TMI Blog2015 (12) TMI 1827X X X X Extracts X X X X X X X X Extracts X X X X ..... ission to be paid on a particular transaction. In view thereof, we reverse the order of Assessing Officer in restricting the rate of commission to 3% . In any case, the said restriction was made by the Assessing Officer observing that the rate of commission paid by the assessee was 6.6% whereas the assessee claims that it had paid commission @ 4.48%. The other two parties to whom commission had been paid by the assessee and the same has been restricted by the Assessing Officer are M/s Integrated Technology and M/s Aakaar Engineering Manufacturing Co. The commission to the said parties, as alleged by the Assessing Officer are paid @ 6.90% and 6.76% respectively. In line with our observations herein above, we find no merit in the disallowance made by the Assessing Officer restricting to rate of commission to 3% as against the rates agreed upon between the parties. Disallowance u/s 14A - HELD THAT:- Admittedly the investment was made in the year 1996 and though the assessee may have received interest and dividend at one stage but for the last over a decade M/s HMGV is before BIFR and has not been paying any interest to the assessee. The investment as is apparent from the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Royalty is allowable and we further hold that the depreciation allowed thereon be withdrawn. We therefore, set aside the order of the AO and delete the addition made. Disallowance of expenditure - assessee had failed to produce relevant bills and vouchers during the course of assessment proceedings - HELD THAT:- Claim of the assessee that it has not claimed any deduction in respect of impugned prior period expenses, has not been examined by AO or by DRP, despite the fact that specific argument was raised to this effect and books of accounts produced before the AO. Therefore, the AO is directed to verify this fact and if it is found that such amount has not been claimed as deduction during the year no disallowance can be made in respect of such non-claimed deduction. In case any such amount is claimed as deduction, plea of the assessee that liability in respect of such expenses has capitalized in the year under appeal should also be examined as assessing officer has not dealt with this argument of the assessee though specifically raised. AO shall give opportunity of hearing to the assessee and decide the allowability of deduction in accordance with law and in the light of ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined to building reinforced foundation for the purpose of installing new plant and machinery has not been rebutted much less with the help of any cogent basis. Therefore such reinforcement even to civil construction would be treated as installation cost of Plant and Machinery and would qualify for depreciation as Plant and Machinery. In view of the same, we allow depreciation on civil construction work in the facts of the present case as applicable to Plant and Machinery. - ITA No.438/Chd/2015 - - - Dated:- 4-12-2015 - Bhavnesh Saini, Judicial Member And Mrs. Annapurna Mehrotra, Accountant Member K.M. Gupta, Sidharth Dadu, Harish Bisht and Nitin Narang for the Appellant. Manjit Singh and Ajay Sharma for the Respondent. ORDER Annapurna Mehrotra, This appeal has been filed by the assessee against the order of the DCIT Circle 1(1), Chandigarh passed u/s 144C(13) r.w.s. 143(3) of the Income Tax Act, dated 25.02.2015. The assessee has raised the following grounds of appeal. 1. That the Ld. AO has erred both on facts and in law in computing the loss of the Appellant at ₹ 23,72,41,227 as against the returned loss of ₹ 50,81,48,052. TRANSFE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant in the TP documentation maintained by it in terms of section 92D of the Income Tax Act.1961 read with Rule 10D of the Income Tax Rules,1962; 4.2. rejecting the selection of foreign AE as tested party based on frivolous grounds of non-availability of comparable data for foreign enterprises without rejecting TNMM which was adopted to benchmark the transaction pertaining to payment of Corporate Service Charges by the Appellant. 4.3. erroneously applying Comparable Uncontrolled Price ('CUP') method in contravention of the provisions of Rule 10B of the Income Tax Rules, 1962 the Rules') and Section 92C of the Act. CORPORATE TAX MATTERS 5. That the Ld. AO/DRP erred on facts in law in making a disallowance of ₹ 2,08,84,673 out of commission expenses for the year under consideration based on a view formed in the preceding assessment years on the following transactions:- 5.1. Disallowing sums of ₹ 1,16,203 and ₹ 63,13,871 paid as commission to Malachite Chemicals and Edward Keller (Phils) Inc. 5.2. Disallowing commission expense of ₹ 1,44,54,599 being excessive and unreasonable by arbitrarily fixing an average rate of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither previous years or are unsupported with vouchers. 13. That the Ld. AO/DRP erred on facts in law in making a disallowance of depreciation of ₹ 11,57,037 alleging that civil construction work should be considered as part of building and not Plant and Machinery and therefore entitled to depreciation at lower rate. 14. That the Ld. AO/DRP also erred in proposing to initiate penalty proceedings under section 271(1)(c) of the Act for concealment of income or furnishing inaccurate particulars of income. 2. Brief facts relating to the case are that the assessee is engaged in the business of manufacturing intermediaries and bulk drugs, which is undertaken at the manufacturing facility of the assessee located at Toansa Village, Distt. Nawanshahr, Punjab. During assessment proceedings it was noticed that the assessee had entered into international transaction with associated enterprises for an amount exceeding 15 Crores and the matter was referred to the transfer pricing office for determining the arms length price of the international transactions, who made an adjustment of ₹ 8,53,38,126/- to the transaction after giving a relief of 5% amounting to ₹ 44,91,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned international transaction at ₹ 44,91,480/- against the sum of ₹ 8,98,29,606 paid by the assessee during the impugned A.Y. On account of the same, adjustment was made to the income of the assessee to the amount of ₹ 8,53,88,126/-. 7. Aggrieved by the same, the assessee filed an appeal before us. 8. Ld. Counsel of the assessee submitted that the facts in the present case were identical to the facts in the assesses own case for AY 2007-08 and 2008-09 which have been decided by the Hon'ble ITAT in ITA No. 1139/Chd/2011 and 1290/Chd/2012 respectively. Ld. AR submitted that the Tribunal after going through various contentions in the earlier year had held that no adjustment should be made in respect of payment towards corporate service charges, since it was found by the Hon'ble ITAT that Corporate services had been rendered to the assessee on account of which benefits had been derived by the assessee and further that the transaction of the assessee was at arms length. Ld. AR further submitted that the Hon'ble Tribunal further held in para 110 of the aforesaid order that the amount paid for corporate services had to be reduced by 50% of the be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices from its AE's in the area of production and sales, market information, business intelligence, safety, health and investment and finance related strategic planning support. It was further held by the Tribunal that no adjustment was required to be made in respect of normal corporate services. We find that the Tribunal further held at para 110 of its order for AY 2007-08 and 2008-09 that on account of the financial services received by the assessee, regarding issuance of guarantee and sanctioning of various bank limits at lower interest rate, the payment on account of corporate services should be restricted upto 50% of the benefit received on account of these services. Thereafter, the assessee moved a miscellaneous application against the order of the Tribunal for both the year which was adjudicated vide Miscellaneous Application No. 6 7/Chd/2015 vide order dt. 19/02/2015 dismissing the Miscellaneous Application filed. The issue came up for consideration in AY 2009-10 also where in after taking into consideration the order of the Hon'ble ITAT in AY 2007-08 and 2008-09 and also the order of the Hon'ble Tribunal on the Miscellaneous Application filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarantee fee Benefit to the appellant(INR in Cr) Packing Credit EUR to million 68 Crores 2.56% 1.74 LC/Guarantee EUR 30 million 204 Crores 3.50% 7.14 Total 8.88 Your honour would appreciate from the above that the services availed by DSM India resulted in benefit to the assessee and indeed added economic and commercial value to the business of the assessee. In case these services were not provided by the AEs the assessee would have left with no choice but to pay an independent enterprise (third party) for the activity performed for it or would have performed the activity in house for itself. 14. The above also clearly shows that how assessee has received the financial services which have led to the benefits to the assessee to the tune of ₹ 8.88 crores. Therefore, we set aside the order of Assessing Officer and direct him to re- compute the amount of adjustment by reducing 50% of ₹ 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make a sale of a product. Depending upon the territory, product price, realization per unit, difficulty in realization of debtors and nature of end customers difference scales of commission to agents in different countries and different areas had been fixed by the assessee. The assessee therefore, submitted that the entire commission expenses were allowable in accordance with the provision of section 37(1) of the Income Tax Act. In support of its above contention the assessee placed reliance on the decision of the Apex court in CIT vs. Walcand and Co. P. Ltd. (1997) 65 ITR 381 (SC), Sasoon J. David co. P. Ltd. vs. CIT 1997 118 ITR 261 (SC), SA Builders Ltd. vs. CIT(A) and Ors. 288 ITR 1 (SC) and various other decisions of the High Court and the Tribunal. The assessee further submitted that the payment of sale commission in excess of 3% totally unrelated transaction had been considered to be normal by the Hon'ble Delhi High Court in the case of Rolls Roys Co. vs. CIT (TS-515-SC2011) (Del.). As for the commission paid to the distributors the assessee submitted that the same actually represented discount give by the assessee to distributors. The assessee stated that in cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rejected. Following the same, Ld. AO made disallowance of commission expenses of ₹ 2,08,84,673/-. 14. Before us Ld. Counsel for the assessee for the assessee reiterated the submissions made before the AO / DRP and further submitted that this issue had been decided by the Tribunal in earlier years and commission paid to foreign parties had been remanded back to the A.O. for fresh adjudication after establishing the relationship with the parties. Ld. AR further submitted that the payment made to Malachite Chemicals and Edward Keller (Phils) Inc. in the impugned year was in the capacity as agent/intermediary only and not as distributor. Ld. AR drew our attention to the detail of commission paid, filed during assessment proceedings, placed at PB 928-930, reflecting the aforestated fact. Ld. AR further placed before us copies of certificates from Malachite Chemicals and Edward Keller (Phills) Inc. alongwith supporting invoices as additional evidence of payment of commission to them on principal to agent basis. Further an application for admission of additional evidences was also filed before us. Ld. AR argued that the commission paid to foreign parties was therefore fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id parties and the total commission paid to the said parties, which are placed at pages 293 and 294 of the Paper Rook. As against the export commission, the assessee had paid a sum of ₹ 695.475/- on sales of ₹ 2.35 crores to M/s Edward Keller @ 2.950%. Further commission of ₹ 40.97.199/- on sale value of ₹ 13.80 crores has been paid to P.I. Mensangan Sakti. The next item of payment is to M/s Malachite Chemicals, which as per the assessee is ₹ 885.880/- on sale value of ₹ 2.98 crores @ ₹ 2.966%. The Assessing Officer has adopted the commission paid to M/s Malachite Chemicals at ₹ 455.257/-. The case of the assessee before us is that the commission agents are also traders of the drugs and are also acting as commission agents. The assessee is engaged in the manufacture of intermediaries and bulk drugs, which in turn are utilized by other concerns for the preparation of the final products. The assessee, through the said commission agents had sold the items manufactured by it to different concerns. The assessee has placed on record the confirmation from P.I. Mensangan Sakti in respect of receipt of commission of ₹ 40,97.199/-. The sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the rate of commission paid by the assessee was 6.6% whereas the assessee claims that it had paid commission @ 4.48%. The other two parties to whom commission had been paid by the assessee and the same has been restricted by the Assessing Officer are M/s Integrated Technology and M/s Aakaar Engineering Manufacturing Co. The commission to the said parties, as alleged by the Assessing Officer are paid @ 6.90% and 6.76% respectively. In line with our observations herein above, we find no merit in the disallowance made by the Assessing Officer restricting to rate of commission to 3% as against the rates agreed upon between the parties. Reversing the order of the Assessing Officer, we delete the addition of ₹ 42.77,213/-. The Ground No. 4 raised by the assessee is thus partly allowed. Following the above order we set aside the issue regarding payment of commission to Malachite Chemicals and Edward Keller (Phils) Inc. amounting to ₹ 1,16,203/- and ₹ 6,31,3871/- respectively to the file of the A.O. for reexamination in terms of the direction contain in Para 86 of the order Tribunal for A.Y. 2006-07. The ground of appeal of the assessee on this issue is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional High Court in the case of CIT vs. Hero Cycles 323 ITR 518 (P H), CIT vs. Winsom Textile Industries Ld. 316 ITR 204 (P H) and various other decisions of the Tribunal in support of its above contention. 19. Ld. A.O. interpreting the provisions of section 14A of the Income Tax Act, held that all expenditure whether direct or indirect incurred in relation to an income which does not form part of the total income had to be disallowed u/s 14A regardless of the fact that positive exempt income had been earned or not. Ld. A.O. further stated that some expenditure is always incurred for earning an income and it is not possible that one can earn exempt income without incurring any expenses at all. Relying upon a number of decisions and further applying the ratio of P H in the case Abhishek Industries 286 ITR 1. Ld. A.O. held that interest expenses were to be disallowed u/s 14A as per Rule 8D(ii) which was worked out at ₹ 16,32,264/- and further disallowances of a sum of ₹ 2,50,000 was worked out under Rule 8D (2)(iii), thus working out a total disallowance u/s 14A of ₹ 18,82,264/-. Further Ld. A.O. observed that in the preceding A.Y.'s 2006-07 to 2009-10 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The said investment was made for business purposes i.e. for the purchase of raw material from the said concern. However, as the said concern was in financial constraint, the application was made before the BIFR by the said concern and thereafter, no interest was being charged by the assessee on the said advances. Admittedly, the said investment was not made during the year under consideration, as is apparent from the fact that the issue of disallowance of interest under Section 36(1)(iii) of the Act in relation to the said advance, arose before the Tribunal in assessment year 2006-04 and thereafter. IN the totality of the abovesaid facts and circumstances, we are of the view that no disallowance is warranted under Section 14A read with Rule 8D of IT Rules as the said investment had been made by the assessee in a joint venture for business expediency. Accordingly, we direct the Assessing Officer to delete the addition of ₹ 12,40,501/-. Ground No. raised by the assessee is thus, allowed. A perusal of these findings reveals that after failing to include the alleged interest received by the assessee under Section 36(l) (iii) of the Act, the Assessing Officer has by a slei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated the indirect expenses in the ratio of gross assets and computing the same at ₹ 8,18,69,666/- proposed a disallowance of the same u/s 37 of the Income Tax Act. The assessee disputed the proposed addition before the Hon'ble DRP, who upheld the disallowance made. Following the direction of the DRP, Ld. A.O. enhanced the income of the assessee by ₹ 8,18,69,666/- on this account. Aggrieved by the same the assessee filed the present appeal before us. 25. Before us Ld. Counsel for the assessee contended that the assessee had capitalized both direct as well as indirect expenditure for undertaking capital expansion project during the year. Ld. AR contended that all direct and indirect expense which increased the value of the asset beyond its original standard of its performance had been considered for the purpose of capitalization in the project cost. Ld. AR drew out attention to page no. 1137 of the paper book, which was a certificate of the total cost incurred in the Tabla project of the assessee upto 31.03.2010 amounting to ₹ 29,15,41,362.65. It was further certified that the project capitalized on 05.09.2009. Ld. AR further contended that it was only ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly expense to be attributed to the capital project was on the higher side. Ld. AR further contended that alternatively even if the indirect expenses are capitalized to the expansion project depreciation ought to be allowed on the same since the project had been completed and capitalized on 05.09.2009. Ld. AR further placed reliance on the following case laws in support of its above contention: Jay Engineering Work Ltd. vs. CIT Delhi-III, 311 ITR 405 (Del. )[2007], CIT vs. Oswal Spinning and Weaving Mills Ld. [1986] 160 ITR 426 (P H), CIT vs. Sakthi Sugar Ltd. 339 ITR 400 (Chennai)(HC) , Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj)(HC), Indo Rama Synthetic Ltd. vs. CIT 333 ITR 18 (Del.), CIT vs. Monnet Industries Ltd. 2009 176 taxmann 81 (Delhi), Kesoram Industries vs. CIT [1992] 196 ITR 845 , CIT v. Ashoka Marketing Ltd. [1990] 181 ITR 493 (Cal.)(HC) , CIT vs. Jamshedpur Eng. And Machine Manufacturing Co. Ltd. [1986] 157 ITR 730 (Patna)(HC). 26. Ld. DR on the other hand placed reliance on the order of the A.O. 27. We have heard the rival submissions and perused the materials on record placed before us. The issue before us is the determination of the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not set up in the previous year relevant to the assessment year, this fact, in our view, is not a relevant factor in determining whether the deduction is allowable or not. The expenses in this case are miscellaneous expenses and legal charges for the proposed cement factory project. This expenditure is not related to the setting up of a new factory, it pertains to exploring the feasibility of expanding or extending the existing business by setting up a new factory in the same line of business. The assessee, during the course of its business, may incur expenditure for obtaining a project report or legal opinion regarding the viability of such project. This cannot, in our view, be considered as capital expenditure as, in that case, any legal expenses incurred by an assessee for taking any opinion on the desirability or feasibility of expansion of the business will not be allowable as deduction. Such expenditure is unmistakably connected with the running of the business. In view of the above it is held that indirect expenses would constitute revenue expenditure only and would not become capital merely for the reason that such expansion was termed as new project. Therefore we hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ld. AR stated that in effect the cash outlay on account of capital work in progress during the year was ₹ 5.47 million as against which the assessee had sufficient cash amounting to ₹ 661.52 millions for making the impugned payments. Ld. AR drew our attention to the cash flow statement for the year showing that even after payment on account of capital work in progress and other payments the assessee had closing cash balance of 121.12 million. Ld. AR therefore pleaded that proportionate disallowance of interest was not justified. Ld. AR further stated that this issue has also been decided by the Tribunal in AY 2009-10 wherein the Hon'ble Tribunal agreed with the assessee's contention that where no particular loan has been taken for the asset shown or capital work in progress, no disallowance u/s 36(1)(iii) would be made. 32. Ld. DR on the other hand relied upon the order of the AO. 33. We have heard the rival contention and perused the orders of the authorities below and the documents placed before us. We find that on identical set of facts the Hon'ble Tribunal has adjudicated this issue in AY 2009-10 and has held that in the absence of nexus between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y as bonus to the extent covered and payable as per the provision of Bonus Act had been recorded under the expense head bonus and the amount of bonus exceeding the amount prescribed under the Bonus Act had been recorded as ex-gratia. Thus the assessee submitted that the nature of ex-gratia was bonus payable to the employees of the company and therefore the assessee submitted that it was covered under the provision of section 43B of the Act, r.w.s 36(1)(ii) and deduction of the same was to be allowed on payment basis as prescribed in said section. The assessee further stated that section 36(1)(ii) nowhere prescribed that only bonus as prescribed under the Bonus Act, is covered under the section. It is any amount payable to employees by the assessee as bonus which is covered under the aforesaid provisions. The assessee further placed reliance on the decision in the case CIT Vs. Shaw Wallace Co. Ltd. 190 ITR 455 (Cal.) in support of its contention that payment of bonus, by whatever name called in excess of bonus prescribed under the Bonus Act, would be allowable as per the provision of section 43B of the Act. The assessee further submitted that during the impugned assessment year th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of business expenditure. Ld. AR further pointed out that the matter was remitted back to the file of the A.O. for re-examination of the computation of the ex- gratia payment on accrual basis. Ld. DR on the other hand supported the order of the A.O. 39. After considering the rival submissions, we find that this issue had been adjudicated in the assesses own case in AY 2009-10 Para-43 of the order of the Tribunal in ITA No. 155/Chd./2014 which reads as under- After considering the rival submissions we do not agree with the submissions that ex. gratia should be construed as part of the bonus. We have carefully perused the judgement of Hon'ble Calcutta High Court and in that case there is no such principle laid down. However, the Hon'ble Court has clearly held that ex-gratia payment made to employees which consists of bonus payment over and above the Bonus Act should be allowed as business expenditure. Therefore, if sum of the ex-gratia payment was payable for that year, the same was required to be allowed on accrual basis as part of the business expenditure. Since this aspect has not been examined by the Assessing Officer, therefore, we set aside his order and reman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trouble-shooting activities. The assessee stated the Royalty expenses were incurred by the assessee for the purpose of its business and was allowable as per the provisions of section 37(1) of the Act. The assessee also stated that the payment of Royalty was undertaken in accordance with the regulations and had met the Arm's length principle. The assessee also stated that by virtue of this expenditure no capital asset or benefit of enduring nature had been acquired by the assessee and thus the expenditure could not be treated to be capital in nature. The assessee further placed reliance on a number of decisions in support of its contention that the impugned expenditure had not resulted in any enduring benefit to the assessee and thus could not be treated as capital in nature. The assessee further stated that the Royalty agreement was not a sale agreement for the sale of technical know-how to the assessee. The assessee had only obtained a Right to Use technology by virtue of this agreement, since the ownership right and control over the technology were not transferred to the assessee. The assessee pleaded that the expenditure could not be said to be capital in nature. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation of ₹ 84,57,500/- being 25% of ₹ 3,38,30,000/- on the same. 44. Aggrieved by the same the assessee filed the present appeal before us. 45. Before us Ld. Counsel for the assessee reiterated the submissions made before AO/DRP and further submitted that this issue had been decided by the Tribunal in A.Y. 2009-10 and the payment of Royalty was held to be allowable expenditure. 46. After considering the submissions, we find that this issue has been adjudicated in the assesses case in AY 2009-10 at para 56 to 59 of the order of the Tribunal in ITA No. 155/ Chd. / 2014 dated 16.03.2015 wherein it was held as under: '56. We have considered the rival submissions carefully. We find force in the submissions of Ld. Counsel for the assessee. The license agreement between the DAI BV and the assessee has been entered on 10.03.2006. Clause (2) of this agreement reads as under:- 2. LICENCE 2.1 For the duration of this Agreement and subject to the terms and conditions contained herein, DAJBV herby grants DAI-INDIA hereby accepts from DAIBV, a non-dividable, non exclusive, non transferable and non-sublicensable the Patents and the Technology solely to use the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed that what was obtained by the assessee was only a license and what was paid by the assessee to the foreign company was only a licence fee and not the price for acquisition of any capital asset. On appeal by the Department to the Supreme Court it was held as under: Held, affirming the decision of the High Court, that the High Court had applied the proper principles of law and had rightly held that the expenditure incurred by the assessee was only revenue expenditure. In our opinion the case of the assessee is identical to the above noted case of the Supreme Court and the principle laid down by Hon'ble Supreme Court is clearly applicable. Therefore, we set aside the order the Assessing Officer and hold that expenditure incurred for payment of royalty is allowable and therefore, delete the addition.' Following the above order we hold that the expenditure incurred by the assessee for the payment of Royalty of ₹ 3,38,30,000/- is allowable and we further hold that the depreciation allowed thereon be withdrawn. We therefore, set aside the order of the AO and delete the addition made. 47. This Ground of Appeal of the assessee is therefore allowed in above te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce but the same were not considered. Ld. AR further submitted that as far as the issue of prior period expenses was concerned the same were allowable in the view of the fact that the expenditure had crystallized during the year itself. Ld. AR submitted that the assessee company maintains a SAP system and follows the matching principle of accounting as per which all expenditure pertaining to the year, the bills for which are received even after the year end, are provided in the books as provision. As per the SAP system, the provision created is reversed in the next year automatically and the bills received on account of the same are provided for in the books, resulting in NIL effect. Ld. AR pleaded that the expenses pertaining to Miscellaneous Expenditure incurred in earlier years had in fact been nullified by the provision reversed in this year. Thus, the Ld. AR stated that in fact no prior period expenses had been incurred by the assessee in the impugned A.Y. and thus there was no reason to make disallowance on account of the same. Ld. Counsel for the assessee also stated that both the soft copy and hard copy of the books of accounts had been submitted to the AO by the assessee d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 Old 6426100 5100015154 3/31/2009 4/8/2009 ELECT-GGN GH- MARCH09-DSM INDIA 659.00 Old 6426100 5100015167 3/24/2009 4/8/2009 SECURITY-ELECT-BBY OFF 3330.00 Old 6426100 5100015168 3/24/2009 4/8/2009 SECURITY- ELECTRICITY-BBY OFF 11740.00 Old 6429100 5100015553 3/30/2009 4/16/2009 Blank 50000.00 Old 6429100 5100015801 3/7/2009 4/24/2009 -do- 130080.00 Old 6429100 5100015803 3/31/2009 4/24/2009 -do- 31330.00 Old 6406120 5100015883 3/9/2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate to the month of March 2009. Copy of the invoices relating to these expenses were produced before us at page No. 519-564 of the paper book a perusal of whi ch affirms the fact that the impugned expense relate to the month of March 2009, i.e; prior period. 53. We find that the claim of the assessee that it has not claimed any deduction in respect of impugned prior period expenses, has not been examined by AO or by DRP, despite the fact that specific argument was raised to this effect and books of accounts produced before the AO. Therefore, the AO is directed to verify this fact and if it is found that such amount has not been claimed as deduction during the year no disallowance can be made in respect of such non-claimed deduction. In case any such amount is claimed as deduction, plea of the assessee that liability in respect of such expenses has capitalized in the year under appeal should also be examined as assessing officer has not dealt with this argument of the assessee though specifically raised. AO shall give opportunity of hearing to the assessee and decide the allowability of deduction in accordance with law and in the light of above mentioned direction. As regards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses were furnished to him vide submissions dated 9/1/2014, 14/03/2014 and 21/03/2014. Since the applicant failed to substantiate its claim with regard to the prior period expenses and un-vouched expenses, the AO was well within his rights in disallowing the said expenditure. Accordingly the objection of the applicant is rejected. In view of the above, the Assessing Officer disallowed the expenditure. 57. Aggrieved by the same the assessee filed the present appeal before us. 58. We have heard the rival submissions and perused the orders of the authorities below as also the documents placed before us. 59. The issue before us is regarding disallowance of following expenses for the reason that they are not duly supported and pertain to earlier year as follows:- S. No Particulars Amount disallowed Reason for disallowance 1. a. Business Entertainment Cost Customers b. Business Entertainment Cost c. Conference / Seminars d. Brochures / Leaflets 73,75,064.67 a. Pertains to previous year b. No bills / Vouchers c. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book page no. 937 to 938, being letters submitted before A.O. producing both hard and soft copies of books of accounts of the assessee. Ld. DR on the other hand relied upon the order of the A.O. and stated that merely because bills were submitted during the impugned assessment year, the liability could not be said to have crystallized in the impugned assessment year. Ld. Dr argued that the claim of prior period expenses could not be allowed as per the provision of section 37(1) of the Income Tax Act, 1961. We find that the claim of the assessee that certain prior period expenses were not claimed as expense during the year, but were in fact routed through the provision account, by virtue of SAP system, has neither been considered nor examined by the authorities below. Therefore AO is directed to verify this fact and if it is found that such amount has not been claimed as deduction during the year no disallowance can be made in respect of such non-claimed deduction. In case any such amount is claimed as deduction, plea of the assessee that liability in respect of such expenses has capitalized in the year under appeal should also be examined as assessing officer has not dealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sometimes without mentioning the PO reference no. The SAP system of the assessee, thereafter, posts the purchases in the respective ledger accounts wherein the purchases accounted for do not tally with the consolidated figure mentioned in the purchase order. Ld. AR stated that relevant purchase order and invoices were also placed before the A.O. We find that despite the submissions and evidences placed by the assessee before the assessing officer, the same has neither been considered nor examined by him. Moreover we find that the DRP also failed to consider the submission of the assessee. In view of the same we find no justification in the order of the A.O. making the disallowance without appreciating the submissions made by the assessee and the evidences filed by it. But in the interest of justice we remit the matter back to the file of the A.O. to examine the issue afresh in the light of submissions and evidences placed by the assessee and thereafter adjudicate thereon in accordance with law. The assessing officer is directed to give adequate opportunity of hearing to the assessee in respect of the above issues. 61. In view of the above this ground of appeal of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e irrelevant to the facts and circumstances of the case. Besides the above the building structure in the instant case played no part in the carrying on of the business activities but merely constituted the place wherein they were carried on the building could not be regarded as a plant. Therefore, the expenditure incurred on account of the building was rightly not treated as expenditure on plant and machinery. Therefore, the objection of the applicant is rejected. Following the same, Ld. AO disallowed depreciation of ₹ 11,57,037/- 64. Aggrieved by the same the assessee filed the present appeal before us. 65. Before us Ld. AR pleaded that the civil work expenditure incurred by the assessee was for the purpose of building strong foundation and structure to the existing factory building for the purpose of installing new Plant Machinery. Ld.AR drew our attention to the plan structure of Tabla Project taken from B. Mehtalia Consultants Pvt. Ltd. (Architects, Consulting Engineering and interior designer) wherein description of structure in respect of foundation and ground work was given alongwith explanation for the aforesaid plan structure. Ld. AR drew our attention to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies to be treated as plant. 67. We find that the assessee had given a detailed explanation of the civil work capitalized in Plant Machinery, specifying the exact nature of the modification carried out to the existing structure for building strong foundation and installing new Plant Machinery. The explanation given by the assessee vide its letter dt. 23/03/2014 is reproduced hereunder: 1. Details of civil work capitalized in plant and machinery. In this regard, we respectfully submit that the Assessee has incurred civil work expenditure for building strong foundation and structure to existing factories building for the purpose of installation of new plant and machinery. In addition, it also extended the existing building wherein new construction was undertaken. The company made certain modification in the existing building with particular specific features and standards so that heavy plants and machineries can be installed. The aim of the Tabla project was to introduce enzymatic technology for the production of Puricillin and Purimox in the erstwhile Jumbo plant. To install the equipments for this change over, the building had to be expanded as well as a lot of chan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents. The assessee Company allocated the expenditure incurred on foundation work and building cost towards P M and Building on the basis of its major contractor's bills. Further, we would like to submit that entire foundation work was done to the existing building in order to accommodate the new P M. Based on aforesaid, the company has allocated ₹ 35,357,828/- and 23,140,744 towards Building and Plant Machinery respectively. We enclose the plan structure of Tabla project taken from B Mehtalia Consultants Pvt. Ltd. (Architects, Consulting Engineering and Interiors Designers) at Annexure-1 wherein description of structure in respect of foundation and ground work is given in detail. Further, to explain the aforesaid plan structure, we give below the explanation of each of the structure. Mechanical - 103 m 104.5 m Model It is a layout drawing of the 3 meter and 4.5 meter levels. ON the top left of plan layout provides the details of equipment that were installed. Equipments like liquid - I liquid extractors, Process water tank, Enzymatic reactor (PV101), Invertor room for speed control of equipments, Other equipments like PV 301, PV 302, PV 303 etc were installed whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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