ld.CIT(A) held that TDS is required to be deducted on the payments made to stockists u/s 194H of the Act and the AO rightly disallowed the expenditure u/s 40(a)(ia) of the Act. The Ld.CIT(A) further viewed that this view is supported by the decision of Hon ble ITAT, Jaipur in the case of Hindustan Cocacola Beverages P. Ltd., Vs. ITO(2005) 097 ITD 0105 and accordingly confirmed the order of the AO. 6. Against the order of Ld.CIT(A), assessee filed appeal before the Tribunal. 7. During the appeal hearing, Ld.AR submitted that the payment made to the stockists goes to direct credit of the customers, hence argued that the payment is in the nature of discount but not the commission. In the Books of HIL, the discounts were accounted for in the discount account and as at the end of the year the same was transferred to the sales a/c and the discount accounts were nullified. The amount of discount transferred to sales reduces the sales value to the extent of discounts and the reduced value appear in Profit Loss A/c. The discounts, which were given as a part of normal cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of buying and selling of goods. In the instant case, the assessee has stated that the stockists themselves are buying the goods and it cannot be said that they are rendering any services in the course of such buying of goods which will render any payment to them as commission. Though the AO stated that the facts are similar to that of A.Y.2006-07, the AO did not verify the facts and gave finding with regard to the nature of payment. The assessee also did not prove with the books of accounts the nature of payment. Therefore, we are of the considered view that the issue needs to be verified at the end of the AO to ascertain whether the payment is commission or discount with relevant vouchers of sales and the concerned accounts of the stockists. Hence, we remit the matter back to the file of the AO to verify the books of accounts, relevant vouchers and ascertain whether the payment is commission or discount. If the payment is in the nature of commission or brokerage, the payment needs to be disallowed u/s 40(a)(ia) of the Act for non deduction of tax at source u/s 194H of the Act. In case the payment is in the nature of discounts allowed on the sales the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oduction during the year under consideration. The Ld.AR further stated that initially, the assessee has debited the entire expenditure relating to the trial run production to the construction period account, but not to the Profit Loss A/c. The stock generated out of the expenditure incurred during the construction period amounting to ₹ 4.26 Lakhs was transferred to the Profit Loss A/c from 11-09-2008 to 31-03-2009, which was netted to ₹ 3,80,30,600/-. The Ld.AR submitted that both the stock as well as the expenditure was taken to the Profit and loss account. The Ld.A.R further submitted that the finished goods were transferred to the manufacturing and trading account, which increased the stocks and the relevant expenditure was grouped under opening stock and both the items were taken to Profit Loss A/c. Since the expenditure as well as the closing stock was transferred to the Trading A/c, there was no difference in the closing stock / opening stock, hence, argued that there is no case for making addition, thus, the assessee requested to delete the addition made by the AO. 13. On the other hand, the Ld.DR argued that though the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as well as the books of accounts to ascertain whether the assessee has really transferred the stock generated out of trial production to the trading and manufacturing account or not ? The assessee has to prove before the AO with regard to transfer of trial run production stocks to the stock register and the resultant revenue or sales was admitted in the Profit Loss account. Thus, we remit the issue back to the file of the AO with a direction to reexamine the issue in the light of submission made by the assessee and the directions given in this order and decide the issue afresh on merits. Appeal of the assessee on this ground is allowed for statistical purposes. 15. Ground No.5 is related to the commission paid to the Director. The AO found that the company has paid the commission of ₹ 50 Lakhs to the Director. The AO has called for the details of the commission paid to the Director, the purpose for which it was paid along with supporting evidences. Since the assessee failed to explain the same, AO made the addition of ₹ 50 Lakhs in the hands of assessee. 16. Against the order of AO, the assessee went on appeal before the CIT(A) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit on sale of trial run stock 68,27,000 22. Ground No.1 is related to the weighted deduction u/s.35(2AB) of the Act. This issue is involved for the A.Y.2010-11 to 2013-14 for 4 assessment years. During the assessment proceedings, the AO found that the assessee has claimed the deduction u/s.35(2AB) of the Act to the extent of ₹ 1,62,15,011/- and the assessee failed to submit form 3CL from Department of Scientific Industrial Research (DSIR) quantifying the expenditure. The assessee submitted before the AO that the application was made before the prescribed authority for the issue of form 3CL and hence requested to allow the deduction pending receipt of form 3CL/3CM from the DSIR. The assessee also relied on the decision of the Co-ordinate Bench of Tribunal, Mumbai in the case of ACIT circle 6(3) vs M/s.Meco Instruments Pvt. Ltd., ITA No.4246/Mum/2009 dated 20th August 2010 supporting it s claim. The AO considered the provisions of the Act, the rules and the decisions relied upon by the assessee and observed that the Act prescribes approval for both facility and quant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is having jurisdiction over the said company. The Ld.AR stated that the company has maintained separate books of account as required under Rule 6 (1B) and furnished the report and complied with all the requirements on the part of the company, therefore, requested to allow the deduction u/s 35(2AB). Alternatively, Ld.AR pleaded that the AO may be directed to allow the weighted deduction as and when the certificate in form No. 3CL is received, without the time limit for rectification u/s 154. 25. Per contra, the Ld.DR submitted that unless the approval from prescribed authority is received in form 3CL, the weighted deduction could not be quantified and it is not permissible to allow the weighted deduction. In the instant case, the approval from prescribed authority quantifying the expenditure in form 3CL is not received, Ld.DR supported the orders of the lower authorities and submitted that no interference is called-for in the orders of the lower authorities. The Ld.DR fairly conceded for alternate claim of the assessee to allow the deduction as and when the approval is received. 26. We have heard both the parties and gone through t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture and the quantification of expenditure the Government of India (DSIR) would issue form 3CL. On receipt of the Form 3CL the assessee would be entitled to weighted deduction. The AO is not permitted to grant the weighted deduction, when Rule prescribes to grant deduction on receipt Form 3CL. Certification of quantification and the genuineness of expenditure is the look out of DSIR but not the Income Tax department. The assessee relied on the decision of Hon ble Delhi High Court in the case of Sandan Vikas India Limited (supra) and Meco Instruments P.Ltd. (supra) both the case were distinguished by the Ld.AO in his order. The coordinate Bench of ITAT, Hyderabad on similar issue in the case of Electronics Corpn. of India Ltd. v. Assistant Commissioner of Income-tax, Circle, 2(2), Hyderabad*[2012] 28 taxmann.com 280 (Hyd.) held as under: As per the provisions of section 35(2AB) as applicable to the relevant Assessment year, the expenditure incurred by the assessee in any approved inhouse research facility, to the extent of approved by the prescribed authority, is entitled to weighted deduction of 150 per cent of such approved expenditure. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be allowed after satisfying the conditions specified in Rule 6(1B) and the quantification of expenditure required to be approved by the DSIR in form 3CL.Therefore, the AO is not permitted to allow the deduction without the approval from the prescribed authority, hence, we do not find any reason to interfere with the order of the Ld.CIT(A). This view is supported by the decision of coordinate bench of ITAT, Hyderabad in Electronics Corpn. of India Ltd and the decision Hon ble Apex court in Dilip Kumar and ors supra. Accordingly we, uphold the order of the Ld.CIT(A) and dismiss the appeal of the assessee. This issue is involved for the A.Ys 2010-11,2011-12,2012-13 and 2013-14. The appeals of the assessee for all the impugned assessment years on the issue of deduction u/s 35(2AB) are dismissed. 26.3. Alternately, the assessee has made a request to allow the deduction u/s 35(2AB) as and when the approval is received without the limitation u/s 154 for rectification. We find merit in the submission of the assessee for which the Ld.DR also did not object. Therefore, we, direct the AO to allow the weighted deduction as and when the approval in form 3CL is received withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to set aside the order of lower authorities and allow the appeal of the assessee. 30. On the other hand, Ld.DR argued that the Chairman, Shri C.K.Birla has travelled from Kolkata to Hyderabad by chartered flight. From Hyderabad, the Chairman visited Delhi. Thus, the entire expenditure was not wholly and exclusively laid out for the purpose of assessee s business. Ld.DR further submitted that the assessee did not furnish the terms and conditions of the employment of Shri C.K.Birla. Unless there is a sanction and the terms and conditions of employment permits the travel the expenditure cannot be held to be treated as wholly and exclusively laid out for the purpose of business. Therefore, argued that the lower authorities have rightly made the addition and no interference is called for. 31. We have heard both the parties and gone through the material placed on record. It is not disputed that the assessee has paid a sum of ₹ 23,16,625/- towards hire charges to M/s.Forum I Aviation Ltd., for travel of Shri C.K. Birla, the Chairman of the company. Shri C.K.Birla is one of the business giants and industrialists and also happens to be the Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is in appeal before the Tribunal. 34. We have heard both the parties and gone through the material placed before us. In the instant case, the assessee paid for copyright of Microsoft using the software without proper authorization. Therefore, the Microsoft had initiated the legal action, which was settled out of court. Since the copy right was used for the purpose of business, though there was an infringement, which was settled out of court, we are of the opinion that the expenditure is required to be allowed. Accordingly, we set aside the order of the Ld.CIT(A) and allow the appeal of the assessee. 35. The fourth issue is with regard to addition of ₹ 68.27 Lakhs relating to the gross profit on trial run production which was claimed as opening stock in the earlier year. The AO made the addition of ₹ 68.27 Lakhs representing the Gross Profit on the value of opening stock added in the earlier year since the assessee failed to prove the transfer of stock to manufacturing and trading account or sales. 36. Against the order of AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) dismissed the appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts of the case are identical to that of A.Y2010-11, hence, keeping in view of the status of Shri Birla being busy industrialist we direct the A.O. , to allow the highest class of Air fare to Shri Birla and his assistant in the place of chartered flight charges. The assessee should furnish the highest fare to the AO on the dates of travel. Accordingly the appeals of the assessee on this issue for the A.Y.2011- 12 to 2013-14 is partly allowed. 40 . The next issue for the A.Y.2011-12 is depreciation on wind mill. The assessee claimed the depreciation on wind mill to the extent of ₹ 6,29,04,322/- . During the year under consideration, the assessee claimed to have commissioned the Vestas make Wind Electric Generator (WEG) V100 (1800KW) on 31.03.2011 at Gujarat and capitalised the expenditure of ₹ 12,58,08,664/- on this account. The assessee furnished the copies of letter from Vestas for commissioning the electric generator. As per the letter dated 01.04.2011 issued by the Manager (Projects) of M/s Vestas Wind Technology India Pvt. Ltd., Electric generator was successfully commissioned on 31.03.2011 and further informed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) and the Ld.CIT(A) dismissed the appeal of assessee. The Ld.CIT(A) observed that the plant was operated only for 25 minutes after commissioning and did not stabilize till 14/04/2011. The Ld.CIT(A) further observed that commissioning certificate received from Gujarat Energy Development Agency and Vestas were only an arrangement to claim the Depreciation and given finding that the plant did not commence commercial production in F.Y.2010-11. Before the Ld.CIT(A), the assessee also did not produce transmission of stable power to the grid on 31-03-2011.The Ld.CIT (A) was of the opinion that the assessee did not produce any conclusive proof to rebut the finding of AO other than stating that the assessee did not bill the electricity generated since it was captively consumed. The Ld.CIT believed that the explanation of the assessee was an after thought and hence dismissed the appeal of the assessee. Against the order of the Ld. Ld.CIT (A) the assessee is in appeal before us. 42. During the appeal hearing, Ld.AR submitted that assessee has acquired the Vestas make Wind Electric Generator V100(1800KW) on 31-03-2011 at Gujarat for an amount of ₹ 12,58,08,664/- a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the depreciation which was confirmed by the Ld.CIT(A) and no interference is called-for in the order of the Ld.CIT(A). 44. We have heard both the parties and perused the material placed on record. As seen from the assessment order and the particulars furnished by the assessee, wind mill stated to be commissioned on 31.03.2011 and run for 25 minutes. The wind mill did not function for the remaining time on the said date and subsequently 1st to 3rd and 6th, 7th, 9th and 11th to 13th Apr, since there was zero power generation on these days. The AO also attached power generation report for Vandia site. As per the power generation report, the grid was available 100% on all these days. Once, the wind mill is commissioned properly, there is no reason for non functioning of the plant after commissioning. The assessee also did not explain the reasons for non functioning of the wind mill on 31.03.2011 after 17:15 hrs. The wind mill was operated from 16:50 hrs to 17:50 hrs and did not function from 17:50 hrs onwards till 03.04.2011. Though the assessee has furnished the letter from Vestas stating that wind mill was successfully commissioned on 31.03.2011, it was stated in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... software. This issue is involved for the AYs.2011-12 and 2012-13. During the assessment proceedings, AO found that the assessee has purchased license for usage of sonic wall for mail security for ₹ 1,90,000/- and IBHAR performance manager software for ₹ 7 Lakhs. Both these are found to be intangible assets for use of software which are in the nature of profit making apparatus and do not fall in the category of computers or operating system. Hence, the AO viewed that the depreciation is required to be allowed only @25% as against the claim of 60%. Accordingly, the AO disallowed the deprecation of 25% and 12.5% depending on the usage of the assets during the impugned assessment year. 46. Against the order of AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) dismissed the appeal of assessee and confirmed the addition made by the AO. Hence, the assessee is in appeal before the Tribunal. 47. We have heard both the parties and gone through the material placed on record. Assessee has purchased the computer operating system, which is part and parcel of the computer. Without the operating system, the computer cannot be operated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Overseas Med Insurance 10-02-11 740 S.P.Tiwari HYD-DXB-LOS Mgmt fee 30-11-10 1,09,938 P.S.Rao Nigeria Tour DA 24-06-10 66,150 P.S.Rao Nigeria Tour DA Total 7,10,930 48.1. During the course of assessment proceedings, AO directed the assessee to justify the expenses. The assessee failed to justify the same. Therefore, the AO made addition of ₹ 7,10,930/-.and the similar additions were made for the AYs.2012-13 and 2013-14 as under A.Y. Amount in Rs. Remarks 2012-13 9,16,216 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gued that the expenditure on foreign travel to Nigeria has no business connection of the assessee. Hence, requested to uphold the order of the Ld.CIT(A). 52. We heard both the parties and observe from the arguments and the orders of the lower authorities that the expenditure was not incurred for the purpose of assessee s business and the expenditure was incurred in connection with Nigerian company, the assessee did not establish the business expediency of the expenditure incurred in the hands of the assessee-company relating to Nigerian company. During the appeal hearing also the assessee could not explain the business obligation to visit Nigeria. Therefore, we do not find any reason to interfere with the order of lower authorities. Hence, we confirm the order of lower authorities and dismiss the appeal of the assessee on this ground. 53. The next issue raised in AYs.2011-12 and 2012-13 is denial of TDS credit. The assessee submitted that the AO has not allowed the credit for TDS for the amount of ₹ 38,243/- for the AY.2011-12 and ₹ 64,576/- for the AY.2012-13. 54. We have heard both the parties and gone through the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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