Sesa Goa Limited, Panaji V. Addl Commissioner of Income Tax, Range - 1, Panaji

ITA 190/PAN/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 66796 (ITAT-PANAJI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 11-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BANGARI
• Assessee Lawyers: VINOD BINDAL CA VIJAY GUPTA; G MTAXATION
• Keywords: Depreciation; Business expenditure; Double taxation relief; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 5(2); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 190 /PNJ/201 1 (ASST. YEAR 200 6 - 0 7 ) SESA GOA LIMITED APPELLANT SESA GHOR, 20, EDC COMPLEX, PATTO, PANAJI GOA 403 001. PAN : AACCS7101B VS ADDL. COMMISSIONER OF INCOME - TAX RESPONDENT RANGE 1, PANAJI - GOA APPELLANT BY : VINOD BINDAL, CA VIJAY GUPTA, CA & G.M(TAXATION) RESPONDENT BY : M.R. BANGARI (DR) DATE OF HEARING : 16 /04/2013 DATE OF ORDER : 26 / 04 /2013 O R D E R PER P.K. BANSAL : 1. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) DTD. 30.8.2011 BY TAKING THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL : 1. THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE BY THE A.O. OF THE EXPENDITURE OF RS. 18,60,71,511/ - TOWARDS PAYMENT OF COMMISSION TO THE NON - RESIDENT SALES AGENTS, PURPORTEDLY U/S. 40(A)(I) OF THE ACT, HOLDING THAT EITHER THE APPELLANT SHOULD HAVE DEDUCTED TAX AT SOU RCE WHILE MAKING PAYMENT TO THE NON - RESIDENTS OR IT SHOULD HAVE OBTAINED EXEMPTION CERTIFICATE FROM THE A.O. FOR NON - DEDUCTION OF TAX AT SOURCE. 2 ITA NO. 190/PNJ/2011 (ASST. YEAR : 2006 - 07) THE LEARNED CIT( A) OUGHT TO HAVE APPRECIATED THAT THE SAID COMMISSION PAID TO THE NON - RESIDENT SALES AGENTS WERE FOR THE SERVICES RENDERED BY THEM OUTSIDE INDIA AND THAT NO PART OF SUCH COMMISSIONS WERE CHARGEABLE TO TAX UNDER THE PROVISION OF THE ACT, AND HENCE THE REQUI REMENT OF TAX DEDUCTION AT SOURCE U/S. 195(1) WAS NOT APPLICABLE ON THE SAID PAYMENTS OF COMMISSIONS. THE COMMISSION PAID TO THE NON - RESIDENT AGENTS FOR THE SERVICES RENDERED ABROAD IS NOT TAXABLE IN INDIA SINCE NO PART OF THE INCOME FROM SAID COMMISSION COULD ARISE OR DEEMED TO HAVE ARISEN IN INDIA WITHIN THE MEANING OF SECTION 5(2) READ WITH SECTION 9 OF THE ACT. IT IS ALSO RELEVANT TO NOTE THAT THIS POSITION HAS BEEN AFFIRMED BY THE SUPREME COURT IN ITS DECISION IN THE CASE OF M/S. TOSHUKU LTD. - 125 IT R 525; AND THAT IT HAS ALSO BEEN CLARIFIED BY THE CBDT BY ITS CIRCULAR NO. 786 DATED 7.2.2000 WHICH IS APPLICABLE UPTO AY2009 - 10. ONCE THE AMOUNT IS NOT CHARGEABLE TO TAX IN INDIA, THE TDS PROVISION U/S. 195 - WHICH SECTION OTHERWISE APPLICABLE FOR TDS I N THE CASE OF NON RESIDENTS - IS NOT APPLICABLE SINCE THE SAID SECTION MAKES THE TDS OBLIGATORY ONLY ON THE SUM CHARGEABLE UNDER THE PROVISION OF THE ACT. THIS ASPECT OF THE LAW HAS BEEN AFFIRMED IN NUMBER OF DECISIONS OF THE TRIBUNALS AND THE HIGH COURTS, WHICH HAS NOW BEEN ALSO CONFIRMED BY THE SUPREME COURT IN ITS DECISION IN THE CASE OF G.E. INDIA TECHNOLOGY CENTRE VS. CIT - 327 ITR 456. THE LEARNED CIT(A) LIMITED HIS ENTIRE DISCUSSION ON THIS ISSUE IN TERMS OF FINDING AND DISCUSSION AS PE R ASSESSMENT ORDER OF EARLIER YEAR I.E FOR A Y 2005 - 06, THIS INTER ALIA, IGNORING ALL THE LEGAL EVENTS HAVING TAKEN PLACE THEREAFTER AND OTHER CRITICAL LEGAL PRONOUNCEMENTS WHICH WAS DIRECTLY AND SQUARELY APPLICABLE TO BOTH THE FACTS AND LEGAL ISSUE IN HAN D. 2) THE LEARNED CIT (A) ERRED IN HOLDING THAT THE COMMISSION PAYMENTS WERE NOT ALLOWABLE ALSO FOR THE REASON THAT THERE WAS NO NECESSITY TO THE APPELLANT TO ENGAGE THE COMMISSION AGENTS FOR SALE OF IRON ORE ABROAD, AND HENCE THAT THE COMMISSION PAYMENTS WERE NOT DEDUCTIBLE AS BUSINESS EXPENDITURES U/S. 37 OF THE I. T. ACT THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT BEEN UNDISPUTEDLY INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS, THERE WAS NO REASON FOR HIM TO HOLD THAT THE SAID EXPENDITURE WAS NOT ALLOWABLE AS BUSINESS EXPENDITURE U/S. 37 OF THE ACT AND TO PROVE THE SERVICES OF THE FOREIGN AGENTS WE HAVE SUBMITTED SAMPLE EVIDENCES OF THE SERVICES RENDERED BY THE AGENTS INFORM OF COPIES OF EMAILS BETWEEN US WITH THE AGENTS VIDE OUR SUBMISSIONS TO THE CIT(A) VIDE OUR LETTER DATED 17/08/2011. FURTHERMORE THIS H'BLE ITAT HAS PRONOUNCED ITS JUDGMENT IN OUR FAVOUR ON THE SAME ISSUE FOR THE AY 2005 - 06 VIDE ITS ORDER NO. ITA NO. 113/PNJ/2010 DATED 10.03.2011. 3) THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF REVENUE EXPENDITURE O F RS.2,11,68,564/ - , CLASSIFIED IN THE APPELLANT'S DIRECTORS REPORT AS 'EXPENDITURE ON R & D', AS EXPENDITURE INCURRED ON SCIENTIFIC RESEARCH & DEVELOPMENT, NOT ELIGIBLE FOR DEDUCTION U/S. 37 OF THE ACT. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAD NOT CLAIMED THE SAID EXPENDITURE AS OF 'SCIENTIFIC RESEARCH' U/S 35 AND INSTEAD THOSE WERE THE NORMAL REVENUE EXPENDITURE WHICH WERE ALLOWABLE AS DEDUCTION U/S. 37 OF THE ACT. 4) LEARNED CIT(A) ERRED IN UPHOLDING THE A.O. DISALLOWING RS. 1,49,782/ - , BY RESTRICTING THE DEPRECIATION ON UPS ATTACHED TO THE COMPUTERS @ 15%, AS AG AINST APPELLANT'S CLAIM FOR DEPRECIATION THEREON @ 60%. 3 ITA NO. 190/PNJ/2011 (ASST. YEAR : 2006 - 07) THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THE APPELLANTS SUBMISSION THAT THE SAID UPS ARE INTEGRAL PART OF THE COMPUTERS AND THAT THE DEPRECIATION ALLOWABLE THEREON WOULD BE AT THE RATE APPLICABLE ON COMPUTERS. THE LEARNED CIT(A) ERRED IN LAW BY NOT ACCEPTING THE RULING PRONOUNCED BY THE DELHI TRIBUNAL IN THE CASE OF EXPEDITORS INTERNATIONAL (INDIA) P. LTD., REPORTED IN 2 ITR (TRIB) 153, AND IN THE CASE OF ORIENT CERAMICS AND INDUSTRIES LTD., REPORTED IN 3 ITR (TRIB) 346. THE LATTER DECISION IN FACT HAS BEEN UPHELD BY THE DELHI HIGH COURT IN ITA. NO. 65 & 66 OF 2011, (DECIDED ON 20.1.2011), FOLLOWING ITS OWN EARLIER DECISION IN THE CASE OF BSES YAMUNA POWERS LTD. (ITA. NO. 1267 DECIDED ON 31.8. 2010). INSTEAD, THE LEARNED CIT(A) OPTED TO FOLLOW THE EARLIER DECISION FROM DELHI TRIBUNAL IN THE CASE OF NESTLE INDIA LTD AS REPORTED IN 111 TTJ 498 AND THUS IGNORED THE SOUND PRINCIPLE OF HONORING OF THE PRONOUNCEMENT OF THE SUPERIOR COURT OF LAW. 2. THE GROUND NOS. 1 AND 2 RELATE TO THE ISSUE ABOUT THE CLAIM OF THE COMMISSION DISALLOWED BY THE ASSESSING OFFICER UNDER SECTION 40(A)(I) AND CONFIRMED BY THE CIT(A) UNDER SECTION 40(A)(I) AS WELL AS UNDER SECTION 37 OF THE INCOME TAX ACT. WE HAVE HEARD TH E RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. WE NOTED THAT THIS ISSUE IS DULY COVERED IN FAVOUR OF THE ASSESSEE SO FAR IT RELATES TO THE DISALLOWANCE MADE UNDER SECTION 40(A)(I) BY THE DECISION OF THIS TRIBUNAL DTD. 10.3.2011 FOR A.Y. 2005 - 06 IN ITA NO. 113/PNJ/2010 IN WHICH THIS TRIBUNAL RELYING ON THE DECISION OF THE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) LTD. VS. CIT & ANR. (327 ITR 456) DELETED THE DISALLOWANCE AND ALLOWED THE APPEAL OF THE ASSESSEE ON THIS ISSUE BY HOLDI NG AS UNDER : 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ISSUE IN CONTROVERSY WHETHER THE ASSESSEE REQUIRES TO DEDUCT TAX AT SOURCE FOR THE COMMISSION PAID TO NON - RESIDENTS HAS BEEN DEALT BY HON'BLE SUPREME COURT IN GE INDIA TECHNOLOGY CENTRE P. LTD. WHEREIN IT HAS BEEN HELD AS UNDER : THE MOST IMPORTANT EXPRESSION IN SECTION 195(1) OF THE INCOME TAX ACT, 1961 DEALING WITH DEDUCTION OF TAX AT SOURCE CONSISTS OF THE WORDS 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT.' A PERSON PAYING INTEREST OR ANY OTHER SUM TO A NON - RESIDENT IS NOT LIABLE TO DEDUCT TAX IF SUCH SUM IS NOT CHARGEABLE TO TAX UNDER THE ACT. SECTION 195 CONTEMPLATES NOT MERELY A MOUNTS, THE WHOLE OF WHICH ARE PURE INCOME PAYMENTS; IT ALSO COVERS COMPOSITE PAYMENTS WHICH HAVE AN ELEMENT OF INCOME IMBEDDED OR INCORPORATED IN THEM. THE OBLIGATION TO DEDUCT TAX AT SOURCE IS, HOWEVER, LIMITED TO APPROPRIATE PROPORTION OF INCOME CHARGEA BLE UNDER THE ACT FORMING PART OF THE GROSS SUM OF MONEY PAYABLE TO THE NON - RESIDENT. IT IS FOR THIS REASON THAT THE CBDT HAS CLARIFIED IN CIRCULAR NO.728 DATED OCTOBER 31, 1995, THAT THE TAX DEDUCTOR CAN TAKE INTO CONSIDERATION THE EFFECT OF THE DTAA IN RESPECT OF PAYMENTS OF ROYALTIES AND TECHNICAL FEES WHILE DEDUCTING TAX AT SOURCE. 4 ITA NO. 190/PNJ/2011 (ASST. YEAR : 2006 - 07) THE EXPRESSION 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IN SECTION 195(1) SHOWS THAT THE REMITTANCE HAS GOT TO BE OF A TRADING RECEIPT, THE WHOLE OR PART OF WHICH IS LIABLE TO TAX IN INDIA. IF TAX IS NOT SO ASSESSABLE, THERE IS NO QUESTION OF TAX AT SOURCE BEING DEDUCTED.' RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THE CLAIM OF THE ASSESSEE AND HELD THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE UNDER SECT/ON 195(1) BECAUSE INCOME IS NOT TAXABLE IN INDIA. THE TRIBUNAL IN CASE OF ITA NOS.6133(MUM.)/2002 AND NO.7589(MUM.)/2003, WHEREIN THE TRIBUNAL HAS CLARIFIED CIRCULAR NO.786 DATED 07 - 02 - 2000. ACCORDING TO PARA - 3 OF THIS CIRCULAR NO.7 OF 2009, THE EARLIER CIRCULAR NO.23 DATED 23 - 07 - 1969 IS WITHDRAWN WITH IMMEDIATE EFFECT. SIMILAR IS THE FATE FOR CIRCULAR NO.786. IT IS THEREFORE, BECOMES CLEAR THAT THE CIRCULARS ON WHICH THE TRIBUNAL HAS PLACED RELIANCE WHILE DECIDING THE CASE FOR ASSESSMENT YEAR 1997 - 98 IN ASSESSEE'S OWN CASE HOLD GOOD FOR THE INSTANT YEAR AS WELL. IT IS AXIOMATIC THAT A CIRCULAR IN OPERATION THROUGH THE ASSESSMENT YEAR 1998 - 99 CANNOT B E HELD TO BE IN OPERATIONAL SIMPLY BY REASON OF THE FACT THAT IT HAS BEEN WITHDRAWN IN THE YEAR 2009. THE WITHDRAWAL OF SUCH CIRCULARS WILL BE EFFECTIVE ONLY AFTER THE SAID DATE OF 22 - 10 - 2009 BY WHICH THESE CIRCULARS WILL BE EFFECTIVE ONLY AFTER THE SAID D ATE OF 22 - 10 - 2009 BY WHICH THESE CIRCULARS HAVE BEEN WITHDRAWN WITH IMMEDIATE EFFECT. ACCORDINGLY, CIRCULAR NO.7 OF 2009 WITHDRAWING THE CIRCULAR NO.23 OF 1969,163 OF 1975 AND 786 OF 2000 WILL BE OPERATIVE ONLY FROM 22 - 10 - 2009 AND NOT PRIOR TO THAT DATE. T HUS, WE ARE OF THE VIEW THAT THIS ASSESSMENT YEAR IS 2005 - 06 AND IT IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. THEREFORE, WE ALLOW THE APPEAL OF THE ASSESSEE ON THIS GROUND. 3. SO FAR AS THE ISSUE RELATING TO DISALLOWANCE OF THE COMMISSION UNDER SECTION 37 IS CONCERNED, THE ISSUE IS COVERED BY THE ORDER DT. 8.3.2013 OF THIS TRIBUNAL IN THE CASE OF THE ASSESSEE IN ITA NO. 72/PNJ/2012 IN WHICH THIS TRIBUNAL TOOK THE VIEW THAT THE C OMMISSION HAS BEEN INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE BY HOLDING AS UNDER : 24. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS ALONG WITH THE ORDER OF THE TAX AUTHORITIES BELOW AND ALSO THE MA TERIAL RELIED UPON BY BOTH THE PARTIES. THE ONLY ISSUE BEFORE US IS WHETHER THE COMMISSION PAID BY THE ASSESSEE HAS BEEN INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. NOW, COMING TO THE RELEVANT PROVISION IN WHICH THE ASSESSEE CLAIMED DEDUCTION IS SECTION 37(1) OF THE INCOME TAX ACT, 1961. SECTION 37(1) READS AS UNDER: - ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. EXPLANATION: FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUC TION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE 5 ITA NO. 190/PNJ/2011 (ASST. YEAR : 2006 - 07) FROM THE AFORESAID SECTION, IT IS APPARENTLY CLEAR THAT EXPENDITURE TO BE ELIGIBLE FOR DEDUCTION U/S 37(1) MUST FULFILL THE FOLLOWING CONDITIONS: - A ) THE EXPENDITURE SHOULD NOT BE COVERE D BY THE PROVISION OF SECTION 30 TO 36 AS THESE SECTIONS PROVIDE ITS SPECIFIC TREATMENT TO EXPENDITURE LAID DOWN IN THOSE SECTIONS. B ) EXPENDITURE SHOULD NOT BE CAPITAL IN NATURE. C ) IT IS NOT TO BE PERSONAL EXPENDITURE OF THE ASSESSEE. D ) IT SHOULD BE INCURRED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. E ) IT SHOULD BE INCURRED DURING THE PREVIOUS YEAR. F ) IT SHOULD NOT BE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. 24.1 IN THE CASE OF THE ASSESSEE, THERE IS NO DOUBT THAT THE COMMISSION PAID BY THE ASSESSEE IS NOT COVERED BY THE PROVISION OF SECTION 30 TO 36. THERE IS ALSO NO DISPUTE THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS OF REVENUE NATURE AND NOT OF CAPITAL IN NATURE. THERE IS ALSO NO DISPUTE ABOUT THE FACT THAT THE EXPENDITURE HAS BEEN INCURRED DURING THE RESPECTIVE PREVIOUS YEARS. THERE IS ALSO NO DISPUTE THAT THIS EXPENDITURE HAS NOT BEEN INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. THE EXPENDITURE SO INCURRED BY TH E ASSESSEE COMPANY CANNOT BE REGARDED TO BE THE PERSONAL EXPENDITURE OF THE ASSESSEE. THERE IS NO EVIDENCE ON RECORD THAT THESE EXPENSES WERE INCURRED TO MEET OUT THE PERSONAL NEEDS OF THE ASSESSEE COMPANY. THE COMPANY IS ALWAYS INCORPORATED FOR THE PURPO SE OF CARRYING ON THE BUSINESS AS STIPULATED UNDER ITS OBJECT CLAUSE LAID DOWN IN THE MEMORANDUM OF ASSOCIATION. THE COMPANY SO INCORPORATED IS NOT HUMAN BEING, WHICH MAY HAVE PERSONAL NEEDS. THE COMPANY IS AN ARTIFICIAL PERSON INCORPORATED UNDER THE LEGI SLATURE BY HAVING A SEPARATE ENTITY. ALTHOUGH BY HAVING A SEPARATE ENTITY; IT MAY WORK AS A HUMAN BEING IN ITS OWN NAME BUT IT DOES NOT REQUIRE ANY EXPENDITURE TO BE INCURRED, AS A HUMAN BEING REQUIRES FOR MEETING OUT ITS PERSONAL NEEDS. THEREFORE THE EXPE NDITURE INCURRED BY THE ASSESSEE COMPANY CANNOT BE REGARDED TO BE THE PERSONAL EXPENDITURE OF THE ASSESSEE. THE PERSONAL EXPENDITURE OF THE MANAGEMENT OR THE HUMAN BEINGS WHO ARE CONTROLLING THE COMPANY CANNOT BE REGARDED TO BE THE PERSONAL EXPENSES OF THE ASSESSEE COMPANY. IT MAY BE REMUNERATION OR PERQUISITE IN THE HANDS OF THE MANAGEMENT OR THE HUMAN BEINGS BUT IT CANNOT REGARD TO BE THE PERSONAL EXPENSES OF AN INCORPORATED BODY. 25. THE ONLY DISPUTE IN THIS CASE RELATES TO THE FACT WHETHER THE CO MMISSION PAID CAN BE REGARDED TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION OF THE ASSESSEE COMPANY. BEFORE 1939, THE PHRASE USED WAS EXPENDITURE INCURRED SOLELY FOR THE PURPOSE OF EARNING PROFIT. THE OMNIBU S PROVISION OF SECTION 37 AS AMENDED BY 1939 ACT ALLOWS OF EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH BUSINESS/PROFESSION AS LONG AS NO PERSONAL/CAPITAL ELEMENT IS INVOLVED. THE SCOPE OF THE TERM FOR THE PURPOSE OF BUSINESS IS SURELY WIDER THAN THE TERM FOR THE PURPOSE OF EARNING PROFIT. IN OUR OPINION THE INCOME TAX DEPARTMENT CANNOT PRESCRIBE WHAT EXPENDITURE AN ASSESSEE SHOULD INCUR AND UNDER WHAT CIRCUMSTANCES. EVERY BUSINESSMAN KNOWS HIS INTEREST BEST. THE ASSESSEE MAY N OT BE A PRUDENT MAN AND YET AN EXPENDITURE INCURRED VOLUNTARILY FOR THE PURPOSE OF THE BUSINESS WOULD BE ALLOWABLE U/S 37(1). THE HONBLE APEX COURT IN THE CASE OF EASTERN INVESTMENT LTD. VS. CIT, 20 ITR 14 (SC), LAID DOWN THE FOLLOWING PRINCIPLES FOR EVALUATION OF WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS: - (I) EVEN IF THE QUESTION MUST BE DECIDED ON THE FACTS OF EACH CASE, THE CONCLUDING DECISION WILL BE ONE OF LAW. 6 ITA NO. 190/PNJ/2011 (ASST. YEAR : 2006 - 07) (II) IT IS NOT NECESSARY THAT THE EXPENDITURE BE INCURRED FOR EARNING PROFIT. (III) IT IS ENOUGH THAT THE MONEY WAS EXPENDED NOT OF NECESSITY AND WITH A VIEW TO DIRECTING AND IMMEDIATE BENEFIT TO THE TRADE, BUT VOLUNTARILY ON THE GROUND OF COMMERCIAL EXPEDIENCY, AND IN ORDER, INDIRECTLY, TO FACILITATE THE CARRYING ON OF THE BUSINESS. (IV) NO HARD AND FAST RULE CAN BE LAID DOWN TO EXPLAIN WHAT THE WORD SOLELY IS MEANT FOR. THE EXPRESSION WHOLLY AND EXCLUSIVELY USED IN SECTION 37(1) DOES NOT MEAN NECESSARILY. ORDINARILY, IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EX PENDITURE SHOULD BE INCURRED IN THE COURSE OF ITS OR HIS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY, AND IF IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PROFITS, THE ASSESSEE CAN CLAIM DEDUCTION THEREFORE UNDER S ECTION 37(1) EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE. THE SUPREME COURT, IN THE CASE OF CIT VS MALAYALAM PLANTATION (1964) 53 ITR 140 (SC), HELD THAT IT IS NOT ONLY EXPENDITURE WHICH DIRECTLY RESULTS IN BENEFIT OR ADVANTAGE TO THE ASSESSEES BUSINESS THAT IS ENTITLED TO DEDUCTION, BUT ALSO ANY EXPENDITURE WHICH IS INCURRED WITH A VIEW TO FACILITATING THE CARRYING ON OF THE BUSINESS. 26. WE DO AGREE WITH THE SUBMISSIONS OF THE LD. AR THAT IT IS NOT OPEN TO THE DEPARTMENT TO PRESCRIBE WHAT EXPENDITURE THE ASSESSEE SHOULD INCUR AND IN WHAT CIRCUMSTANCES HE SHOULD INCUR THAT EXPENDITURE. EVERY BUSINESSMAN KNOWS HIS INTEREST BEST AS THIS HAS BEEN CLEARLY LAID DOWN BY THE HONBLE APEX COURT IN 91 ITR 544 IN THE CASE OF CIT VS DHA NRAJGIRI RAJA NARSINGHGIRI. NO DOUBT EVERY BUSINESSMAN IS THE BEST JUDGE OF HIS BUSINESS EXPEDIENCY BUT THE ASSESSING OFFICER IN OUR OPINION HAS THE RIGHT TO KNOW WHETHER THE EXPENDITURE HAS BEEN INCURRED FOR BUSINESS PURPOSES OR NOT OR WHETHER IT HAS BEE N INCURRED FOR OTHER EXTRANEOUS CONSIDERATION. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF JAIPUR ELECTRO PVT. LTD. VS CIT, 134 CTR 237 (RAJ). THE HONBLE BOMBAY HIGH COURT HAS ALSO TAKEN THE SIMILAR VIEW IN THE CASE OF RAMANAND SAGAR VS DCIT, 255 ITR 134 (BOM) IN WHICH IT WAS HELD THAT THE MERE FACT THAT THE PAYMENT HAS BEEN MADE UNDER A CONTRACT IS NOT CONCLUSIVE OF EXPENDITURE BEING LAID DOWN WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. ONCE DOUBT ARISE ABO UT THE BONAFIDE NATURE OF THE PAYMENT, IT IS NECESSARY TO LOOK INTO THE NECESSARY CIRCUMSTANCES SUCH AS RELATIONSHIP OF THE PAYEE TO THE ASSESSEE, THE GENERAL STANDARD OF SIMILAR EXPENDITURE IN COMPARABLE BUSINESS, THE TRUE WORTH OF THE SERVICES OR GOODS I N QUESTION AND SO FORTH. IT IS ALSO OPEN TO THE A.O. TO QUESTION THE REALITY OF THE EXPENDITURE I.E., THE TRUE NATURE OF THE PAYMENT, THE TRUE CONSIDERATION FOR IT AND SO FORTH. ONCE THE A.O. CONSIDERS THE PAYMENT AND THE PURPOSE TO BE BONAFIDE, IT IS NOT OPEN FOR HIM TO SUBSTITUTE HIS OWN JUDGMENT WHAT IS THE REASONABLE QUANTUM OF EXPENDITURE FOR THE ASSESSEE. THE A.O. CAN ONLY DECIDE WHETHER THE EXPENDITURE IS REAL, WHETHER IT RELATES TO THE BUSINESS AND IS WHOLLY SPENT FOR THAT PURPOSE. IN APPLYING THE T EST OF COMMERCIAL EXPEDIENCY, FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINESS THE REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT THE REVENUE, AS HELD IN CIT VS WALCHAND AND CO. (P) LTD. (1967) 65 ITR 381 (SC). THE SIMILAR VIEW HAS BEEN TAKEN IN THE CASES OF JK WOOLLEN MANUFACTURERS VS CIT (1969) 72 ITR 612 (SC); ALUMINUM CORPORATION OF INDIA LTD. VS CIT (1972) 86 ITR 11 (SC) AND CIT VS PANIPAT W OOLLEN AND GENERAL MILLS CO. LTD. (1976) 103 ITR 66 (SC). CONSIDERING THE TRUE IMPORT OF THE EXPRESSION WHOLLY AND EXCLUSIVELY IT WAS OBSERVED BY THE APEX COURT IN SASSOON J DAVIT AND CO. PVT. LTD. VS CIT (1979) 118 ITR 261, THAT THE SAME DOES NOT MEAN NECESSARILY. ORDINARILY, IT IS FOR THE ASSESSEE TO DECIDE WHETHER ANY EXPENDITURE SHOULD BE INCURRED 7 ITA NO. 190/PNJ/2011 (ASST. YEAR : 2006 - 07) IN THE COURSE OF ITS BUSINESS. SUCH EXPENDITURE MAY BE INCURRED VOLUNTARILY AND WITHOUT ANY NECESSITY AND IF IT IS INCURRED FOR PROMOTING THE BUSINESS AND TO EARN PROFITS, THE ASSESSEE CAN CLAIM DEDUCTION UNDER THE RELEVANT PROVISION EVEN THOUGH THERE WAS NO COMPELLING NECESSITY TO INCUR SUCH EXPENDITURE. THE FACT THAT SOMEBODY OTHER THAN THE ASSESSEE IS ALSO BENEFITED BY THE EXPENDITURE SHOULD NOT COME IN THE WAY OF AN EXPENDITURE BEING ALLOWED BY WAY OF DEDUCTION U/S 37 OF THE ACT IF IT OTHERWISE SATISFIES THE TESTS LAID DOWN BY LAW. THE BILL READ ANY EXPENDITURE LAID OUT OR EXPENDED WHOLLY, NECESSARILY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED. IN VIEW OF THE PROTESTS RAISED BY THE TAXPAYERS THE WORD NECESSARILY CAME TO BE DROPPED. IT WILL BE ALSO NOTICED THAT IN CIT VS CHANDULAL KESHAVLAL AND CO. (1960) 38 ITR 601, 610, IT WAS OBSERVED AS FOLLOWS: - ANOTHER FAC T THAT EMERGES FROM THESE CASES IS THAT IF THE EXPENSE IS INCURRED FOR FOSTERING THE BUSINESS OF ANOTHER ONLY OR WAS MADE BY WAY OF DISTRIBUTION OF PROFITS OR WAS WHOLLY GRATUITOUS OR FOR SOME IMPROPER OR OBLIQUE PURPOSE OUTSIDE THE COURSE OF BUSINESS THEN THE EXPENSE IS NOT DEDUCTIBLE. IN DECIDING WHETHER A PAYMENT OF MONEY IS A DEDUCTIBLE EXPENDITURE ONE HAS TO TAKE INTO CONSIDERATION QUESTIONS OF COMMERCIAL EXPEDIENCY AND THE PRINCIPLES OF ORDINARY COMMERCIAL TRADING. IF THE PAYMENT OR EXPENDITURE IS IN CURRED FOR THE PURPOSE OF THE TRADE OF THE ASSESSEE IT DOES NOT MATTER THAT THE PAYMENT MAY INCUR TO THE BENEFIT OF A THIRD PARTY (USHERS WILTSHIRE BREWERY LIMITED V BRUCE (1914) 6 TAX CASES 399 (HL). ANOTHER TEST IS WHETHER THE TRANSACTION IS PROPERLY E NTERED INTO AS A PART OF THE ASSESSEES LEGITIMATE COMMERCIAL UNDERTAKING IN ORDER TO FACILITATE THE CARRYING ON OF ITS BUSINESS; AND IT IS IMMATERIAL THAT A THIRD PARTY ALSO BENEFITS THEREBY. BUT IN EVERY CASE IT IS A QUESTION OF FACT WHETHER THE EXPENDIT URE WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRADE OR BUSINESS OF THE ASSESSEE. 27. IF WE APPLY THE PRINCIPLES OF THE LAW AS ENUNCIATED IN THE VARIOUS JUDGMENTS, WE ARE OF THE OPINION THAT ONCE THE A.O. FINDS THAT THE ASSESSEE HAS BONAFIDE LY INCURRED THE EXPENDITURE FOR THE BUSINESS, THE A.O. CANNOT DECIDE THE QUANTUM OF THE EXPENDITURE TO BE INCURRED BY THE ASSESSEE. IN THIS CASE BEFORE US THE ASSESSING OFFICER HAS DISPUTED THE FACT THAT COMMISSION HAS BEEN PAID FOR THE PURPOSE OF THE BUS INESS AND ALSO DISALLOWED THE SAID EXPENDITURE BY APPLYING THE PROVISIONS OF SEC. 40(A)(I) AS WELL AS ON THE BASIS OF THE GENUINENESS OF THE EXPENDITURE INCURRED. THE CIT (A) WHILE HOLDING THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX IN RESPECT OF THE CO MMISSION PAYMENT MADE TO THE NON - RESIDENT AGENTS TOOK THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE COMMISSION PAYMENT BY INVOKING THE PROVISION OF SEC. 40(A)(I). THE CIT(A), HOWEVER, DISALLOWED THE COMMISSION PAID BY THE ASSESSE E TO THE FOREIGN NON - RESIDENT AGENTS BY APPLYING THE PROVISIONS OF SEC. 37 AS ACCORDING TO HIM THE ASSESSEE HAD NOT ABLE TO SUBSTANTIATE THE CLAIM FOR PAYMENT OF COMMISSION TO NON - RESIDENT AGENTS BY ADDUCING SPECIFIC AND TANGIBLE EVIDENCE TO DEMONSTRATE TH AT THE SERVICES WERE RENDERED BY THE SALES AGENTS TO JUSTIFY THE COMMISSION PAYMENT AS CLAIMED BY THE ASSESSEE. HE, THUS, CONFIRMED THE ORDER OF THE ASSESSING OFFICER FOR THE SAID DISALLOWANCE. NOW THE ONLY ISSUE BEFORE US IS WHETHER THE ASSESSEE HAD DISC HARGED ITS ONUS OF PROVING THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE OR NOT. 27.1 THE DOCUMENTARY EVIDENCES BY WAY OF AGREEMENTS WITH THE NON - RESIDENT AGENTS AND EMAILS EXCHANGED WITH THEM IN THIS REGARD, WHICH WERE PLACED ON RECORD O F THE AUTHORITIES BELOW AND ALSO FURNISHED AT PAGE NOS. 135 TO 156 OF THE PAPER BOOK BEFORE US, CLEARLY EXHIBIT THE NATURE AND EXTENT OF SERVICES RENDERED BY THOSE NON - RESIDENT AGENTS; AND THE GENUINENESS OF THE SAME CANNOT BE DOUBTED 8 ITA NO. 190/PNJ/2011 (ASST. YEAR : 2006 - 07) MERELY ON SURMISES WI THOUT BRINGING ANYTHING CONTRARY ON RECORD. CIT (A) WHILE REJECTING THIS VITAL PIECE OF EVIDENCE HAS MERELY STATED VIDE PARA 6.5 OF HIS APPELLATE ORDER THAT IT IS POSSIBLE THAT THE ASSESSEE MAY HAVE SOME KIND OF BUSINESS RELATIONSHIP WITH THE ABOVE TWO C OMPANIES. IT IS ALSO POSSIBLE THAT THERE MAY BE SOME CORRESPONDENCE WITH THE TWO COMPANIES WITH REGARD TO SALES OF IRON ORE ABROAD. BUT THIS SHALL NOT BE SUFFICIENT JUSTIFICATION TO PROVE THAT THE COMPANIES ABROAD HAVE RENDERED NECESSARY SERVICES FOR EFF ECTING SALES SO AS TO JUSTIFY THE CLAIM OF COMMISSION. WHEREAS IN OUR CONSIDERED VIEW, THE CONTENTS OF THE EMAILS FURNISHED BY THE ASSESSEE, WHICH HAVE BEEN SUMMARIZED HEREIN ABOVE, CLEARLY SHOW THAT THOSE WERE BEING EXCHANGED WITH THE SAID TWO NON - RESID ENT AGENTS IN ACTUAL PERFORMANCE OF THEIR SERVICES FOR WHICH THEY HAD BEEN ENGAGED BY THE ASSESSEE AS PER THE RESPECTIVE AGREEMENTS ENTERED INTO WITH THEM AND FOR WHICH COMMISSION HAD BEEN PAID TO THEM. IT IS NOT THE CASE OF THE REVENUE THAT THE IMPUGNED EMAILS WERE FABRICATED OR FORGED ONE. IN FACT, THE CIT (A) HAS ADMITTED IN HIS APPELLATE ORDER THAT IT IS POSSIBLE THAT THERE MAY SOME CORRESPONDENCE WITH THE TWO COMPANIES WITH REGARD TO SALE OF IRON ORE ABROAD, BUT WITHOUT GOING INTO THE MERITS OF THE EMAILS EXCHANGED AND WITHOUT CONTROVERTING HOW THE SAME DID NOT EXHIBIT THAT ACTUAL SERVICES HAD NOT BEEN RENDERED BY THOSE AGENTS, HE MERELY REJECTED THE CLAIM OF THE ASSESSEE AS IF THE ASSESSEE HAS NOT INCURRED THESE EXPENSES GENUINELY FOR THE PURPOSE O F THE BUSINESS. IT IS CARDINAL PRINCIPLE OF LAW THAT A DISALLOWANCE CANNOT BE MADE ON MERE SURMISES AND CONJECTURES. WHERE THE EXPLANATION OF THE ASSESSEE IS BONAFIDE AND EVIDENCES PRODUCED BY IT FURTHER CORROBORATE ITS EXPLANATION, THERE IS NO REASON FOR REVENUE TO DISREGARD THE SAME ON WHIMS WITHOUT BRINGING FORTH ANY TANGIBLE AND COGENT MATERIAL TO THE CONTRARY. 27.2 THE SAID TWO NON - RESIDENT AGENTS HAD BEEN ENGAGED BY THE ASSESEEE IN THE PAST AND THEY HAVE BEEN PAID COMMISSION ON SALES ABROAD SINCE LAST SO MANY YEARS. THERE IS NO LAW WHICH MANDATES THAT A MIDDLEMAN IS ENTITLED TO HIS COMMISSION ONLY FOR THE FIRST TIME WHEN HE INTRODUCES BOTH THE PARTIES TO EACH OTHER. WE AGREE W ITH THE LD. AR THAT IN FACT, IT IS A NORMAL BUSINESS PRACTICE ALL OVER THE WORLD THAT AFTER THE PARTIES ARE INTRODUCED THE ACTUAL WORK OF A COMMISSION AGENT STARTS. HERE IN THE INSTANT CASE OF THE ASSESSEE, THE BUYERS HAD BEEN INTRODUCED BY THE SAID AGENT S IN THE PAST. THE EMAILS EXHIBIT THAT THE AGENTS WERE DEEPLY INVOLVED WITH THE BUYERS VIS - - VIS THE ASSESSEE IN ACTUAL TRANSPORTATION OF GOODS AND SECURING PAYMENTS TO THE ASSESSEE. EMAILS SHOW THAT THE AGENT WAS CONFIRMING VESSEL NOMINATION FROM THE BU YER, WHICH WAS LATER ACCEPTED BY THE ASSESSEE. OTHER EMAILS SHOW THE ASSESSEES REQUEST TO THE AGENT FOR OPENING OF LC AND SUBSEQUENTLY REQUESTING THE AGENT FOR LC AMENDMENTS AND LC ACCEPTANCES. IN OTHER SUCH SET OF EMAILS, THE ASSESSEE IS FOUND SUGGESTI NG AMENDMENTS TO THE DRAFT LC AND THE AGENT CONFIRMING / SUGGESTING AMENDMENTS TO THE LC. SIMILARLY, ANOTHER SET OF EMAILS SHOW THE AGENT ADVISING CHANGES IN THE SALE CONTRACT WITH THE BUYER AND THE ASSESSEE ACCEPTING THE SAME. YET ANOTHER EXCHANGE OF EM AILS SHOWS THE AGENT IS FORWARDING DRAFT REVISED FINAL ADJUSTMENT SHEET AND THE ASSESSEE IS SUGGESTING CORRECTIONS TO FINAL ADJUSTMENT SHEETS AND REQUESTING THE AGENT TO FORWARD THE SAME TO THE BUYER. MORE SO, IN ONE SUCH SET OF EMAILS, THE ASSESSEE IS S EEN ASKING THE AGENT TO CONVEY ITS MESSAGE TO THE BUYER AND THE AGENT CAN BE SEEN CONVEYING MESSAGE FROM THE BUYER TO THE ASSESSEE. THUS, THERE REMAINS NO DOUBT IN OUR MIND THAT THE NON - RESIDENT AGENTS WERE ACTUALLY RENDERING THE SERVICES AS MIDDLEMEN IN TERMS OF THEIR RESPECTIVE AGREEMENTS WITH THE ASSESSEE AND, ACCORDINGLY, COMMISSION WAS GENUINELY PAID BY THE ASSESSEE FOR THOSE SERVICES ONLY, I.E., WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THE DECISION IN LAXMINARAYAN MADA NLAL VS CIT (1972) 86 ITR 439 (SC), RELIED UPON BY THE REVENUE IS TOTALLY DISTINGUISHABLE ON FACTS. IN THAT CASE THE ASSESSEE HAD ONLY PRODUCED THE AGREEMENTS AND THE HONBLE APEX COURT DECIDED THAT THE MERE EXISTENCE OF AN AGREEMENT BETWEEN THE ASSESSEE AND ITS SELLING AGENTS OR PAYMENT OF CERTAIN AMOUNTS AS COMMISSION, ASSUMING THERE WERE SUCH PAYMENTS, DOES NOT BIND THE ITO TO HOLD THAT PAYMENT WAS MADE EXCLUSIVELY AND WHOLLY FOR THE 9 ITA NO. 190/PNJ/2011 (ASST. YEAR : 2006 - 07) PURPOSE OF THE ASSESSEES BUSINESS. WHEREAS IN THE INSTANT CASE, THE A SSESSEE HAS PLACED OTHER DOCUMENTARY EVIDENCES ON RECORD BESIDES THE AGREEMENTS, WHICH CLEARLY DEMONSTRATE THAT THE REQUISITE SERVICES UNDER THOSE AGREEMENTS FOR WHICH COMMISSION WAS PAID TO THEM, HAD ACTUALLY BEEN RENDERED BY THEM. THUS, IN THE CASE OF TH E ASSESSEE COMMERCIAL EXPEDIENCY HAS CLEARLY BEEN PROVED. THEREFORE, THE DISALLOWANCE OF RS. 9,88,29,729/ - FOR COMMISSION PAID TO NON - RESIDENT AGENTS IS DELETED BY ALLOWING THIS GROUND OF APPEAL OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL FOR A.Y 2005 - 06 AND 2009 - 10 IN THE CASE OF THE ASSESSEE, WE ALLOW THE GROUND NO. 1 AND 2 TAKEN BY THE ASSESSEE AND DELETE THE DISALLOWANCE. 4. GROUND NO. 3 RELATES TO THE SCIENTIFIC RESEARCH AND DEVELOPMENT EXPENSES AMOUNTING TO RS. 2,11,68,564/ - . BOTH THE PARTIES AGREE THAT THIS ISSUE IS DULY COVERED BY THE DECISION OF THIS TRIBUNAL IN THE CASE OF THE ASSESSEE IN ITA NO. 85/PNJ/2012 DT. 8.3.2013 BY WHICH THIS TRIBUNAL CONFIRMED THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE SO MADE BY THE ASS ESSING OFFICER BY HOLDING AS UNDER : 48. THE SECOND GROUND RELATES TO DELETION OF THE DISALLOWANCE OF EXPENDITURE ON RESEARCH & DEVELOPMENT. THE BRIEF FACTS RELATING TO THE GROUND IS THAT THE AO DISALLOWED A SUM OF RS.1,94,55,376/ CONSIDERING THE SAME A S SCIENTIFIC RESEARCH EXPENDITURE BY TREATING IT AS EXPENDITURE OF CAPITAL IN NATURE. THE AO HAS DEALT WITH THIS ISSUE UNDER PARA - 2 PAGE - 5 OF THE ORDER. WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT(A) AFTER GETTING REMAND REPORT ON THE SUBMISSIONS OF THE ASSESSEE NOTED THAT THE ASSESSEE HAS NOT CLAIMED THE SUM OF RS.2,60,32,608/ - AS RESEARCH & DEVELOPMENT EXPENDITURE NEITHER IN THE BOOKS OF ACCOUNTS NOR IN THE COMPUTATION OF INCOME. THE AO HAS TREATED THIS EXPENDITURE WHICH WERE INCURRED IN USUAL COUR SE UNDER VARIOUS HEADS TO BE SCIENTIFIC RESEARCH AS IN THE DIRECTORS REPORT SUCH EXPENDITURE WAS CLASSIFIED AS EXPENDITURE FOR RESEARCH & DEVELOPMENT. IT WAS ALSO NOTED BY HIM THAT OUT OF TOTAL EXPENDITURE OF RS.2,60,32,608/ - AN AMOUNT OF RS.65,77,232/ - WAS CONSIDERED CAPITAL EXPENDITURE BY THE ASSESSEE AND ONLY THE BALANCE AMOUNTING TO RS.1,94,55,376/ - DEBITED TO THE PROFIT & LOSS ACCOUNT. THE AO HAS NOT BROUGHT OUT ANY SPECIFIC FINDING TO SHOW THAT ANY PART OF THE BALANCE EXPENDITURE UNDER REFERENCE IS IN THE NATURE OF CAPITAL EXPENDITURE. EVEN NO SUCH EXPENDITURE WAS DEBITED IN THE PROFIT & LOSS ACCOUNT UNDER THE HEAD RESEARCH & DEVELOPMENT. THE CIT(A) HAS GIVEN THE CLEAR CUT FINDING THAT THE CONDITIONS PRESCRIBED U/S 35 OF THE IT ACT WOULD COME TO P LAY ONLY IF THE EXPENDITURE IS CLAIMED AS EXPENDITURE FOR SCIENTIFIC RESEARCH. HOWEVER, IN THE PRESENT CASE, CONSIDERING THE DEFINITION OF SCIENTIFIC RESEARCH PROVIDED U/S 43(4)(I) THE AO OBSERVED THAT THE CASE OF THE ASSESSEE IS NOT COVERED UNDER THE DEF INITION OF SCIENTIFIC RESEARCH. THE CIT(A) IN VIEW OF THE CONCLUSION OF THE AO TOOK THE VIEW THAT THE AO SHOULD HAVE NOT AGAIN TREATED THIS EXPENDITURE TO BE SCIENTIFIC EXPENDITURE AND THEREFORE, HE DELETED THE ADDITION. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL, WE SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THUS, GROUND NO. 3 STANDS ALLOWED. 10 ITA NO. 190/PNJ/2011 (ASST. YEAR : 2006 - 07) 5. GROUND NO. 4 RELATE TO THE DISALLOWANCE OF RS. 1,49,782/ - ON ACCOUNT OF DEPRECIATION OF UPS. THE BRIEF FACTS RELATING TO THIS GROUND ARE THAT THE ASSESSEE HAS INSTALLED UPS AS PART OF THE COMPUTER AND CLAIMED DEPRECIATION @ 60%. THE ASSESSING OFFICER ALLOWED DEPRECIATION @ 15% AND DISALLOWED THE BALANCE AMOUNT. WHEN THE MATTER WENT BEFORE CIT(A), THE CIT(A) ALSO CONFIRMED THE DISALLOWANCE. THE LEARNED AR IN THIS REGARD RELIED ON THE DECISION OF THE TRIBUNAL IN THE FOLLOWING CASE S : SL NO TITLE FORUM CITATION NO. 1 ITO VS. SAMIRAN MAJUMDAR, ITAT CALCUTTA 280 ITR 74 2 CIT VS. BSES YAMUNA POWERS LTD., HC, DELHI ITA NO. 1267/2010 3 CIT VS. ORIENT CERAMICS AND INDS LTD. HC DELHI ITA NO. 65 AND 66 OF 2011 4 ITO VS. OMNI GLOBE INFORMATION TECHNOLOGIES INDIA (P) LTD ITAT DELHI 131 ITD 280 THE LEARNED DR ON THE OTHER HAND RELIED ON THE ORDER OF THE AUTHORITIES BELOW. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE HAVE NOTED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BSES YAMUNA POWERS LTD., ITA NO. 1267/2010 AND ALSO IN THE CASE OF CIT VS. ORIENT CERAMICS AND IND. LTD. IN ITA NO. 65 AND 66 OF 2011 CONFIRMED THE ORDER OF THE TRIBUNAL ALLOWING DEPRECIATION @ 60% UNDER PARA 4 AND 13 OF THE RESPECTIVE ORDERS. NO CONTRARY DECISION WAS BROUGHT TO OUR KNOWLEDGE. RESPECTFULL Y FOLLOWING THE DECISIONS OF THE TRIBUNAL AS WELL AS THAT OF THE HONBLE HIGH COURT, WE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION FOR UPS @ 60%. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 7. OR DER PRONOUNCED IN THE OPEN COURT ON 26 .04.2013. SD/ - (D.T.GARASIA) JUDICIAL MEMBER SD/ - (P.K. BANSAL) ACCOUNTANT MEMBER PLACE : PANAJI / GOA DATED : 26 .04.2013 *SSL* COPY TO : ( 1 ) APPELLANT ( 2 ) RESPONDENT ( 3 ) CIT, PANAJI ( 4 ) CIT(A), PANAJI ( 5 ) D.R 11 ITA NO. 190/PNJ/2011 (ASST. YEAR : 2006 - 07) ( 6 ) GUARD FILE BY ORDER ASSISTANT REGISTRAR /SR. P.S ITAT, PANAJI, GOA