DCIT, New Delhi V. M/s. Chemical Construction International Pvt. Ltd., New Delhi

ITA 3958/DEL/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6387 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 30-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A K CHADHA
• Keywords: Gross profit estimation; Depreciation; Business expenditure; Search and seizure; Question of law; Bad and doubtful debts; Commercial expediency; Revenue expenditure; Capital expenditure
• Section: 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B NEW DELHI BEFORE SH. AMIT SHUKLA , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 3958 /DEL/ 2011 ASSESSMENT YEAR: 2007 - 08 DCIT, CIRCLE - 3(1), NEW DELHI VS. M/S. CHEMICAL CONSTRUCTION INTERNATIONAL PVT. LTD., 205, KUSHAL BAZAR, 32 - 33, NEHRU PLACE, NEW DELHI PAN : AAACC0292M (APPELLANT) (RESPONDENT) APPELLANT BY SH. ANIL KUMAR SHARMA, SR.DR RESPONDENT BY SH. A.K. CHADHA, CA DATE OF HEARING 28.02.2017 DATE OF PRONOUNCEMENT 27.03.2017 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE R EVENUE IS DIRECTED AGAINST O RDER DATED 07/06/2011 OF LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - IV (IN SHORT CIT - A ) FOR ASSESSMENT YEAR 2007 - 08 , RAISING FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN DELETING ADDITION OF RS.5614565/ - ON ACCOUNT OF CONTRACT RECEIPTS, IGNORING THE FACT THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE COMPANY FAILED TO JUSTIFY ITS ABNORMALLY LOW G. P. RATE OF 18.16% IN CURRENT YEAR FROM 28.9% LAST YEAR. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN DELETING ADDITION OF RS.14591310/ - ON ACCOUNT OF PAYMENT OF LURGI LIFE SCIENCE(LLS) GERMANY FOR DRAWING DESIGN CHARGES, IGNOR ING THE FACT THAT BENEFIT OF ENDURING NATURE WAS DRAWN BY THE ASSESSEE. 2 ITA NO. 3958/DEL/2011 AY: 2007 - 08 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CLT(A) HAS ERRED IN DELETING ADDITION OF' RS.L500000/ - ON ACCOUNT OF CAPITAL EXPENDITURE, IGNORING THE FACT THAT WHILE ORGANIZING AND FUNDING THE SEMINAR FOR UPDATING OF ITS ENGINEERS, BENEFIT OF ENDURING NATURE WAS DRAWN BY ASSESSEE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN DELETING ADDITION OF RS.6076476/ - ON ACCOUNT OF PROVISION FOR WARRANTY , IGNO RING THE FACT THAT PROVISION WAS FOR MEETING LIABILITIES OTHER THAN ASCERTAINED LIABILITIES AND HENCE INADMISSIBLE. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN DELETING ADDITION OF RS.9332384/ - ON ACCOUNT OF BAD DEBTS, IGNORI NG THE FACT THAT THE ASSESSEE FAILED TO REALIZE THE AMOUNT, AND DUE TO OVERSIGHT AS IT END, TO RECOVER THIS AMOUNT. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN DELEING ADDITION OF J RS.338462/ - ON ACCOUNT OF DISALLOWANCE OF IN TEREST EXPENSES, IGNORING THE FACT THAT SUCH EXPENSES J WAS NOT INCURRED FOR BUSINESS PURPOSE. 7. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, TH LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.5647/ - ON ACCOUNT OF DISALLOWANCE OF EXTRA DEPRECIATION ON COMPUTER PERIPHERALS/ACCESSORIES IGNORING THAT AS PER THE IT RULES 60% DEPRECIATION IS ALLOWABLE ONLY ON COMPUTER AND COMPUTER SOFTWARE AND NOT ON COMPUTER PERIPHERALS AND ACCESSORIES. 2. THE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSE SSEE COMPANY WAS ENGAGED IN THE BUSINESS OF SUPPLY OF MACHINERY AND EQUIPMENTS AND BIODIESEL PLANTS DURING RELEVANT PERIOD. THE ASSESSEE FILED RETURN OF INCOME ON 31/10/2007 DECLARING TOTAL INCOME OF RS. 4,06,72, 694/ - . THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE INCOME - TAX ACT , 1961 (FOR SHORT THE ACT ) WAS ISSUED AND COMPLIED WITH. AFTER MAKING CERTAIN ADDITIONS/DISALLOWANCES, THE INCOME OF THE ASSESSEE WAS ASSESSED AT RS.7,82,11,480/ - V IDE ASSESSMENT COMPLETED UNDER SECTION 1 43(3) OF THE ACT. AGGRIEVED , THE AS SESSEE FILED APPEAL BEFORE THE L D. CIT - A, WHO ALLOWED THE RELIEF TO THE ASSESSEE. AGGRIEVED , THE 3 ITA NO. 3958/DEL/2011 AY: 2007 - 08 R EVENUE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. WE HAVE HEARD THE RIVAL SUBMISSION OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL, ORDERS OF LOWER AUTHORITIES AND THE PAPER BOOK CONTAINING PAGES 1 TO 274 FILED BY THE ASSESSEE. 4. IN GROUND NO. 1 , THE R EVENUE IS AGGRIEVED WITH THE DELETION OF ADDITION OF RS.56,14,565/ - , BY THE LD. CIT - A. LD. SR. DEPARTMENTAL REPRESENTATIVE ( DR) SUPPORTING THE GROUND SUBMITTED THAT ASSESSEE SHOWN LOSS OF RS.56,14, 565/ - IN RESPECT OF TWO PROJECTS CARRIED OUT DURING THE YEAR AND FAILED TO JUSTIFY ABNORMALLY LOW GROSS PROF IT RATE OF 18.16% IN CURRENT YEAR AS COMPA RED TO GROSS PROFIT RATE OF 28. 90% IN LAST YEAR. 4.1 THE LD. AUTHORIZED REPRESENTATIVE (AR) , ON THE OTHER HAND , SUBMITTED THAT FALL IN GROSS PROFIT RATE DURING THE YEAR WAS DUE TO LOSS OF RS.25,48,007/ - ON THE PROJECT NAMELY COASTAL ENERGY L TD . AND LOSS OF RS.30,66,565/ - ON THE PROJECT , NAMELY, SOUTHERN B IOTECHNOLOGIES LTD . . THE LEARNED AR FURTHER SUBMITTED THAT IN EARLIER YEARS , THE ASSES SEE HAS SHOWN PROFIT FROM THE COASTAL E NERGY LTD . PROJECT AND DURING THE YEAR THE LOSS WAS RECOGNIZED IN VIEW OF THE PERCENTAGE COMPLETION METHOD FOLLOWED BY THE ASSESSEE, AS PRESCRIBED BY THE A CCOUNTING S TANDARD - 7, ISSUED BY THE INSTITUTE OF CHARTERED A CCOUNTANT OF INDIA (IN SHORT ICAI ). IN RESPECT OF THE LOSS FROM THE PROJECT OF SOUTHERN B IOTECHNOLOGIES LTD , THE LD. AR SUBMITTED THAT IT WAS THE FIRST YEAR OF THE EXECUTION OF THE PROJECT AND THE LOSS WAS DUE TO THE REASONS OF PAYMENT OF ONE - TIME ENGINEERING AND LICENSE FEE TO M/S LURGI LIFE SCIENCE L IMITED (LLS) AND RISE IN STEEL PRICES. 4.2 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LD. CIT - A ALLOWED THE RELIEF TO THE ASSESSEE OBSERVING AS UNDER: 4 ITA NO. 3958/DEL/2011 AY: 2007 - 08 6. I HAVE CONSIDERED THE IMPUGN ED ORDER AND THE SUBMISSIONS MADE BY THE LD. AR OF THE ASSESSEE. IT IS NOT IN DISPUTE THAT THE ASSESSEE FOLLOWS THE PERCENTAGE COMPLETION METHOD. THIS IS AS PER THE ACCOUNTING STANDARDS SPECIFIED BY THE ICAI. JUDICIAL NOTICE HAS BEEN TAKEN OF THE PERCENTAG E OF COMPLETION METHOD IN CIT VS BILAHARI INVESTMENT (P) LTD. [2008] 299 ITR 1 (SC). AT PAGE 7 & 8, IT HAS BEEN HELD AS UNDER: ON THE OTHER HAND, THE PERCENTAGE OF COMPLETION METHOD TRIES TO ATTAIN PERIODIC RECOGNITION OF INCOME IN ORDER TO REFLECT CURRE NT PERFORMANCE. THE AMOUNT OF REVENUE RECOGNIZED UNDER THIS METHOD IS DETERMINED BY REFERENCE TO STAGE OF COMPLETION OF THE CONTRACT. THE STAGE OF COMPLETION CAN BE LOOKED AT UNDER THIS METHOD BY TAKING INTO CONSIDERATION THE PROPORTION THAT COSTS INCURRED TO DATE BEARS TO THE ESTIMATED TOTAL COSTS OF CONTRACT. 7. IN OTHER WORDS, THE ASSESSEE HAS BEEN FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THE PERCENTAGE OF COMPLETION METHOD WHICH IS AN ACCEPTED METHOD. THIS IS THE METHOD WHICH HAS REGULARLY BE EN FOLLOWED BY THE ASSESSEE. THE ASSESSEE ONLY RECOGNIZES THE REVENUE TO THE ESTIMATED TOTAL COST OF CONTRACT. BILLS AND VOUCHERS WERE ALSO PRODUCED DURING THE HEARING. WITHOUT SPECIFICALLY REJECTING THE BILLS AND VOUCHERS, I CANNOT APPRECIATE THAT HOW THE LD. AO CAN JUMP TO A CONCLUSION BASED ON THE LOSSES MADE BY THE ASSESSEE DURING THE FINANCIAL YEAR. HERE, WE MAY REFER WITH PROFIT, THE DECISION OF THE JURISDICTIONAL HIGH COURT IN CIT VS. PARADISE HOLIDAYS [2010] 325 ITR 13 (DELHI). THE JURISDICTIONAL HI GH COURT AT PAGES 16 & 17 HAVE HELD AS UNDER: SECTION 145(3) OF ACT PROVIDES FOR ASSESSMENT IN THE MANNER PRESCRIBED IN SECTION 144 OF THE ACT WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSES SEE OR WHERE EITHER THE METHOD OF ACCOUNTING PROVIDED IN SUB - SECTION (1) OR THE ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB SECTION (2) HAVING BEEN REGULARLY FOLLOWED BY THE ASSESSEE. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAD NOT FOLLOWED EITH ER CASH OR MERCANTILE SYSTEM OF ACCOUNTING. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE CENTRAL GOVERNMENT HAD NOTIFIED ANY PARTICULAR ACCOUNTING STANDARDS TO BE FOLLOWED BY TOUR OPERATORS. HENCE, THE SECOND PART OF SUB SECTION (3) OF SECTION 145 DOES NOT APPLY TO THIS CASE. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC DEFECT OR DISCREPANCY IN THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSEE. ADMITTEDLY, THE ASSESSEE HAD BEEN MAINTAINING REGULAR BOOKS OF ACCOUNT, WHICH WERE DULY AUDITED BY AN INDEPENDENT CHARTERED ACCOUN TANT. AS NOTED BY THE COMMISSIONER OF INCOME - TAX (APPEALS), THE FINANCIAL RESULTS WERE FULLY SUPPORTED BY THE ASSESSEE WITH VOUCHERS AND THE BOOKS OF ACCOUNT WERE COMPLETE AND CORRECT IN ALL RESPECTS. THE ACCOUNTS WHICH ARE REGULARLY MAINTAINED IN THE COUR SE OF BUSINESS AND ARE DULY AUDITED, FREE FROM ANY QUALIFICATION BY THE AUDITORS, SHOULD NORMALLY BE 5 ITA NO. 3958/DEL/2011 AY: 2007 - 08 TAKEN AS CORRECT UNLESS THERE ARE ADEQUATE REASONS TO INDICATE THAT THEY ARE INCORRECT OR UNRELIABLE. THE ONUS IS UPON THE REVENUE TO SHOW THAT EITHER THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE INCORRECT OR INCOMPLETE OR METHOD OF ACCOUNTING ADOPTED BY HIM WAS SUCH THAT TRUE PROFITS OF THE ASSESSEE CANNOT BE DEDUCED THEREFROM. THE QUESTION AS TO WHETHER THE ACCOUNTS PRODUCED BY THE ASSESSEE WAS DE FECTIVE/INCOMPLETE OR NOT IS A QUESTION OF FACT. THE COMMISSIONER OF INCOME - TAX (APPEALS) AS WELL AS THE INCOME - TAX APPELLATE TRIBUNAL HAVE FOUND THAT THE ACCOUNTS MAINTAINED BY THE RESPONDENT WERE NEITHER DEFECTIVE NOR INCOMPLETE. EVEN THE ASSESSING OFFIC ER HAS NOT FOUND ANY FAULT AS SUCH WITH THE SYSTEM OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE. THE TRIBUNAL WHICH IS THE FINAL FACT FINDING AUTHORITY HAS HELD THAT CONSIDERING THE NATURE OF THE BUSINESS OF THE ASSESSEE, IT WAS NOT OBLIGATORY TO ENTER INT O FORMAL AGREEMENTS WITH THE FOREIGN PRINCIPALS WOULD NOT RENDER THE ACCOUNTS OF THE ASSESSEE INCOMPLETE AND WOULD NOT GIVE JUSTIFICATION TO THE ASSESSING OFFICER TO REJECT THEM UNDER SECTION 145(3) OF THE ACT. SIMILARLY, THE EXPLANATION GIVEN BY THE ASSES SEE FOR THE TOUR EXPENSES NOT RECONCILING WITH TOUR ITINERARY HAVING BEEN ACCEPTED, BOTH BY THE COMMISSIONER OF INCOME - TAX (APPEALS) AS WELL AS BY THE TRIBUNAL, THE ACCOUNTS OF THE ASSESSEE CANNOT BE SAID TO BE DEFECTIVE ON THIS GROUND AND, THEREFORE, COUL D NOT HAVE BEEN REJECTED. IF ANY PARTICULAR EXPENSE CLAIMED BY THE ASSESSEE REMAINED UNVERIFIED, THE ASSESSING OFFICER COULD HAVE DISALLOWED THAT PARTICULAR EXPENSE. BUT, THAT BY ITSELF CANNOT BE A GROUND FOR REJECTION OF ACCOUNTS AS A WHOLE UNDER SECTION 145(3) OF THE ACT. THE FINDING OF FACT RECORDED BY THE INCOME - TAX APPELLATE TRIBUNAL HAS NOT BEEN SHOWN TO BE PERVERSE, AND HENCE CANNOT BE INTERFERED WITH BY THIS COURT. 8. IT IS APPRECIATED THAT THE BOOKS OF ACCOUNTS HAVE NOT BEEN REJECTED IN THE CASE. HOWEVER, THE RATIO OF THE DECISION OF THE DELHI HIGH COURT AS EXCERPTED ABOVE, CANNOT BE IGNORED. THE ASSESSEE HAS REGULARLY BEEN FOLLOWING THE METHOD OF ACCOUNTING AS PER THE ACCOUNTING STANDARDS ISSUED BY THE ICAI. THE PERCENTAGE OF COMPLETION METHOD HA S BEEN JUDICIALLY RECOGNIZED BY THE SUPREME COURT. EVEN THOUGH THERE WAS A LOSS DURING THE YEAR, IN THE NEXT YEAR IF BOTH THE PROJECTS ARE PUT TOGETHER THERE WAS A PROFIT. THE LD. AO HAS DISALLOWED THE LOSSES JUST BECAUSE IT DEFLATED THE PROFIT OF THE ASSE SSEE DURING THE YEAR. TO MY MIND THIS CANNOT BE THE CORRECT APPROACH. 9. FURTHER, DURING A.Y. 2008 - 09, PROFIT HAS BEEN BOOKED IN BOTH THE PROJECTS. DURING THE YEAR, THE REVENUE AS REFLECTED HAS BEEN ACCEPTED. STILL ADDITION IS MADE. IT HAS BEEN HELD IN CI T VS DINESH KUMAR GOEL [2011] 239 CTR (DEL.) 46 AS UNDER: 27. IN A DECISION RENDERED ABOUT 50 YEARS AGO, THE BOMBAY HIGH COURT, SPEAKING THROUGH CHIEF JUSTICE TENDOLKAR IN CIT VS. NAGRI MILLS CO. LTD. [1958] 33 ITR 681 (BOM) OBSERVED AS UNDER: 6 ITA NO. 3958/DEL/2011 AY: 2007 - 08 WE HAVE OFTEN WONDERED WHY THE IT AUTHORITIES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PERMISSIBLE DEDUCTION UNDER THE IT ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDUCT ION IS ALLOWABLE MAY BE MATERIAL WHEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT; BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE, AND WHETHER THE DEDUCTION IN RESPECT OF BONUS VI/AS GRANTED IN THE ASST. YR. 1952 - 53 OR IN THE ASSESSMENT YEAR CORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASST. YR. 1953 - 54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTMENT; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD NOT FRITTER AWAY ITS ENERGIES IN FIGHTING MATTERS OF THIS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCES THAT COME UP TO US EVERY NOW AND THEN, THE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF THIS CHARACTER WHICH DO NOT AFFECT THE TAXABILITY OF THE ASSESSEE OR THE T AX THAT THE DEPARTMENT IS LIKELY TO COLLECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER. 28. IN THIS COURT, IN ITS DECISION DT. 6TH MAY, 2008 IN IT REF. NO. 229 OF 1988 ENTITLED CIT VS. VISHNU INDUSTRIAL GASES (P) LTD. HAD QUOTED THE AFORESAID PASSAGE AND THEREAFTER REMARKED THAT THE SITUATION DOES NOT SEEM TO HAVE CHANGED OVER THE LAST FIFTY REARS AND THE REVENUE CONTINUES TO AGITATE THE QUESTION WHETHER TAX IS LEVIABLE IN A PARTICULAR YEAR OR IN SOME OTHER YEAR. ALAS I THE AFORESAID WORDS OF WISDOM OF BOM BAY HIGH COURT REMINDED TO THE REVENUE AUTHORITIES MORE THAN TWO YEARS AGO AGAIN HAVE NOT MADE ANY DENT ON THE PSYCHE OF THE REVENUE. 10. APART FROM THE ABOVE, IT IS ALSO SETTLED LAW NOW THAT THE DEPARTMENT CANNOT PLAY HOT AND COLD AT THE SAME TIME. IN VIEW OF THE DISCUSSIONS, I AM FIRMLY OF THE BELIEF THAT THE ASSESSEE DESERVES TO SUCCEED IN GROUNDS OF APPEAL NO. 2 & 3. THE ADDITION TO THE TUNE OF RS. 56,14,565/ - IS DELETED. 4.3 T HE LD. CIT - A JUSTIFIED THE CLAIM OF THE LOSS KEEPING IN VIEW THE PERCE NTAGE COMPLETION METHOD FOLLOWED BY THE ASSESSEE. 4.4 WE FIND THAT THE AO HAS DISALLOWED THE LOSS WITHOUT REJECTING BOOKS OF ACCOUNTS OF THE ASSESSEE UNDER PROVISION OF SECTION 145(3) OF THE ACT. FURTHER, THE AO HAS DISALLOWED THE LOSSES FROM THE TWO PRO JECTS MERELY ON THE GROUND THAT THERE WAS A FALL IN OVERALL GROSS PROFIT RATE OF THE COMPANY AS COMPARED TO THE LAST YEAR. WE FIND THAT THE ASSESSEE HAS DULY EXPLA INED THE REASON FOR THE LOSSES. WHEN THE PROJECT IS SPREAD OVER MORE THAN ONE YEAR AND THE AS SESSEE HAS FOLLOWED PERCENTAGE COMPLETION METHOD FOR RECOGNIZING PROFIT FROM SUCH PROJECT, THE AMOUNT OF 7 ITA NO. 3958/DEL/2011 AY: 2007 - 08 PROFIT OR LOSS FROM THE PROJECT , MAY VARY FROM YEAR TO YEAR. I N OUR OPINION, WHEN THE ASSE SSEE HAS EXPLAINED THE REASONS FOR LOSSES, THE ACTION OF THE AO IN REJECTING THE LOSSES WITHOUT POINTING OUT ANY DEFECT IN THE EXPLANATION OF THE ASSESSEE, IS NOT JUSTIFIED. THE ASSESSING OFFICER HAS NOWHERE HELD THAT EITHER THE ASSESSEE INFLATED IT PURCH ASES OR SUPPRESSED IT SALES AND MERELY THE LOW GROSS PROFIT RATE CANNOT BE BASIS FOR DISALLOWING THE LOSSES. WHEN THE ASSESSING OFFICER FAILED TO FIND ANY FAULT IN THE EXPLANATION OF THE ASSESSEE JUSTIFYING THE LOSSES CLAIMED FOLLOWING THE PERCENTAGE COMPLETION METHOD, THE ACTION OF THE ASSESSING OFFICER IN DISALLO WING SUCH LOSSES IS ARBITRARY AND NOT IN ACCORDANCE WITH LAW. THE FINDING OF THE LEARNE D CIT - A ON THE ISSUE IN DISPUTE IS WELL REASONED AND NO INTERFERENCE ON OUR PART IS REQUIRED IN SAID FINDING. ACCORDINGLY , GROUND NO. 1 OF THE APPEAL IS DISMISSED. 5. I N GROUND NO. 2, THE R EVENUE HAS CHALLENGED DELETION OF THE ADDITION OF RS.1,45,91, 310/ - MADE ON ACCOUNT OF PAYMENT TO M/S . LURGI LIFE S CIENCE (LLS), GERMANY FOR DRAWING CHARGES. DURING THE YEAR , THE ASSESSEE COMPANY MADE PAYMENT TO LLS, GERMANY FOR ACQUIRI NG DRAWING, DESIGNING AND BASIC ENGINEERING FEE FOR EXECUTION OF ITS CONTRACT IN INDIA. ACCORDING TO THE AO, THE PAYMENT WAS MADE IN LUMP SUM ONLY ONCE WITH A VIEW TO BRING INTO EXISTENCE AN ASSET OR AN ADVANTAGE OF THE ENDURING BENEFIT OF A TRADE AND THER EFORE , IT WAS IN THE NATURE OF CAPITAL EXPENDITURE. BEFORE US, THE LD. SR. DR RELIED ON THE FINDING OF THE ASSESSING OFFICER. 5.1 ON THE CONTRARY, LEARNED AR SUBMITTED THAT ADDITIONS ON THE SAME ISSUE WAS MADE IN THE ASSESSMENT YEAR 2006 - 07, WHICH HAS BE EN DELETED BY TH E TRIBUNAL IN ITA NO. 5516/DEL /2006 AND ITA NO. 5630/DEL/2010. WE FIND THAT THE LD. CIT - A , FOLLOWING THE JUDGMENT OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. JK S YNTHETICS LTD (2009) 222 CTR (DEL) 339 , HELD AS UNDER: 8 ITA NO. 3958/DEL/2011 AY: 2007 - 08 16. IN THE CASE IN HAND, A TEMPORARY AGREEMENT WAS SIGNED BETWEEN M/S. LURGI LIFE SCIENCES, GERMANY AND THE ASSESSEE. AS PER THE AGREEMENT, THE OWNERSHIP REMAINED WITH M/S. LLS. THE ASSESSEE COULD NOT PATENT OR APPLY FOR PATENTS ON ANY OF THE PRODUCTS. IT, NAT URALLY FALLOWS THAT THE ASSESSEE COULD NOT CREATE FURTHER RIGHTS IN FAVOUR OF THIRD PARTIES. THE AGREEMENTS ALSO DOES NOT TRANSFER THE FRUITS OF RESEARCH OF THE LICENSOR ONCE FOR ALL . NO SECRET OR PROCESS OF MANUFACTURE WAS SOLD BY THE LICENSOR TO THE LICENSEE. IN SUCH CIRCUMSTANCE, I AM AFRAID THE STAND TAKEN BY THE ASSESSEE THAT THE EXPENDITURE WAS CAPITAL IN NATURE IS MISCONCEIVED, GOING BY THE DECISIONS OF THE DELHI HIGH COURT, AS EXTRACTED ABOVE. THE ASSESSEE DESERVES TO SUCCEED IN GROUNDS OF APPE AL NO. 4 & 5. 5.2 I N ASSESSMENT YEAR 2006 - 07 ALSO THE ASSESSEE MADE PAYMENT TO LLS GERMANY FOR GETTING TECHNICAL KNOW - HOW UNDER THE AGREEMENT DATED 03/09/2003 BETWEEN THE ASSESSEE COMPANY AND LLS, GERMANY. THE ASSESSI NG OFFICER TREATED THE PAYMENT A S C APITAL EXPENDITURE , HOWEVER , THE TRIBUNAL AFTER ANALYZING THE VARIOUS TERMS AND CONDITION S OF THE AGREEMENT CONCLUDED THAT THE SAID EXPENDITURE WAS R EVENUE EXPENDITURE. THE RELEVANT FINDING OF THE TRIBUNAL (SUPRA) FOR ASSESSMENT YEAR 2006 - 07 IS REPRODUCED AS UNDER: 15. IN THE LIGHT OF VARIOUS AUTHORITATIVE PRONOUNCEMENT REFERRED BY THE ASSESSEE BEFORE THE LEARNED ASSESSING OFFICER AS WELL AS LEARNED CIT(A) AND AVAILABLE IN THE WRITTEN SUBMISSIONS OF THE ASSESSEE FILED BEFORE THE LEARNED CIT(A ) (COPY AT PAGE 466 TO 474 OF THE PAPER BOOK), WE HAVE CONSIDERED THE AGREEMENTS. THE FIRST OBJECTIONS OF THE ASSESSING OFFICER IS THAT ASSESSING COMPANY HAD ACQUIRED OWNERSHIP RIGHTS INDEPENDENTLY ON THE TECHNICAL KNOW - HOW. ARTICLE 11 OF THE TECHNICAL COO PERATION AGREEMENT DATED 03.09.2003 PROVIDES THAT M/S. LURGI LIFE SCIENCE HAS SPECIFICALLY EMPHASIZED THAT IT WILL REMAIN THE OWNER OF PATENTS KNOW - HOW ETC., USED BY THE ASSESSEE COMPANY. SIMILARLY, ARTICLE 3.4 IN THE TECHNICAL COOPERATION AGREEMENT CONTEM PLATES THAT ASSESSEE WILL NOT ASSIGN RIGHTS OBTAIN UNDER THIS AGREEMENT TO ANY PERSON. THESE RIGHTS ARE FOR A LIMITED TERRITORY AND NOT TRANSFERABLE. THEREFORE, THERE WAS NO INDEPENDENT CONTROL OF THE ASSESSEE OVER THE RIGHTS. IT COULD ONLY USED THEM FOR T HE PURPOSE OF BUSINESS. ARTICLE 3.5 ALSO CONTEMPLATES THAT THE RIGHTS 9 ITA NO. 3958/DEL/2011 AY: 2007 - 08 ARE NON - EXCLUSIVE NON - TRANSFERABLE BASIS AND FOR A SINGLE USE ONLY. IF ALL THESE CLAUSES ARE BEING CONSIDERED THEN IT WOULD REVEAL THAT ASSESSEE HAS NOT ACQUIRED THE RIGHTS OF TECHNICAL KNOWHOW. INDEPENDENTLY, RATHER IT HAS ACQUIRED USED OF SUCH TECHNICAL KNOW - HOW. THERE IS NO ENDURING BENEFIT TO THE ASSESSEE. LEARNED FIRST APPELLATE AUTHORITY HAS APPRECIATED THESE CLAUSE IN RIGHT PERSPECTIVE AND WE DO NOT SEE ANY REASON TO INTERFERE IN T HE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE. THIS GROUND OF APPEAL IS REJECTED. 5.3 WE FIND THAT THE PAYMENT FOR GETTING TECHNICAL KNOW - HOW IN THE FORM OF DRAWING ETC . IN THE YEAR UNDER CONSIDERATION HAS ALSO BEEN MADE IN CONTINUATION OF THE AGREEMEN T DATED 03/09/2003 BETWEEN THE ASSESSEE AND LLS, GERMANY . THUS, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL(SUPRA), WE UPHOLD THE FINDING OF THE LD. CIT - A ON THE ISSUE IN DISPUTE. ACCORDINGLY, THE GROUND NO. 2 OF THE APPEAL IS DISMISSED. 6. IN GR OUND NO. 3, THE R EVENUE HAS CHALLEN GED DELETION OF ADDITION OF RS.15,00, 000/ - TOWARDS EXPENDITURE ON ORGANIZING SEMINARS FOR UPDATING ITS ENGINEERS, HELD AS CAPITAL EXPENDITURE. THE FACTS THAT DURING THE YEAR, THE ASSESSEE MADE PAYMENT TO B IODIESEL ASSOCIATION FOR SPONSORING OF CONFERENCE ON BIODIESEL . THE ASSESSEE DULY DEDUCTED TDS ON ADVERTISING MONEY PAI D TO THE BIODIESEL ASSOCIATION . THE LD. SR. DR SUBMITTED THAT THE SAID PAYMENT WAS FOR ENDURING BENEFIT TO THE ASSESSEE AND HENCE IT WAS CAPITA L IN NATURE. 6.1 ON THE CONTRARY, THE LD. AR SUBMITTED THAT THE EXPENDITURE WAS FOR KEEPING ITS ENGINEER S UPDATED WITH THE LATEST KNOWLEDGE RELATING TO SET UP AND INSTALL OF SERVICES IN THE FIELD OF BIODIESEL AND DISCUSS IONS HELD IN THE CONFERENCE HELPED THE TECHNICAL STAFF IN SOLVING DAY - TO - DAY PROBLEMS. THE LD. AR FURTHER SUBMITTED THAT IN ASSESSMENT YEAR 2008 - 09 ALSO THE ASSESSEE MADE PAYMENT FOR MEMBERSH IP FEE AND REGISTRATION FEE TO BIODIESEL ASSOCIATION , AMOUNTING TO RS . 10.12 LAKHS, WHICH WAS HELD BY THE ASSESSING OFFICER AS CAPITAL EXPENDITURE, HOWEVER, THE TRIBUNAL IN 10 ITA NO. 3958/DEL/2011 AY: 2007 - 08 ITA NO. 1105/DEL/2012 UPHELD THE FINDING OF THE LD. CIT - A, HOLDING THE EXPENDITURE AS REVENUE IN NATURE. THE RELEVANT PARA OF THE ORDER OF THE TRIBUNAL (SUPRA) IS REPRODUCED AS UNDE R: WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AN D PRECEDENT RELIED UPON. WE NOTE THAT THE EXPENDITURE IN THIS CASE HAS BEEN INCURRED IN CONNECTION WITH ENABLING ENGINEERING AND OTHER TECHNICAL STAFF TO PARTICIPATE IN CONFERENCE AND DISCUSSIONS ORGANIZED BY THE BIO DIESEL ASSOCIATION OF INDIA. THE DISCUS SION HELD IN THE CONFERENCES WERE ACADEMIC IN NATURE AND HIGHLIGHT THE CONSTRAINTS FACED BY THE INDUSTRY AND THE NEW TECHNOLOGIES AND TRENDS EMERGING AS A RESULT OF GLOBALIZATION OF ECONOMY. THE PROBLEM FACED IN DAY TO DAY WORKING OF BIO DIESEL INDUSTRY A LSO COME UP FROM DISCUSSIONS AND SUGGESTIONS MADE DURING SUCH DISCUSSIONS HELP THE TECHNICAL STAFF IN SOLVING THE DAY TO DAY PROBLEMS. THEREFORE, WE AGREEMENT WITH THE LEARNED COMMISSIONER OF INCOME TAX (A) THAT IT WAS WITH A VIEW TO UPDATE THE KNOWLEDGE O F ENGINEERS AND TECHNICAL STAFF AND THEREFORE, HAS TO QUALIFY AS REVENUE EXPENDITURE. ACCORDINGLY, WE DO FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A), HENCE, WE UPHOLD THE SAME. 6.2 W E FIND THAT THE ISSUE IN DISPUTE IN THE YEAR UNDER CONSIDERATION IS IDENTICAL TO THE ISSUE DECIDED BY THE TRIBUNAL (SUPRA), THUS , RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, WE UPHOLD THE FINDING OF THE LD. CIT - A IN HOLDING THE EXPENDITURE AS REVENUE IN NATURE. ACCORDINGLY , TH E GROUND NO. 3 OF THE APPEAL IS DISMISSED. 7. IN GROUND NO. 4, THE R EVENUE HAS CHALLENGED DELETION OF ADDITION OF RS.60, 76, 476/ - ON ACCOUNT OF PROVISION FOR WARRANTY. THE LD. SR. DR SUBMITTED THAT PROVISION FOR WARRANTY WAS CONTINGENT LIABILITY AND NOT LI ABILITY IN PRESENT AND THUS CANNOT CONSTITUTE EXPENDITURE SUBJECT MATTER OF DEDUCTION UNDER THE MERCAN TILE S YSTEM OF ACCOUNTING. HE FURTHER SUBMITTED THAT PROVISION FOR WARRANTY BEING AN UN ASCERTAINED LIABILITY , IS NOT ELIGIBLE FOR DEDUCTION. 7.1 ON THE OTHER HAND, THE LD. AR SUBMITTED THAT THE LIABILITY WAS RELATED TO THE PROJECTS WHICH WERE COMPLETED IN FINANCIAL YEAR 2006 - 07 11 ITA NO. 3958/DEL/2011 AY: 2007 - 08 AND IT WAS THE OBLIGATION OF THE ASSESSEE TO SUPPLY MATERIALS AND JOBS AS PART OF THE CONTRACT AND MERELY BECAUSE PURCHASES ARE M ADE IN THE NEXT YEAR , DID NOT PROVE THAT THE LIABILITY DID NOT EXIST AT THE TIME OF COMPLETION OF THE PROJECT. THE LD. AR REFERRED TO PAGE 556 OF THE PAPER BOOK CONTAINING DETAILS OF PURCHASE BILLS AND EXPENDITURE VOUCHERS IN SUPPORT OF EXPENDITURE OF RS.60,76,476/ - , WHICH ARE REPRODUCED AS UNDER: NAME OF THE PROJECT PURCHASE BILLS AND EXPENDITURE VOUCHERS NOVA B IOFUELS PRIVATE LIMITED RS. 31,48,877/ - ROHIT SURFACTANT PRIVATE LIMITED RS. 23, 99, 307 M/S SOUTHERN BIOTECHNOLOGIES LTD . RS. 5,24,492 ASTRA BIO PLANT BULGARIA RS. 3,800/ - TOTAL EXPENDITURE RS. 60,76, 476/ - 7.2 THE LD. AR SUBMITTED THAT THE LIABILITY WAS IN THE BASIS OF ACTUAL VALUATION , IN VIEW OF THE HISTORICAL COST AND EXPERIENCE OF THE ASSESSEE. IN VIEW OF THE SUBMISSIONS, WE ARE OF THE OPINION THAT THE LIABILITY ACCRUED AND EXISTED AND THERE WAS NO UNCERTAIN TY AS TO INCURRING OF LIABILITY AS IT WAS UND ER CONTRACTUAL LEGAL OBLIGATION . THE ASSESSEE HAS INCURRED EXPENSES IN SUBSEQUENT YEAR BEFORE FINALIZATION OF THE FINANCIAL STATEMENT . THE EXPENSES ARE RELATED TO THE PROJECT COMPLETED IN THE YEAR UNDER CONSIDER ATION AND THE CORRESPONDING R EVENUE HAS ALREADY BEEN RECOGNIZED . TH E ASSESSEE DEBITED SAID EX PENSES AS PROVISION OF WARRANTY IN THE YEAR UNDER CONSIDERATION . IN SUCH CIRCUMSTANCES, IT IS EVIDENT THAT WHILE FINALIZING THE FINANCIAL STATEMENT THE AMOUNT , THE EXPENDITURE WAS ASCERTAINED . WE FIND THAT THE LD. CIT - A HAS ALLOWED THE CLAIM OF THE ASSESSEE FOLLOWING THE JUDGMENT OF THE HON BLE APEX C OURT 12 ITA NO. 3958/DEL/2011 AY: 2007 - 08 IN THE CASE OF ROTORK CONTROLS INDIA PRIVATE L IMITED (2009) 314 ITR 62. THE RELEVANT PART OF THE IMPUGNED ORDER IS EXTRACTED AS UNDER: 23. IT IS CLEAR FROM THE ORDER OF THE SUPREME COURT THAT PROVISION FOR WARRANTY IS AN ASCERTAINED LIABILITY AS LONG AS IT IS BASED ON ACTUARIAL VALUATION. THIS IS DONE ON HISTORICAL COST AND ON EXPERIENCE OF THE ASSESSEE. THUS, THE RE CAN BE NO SCOPE FOR ANY DISALLOWANCE. ASSESSEE SUCCEEDS IN GROUND OF APPEAL NO. 7. 7.3 I N OUR OPINION, THE FINDING OF THE LD. CIT - A ON THE ISSUE IN DISPUTE IS COMPREHENSIVE AND WELL REASONED AND WE ARE NOT REQUIRED TO INTERFERE IN THE SAME. ACCORDIN GLY , WE UPHOLD THE FINDING OF THE LEARNE D CIT - A ON THE ISSUE IN DISPUTE AND DISMISS GROUND NO. 4 OF THE APPEAL. 8. IN GROUND NO. 5 , THE R EVENUE HAS CHALLENGED DELETION OF ADDITION OF RS. 93,32,234/ - ON ACCOUNT OF BAD DEBTS. THE LD. SR. DR SUBMITTED THAT THE ASSESSEE HAS NOT ESTABLISHED THAT THE DEBT HAD BECOME BAD AND NO EFFORTS WERE SHOWN FOR RECOVERY OF THE SAID DEBT. I T APPEARED THAT THE AMOUNT HAS NOT BEEN REALIZED BY THE ASSESSEE COMPANY DUE TO OVERSIGHT AT IT ENDS OR ANY OTHER REA SON AND THE DEBT WAS NOT BAD. 8.1 LD. AR , ON THE OTHER HAND , SUBMITTED THAT THE ASSESSEE FULFILLED BOTH THE CONDITIONS OF SECTION 36(2) OF THE ACT FOR ALLOWING BAD DEBT WRITTEN OFF. WE NOTE THAT FOR DEDUCTION OF BAD DEBT IN TERMS OF SECTION 36(2)(I) OF T HE ACT , IT IS NOT NECESSARY THAT DEBT BECOMES ACTUALLY IRRECOVERABLE AND FOLLOWING TWO CONDITIONS NEED ONLY TO BE FULFILLED: 1. A DEBT OR PART OF THAT HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE IN PREVIOUS YEARS . 2. THE AMOUNT OF BAD DE BT OR PART THEREOF HAS BEEN WRITTEN O F F AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. 8.2 IN THE SUBMISSION BEFORE THE ASSESSING OFFICER, THE ASSESSEE EXPLAINED THAT FOLLOWING BED DEBTS WERE WRITTEN OFF AND SAME WERE 13 ITA NO. 3958/DEL/2011 AY: 2007 - 08 SHOWN AS INC OME IN EARLIER YEARS. A LIST OF ALL SUCH BAD DEBT S WRITTEN OFF BY THE ASSESSEE ALONGWITH COMMENTS OF THE ASSESSEE IS EXTRACTED AS UNDER: SL. NO. NAME OF THE PARTY AMOUNT DEBITED TO THE P/L A/C COMMENTS OF THE ASSESSEE 1. GODREJ AGROVET LTD. 1056742/ - INCOME SHOWN IN THE FY 03 - 04 COPIES OF TRADING ACCOUNT AND LEDGER A/C ALREADY FILED WITH LETTER DT. 05.10.09 2. SYNERGY FOOD PVT. LTD. 2210800/ - INCOME SHOWN IN THE FY 04 - 05 COPIES OF TRADING A/C AND LEDGER A/C ALREADY FILED WITH THE LETTER DT. 05.10.09. 3. REGIONAL RESEARCH LABO RATORY (GODREJ AGROVET LTD.) 3613425/ - INCOME SHOWN IN THE FY 2003 - 04 COPIES OF TRADING A/C AND LEDGER A/C ALREADY FILED WITH LETTER DT. 05.10.09 4. REGIONAL RESEARCH LABORATORY (BALAJI OIL INDUST. LTD.) 1969842/ - INCOME SHOWN IN THE FY 01 - 02 COPIES OF TRADING A/C AND LEDGER A/C ALREADY FILED WITH LETTER DT. 05.10.09. 5. FOUNTAIN EXIMP BLUE PVT. LTD. (RUSSIA PROJECT) 481575/ - INCOME SHOWN IN THE FY 01 - 02 COPIES OF TRADING A/C AND LEDGER A/C ALREADY FILED WITH LETTER DT. 05.10. 09 8.3 FROM THE ABOVE TABLE IT IS EVIDENT THAT ASSESSEE HAS ALREADY SHOWN ABOVE DEBTS AS INCOME IN EARLIER YEARS AND THE REVENUE HAS NOT DISPUTED THE FACT OF DEBT SHOWN AS INCOME IN EARLIER YEARS. THE ASSESSEE HAS DEMONSTRATED WRITTEN OFF OF THE BAD DEBTS IN THE YEAR UNDER CONSIDERATION AND THUS BOTH THE CONDITIONS IN RESPECT OF THE ABOVE BAD DEBTS ARE FULFILLED. THE LD. CIT - A HAS ALSO FOLLOWING THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF TRF LTD VS. CIT , (2010) 323 ITR 397 (SC) ACCEPTED THE CLAIM OF THE ASSESSEE AND ALLOWED THE GROUND 14 ITA NO. 3958/DEL/2011 AY: 2007 - 08 RAISED BY THE ASSESSEE IN THIS RESPE CT. THE RELEVANT PART OF THE ORDER OF THE LD. CIT - A IS REPRODUCED AS UNDER: 26. THE ISSUE HAS DRAWN THE ATTENTION OF THE DELHI HIGH COURT REPEATEDLY BUT THE RESULTS HAVE BEEN THE SAME, AS IN CIT VS. AUTOMETERS LTD. (2007) 292 ITR 345 (DEL.) , CIT VS. IFCI VENTURE CAPITAL FUNDS LTD. (2008) 202 TAXATION 329 (DEL.) AND CIT VS. NILOFER I. SINGH (2009) 3009 ITR 233 (DEL.) ETC. 27. MORE RECENTLY, THE HON BLE APEX COURT HAS ALSO CONSIDERED THE ISSUE. THE SUPREME COURT HAS DECIDED THE ISSUE IN T.R.F. LTD. VS. CIT (2010) 323 ITR 397 (SC). IT HAS BEEN HELD AS UNDER: THIS POSITION IN LAW IS WELL SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 28. GOING BY THE DECISION OF THE DELHI HIGH COURT AND THE APEX COURT, WHO HAVE INTERPRETED THE PROVISIONS OF THE ACT IN GREAT DETAIL AND THE BOARD S CIRCULAR, THE ASSESSEE DESERVES TO SUCCEED IN GROUND OF APPEAL NO. 8.4 IN VIEW OF A B O V E DISCUSSION, WE ARE OF THE OPINION THAT ORDER OF LD. CIT - A ON THE ISSUE IN DISPUTE IS WELL REASONED AND NO INTERFERENCE ON OUR PART IS REQUIRED, ACCORDINGLY , WE UPHOLD THE ORDER OF LD. CIT - A ON THE ISSUE IN DISPUTE. THE GROUND NO. 5 OF THE APPEAL IS DISMISSED. 9. IN GROUND NO. 6, THE R EVENUE IS AGGRIEVED W ITH DELETION OF ADDITION OF RS. 3, 38, 462/ - ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES. THE LD. S R. DR SUBMITTED THAT THE ASSESSE E HAD TAKEN SECURED LOAN OF RS.116,92, 948/ - AND P AID INTEREST TO THE TUNE OF RS.3,38, 462/ - , WHEREAS THE ASSESSEE ADVANCED IN TEREST FREE LOAN/DEPOSIT OF RS.1, 85,914/ - TO ONE OF THE DIRECTOR OF THE COMPANY AND RS.95,03, 987/ - TO ONE OF THE SISTER S CONCERN , NAMELY , M / S . C HEMICAL C ONSTRUCTION COMPANY PRIVATE L IMITED. THE LD. SR. DR FURTHER SUBMITTED TH AT NO BUSINESS EXPEDIENCY WAS ESTABLISHED IN EXTENDING THE INTEREST FREE LOANS/DEPOSITS TO RELATED PARTIES AND THUS THE INTEREST CORRESPONDING TO SUCH LOANS/DEPOSITS NEED TO BE 15 ITA NO. 3958/DEL/2011 AY: 2007 - 08 DISALLOWED. HE FURTHER SUBMITTED THAT IF THE INTEREST IS CALCULATED AT THE MARK ET RATE WHICH WOULD WORK OUT TO BE RS. 9.00 LAKH, BUT SINCE THE ASSESSEE HAS CLAI MED INTEREST EXPENDITURE OF RS.3,38, 462/ - THE ASSESSING OFFICER RESTRICTED THE DISALLOWANCE TO SAID AMOUNT ONLY. 9.1 THE LD. AR, ON THE OTHER HAND , SUBMITTED THAT THE ASSESSE E WAS HAVING SUFFICIENT OWN FUNDS AND THE SECURED LOANS HAVE BEEN UTILIZED FOR THE PURPOSE, THE LOANS WERE TAKEN. HE FURTHER SUBMITTED THAT NO BORROWED FUNDS WERE DIVERTED TO THE SISTER CONCERN. HE FURTHER SUBMITTED THAT LOAN ADVANCED TO THE D IRECTOR AND T W O SISTER CONCERN S WERE FOR BUSINESS PURPOSES. HE SUBMITTED THAT ADVANCE TO THE D IRECTOR , SH. O P NAMBIAR WAS MADE FOR HIS TRAVEL EXPENDITURE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE COMPANY AND THE ADVANCE TO M/S . C HEMICAL C ONSTRUCTION COMPANY PRIVATE L IMITED WAS GIVEN IN RELATION TO REGULAR BUSIN ESS TRANSACTIONS. 9.2 WE FIND THAT T HE LD. CIT - A OBSERVING THAT THE ASSESSEE HAD SUFFICIENT FUNDS , WHICH WERE SELF GENERATED AND THE MONEY WAS ADVANCED FOR COMMERCIAL PURPOSES, DELETED THE DISALLOWANC E OF RS.3,38, 462/ - MADE BY THE ASSESSING OFFICER. THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. TIN BOX COMPANY, 260 ITR 637 (DEL) ENDORSED THE FINDING OF THE TRIBUNAL THAT WHEN THE CAPITAL OF THE FIRM AND INTEREST FREE UNSECURED LOANS WITH THE APPEL LANT FAR EXCEEDED THE AMOUNTS ADVANCED TO THE SISTER CONCERN AND THE DEPARTMENT COULD NOT POINT OUT ANY SPECIFIC INTEREST - BEARING BORROWED FUNDS DIVERTED BY THE ASSESSEE TO ITS SISTER CONCERN, NO DISALLOWANCE COULD BE MADE FOR INTEREST CORRESPONDING TO THE INTEREST FREE ADVANCES TO SISTER CONCERN. THE HON BLE HIGH COURT DISMISSED THE APPEAL OF THE R EVENUE HOLDING THAT BASED ON RELEVANT EVIDENCE ON RECORD, NO QUESTION OF LAW AROSE FROM THE ORDER OF THE TRIBUNAL. IN THE PRESENT CASE ALSO THE ASSESSEE WAS HAVI NG ITS OWN FUNDS OF RS.121,21,278/ - AT TH E BEGINNING OF THE YEAR AND 16 ITA NO. 3958/DEL/2011 AY: 2007 - 08 RS. 2 , 53,56,921/ - AT THE CLOSING OF THE YEAR, AND THE AVERAGE OF WHICH IS FAR MORE THAN THE INTEREST FREE AMOUNT ADVANCED TO THE DIRECTOR AND SISTER CONCERN. THUS , IN OUR OPINION, NO DISALLOWANCE OF INTEREST COULD HAVE BEEN MADE IN THE HANDS OF THE ASSESSEE. FURTHER, HON BLE SUPREME COURT IN THE CASE OF SA B UILDERS VS. CIT AND ANOTHER (2007) 288 ITR 1 (SC) HELD THAT TRANSFER OF BORROWED FUNDS TO SISTER CONCERN SHOUL D BE SEEN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS. THE HON BLE SUPREME COURT FURTHER HELD THAT THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDE SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BUSINESS EXPENDITURE, IF IT WAS INCURRED ON GROUNDS OF COMMERCIAL E XPEDIENCY. IN THE INSTANT CASE, THE ASSESSEE HAS ADVA NCED INTEREST FREE LOAN TO THE D IRECTOR, THE OUTSTANDING BALANCE OF WHICH AT THE YEAR - END WAS OF RS. 1,85, 114/ - AND INTEREST FREE ADVANCE TO SISTER CONCERN, OUTSTANDING BALANCE O F WHICH AT THE YEAR - END WA S RS.95,03, 987/ - . ON BEHALF OF THE ASSESSEE, THE LD. COUNSEL H AS EXPLAINED THAT ADVANCE WAS GIVEN TO THE D IRECTOR FOR USE AGAINST TRAVEL EXPENDITURE FOR THE PURPOSE OF BUSINESS OF THE COMPANY AND THE ADVANCE TO THE SISTER CONCERN WAS GIVEN AGAINST THE REGU LAR TRANSACTION OF PURCHASE. WE FIND THAT THE ASSESSING OFFICER HAS ALSO NOTED EXISTENCE OF THE BUSINESS TRANSACTION BETWEEN THE ASSESSEE AND THE SAID SISTER CONCERN. THE ONLY DOUBT WHICH WAS RAISED BY THE ASSESSING OFFICER THAT THE ADVANCE WAS DISPROPORTI ONATE TO THE TOTAL TRANSACTION WITH THE SISTER CONCERN. THE LEARNED AR REFERRED TO PAGE 248 TO 253 OF THE PAPER BOOK, WHICH IS A COPY OF LEDGER ACCOUNT OF M/S C HEMICAL C ONSTRUCTION C OMPANY PRIVATE L IMITED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND SUBMI TTED THAT DURING THE YEAR THE 17 ITA NO. 3958/DEL/2011 AY: 2007 - 08 ASSESSEE MADE PURCHASES AND OTHER TRANSACTIONS OF MORE THAN RS. 2.5 CRORES FROM THE SAID SISTER CONCERN AND THE SAID ADVANCE WAS MADE TO CARRY OUT MANUFACTURING ORDER OF THE ASSESSEE WELL IN TIME. IN OUR OPINION, IT IS WELL KN OWN BUSINESS PRACTICE THAT THE MANUFACTURER ASK FOR ADVANCE FOR EXECUTING ORDERS, AND THUS THE ADVANCE MADE BY THE ASSESSEE IS PART OF NORMAL BUSINESS PRACTICE AND IN THE NATURE OF COMMERCIAL EXPEDIENCY. THUS , THE DISALLOWANCE DESERVE TO BE DELETED BOTH ON THE ACCOUNT OF THE SUFFICIENT OWN CAPITAL IN THE HAND OF ASSESSEE COMPANY AS WELL AS ON THE GROUND OF ADVANCE MADE ON ACCOUNT OF BUSINESS EXPEDIENCY. IN VIEW OF ABOVE, WE ARE OF THE OPINION THAT FINDING OF TH E LD. COMMISSIONER OF INCOME - TAX (APPEALS) ON THE ISSUE IN DISPUTE IS WELL REASONED AND NO INTERFERENCE ON OUR PART IS REQUIRED. ACCORDINGLY , WE UPHOLD THE SAME. THE GROUND NO. 6 OF THE APPEAL IS ACCORDINGLY DISMISSED. 10. IN GROUND NO. 7 , THE R EVENUE HAS CHALLEN GED DELETING OF ADDITION OF RS. 5,647/ - ON ACCOUNT OF DISALLOWANCE OF EXTRA DEPRECIATION ON COMPUTER PERIPHERALS/ACCESSORIES. THE LD. SR. DR SUBMITT ED THAT THE DEPRECIATION OF RS.5, 647/ - CLAIMED AT THE RATE OF 60% ON COMPUTER ACCESSORIES A ND PERIPHERALS AMOUNTING TO RS.12, 550/ - TREATING THE SAME AS COMPUTER WAS NOT ALLOWABLE AS PER THE PROVISIONS OF THE I NCOME T AX ACT. 10.1 THE LD. AR, ON THE OTHER HAND , SUBMITTED THAT IN VIEW OF THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CI T VS. BSES RAJDHANI P OWERS LTD . IN ITA NO. 1266 OF 20/10/2010, THE COMPUTER ACCESSORIES AND PERIPHERALS ARE ENTITLED TO DEPRECIATION AT THE HIGHER RATE OF 60%. 10.2 WE FIND THAT, THE LD. CIT - A HAS FOLLOWED THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. BSES RAJDHANI P OWERS LTD . (SUPRA), WHEREIN THE HON BLE HIGH COURT HAS AGREED WITH THE TRIBUNAL 18 ITA NO. 3958/DEL/2011 AY: 2007 - 08 THAT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS PRINTERS, SCANNERS AND SERVERS ETC . FORM AN INTEGRAL P ART OF THE COMPUTER SYSTEM. IN FACT , THE COMPUTER ACCESSORIES AND PERIPHERALS CANNOT BE USED WITHOUT THE COMPUTER, HENCE THEY ARE PART OF COMPUTER SYSTEM AND ENTITLED AT THE HIGHER RATE OF 60% DEPRECIATION. THUS , RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HON BLE DELHI HIGH COURT, WE UPHOLD THE FINDING OF THE LD. CIT - A ON THE ISSUE IN DISPUTE, AND ACCORDINGLY THE GROUND NO. 7 OF THE APPEAL IS DISMISSED. 11. IN THE RESULT, APPEAL OF THE R EVENUE IS DISMISSED. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 2 7 T H MA RCH , 201 7 . S D / - S D / - ( AMIT SHUKLA ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 7 T H MARCH , 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI