TMI Blog2022 (9) TMI 1361X X X X Extracts X X X X X X X X Extracts X X X X ..... n annual basis taking the turnover as baseline for computation and since no augmentation of the capital asset or transfer of technology or any right thereof accrued to the assessee, we hold that the expenditure ought to be treated as revenue in nature. Disallowance of Bad Debts - The payment has been made by the railways after deducting the late delivery charges, and other taxes and provision has been made in the books on account of deduction with regard to late deliveries. The said amount has already been passed through the profit loss account of earlier respective financial years under the head of provisions for bad and doubtful debts and had been disallowed while computing the income of the assessee u/s. 28 of the Act and the assessee has claimed the said amount as deduction directly in the computation of income as the amount was added back directly in the computation of income only in earlier assessment years. The assessee has furnished complete details of deductions made by the railway from the sales bill giving invoice wise deductions and nature of deduction. It is also fact on record that an amount directly shown in the computation of income as transfer from provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without assigning any reason. 3. The assessee company is engaged in the business of manufacturing of CMS Crossings, Point Crossing/Switches and Castings, SG/CI Casting etc. The assessee filed return of income on 24.09.2011 declaring an income of Rs. 7,50,08,030/-. R D Expenditure: 4. The assessee company claimed an expenditure of Rs. 2,41,98,983/- in the P L account for the year on account of R D expenditure under the head Manufacturing Expenses . The AO treated this amount as capital expenditure in nature and brought this amount to tax. 5. The ld. CIT(A) deleted the addition. 6. Aggrieved the revenue filed appeal before us. 7. Heard the arguments of both the parties and perused the material available on record. 8. The facts with regard to this issue reveal that the assessee entered into technology license fee agreement with VAE Gmbh Austria and others, Service Level agreement for Marketing services with Digvijay System Services Pvt. Ltd. and for technical services with RDSO for capacity assessment. The assessee has debited the license fee, marketing fee and other technical fee paid during the year under the head R D. As per the agreement, payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination of the details, we find that these expenses are incurred during the normal course of business. The expenditure such as annual technology licence fee, technical support services, assistance in canvassing orders, marketing services which are calculated and paid on the basis of annual sales made by the assessee every year in accordance with the agreement entered between the parties cannot be treated as capital expenditure. The Assessing Officer misread the head R D expenditure which in fact was a manufacturing expenditure. On this issue, we are guided by the judgment of the Hon'ble Supreme Court in the case of Travancore Sugar and Chemical Ltd. Vs 62 ITR 566 wherein it was held that whenever an amount is paid based on a percentage of turnover or profit, it would have no relation to the capital value of the assessee. The facts in the instant case reveal that the payments have made for utilization of services on annual basis taking the turnover as baseline for computation and since no augmentation of the capital asset or transfer of technology or any right thereof accrued to the assessee, we hold that the expenditure ought to be treated as revenue in nature. Bad Debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubtful debts has duly been reflected in the Schedule F of the balance sheet. The method of accounting is that the assessee raises bills for the sales of goods to the Indian Railways which gets credited to the sales account in the profit and loss account of the respective years. To verify this sales account for the respective years is examined along with the copies of sample sales invoices. The payment has been made by the railways after deducting the late delivery charges, and other taxes and provision has been made in the books on account of deduction with regard to late deliveries. The said amount has already been passed through the profit loss account of earlier respective financial years under the head of provisions for bad and doubtful debts and had been disallowed while computing the income of the assessee u/s. 28 of the Act and the assessee has claimed the said amount as deduction directly in the computation of income as the amount was added back directly in the computation of income only in earlier assessment years. The assessee has furnished complete details of deductions made by the railway from the sales bill giving invoice wise deductions and nature of deduction. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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