TMI Blog2015 (11) TMI 1825X X X X Extracts X X X X X X X X Extracts X X X X ..... he Directors - HELD THAT:- Specific purpose for which the foreign tours were undertaken by the Directors are not available on records. No doubt if the Directors or the employees have undertaken to foreign travelling for exploring of prospective business, acquisition of latest machinery and for other business purpose then same has to be allowed. There has to be some prima facie evidence to substantiate such an explanation. For the AY 2008-09, the Tribunal has noted down the specific details of the tour undertaken by various persons and based on that, finding was given in favour of the assessee. In the interest of justice and for proper examination of this matter, we restore this issue to the file of the AO who shall consider the necessary explanation and evidences and decide the same afresh. Accordingly, the issue of foreign travelling expenses is set aside to the file of the AO to be decided afresh after giving due opportunity to the assessee. TDS u/s 195 - enhancement of disallowance by CIT(A) of market research expenditure u/s 40(a)(i) for making the payment to an AE - Non deduction of assessee - HELD THAT:- TDS was required to be deducted on such a payment, because the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f new industrial unit, for promotion of employment, growth, infrastructure in the backward areas of Madhya Pradesh. Thus, such a subsidy though given in the form of refund of VAT or CST is on capital account. Accordingly, we hold that the subsidy received by the assessee cannot be taxed as revenue, as it is on capital account, hence capital receipt. Product development expenses - Revenue or capital expenditure - HELD THAT:- As relying on assessee's own case A.Y. 2007-08 assessee has changed the design of the bottle the expenditure would generally be on the revenue account, even though the advantage may have an enduring benefit for a brief period and the colour of the cap as is a regular phenomenon to be carried out between one to two years which cannot be held to be for an enduring benefit or major change in the profit making apparatus. Such, expenditures are required for either augmenting the sale or to survive in the market the market under stiff competition. Therefore, such expenditure has to be treated as revenue expenditure and, accordingly, the disallowance as confirmed by the learned Commissioner (Appeals) under the head product development expenditure is allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances became irrecoverable. However, the AO disallowed the claim on the ground that same does not fall within the category of bad debts . 4. Before the CIT(A), the assessee submitted that an advance of ₹ 1,08,268/- was given to M/s Canfruit Exports for purchase of mango pulp and ₹ 4,32,339/- was paid to M/s Santhom Fruits for processing mango pulp. Since the advances could not be recovered or the assessee could not got the products/services, therefore, the same were written off. The Ld. CIT(A) held that the assessee Is not in the business of advancing money nor in finances therefore, it cannot be held that it had arisen in the course of business, he disallowed the claim of the assessee. 5. After considering the rival contentions and on perusal of the impugned orders, we find that assessee during the course of its business has given advances to 2 parties for sums aggregating to ₹ 5,40,607/- for the purpose of purchase of mango pulp and for the processing of mango pulp. These are the raw materials used for fruit juices like Frooti manufactured by the assessee. It has not been disputed by the department that the amount which was advanced was not for the purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the rival contentions, we find that the Ld. CIT(A) has specifically pointed out that specific details of the tour undertaken has not been furnished. Even before us, the specific purpose for which the foreign tours were undertaken by the Directors are not available on records. No doubt if the Directors or the employees have undertaken to foreign travelling for exploring of prospective business, acquisition of latest machinery and for other business purpose then same has to be allowed. However, there has to be some prima facie evidence to substantiate such an explanation. For the AY 2008-09, the Tribunal has noted down the specific details of the tour undertaken by various persons and based on that, finding was given in favour of the assessee. In the interest of justice and for proper examination of this matter, we restore this issue to the file of the AO who shall consider the necessary explanation and evidences and decide the same afresh. Accordingly, the issue of foreign travelling expenses is set aside to the file of the AO to be decided afresh after giving due opportunity to the assessee. Ground no.2 is thus treated as allowed for statistical purposes. 11. In gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of business income on account of operations carried out in India and hence, same is taxable in India within the ambit of section 9(1)(i). Failure to deduct TDS u/s 195 entails disallowance u/s 40(a)(i), accordingly, he disallowed the entire sum of ₹ 12,25,838/- u/s 40(a)(i) as against disallowance of ₹ 9,19,378/- made by the AO on the ground that it is a capital expenditure. 12. Before us, the Ld. Counsel submitted that, M/s Mintel International Group Ltd. has given a letter that they do not have any PE or business connection in India, therefore, in view of this fact, the assessee was not liable to deduct TDS u/s 195. In support of his contention, he relied upon the decision of Hon ble Bombay High Court in the case of CIT vs Uhde India P. Ltd., reported in [2013] 358 ITR 395 and other decisions of the Tribunal. 13. On the other hand, Ld. DR strongly relied upon the order of the CIT(A). 14. After considering the rival submissions and on perusal of the impugned orders, we find that it is not in dispute that the assessee has paid a sum of ₹ 12,25,838/- to M/s Mintel International Group Ltd. which is a non-resident company for the purpose of ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of VAT paid, therefore, it is a revenue receipt. Whereas, the assessee s case had been that the subsidy was given for making the capital investment for setting up of an industrial unit, therefore, the same has to be treated as capital receipt . The Ld. CIT(A) has upheld the action of the AO after observing and holding as under :- I have considered the matter. In pursuance of the industrial promotion policy of Government of Madhya Pradesh, the appellant was granted subsidy stated to be towards the cost of Plant and Machinery. The subsidy was in the form of refund of 50% of the amount of commercial tax/central sales tax deposited by them. The subsidy was for five years in backward districts. As per the scheme of the subsidy, the amount of assistance would not exceed more than the fixed capital investment. In books of accounts the appellant has treated the same as revenue in nature, however, in the return of income the same had been claimed as capital receipt on the ground that the subsidy was granted to meet the cost of plant and machinery. I am unable to agree to the said contentions as made by the appellant. From the scheme which is placed on record it is observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen is how the subsidy has been given and how it has been utilized. If the subsidy has been given in the form of VAT of CST, then it goes to enhance the profit of the assessee and, therefore, it has to be treated as revenue receipt. 19. We have heard rival contentions and gone through the finding given in the impugned orders. The subsidy given by the MP Government in pursuance of Madhya Pradesh Udyog Nivesh Samvardhan Yogna was for setting-up of an industrial unit in the backward area of state of Madhya Pradesh and subsidy offered was in the form of refund of VAT / CST paid. The said subsidy was purely for investment in the setting-up of industrial unit. The Ld. CIT(A) and the AO have treated it as a revenue receipt on the ground that subsidy has been granted to promote industries in the state and in the form of a refund of commercial taxes paid. Since the subsidy was for augment of profit and hence it has to be treated as revenue receipt. While adjudicating such kind of cases, what is to be seen is the purpose for which subsidy is given and not the form or manner in which subsidy is given. The Hon ble Supreme Court in the case of Ponni Sugar Mills (supra) has laid down a v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee s appeal for AY 2008-09, wherein the product development expenses have been held to be allowable. 22. The AO had treated the product development expenses as capital expenditure whereas the assessee s case has been that these expenses are required for remain in the market and is purely for the business purpose. The Ld. CIT(A) has deleted the said addition after observing and holding as under :- I have considered the matter. From the details submitted it is observed that the appellant had purchased various products such as concentrates, pulps, juices so as to subject them to research in the laboratory to explore whether the said ingredients or whether the impact of the said ingredients may help to develop new products. Such research is carried out in order to study the ingredients, to solve complaints relating to existing products, to explore the composition of the product of a competitor, to produce the market similar products as that of the competitor, in other words research is carried out to develop new products, to stabilize existing products, to rectify shortcomings in the existing products as well as to study the composition of competitor s product. The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A). Further the Ld.CIT(A) has also disallowed expenses where the assessee has carried out expenses on design charges on various products as capital expenditure. Such expenses incurred for design charges has been held to be allowable as business expenditure by the Tribunal in A.Y. 2007-2008. Thus no disallowance is called for. 21. Ld. DR strongly relied upon the order of the Ld.CIT(A) and also pointed out the relevant reason given by the Ld.CIT(A). 22. After considering the rival submissions and on perusal of the impugned order, we find that, under this head, the Ld.CIT(A) has confirmed certain expenses which were on account of design charges of certain packing material of the products, on the ground that these expenditure are enduring in nature and others for product development. So far as the expenses incurred on 'design charges', this issue had come up for consideration before the Tribunal in A.Y. 2007-08. The Tribunal after discussing the entire issue on account of development of new products and also the design charges has deleted the said disallowance by holding it to be revenue in nature, after observing it holding in nature We have heard the rival conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctory for testing purpose during the year and same has been accounted for after receiving the details of consumption. Whatever has been consumed, is accounted for in the books of account and claimed as expenditure. Certain advances of products given in the later half of the accounting year has been debited on the last day. So far as the factum of incurring the expenditure, the same has not been doubted. The Ld.CIT(A) has only gone by the premise that substantial amount has been debited on the last day, therefore, these expenses can be said to be over stated. Accordingly, he disallowed 75% of the expenses which were debited on 31.03.2008, stating that it does not relate to this year. Such a finding of the Ld.CIT(A) cannot be upheld without there being a concrete finding that these expenses pertained to subsequent year or has not been incurred during the year. Thus we do not find any reason to confirm such a disallowance as made by the Ld. CIT(A). Accordingly the same is deleted. Ground no. 4 is treated as disallowed . 24. The aforesaid finding is applicable on the facts of the present year also therefore, in view of the said finding, we delete the said addition. 25. In the re ..... 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