DCIT, New Delhi V. M/s VE Commercial Vehicles Ltd, New Delhi

ITA 580/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0154 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 04-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SARAS KUMAR; N K CHOUDHARY
• Keywords: Earning of tax free income; Bad and doubtful debts; Scheme of amalgamation; Revenue expenditure; Capital expenditure; Rule 8D
• Section: 92A; 14A; 37(1); 13; 22; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES G, NEW DELHI BEFORE MS. SUSHMA CHOWLA, VICE PRESIDENT DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO. 580/DEL/2016 : ASSTT. YEAR : 200 9-10 ITA NO. 581/DEL/2016 : ASSTT. YEAR : 2010-11 DC IT, CIRCLE-26(1), NEW DELHI VS M/S VE COMMERCIAL VEHICLES LTD., 3 RD FLOOR, SELECT CITY WALK, A-3, DISTRICT CENTRE, NEW DELHI-110017 (APPELLANT) (RESPONDENT) PAN NO. AABCE9378F ITA NO. 5734/DEL/2016 : ASSTT. YEAR : 2011-12 ADDL. CIT, SPECIAL RANGE-9 NEW DELHI VS M/S VE COMMERCIAL VEHICLES LTD., 3 RD FLOOR, SELECT CITY WALK, A-3, DISTRICT CENTRE, NEW DELHI-110017 (APPELLANT) (RESPONDENT) PAN NO. AABCE9378F ASSESSEE BY : SH. GAURAV JAIN, ADV. REVENUE BY : SH. N. K. CHOUDHARY, CIT DR & SH. SARAS KUMAR, SR. DR DATE OF HEARING: 0 9 . 0 1 .2020 DATE OF PRONOUNCEMENT: 30.04 .2020 ORDER PER DR. B.R.R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEALS HAVE BEEN FILED BY THE REVENUE AGAINST THE ORDERS OF LD. CIT (A)-14, NEW DELHI DAT ED 20.11.2015 FOR THE ASSESSMENT YEAR 2009-10 AND 2010 -11 AND THE ORDER OF LD. CIT (A)-33, NEW DELHI DATED 03.08. 2016 FOR THE ASSESSMENT YEAR 2011-12. ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 2 2. IN ITA NO. 580/DEL/2016, FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: 1 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE ORDER PASSED BY LEARNED CIT(A) IS ERRONEOUS AND THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.89,56,61,072/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF DEDUCTION OF CAPIT AL EXPENDITURE ON RESEARCH & DEVELOPMENT AND ADDITIONAL DEDUCTION OF 50% ON ALL THE R & D EXPENDITURE U/S 35(2AB) AND THE LD.CIT(A) FAILED TO CONSIDER THE DECISION IN THE CASE OF M/S ADVIK HI TECH PVT. LTD. (2014) 51 TAXMAN.COM 245 (PUNE TRIBUNAL) WHICH IS IN FAVOUR OF REVENUE AND WAS GIV EN AFTER CONSIDERING THE HONBLE HIGH COURT ORDERS REL IED UPON THE LD. CIT(A). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE ORDER PASSED BY LEARNED CIT(A) IS ERRONEOUS AND THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.2,34,335/- MADE BY AO U/S 14A. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE ORDER PASSED BY LEARNED CIT(A) IS ERRONEOUS AND THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.7,32,00,000/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF EXPENSES CLAIMED ON PAYMENT BASIS OUT OF OUTSTANDING PROVISIONS STANDING IN THE BOOKS OF ACCOUNTS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE ORDER PASSED BY LEARNED CIT(A) IS ERRONEOUS AND THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.5,59,00,000/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS. 3. IN ITA NO. 581/DEL/2016, FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE ORDER PASSED BY LEARNED CIT(A) IS ERRONEOUS AND THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.3,00,00,000/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF WARRANTY ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 3 EXPENSES CLAIMED ON PAYMENT BASIS OUT OF OUTSTANDING PROVISIONS STANDING IN THE BOOKS OF ACCOUNTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE ORDER PASSED BY CIT(A) IS ERRONEOUS AND THE LD. CIT (A) HAS ERRED IN DELETING ADDITION OF RS.5,96,20,438/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS. 4. IN ITA NO. 5734/DEL/2016, FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE ORDER PASSED BY LEARNED CIT(A) IS ERRONEOUS AND THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.71,93,752/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS. 2. THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON FAC TS OF THE CASE IN DELETING THE DISALLOWANCE ON ACCOUNT OF TRAINING EXPENSES OF RS.2,30,44,980/- MADE BY THE AO BY TREATING THE TRAINING EXPENSES AS DEFERRED REVENUE EXPENSES. DEDUCTION OF CAPITAL EXPENDITURE ON R&D: 5. THE UNDISPUTED FACTS TAKEN FROM THE RECORD ARE A S UNDER: THE ASSESSEE PUBLIC COMPANY HAD FILED RETURN ON INC OME ON 29.09.2009 DECLARING A LOSS OF RS. 71,64,99,409/- WHICH WAS IN CORPORATED AS A JOINT VENTURE BETWEEN AB VOLVO (VOLVO) AND EICHER MOTOR S LIMITED (EML) AND IS ENGAGED, INTER ALIA, IN THE BUSINESS OF MANUFACT URE AND SALE OF COMMERCIAL VEHICLES AND COMPONENTS, INCLUDING GEARS AND ENGINEERING SOLUTIONS. THE RELEVANT PREVIOUS YEAR IS THE FIRST YEAR OF BUSINESS OF THE ASSESSEE. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE ACQU IRED FROM EML, COMMERCIAL VEHICLES UNDERTAKING, BY WAY OF DEMERGER , W.E.F. 1.7.2008. ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 4 THE SAID COMMERCIAL VEHICLES UNDERTAKING ACQUIRED F ROM EML, INCLUDED, INTER ALIA, RESEARCH AND DEVELOPMENT CENTRE AT PITH AMPUR (R&D FACILITY). THE AFORESAID R&D FACILITY AT PITHAMPUR, EARLIER BE LONGING TO EML, WAS APPROVED BY DSIR UNDER SECTION 35(2AB) OF THE ACT UP TO 31.03.2007, VIDE APPROVAL DATED 10TH AUGUST 2005 IN FORM 3CM. P RIOR TO DIVESTING OF COMMERCIAL VEHICLE UNDERTAKING COMPRISING OF R&D FA CILITY, BY WAY OF SLUMP SALE, EML HAD APPLIED FOR RENEWAL AND EXTENSI ON OF APPROVAL OF THE AFORESAID R&D FACILITY UNDER SECTION 35(2AB) OF THE ACT UPTO 31.03.2012, VIDE APPLICATION DATED 03.09.2007 FILED BEFORE DSIR. EML WAS GRANTED GENERAL RECOGNITION BY THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, MINISTRY OF SCIENCE AND TECHNOLOGY (DSIR ) UPTO 31.03.2011, VIDE APPROVAL DATED 05.06.2008. HOWEVER, PENDING RECEIPT OF APPROVAL FROM DSIR FOR T HE PURPOSE OF SECTION 35(2AB),EML DIVESTED THE COMMERCIAL VEHICLE UNDERTAKING, INCLUDING THE AFORESAID R&D FACILITY AT PITHAMPUR, T O THE ASSESSEE BY WAY OF DEMERGER, W.E.F. 01.07.2008. PURSUANT TO THE AFORESAID TRANSFER, EML FILED LETTE R DATED 13TH OCTOBER, 2008 BEFORE DSIR TO CONSIDER FOLLOWING AMENDMENTS IN THE EARLIER APPROVALS GRANTED BY DSIR AND ALSO FOR RENEWAL/ EXTE NSION OF RECOGNITION PENDING BEFORE DSIR: I) TO GRANT APPROVAL UNDER SECTION 35(2AB) IN RESPE CT OF R&D FACILITY AT PITHAMPUR FOR THE PERIOD 1.4.2007 TO 30.6.2008 IN T HE NAME OF EML; II) TO CHANGE THE RECOGNITION LETTER DATED 5.6.2008 FOR THE IN HOUSE R&D FACILITY AT PITHAMPUR IN THE NAME OF THE ASSESSE E INSTEAD OF EML W.E.F. 1.7.2008, AND ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 5 III) TO TREAT APPLICATION DATED 3.9.2007, REQUESTIN G FOR RENEWAL OF APPROVAL UNDER SECTION 35(2AB) OF THE ACT IN RESPEC T OF R&D FACILITY AT PITHAMPUR, IN THE NAME OF THE ASSESSEE, FOR THE PER IOD COMMENCING FROM 1.7.2008 AND GRANT APPROVAL FROM THAT DATE UPT O 31.3.2012 IN THE NAME OF THE ASSESSEE ONLY. PURSUANT TO THE AFORESAID APPLICATION DATED 13TH OC TOBER, 2008, DSIR RENEWED THE GENERAL RECOGNITION ALREADY GRANTED TO THE AFORESAID R&D FACILITY AT PITHAMPUR IN THE NAME OF THE ASSESSEE ( EARLIER GRANTED IN THE NAME OF EML) FOR THE PERIOD UPTO 31.3.2012, VIDE AP PROVAL DATED 9.3.2009. IN ADDITION TO THE AFORESAID GENERAL RECOGNITION, DS IR ALSO GRANTED APPROVAL TO THE AFORESAID IN-HOUSE R&D FACILITY AT P ITHAMPUR UNDER SECTION 35(2AB) OF THE ACT IN THE NAME OF THE ASSES SEE, VIDE APPROVAL DATED 17/18TH FEBRUARY 2010 IN FORM NO.3CM. THE AFO RESAID APPROVAL WAS GRANTED FROM 09.03.2009 (I.E., THE DATE OF LETT ER ISSUED BY DSIR FOR GRANTING GENERAL RECOGNITION APPROVAL TO IN-HOUSE R &D UNIT IN THE NAME OF THE ASSESSEE) TO 31.3.2012. THE DSIR ALSO GRANTED APPROVAL UNDER SECTION 35(2AB) IN THE NAME OF EML UPTO 30-06-2008. IN THE RETURN OF INCOME FILED FOR THE RELEVANT PREV IOUS YEAR, THE ASSESSEE CLAIMED WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT @ 150% OIL THE SCIENTIFIC RESEARCH EXPENSES INCURRED AT THE IN -HOUSE R&D FACILITY, IN THE FOLLOWING MANNER: (I) CAPITAL EXPENDITURE ON BUILDING, PLANT AND MACHINERY, ETC. RS.55,10,84,569 (II) ADDITIONAL DEDUCTION AT 50 PERCENT IN RESPECT OF ABOVE CAPITAL EXPENDITURE (EXCLUDING COST OF RS.25,44,90,785 ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 6 BUILDING) UNDER SECTION 35(2AB) OF THE ACT (III) ADDITIONAL DEDUCTION AT 50 PERCENT IN RESPECT OF REVENUE EXPENDITURE RS.9,00,85,719 TOTAL RS.89,56,61,072 IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER DISA LLOWED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT CLAIMED BY THE ASSESSEE ON THE GROUND THAT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE WAS NOT ELIGIBLE FOR WEIGHTED DEDUCTION SINCE APPROVAL UNDER THAT SECTIO N WAS GRANTED TO THE IN-HOUSE R&D FACILITY FROM 09.03.2009 ONLY. 6. THIS LEAVES US WITH THE ISSUE TO ADJUDICATE WHET HER THE DEDUCTION IS ALLOWABLE ONLY FROM 09.03.2009, THE DATE ON WHICH T HE ASSESSEE RECEIVED LETTER FROM DSIR OR NOT. 7. THE LD. DR RELIED ON THE ORDER OF THE ASSESSING O FFICER AND ALSO ARGUED BASED ON THE WRITTEN SUBMISSIONS WHICH ARE A S UNDER: IN THIS CASE, THE AO DISALLOWED DEDUCTION U/S 35( 2AB) ON THE GROUND THAT DURING THE RELEVANT AT THE ASSESSEE WAS NOT ELIGIBLE FOR WEIGHTED DEDUCTION SINCE APPROVAL U/S 35(2AB) WAS GRANTED TO THE IN-HOUSE R & D FACILITY FROM 09.03.2 009 ONLY. THE AO HELD THAT DEDUCTION U/S 35(2AB) CANNOT BE AL LOWED FOR EXPENSES INCURRED PRIOR TO 09.03.2009. 2. THE CASE OF THE AO IS THAT SINCE DSIR, THE APPRO VING AUTHORITY, HAS MENTIONED THE SPECIFIC DATE 09.03.20 09 WHILE GRANTING APPROVAL TO THE ASSESSEE COMPANY, THE BENE FIT U/S 35(2AB) CANNOT BE GIVEN PRIOR TO THAT DATE. THE PLE A OF THE ASSESSEE IS THAT THE DATE OF RECOGNITION/APPEAL OF THE IN-HOUSE R & D FACILITY, BEING NOT A CONDITION PRECEDENT FOR CLAIMING DEDUCTION U/S 35(2AB), SCIENTIFIC RESEARCH EXPENSES INCURRED AT AN APPROVED R & D FACILITY NOTWITHSTANDING THE D ATE OF SUCH RECOGNITION SHALL BE ELIGIBLE FOR WEIGHTED DEDUCTIO N. IT IS THE PLEA OF THE ASSESSEE THAT THE CUTOFF DATE MENTIONED BY DSIR IN THE APPROVAL GRANTING RECOGNITION TO THE R & D FACI LITY OF THE ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 7 ASSESSEE COMPANY IS EXTRANEOUS AND IRRELEVANT FOR C LAIMING WEIGHTED DEDUCTION U/S 35(2AB) OF THE ACT. 3. THE CIT(A) HAS ALLOWED THE DEDUCTION RELYING ON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF THE C IT VS. CLARIS LIFE SCIENCES LTD. 326 ITR 251. THE CIT(A) HAS DISC USSED THE ISSUE ON PAGE NO. 7-11 OF HIS ORDER. 4. IN THE PRESENT CASE, IN-HOUSE R & D FACILITY WHI CH WAS EARLIER OWNED BY EML, PRIOR TO SLUMP SALE OF BUSINE SS TO THE ASSESSEE COMPANY, WAS APPROVED BY DSIR. THE EML VID E APPLICATION 03.09.2007 APPLIED FOR RENEWAL OF THE E ARLIER APPROVAL GIVEN TO EML. THE EML DIVESTED THE COMMERC IAL VEHICLE UNDERTAKING, INCLUDING R & D FACILITY AT PI THAMPUR, TO THE ASSESSEE COMPANY BY WAY OF SLUMP SALE ON 01.07. 2008. SUBSEQUENTLY, DSIR GRANTED RECOGNITION TO THE R & D CENTRE OF THE ASSESSEE VIDE ORDER DATED 09.03.2009. THE CIT(A ) HAS HELD THAT THE PRIOR APPROVAL WAS GIVEN TO EML IN RE SPECT OF R & D FACILITY, WHICH WAS SUBSEQUENTLY TAKEN OVER BY TH E ASSESSEE AND THEREFORE, THE ASSESSEE COMPANY WAS ALSO ELIGIB LE FOR DEDUCTION U/S 35(2AB) IN RESPECT OF R & D UNIT. 5. THE R & D UNIT OF THE ASSESSEE COMPANY WAS APPRO VED IN THE NAME OF THE ASSESSEE FOR THE FIRST TIME BY DSIR W.E.F. 09.03.2009 AND UPTO 31.03.2012. THE CIT(A) HAS WRON GLY HELD THAT SINCE THE R & D UNIT OF EML WAS TAKEN OVE R BY THE ASSESSEE COMPANY, IT WILL BE ASSUMED THAT THE R & D UNIT WAS ALREADY RECOGNIZED. THE FACT IS THAT THE R & D UNIT OF THE ASSESSEE WAS RECOGNISED FOR THE FIRST TIME BY DSIR W.E.F. 09.03.2009 AND UPTO 31.03.2012. THEREFORE, THE FIND ING OF THE CIT(A) THAT THE R & D FACILITY ALREADY STOOD APPROV ED BY DSIR AND IT WAS ONLY A CHANGE IN THE NAME ON ACCOUNT OF TRANSFER OF OWNERSHIP FROM EML TO ASSESSEE COMPANY AND HENCE TH E ASSESSEE WAS ELIGIBLE FOR DEDUCTION IS BASED ON INC ORRECT APPRECIATION OF FACTS AND LAW. THE FACT IS THE R & D UNIT OF EML WAS APPROVED BY DSIR AND NOT THE R & D FACILITY OF THE ASSESSEE COMPANY. 6. AS PER PROVISIONS OF PART-B OF FORM 3CK , AN AGR EEMENT HAS TO BE ENTERED INTO BETWEEN THE ASSESSEE AND DSIR. F ORM 3CM PROVIDES FOR NAME, ADDRESS AND PAN OF THE ASSESSEE. FORM 3CL IS ISSUED BY DSIR GIVING DETAILS OF EXPENDITURE INCURRED BY THE ASSESSEE IN TERMS OF SECTION 35(2AB). IN THIS C ASE, THE R & D FACILITY OF THE ASSESSEE HAS BEEN APPROVED FOR TH E FIRST TIME ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 8 W.E.F. 09.03.2009. HENCE, 35(2AB) DEDUCTION CAN BE ALLOWED ONLY W.E.F. 09.03.2009. 7. THE FACTS IN THE CASE OF CLARIS LIFE SCIENCES LT D. (SUPRA) AND SANDAN VIKAS INDIA LTD. 335 ITR 117 (DEL.) ARE DISTINGUISHABLE. IN THE ABOVE CASES, R & D UNITS WE RE ALREADY EXISTING AS APPROVED IN THE NAME OF THE RESPECTIVE ASSESSEE. IN THE INSTANT CASE, R & D FACILITY WAS APPROVED BY DSIR IN THE CASE OF THE ASSESSEE FOR THE FIRST TIME. 8. THE FACTS IN THE CASE OF MARUTI SUZUKI INDIA LTD . VS. UOI [2017] 84 TAXMANN.COM 45 (DELHI) ARE DISTINGUISHABL E FROM THE FACTS OF THE INSTANT CASE. IN THE CASE OF MARUT I SUZUKI, THESE WAS SOME PRIMA FACIE MISTAKE IN ISSUING THE C ERTIFICATE BY DSIR. THE WRIT PETITION WAS FILED AGAINST DSIR. FURTHER, THE R & D CENTRE OF MARUTI WAS ALREADY RECOGNISED, WHIL E IN THE INSTANT CASE R & D CENTRE OF THE ASSESSEE IS RECOGN ISED BY DSIR FOR THE FIRST TIME W.E.F. 09.03.2009. 9. IN THIS CONNECTION, RELIANCE IS PLACED ON THE DE CISION IN THE CASE OF ADVIK HI TECH PVT. LTD. VS. ADDL. CIT 92014 0 51 TAXMANN.COM 245 (PUNE-TRIB.). IN THE ABOVE CASE, TH E HONBLE ITAT HAS CONSIDERED THE DECISIONS IN THE CASE OF CI T VS. SANDAN VIKAS (INDIA) LTD. 335 ITR 117 (DEL.) AND CI T VS. CLARIS LIFE SCIENCES LTD. (GUJ.). IN PARA 13.3 OF T HE SAID ORDER, THE HONBLE ITAT HAS HELD THAT IN THE ABOVE MENTION ED DECISION SIMPLY IT WAS HELD THAT ONCE R & D FACILIT Y IS APPROVED BY DSIR, THE ASSESSEE IS ENTITLED TO WEIGHTED DEDUC TION U/S 35 (2AB). THE HONBLE ITAT HAS RELIED UPON THE DECISIO N OF DELHI HIGH COURT IN THE CASE OF APOLLO TYRES LTD. VS. UOI [2010-279- HC-DEL-IT] IN W.P NO. 13338 OF 2009. IN THE SAID CA SE, APPROVAL DATED 10.10.2011 IN FORM 3CM WAS GRANTED F OR PERIOD FROM 01.04.2009 TO 31.03.2012. THE HONBLE I TAT HELD THAT THE DEDUCTION WAS ALLOWABLE W.E.F. 01.04.2009 ONLY. 10. RELIANCE IS ALSO PLACED ON THE DECISION OF THE ITAT, MUMBAI IN THE CASE OF PCP CHEMICALS PVT. LTD. VS, ITO [201 7] 88 TAXMANN.COM 5 (MURNBAI-TRIB.) IN THIS CASE, THE PERIOD FOR WHICH APPROVAL WAS GIV EN IN FORM 3CM WAS HELD TO BE CORRECT AND CLAIM FOR THE PERIOD , PRIOR TO THE APPROVED PERIOD IN FORM 3CM, WAS NOT ALLOWED. I N THE ABOVE CASE, DECISION OF MARUTI SUZUKI LTD. (SUPRA) HAS ALSO BEEN CONSIDERED. ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 9 11. WITHOUT PREJUDICE TO THE ABOVE, IT IS TO BRING TO KIND NOTICE THAT U/S 35(5), THE ACT HAS PROVIDED FOR CON TINUATION OF BENEFIT IN RESPECT OF ANY ASSET REPRESENTING EXPEND ITURE OF A CAPITAL NATURE ON SCIENTIFIC RESOURCES IN THE HANDS OF AMALGAMATED COMPANY. THE SAID BENEFIT HAS NOT BEEN EXTENDED IN THE CASE OF REVENUE EXPENDITURE. THE AC T HAS CLEARLY MADE PROVISION IN RESPECT OF AMALGAMATION O F COMPANIES. THERE IS NO SUCH PROVISION IN THE CASE O F SLUMP SALE. SINCE THE ASSESSEE COMPANY IS AN ENTITY DIFFE RENT FROM EML HAVING SEPARATE PAN, IT CANNOT CLAIM EXTENSION/CONTINUATION OF BENEFIT OF DEDUCTION U/S 35 (2AB) IN RESPECT OF R & D UNIT OWNED BY THE PREVIOUS OWNER. ONCE THE R & D UNIT OF ASSESSEE IS APPROVED BY DSIR, UNIT CA N BE HELD TO BE EXISTING APPROVED R & D UNIT FOR CLAIMING DED UCTION IN FUTURE. THEREFORE, UNLESS THE R & D UNIT IS ALLOWED BY DSIR AS ELIGIBLE UNIT UNDER 35(2AB), IT CANNOT CLAIM DEDUCT ION PRIOR TO APPROVED IN FORM 3M. 12. TO SOME UP, R & D UNIT OF THE ASSESSEE COMPANY WAS NOT AN ADJUSTING APPROVED UNIT BEFORE 09.03.2009 AN D THEREFORE, THE ASSESSEE CAN CLAIM DEDUCTION U/S 35( 2AB) WITH EFFECT FROM 09.03.2009 ONWARDS. 8. THE LD. DR HAS ALSO RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF APOLLO TYRES VS UNION OF INDIA WP(C) 13338/2009 ORDER DATED 20.04.2010 WHEREIN THE ISSUE OF DEDUCTION U/S 35(2AB) HAS BEEN DISCUSSED. WE HAVE PERUSED THE SAM E . IT WAS HELD THAT THE DEDUCTION IS ELIGIBLE ONLY FROM THE DATE O F APPROVAL IN WHICH THE FORM 3CK HAS BEEN FILED AND THE AGREEMENT ENTERED. IN THAT CASE THE APPROVAL HAS BEEN GRANTED FROM 21.08.2008. THE HON BLE HIGH COURT HAS HELD THAT APPROVAL WOULD NORMALLY HAVE BEEN GRANTED ONLY IN THE YEAR IN WHICH THE APPLICATION IN FORM 3CK IS MADE. IF THAT WERE TO BE THE CASE, THEN THE ASSESSEE COULD HAVE GOT APPROVAL ONLY W.E. F. 01.04.2008. IT WAS ALSO HELD THAT IT IS ONLY BECAUSE OF THE BENEFI CIAL PROVISIONS INDICATED IN THE GUIDELINES THAT THE BENEFITS HAVE BEEN EXTEN DED TO THE EARLIER YEAR SUBJECT TO THE CONDITION THAT SUCH BENEFIT WOULD BE LIMITED ONLY TO THE CAPITAL EXPENDITURE. HOWEVER, IN THE INSTANT CASE, THE APPROVAL HAS ALREADY BEEN IN FORCE FOR THE PREDECESSOR COMPANY. THUS, DIFFERENTIATED. ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 10 9. TO DETERMINE THE ISSUE, THE SEQUENCE OF EVENTS T HAT FOLLOWED THE RECOGNITION GRANTED TO EML FROM THE YEAR 2005 NEEDS TO BE EXAMINED. THE EVENTS ARE AS UNDER: DATE EVENT 22.03.2005 ORDER FOR RENEWAL OF GENERAL RECOGNITIO N GRANTED TO EICHER MOTORS LTD. (EML) FOR R & D CENTRE AT PITHAMPUR BY DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, MINISTRY OF SCIENCE AND TECHNOLOGY (DSIR) UPTO 31.03.2008. 10.08.2005 APPROVAL GRANTED BY DSIR TO EML IN FORM 3CM UNDER SECTION 35(2AB) OF THE ACT FROM 21.09.2004 TO 31.03.2007. 03.09.2007 APPLICATION IN FORM 3CK FILED BY EML BEFORE DSIR FOR RENEWAL OF APPROVAL UNDER SECTION 35(2AB) FROM 01.04.2007 TO 31.3.2012. 05.06.2008 EML WAS GRANTED GENERAL RECOGNITION FOR R & D CENTRE A PITHAMPUR BY DSIR UPTO 31.03.2011. 01.07.2008 EML DIVESTED THE COMMERCIAL VEHICLE UNDERTAKING INCLUDING THE R&D FACILITY AT PITHAMPUR, TO THE ASSESSEE (VECV) BY WAY OF SLUMP SALE. 13.10.2008 LETTER FILED BY EML BEFORE DSIR, TO CONSIDER THE FOLLOWING AMENDMENTS: I) TO GRANT APPROVAL UNDER SECTION 35(2AB) IN RESPECT OF R&D FACILITY AT PITHAMPUR FOR THE PERIOD 1.4.2007 TO 30.6.2008 IN THE NAME OF EML; II) TO CHANGE THE RECOGNITION LETTER DATED 5.6.2008 FOR THE IN HOUSE R&D FACILITY AT PITHAMPUR IN THE NAME OF THE ASSESSEE (VECV) INSTEAD OF EML W.E.F. 1.7.2008, AND III) TO TREAT THE APPLICATION DATED 3.9.2007 REQUESTING FOR RENEWAL OF APPROVAL UNDER SECTION 35(2AB) OF THE ACT IN RESPECT OF R&D FACILITY AT PITHAMPUR IN THE NAME OF THE ASSESSEE (VECV), FOR THE PERIOD ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 11 COMMENCING FROM 1.7.2008 AND GRANT APPROVAL FROM THAT DATE UPTO 31.3.2012 IN THE NAME OF THE ASSESSEE ONLY. 18.11.2008 APPLICATION FILED BY ASSESSEE BEFORE THE DSIR SEEKING GENERAL RECOGNITION OF THE IN- HOUSE R&D~ FACILITY AT PITHAMPUR UNDER SECTION 35 OF THE ACT IN NAME OF THE ASSESSEE (VECV) FOR THE PERIOD BEGINNING FROM 01.07.2008. 25.11.2008 APPLICATION FILED BY THE A SSESSEE BEFORE THE DSIR IN FORM 3CK REQUESTING FOR APPROVAL UNDER SECTION 35(2AB) OF THE ACT IN RESPECT OF R&D FACILITY AT PITHAMPUR IN THE NAME OF THE ASSESSEE. 18.12.2008 APPROVAL UNDER SECTION 35(2AB) OF THE A CT GRANTED TO EML IN RESPECT OF R&D FACILITY AT PITHAMPUR UPTO 30.6.2008 IN FORM 3CM. 09.03.2009 DSIR RENEWED THE GENERA L RECOGNITION ALREADY GRANTED TO THE R&D CENTRE AT PITHAMPURA UPTO 31.03.2012 IN NAME OF THE ASSESSEE. 18.02.2010 APPROVAL GRANTED BY DSIR TO ASSESSEE UNDER SECTION 35(2AB) OF THE ACT IN FORM 3CM FROM 9.3.2009 TO 31.3.2012 10. THE RELEVANT PORTION OF SECTION 35(2AB) READS A S UNDER: SECTION 35. [(2AB)(1) WHERE A COMPANY ENGAGED IN THE BUSINESS O F [BIO- TECHNOLOGY OR IN [ANY BUSINESS OF MANUFACTURE OR PR ODUCTION OF ANY ARTICLE OR THING, NOT BEING AN ARTICLE OR TH ING SPECIFIED IN THE LIST OF THE ELEVENTH SCHEDULE]] INCURS ANY E XPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING EXPENDITURE IN TH E NATURE OF COST OF ANY LAND OR BUILDING) ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY, THEN, THERE SHALL BE ALLOWED A DEDUCTION OF [A SUM EQUAL TO 81-[ONE AND ONE-HALF] TIMES OF THE EXPENDITURE] SO INCURRED: [PROVIDED THAT WHERE SUCH EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING EXPENDITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING) ON IN-HOUSE RESEARCH AND DEVELOPMENT FACI LITY IS INCURRED IN A PREVIOUS YEAR RELEVANT TO THE ASSESSM ENT YEAR BEGINNING ON OR AFTER THE 1ST DAY OF APRIL, 2021, T HE DEDUCTION ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 12 UNDER THIS CLAUSE SHALL BE EQUAL TO THE EXPENDITURE SO INCURRED.] [EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, 'EXP ENDITURE ON SCIENTIFIC RESEARCH', IN RELATION TO DRUGS AND PHARMACEUTICALS, SHALL INCLUDE EXPENDITURE INCURRED ON CLINICAL DRUG TRIAL, OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY UNDER ANY CENTRAL, STATE OR PROVINCIAL ACT AND FILI NG AN APPLICATION FOR A PATENT UNDER THE PATENTS ACT, 197 0 (39 OF 1970).] (2) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPENDITURE MENTIONED IN CLAUSE (1) UNDER ANY OTHER PROVISION OF THIS ACT. (3) NO COMPANY SHALL BE ENTITLED FOR DEDUCTION UNDE R CLAUSE (1) UNLESS IT ENTERS INTO AN AGREEMENT WITH THE PRE SCRIBED AUTHORITY FOR CO-OPERATION IN SUCH RESEARCH AND DEV ELOPMENT FACILITY AND [FULFILS SUCH CONDITIONS WITH REGARD T O MAINTENANCE OF ACCOUNTS AND AUDIT THEREOF AND FURNISHING OF REP ORTS IN SUCH MANNER AS MAY BE PRESCRIBED]. (4) THE PRESCRIBED AUTHORITY SHALL SUBMIT ITS REPOR T IN RELATION TO THE APPROVAL OF THE SAID FACILITY TO THE 86[PRIN CIPAL CHIEF COMMISSIONER OR CHIEF COMMISSIONER OR] [PRINCIPAL D IRECTOR GENERAL OR] DIRECTOR GENERAL IN SUCH FORM AND WITHI N SUCH TIME AS MAY BE PRESCRIBED.] (5) [***] [(6) NO DEDUCTION SHALL BE ALLOWED TO A COMPANY APP ROVED UNDER SUB-CLAUSE (C) OF CLAUSE (IIA) OF SUB-SECTION (1) IN RESPECT OF THE EXPENDITURE REFERRED TO IN CLAUSE (1 ) WHICH IS INCURRED AFTER THE 31ST DAY OF MARCH, 2008.] 11. THE IMPORTANT DATES ARE EXAMINED IN DETAIL. EML WAS GRANTED GENERAL RECOGNITION FOR R&D CENTRE AT PITHAMPURA BY DSIR UPTO 31.03.2011 VIDE LETTER DATED 05.06.2008. EML DIVEST ED THE CV UNDERTAKING INCLUDING R&D FACILITY TO THE ASSESSEE, VECV ON 01.07.2008. LETTERS HAVE BEEN FILED TO DSIR BY EML TO GRANT APPR OVAL IN RESPECT OF R&D FACILITY IN THE NAME OF EML FOR THE PERIOD FROM 01.04.2007 TO ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 13 30.06.2008 I.E. TILL THE DATE OF SLUMP SALE AND COM ING INTO EXISTENCE OF VECV. THE LETTER WRITTEN TO DSIR IS REPRODUCED HERE UNDER: EICHER MOTORS LIMITED EICHER HOUSE, 12 COMMERCIAL COMPLEX GREATER KAILASH-II (MASJID MOTH) NEW DELHI-110048, INDIA TELEPHONE: [phone] FAX: [phone] WEB HTTP://WWW.EICHERWORLD.COM DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH MINISTRY OF SCIENCE & TECHNOLOGY TECHNOLOGY BHAWAN NEW MEHRAULI ROAD, NEW DELHI-110016 KIND ATTN: MR. INDU BHASKAR, SCIENTIST E DEAR SIR, SUB: IN THE MATTER OF EICHER MOTORS LIMITED REGARDING OUR APPLICATION DATED 03.09.2007 FOR RENE WAL OF IN-HOUSE R&D FACILITIES AT PITHAMPUR (MP) AND CHENNAI (TAMIL NAD U) U/S 35(2AB) OF THE INCOME TAX ACT, 1961 THIS HAS REFERENCE TO OUR APPLICATION DATED 3 RD SEPTEMBER 2007 (FILED ON 07.09.2007 COPY ENCLOSED), FOR RENEWAL OF APPROVA L U/S 35(2AB) OF THE INCOME TAX ACT, 1961 IN RESPECT OF R&D FACILITIES S ITUATED AT FOLLOWING ADDRESSES: 1. EICHER MOTORS (COMMERCIAL VEHICLE DIVISION OF EICHE R MOTORS LIMITED) 102 & 102A, INDUSTRIAL AREA NO. 1 PITHAMPUR 454 775 DISTT. DHAR (MP) 2. ROYAL ENFIELD (MOTORCYCLE DIVISION OF EICHER MOTORS LIMITED) THIRUVOTTIYUR HIGH ROAD, THIRUVOTTIYUR CHENNAI 600 019, TAMIL NADU IT IS SUBMITTED THAT R&D FACILITY SITUATED AT PITHA MPUR AS MENTIONED AT SL.NO.1 HAS BEEN RECOGNIZED UPTO 31.03.2011 VIDE YOUR LETTE R DATED 05.06.2008 (COPY ENCLOSED). THE R&D FACILITY SITUATED AT CHENNAI AS MENTIONED AT SL.NO.2 HAS BEEN RECOGNIZED UPTO 31.03.2010 VIDE YOUR LETTER DA TED 25.06.2007 (COPY ENCLOSED). IT IS SUBMITTED THAT BOTH THE AFORESAID R&D FACILIT IES HAVE BEEN APPROVED U/S 35(2AB) OF THE INCOME TAX ACT, 1961 UPTO 31.03.2007 VIDE YOUR APPROVAL ORDER IN FORM NO.3CM DATED 10TH AUGUST 2005 (COPY ENCLOSE D). ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 14 IN OUR APPLICATION DATED 03.09.2007, WE HAVE APPLIE D FOR RENEWAL OF APPROVAL U/S 35(2AB) OF BOTH THE R&D FACILITIES TILL 31.03.2 012 IN VIEW OF EXTENSION OF DEDUCTION U/S 35(2AB) TILL 31.03.2012 BY THE FINANC E ACT, 2007. THE AFORESAID APPLICATION IS UNDER CONSIDERATION IN YOUR OFFICE. IT IS SUBMITTED THAT R&D FACILITY AT PITHAMPUR, IS A PART OF COMMERCIAL VEHICLE BUSINESS OF THE APPLICANT COMPANY (EICHER MOTORS LI MITED). IT IS SUBMITTED THAT COMMERCIAL VEHICLE BUSINESS INCLUDING R&D FACILITIE S SITUATED AT PITHAMPUR HAS BEEN DIVESTED W.E.F. 01.07.2008 TO THE SUBSIDIARY C OMPANY VE COMMERCIAL VEHICLES LIMITED, TO JOINTLY DEVELOP COMMERCIAL VEH ICLE BUSINESS WITH M/S AB VOLVO, SWEDEN BY WAY OF SLUMP SALE AS DEFINED U/S 2(42C) OF THE INCOME TAX ACT, 1961 ON A GOING CONCERN BASIS. IT IS SUBMITTED THAT AS PER PROVISIONS OF SECTION 1 92A OF THE COMPANIES ACT, 1956 READ WITH THE COMPANIES (PASSING OF THE RESOLU TIONS BY POSTAL BALLOT) RULES, 2001, THE APPROVAL OF THE SHAREHOLDERS FOR T HIS DISINVESTMENT HAS BEEN RECEIVED ON 15,03.2008 (A COPY OF THE RESOLUTION IS ENCLOSED). COPY OF RESOLUTION PASSED IN THE MEETING OF THE BOA RD OF DIRECTORS OF EICHCR MOTORS LIMITED HELD ON 26.07.2008 AUTHORIZING MANAG ING DIRECTOR OF TIRE.COMPANY TO EXECUTE TRANSFERRING THE COMMERCIAL VEHICLE BUSINESS W.E.F. 01.07.2008 IS ENCLOSED. IN VIEW OF THE ABOVE FOLLOWING IS REQUESTED: 1. TO GRANT APPROVAL U/S 35(2AB) IN -RESPECT OF R&D FA CILITY SITUATED AT PITHAMPUR FOR THE PERIOD FROM 01.04.2007 TO 30.06.2 008 IN THE NAME OF EICHER MOTORS LIMITED. 2. TO GRANT APPROVAL U/S 35(2AR) IN RESPECT OF R&D FAC ILITY SITUATED AT CHENNAI IN THE NAME OF EICHER MOTORS LIMITED FOR TH E PERIOD FROM 01.04.2007 TO 31.03.2012. 3. TO CHANGE THE NAME OF THE COMPANY IN THE RECOGNITIO N LETTER DATED 05.06.2008 OF IN-HOUSE R&D UNIT SITUATED AT PITHAMP UR, DISTT DHAR (MP) FROM EICHER MOTORS LIMITED TO VE COMMERCIAL VEHICLE S LIMITED W.E.F. 01.07.2008. 4. TO TREAT OUR APPLICATION DATED 03.09.2007 REQUESTIN G FOR RENEWAL OF APPLICATION U/S 35(2AB) IN RESPECT OF R&D FACILITY SITUATED AT PITHAMPUR IN THE NAME OF VE COMMERCIAL VEHICLES LIMITED, FOR THE PERIOD COMMENCING FROM 01.07.2008 AND TO GIANT THE APPROVAL FROM 01.0 7.2008 TO 31.03.2012 IN THE NAME OF VE COMMERCIAL VEHICLES LI MITED. IN CASE ANY OTHER INFORMATION IS REQUIRED, WE SHALL BE PLEASED TO SUBMIT THE SAME. 12. FROM THE READING OF THE ABOVE LETTER POINT 3 AN D POINT 4, IT IS CLEAR THAT THE EML SOUGHT TO CHANGE THE NAME OF THE COMPA NY FROM EML TO VECV W.E.F. 01.07.2008. IN PURSUANCE TO THE LETTER DATED 13.10.2008 OF ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 15 EML, DSIR VIDE LETTER DATED 09.03.2009 ACCORDED APPR OVAL UPTO 31.03.2012. 13. HAVING GONE THROUGH THE COMPLETE CORRESPONDENCE BETWEEN EML AND DSIR, WE COME TO THE CONCLUSION THAT THE LETTER DATED 09.03.2009 GRANTING RECOGNITION FOR IN HOUSE R&D UNIT IS NOT FR OM 09.03.2009 BUT IT ONLY DENOTES THAT THE EXTENSION UPTO 31.03.2012 AGA INST THE PERIOD GIVEN UPTO 31.03.2011 TO THE EML VIDE LETTER DATED 05.06. 2008 OF THE DSIR. THIS PROVES THAT THE ASSESSEE IS ELIGIBLE TO BE REC OGNIZED FROM 01.07.2008 TO 31.03.2012 BUT NOT FROM 09.03.2009 TO 31.03.2012 AS OPINED BY THE ASSESSING OFFICER. HENCE, THE DEDUCTI ON HAS BEEN RIGHTLY ALLOWED TO THE ASSESSEE BY THE LD. CIT (A). 14. FURTHER, THE LD. DR OBJECTED TO THE GRANTING OF DEDUCTION U/S 35(2AB) ON THE GROUNDS THAT THE PASSING OF THE CV U NIT ALONG WITH R&D UNIT HAS BEEN TRANSFERRED TO THE ASSESSEE BY THE WA Y OF SLUMP SALE BUT NOT BY THE PROCESS OF DEMERGER/AMALGAMATION. HENCE, THE BENEFIT OF WEIGHTED DEDUCTION CANNOT BE ALLOWED TO THE ASSESSE E. 15. PROVISIONS OF SECTION 35(5) READS AS UNDER: SECTION 35. [(5) WHERE, IN A SCHEME OF AMALGAMATION, THE AMALGA MATING COMPANY SELLS OR OTHERWISE TRANSFERS TO THE AMALGAM ATED COMPANY (BEING AN INDIAN COMPANY) ANY ASSET REPRESE NTING EXPENDITURE OF A CAPITAL NATURE ON SCIENTIFIC RESEA RCH, (I) THE AMALGAMATING COMPANY SHALL NOT BE ALLOWED T HE DEDUCTION UNDER CLAUSE (II) OR CLAUSE (III) OF SUB- SECTION (2); AND (II) THE PROVISIONS OF THIS SECTION SHALL, AS FAR A S MAY BE, APPLY TO THE AMALGAMATED COMPANY AS THEY WOULD HAVE APPLI ED TO THE AMALGAMATING COMPANY IF THE LATTER HAD NOT SO S OLD OR OTHERWISE TRANSFERRED THE ASSET.] ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 16 16. FURTHER, THE CLAUSE (II) AND CLAUSE (III) OF SUB-SE CTION 2 OF SECTION 35 READS AS UNDER: SECTION 35(2).. (I).. (II) NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE ( I), WHERE AN ASSET REPRESENTING EXPENDITURE OF A CAPITAL NATURE [INCURRED BEFORE THE 1ST DAY OF APRIL, 1967,] CEASES TO BE US ED IN A PREVIOUS YEAR FOR SCIENTIFIC RESEARCH RELATED TO TH E BUSINESS AND THE VALUE OF THE ASSET AT THE TIME OF THE CESSA TION, TOGETHER WITH THE AGGREGATE OF DEDUCTIONS ALREADY A LLOWED UNDER CLAUSE (I) FALLS SHORT OF THE SAID EXPENDITUR E, THEN (A) THERE SHALL BE ALLOWED A DEDUCTION FOR THAT PRE VIOUS YEAR OF AN AMOUNT EQUAL TO SUCH DEFICIENCY, AND (B) NO DEDUCTION SHALL BE ALLOWED UNDER THAT CLAUSE FOR THAT PREVIOUS YEAR OR FOR ANY SUBSEQUENT PREVIOUS YEAR ; (III) IF THE ASSET MENTIONED IN CLAUSE (II) IS SOLD , WITHOUT HAVING BEEN USED FOR OTHER PURPOSES, IN THE YEAR OF CESSATION, THE SALE PRICE SHALL BE TAKEN TO BE THE VALUE OF TH E ASSET AT THE TIME OF THE CESSATION ; AND IF THE ASSET IS SOL D, WITHOUT HAVING BEEN USED FOR OTHER PURPOSES, IN A PREVIOUS YEAR SUBSEQUENT TO THE YEAR OF CESSATION, AND THE SALE P RICE FALLS SHORT OF THE VALUE OF THE ASSET TAKEN INTO ACCOUNT AT THE TIME OF CESSATION, AN AMOUNT EQUAL TO THE DEFICIENCY SHA LL BE ALLOWED AS A DEDUCTION FOR THE PREVIOUS YEAR IN WHI CH THE SALE TOOK PLACE; 17. A GOING CONCERN BASIS BASICALLY MEANS THAT AN E NTITY WILL REMAIN IN BUSINESS IN THE NEAR FUTURE. WE FIND THAT THE ABOVE PROVISIONS CANNOT BE APPLIED TO THE FACTS OF THE INSTANT CASE AS THE APP ROVAL U/S 35(2AB) IN RESPECT OF THE R&D UNIT HAS BEEN GRANTED BY THE DSIR W.E.F. 01.07.2008 AS CONSEQUENCE TO THE APPROVAL GRANTED TO EML. 18. IN CONCLUSION, HAVING GONE THROUGH THE ENTIRE F ACTS OF THE INSTANT CASE, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR DED UCTION U/S 35(2AB) FROM 01.07.2008, THE DATE ON WHICH THE EML DIVESTED THE CV UNIT AND THE R&D FACILITY. HAVING SAID SO, WE ALSO FIND THAT THE LD. CIT (A) HAS GIVEN A ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 17 CATEGORICAL FINDING THAT THE AO HAS DISALLOWED TOTA L R&D EXPENSES INCURRED BY THE ASSESSEE DURING THE YEAR INCLUDING EXPENSES THAT HAVE INCURRED AFTER THE DATE OF DSIR APPROVAL LETTER I.E. 09.03.2009. FURTHER, WE ALSO FIND THAT THE AO HAS OBSERVED THAT DEDUCTIO N U/S 35 HAS BEEN CLAIMED UNDER THE HEAD INTANGIBLE ASSETS. WE ALSO FIND THAT THE CORE ISSUE OF EXAMINATION OF THE EXPENDITURE HAS NOT BEE N RESORTED AS THE REVENUE HELD THAT THE ASSESSEE WAS NOT ELIGIBLE FOR THE DEDUCTION U/S 35(2AB) FOR EXPENSES INCURRED PRIOR TO THAT DATE. H ENCE, IN ORDER TO MEET THE ENDS OF JUSTICE, A FAIR OPPORTUNITY HAS TO BE A LLOWED TO BOTH THE PARTIES, IT IS HEREBY DIRECTED TO SUBMIT THE DETAIL S OF CAPITAL EXPENDITURE AND REVENUE EXPENDITURE FOR THE ENTIRE PERIOD FROM 01.07.2008 TO 31.03.2009 SO AS TO AVAIL THE CORRECT DEDUCTION AS PER THE PRINCIPLE LAID DOWN IN THIS ORDER. ADDITION U/S 14A : (ITA NO. 580/DEL/2016 A.Y. 2009-10) 19. THE ASSESSING OFFICER HAVING OBSERVED THAT THE ASSESSEE HAS EARNED EXEMPT DIVIDEND INCOME OF RS.12 LACS DISALLO WED AN AMOUNT OF RS.2,34,335/- U/S 14A R.W.R. 8D(III). THE RULE 8D(2) AS APPLICABLE TO THE ASSESSMENT YEAR 2009-10 READS AS UNDER: [ (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGAT E OF FOLLOWING AMOUNTS, NAMELY: (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCO ME WHICH DOES NOT FORM PART OF TOTAL INCOME; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITU RE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH I S NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR R ECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY:- PROVIDED THAT THE AMOUNT REFERRED TO IN CLAUSE (I) AND CLAUS E (II) SHALL NOT EXCEED THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE . ] ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 18 20. DURING THE ARGUMENTS, IT WAS SUBMITTED BY THE LD . DR THAT THE PROVISIONS OF RULE 8D (2) WAS SQUARELY APPLICABLE T O THE CASE OWING TO RECEIPT OF THE EXEMPT INCOME BY THE ASSESSEE. THE L D. AR ARGUED THAT THE DIVIDEND HAS BEEN RECEIVED ON THE UNITS OF DEBTS MU TUAL FUNDS PURCHASED AND SOLD DURING THE PREVIOUS YEAR AND THE DIVIDEND HAS BEEN RECEIVED AFTER DEDUCTION OF DIVIDEND DISTRIBUTION TAX. IT WA S SUBMITTED THAT THE INVESTMENT IN THE MUTUAL FUNDS WAS MADE OUT OF SURP LUS BALANCES AVAILABLE WITH THE COMPANY AND NO INTEREST BEARING FUNDS HAVE BEEN UTILIZED FOR INVESTMENT IN THE MUTUAL FUNDS. IT WAS ARGUED THAT NO EXPENSES HAVE BEEN INCURRED IN RESPECT OF EARNING D IVIDEND ON MUTUAL FUNDS AS THE ONLY ACTIVITY REQUIRED FOR INVESTMENT IS FILING OF APPLICATION AND THE DIVIDEND IS DIRECTLY CREDITED TO THE BANK A CCOUNT OF THE ASSESSEE. 21. SINCE NO INTEREST BEARING FUNDS HAVE BEEN UTILI ZED IN INVESTMENT AND THE REVENUE COULD NOT PROVE ANY EXPENSES INCURR ED, THE ADDITION MADE BY THE AO IS HEREBY DIRECTED TO BE DELETED. DISALLOWANCE OF EXPENSES: (GROUND NO. 3 OF ITA NO. 580/DEL/2016 A.Y. 2009-10 AND GROUND NO. 1 OF ITA NO. 581/DEL/201 6 A.Y. 2010-11) 22. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAD ACQUIRED BUSINESS UNDERTAKING FROM VOLVO INDIA PVT. LTD. (V IPL) THROUGH SCHEME OF DEMERGER, DULY APPROVED BY THE HIGH COURT OF KAR NATAKA AND DELHI, W.E.F 01.07.2008. AS A CONSEQUENCE OF THE AFORESAID BUSINESS OF VIPL DEVOLVING ON THE ASSESSEE, THROUGH DEMERGER, THE AS SESSEE TOOK OVER THE PROVISIONS ON ACCOUNT OF INVENTORY OBSOLESCENCE OF RS.2.56 CRORES, ON ACCOUNT OF SERVICE CHARGES OF RS.3.70 CRORES AND ON ACCOUNT OF WARRANTY OF RS.7.65 CRORES TOTALING RS.13.90 CRORES. OUT OF THESE PROVISIONS, THE ASSESSEE HAS UTILIZED AN AMOUNT OF RS.7.3 CRORES ON ALL THE THREE ACCOUNTS AND CLAIMED DEDUCTION IN THE P&L ACCOUNT. THE AO DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE ON THE GROUND S THAT THE ASSESSEE ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 19 DID NOT FURNISH THE COPIES OF ITR OF VIPL TO PROVE THAT THESE EXPENSES WHICH WERE BOOKED PROVISIONALLY HAVE NOT BEEN CLAIM ED AND ALSO ON THE REASON THAT THE PROOF OF PAYMENT AGAINST THE AFORES AID PROVISION BY THE ASSESSEE DURING THE YEAR HAVE NOT BEEN SUBMITTED. T HE ASSESSING OFFICER HAS ALSO NOT ACCEPTED THE CERTIFICATE GIVEN BY THE CHARTERED ACCOUNTANT AS IT WAS UNDATED. DURING THE PROCEEDINGS BEFORE THE LD. CIT (A), THE ASSESSEE HAS FILED DOCUMENTS IN THE FORM OF ITRS OF VIPL THE EARLIER COMPANY AND ALSO CERTIFICATE FROM CHARTERED ACCOUNT ANT REGARDING EXPENDITURE INCURRED ON ACCOUNT OF THE PROVISIONS. THE LD. CIT (A) AFTER GOING THROUGH THE ITRS GAVE A CATEGORICAL FINDING T HAT THE DEDUCTION ON ACCOUNT OF THE PROVISIONS HAS NOT BEEN CLAIMED BY T HE ASSESSEE AND ALSO HELD THAT THE ASSESSEE HAD DISCHARGED THE LIABILITI ES AGAINST THE PROVISIONS RECEIVED FROM VIPL. THE LD. CIT (A) HAS GIVEN THIS CATEGORICAL FINDING AFTER DUE VERIFICATION OF LEDGER AND BOOKS OF ACCOUNTS. 23. SINCE, THE FACTS ARE NOT DISPUTED BY BOTH THE P ARTIES AND THE ISSUE IS PURELY BASED ON THE FACTS WHICH HAVE BEEN VERIFI ED BY THE LD. CIT (A) AND SINCE NO LEGAL ISSUE IS INVOLVED , AFTER GOING THROUGH THE ENTIRETY OF THE ISSUE, WE HEREBY DECLINE TO INTERFERE WITH THE WELL REASONED ORDER OF THE LD.CIT(A). DISALLOWANCE OF BAD DEBTS: (GROUND NO. 4 OF ITA 580/2016, GROUND NO. 2 OF 581/2016 AND GROUND NO. 1 OF 5734/2016) 24. THE ASSESSEE HAS CLAIMED IN THE P&L ACCOUNT, TH E BAD DEBTS PERTAINING TO CV BUSINESS ACQUIRED FROM EML (THE PR EDECESSOR COMPANY). THE AO DISALLOWED THE AMOUNT ON THE GROUND THAT THE SAID AMOUNT HAS NOT BEEN OFFERED TO TAX BY THE ASSESSEE. THE LD. CI T (A) GAVE A CATEGORICAL FINDING THAT THE CORRESPONDING AMOUNT O F THE DEBTS WAS OFFERED AS INCOME BY THE PREDECESSOR ASSESSEE. THE ASSESSEE HAS RECEIVED THE BUSINESS FROM ITS PREDECESSOR EML BY W AY OF DEMERGER ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 20 WHEREIN THE EML SOLD THE VEHICLES ON CREDIT AND THE SAID AMOUNTS WERE OFFERED TO TAX IN THE EARLIER YEARS. THE QUESTION H ERE IS NOT ABOUT THE DEBT BECOMING BAD BUT WHETHER THE AMOUNTS OFFERED B Y THE EARLIER COMPANY AND DULY OFFERED TO TAX TURNED BAD AT A LAT ER DATE BE ALLOWED AS PER THE PROVISIONS OF SECTION 36(1)(VII) R.W.S. 36( 2) OF THE INCOME TAX ACT, 1961. RELIANCE IS PLACED ON THE JUDGMENT OF TH E HONBLE APEX COURT IN THE CASE OF CIT VS T. V. RAO 155 ITR 152. OWING TO THE JUDGMENT OF THE HONBLE SUPREME COURT, WE HEREBY HOLD THAT THE BAD DEBTS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS OF TH E ASSESSEE IN RELATION TO THE DEBTS ACQUIRED ON PURCHASE OF BUSINESS WHICH HA S BEEN OFFERED AS INCOME BY THE PREDECESSOR COMPANY IS ALLOWABLE U/S 36(2). THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED HEREWITH FOR READY REFERENCE: THE INCOME-TAX DEPARTMENT APPEALED TO THE TRIBUNAL AGAINST THE ORDER OF THE AAC AND URGED THAT CLAUSE (I) OF S UB-SECTION (2) OF SECTION 36 OF THE ACT DID NOT PERMIT SUCH AN ALLOWANCE BECAUSE IT DID NOT SATISFY THE REQUIREMENT MENTIONE D IN SUB- CLAUSE (A) AND SUB-CLAUSE (B) OF THAT PROVISION, AN D, THEREFORE, IT WAS NOT OPEN TO THE ASSESSEE TO CLAIM A DEDUCTIO N OF RS. 15,100 AS A BAD DEBT NOR THE LEGAL EXPENSES OF RS. 6,880. THE TRIBUNAL DISMISSED THE APPEAL, HOLDING THAT WHERE A BUSINESS WAS SUCCEEDED TO BY AN ASSESSEE, IT WAS ENTITLED TO WRITE OFF THE BAD DEBTS OF THE BUSINESS TAKEN OVER. THE TRIBU NAL OBSERVED THAT WHENEVER A BUSINESS WAS SUCCEEDED TO AS A WHOLE AND AS A RUNNING ENTERPRISE, THE ASSETS AND L IABILITIES SO TAKEN OVER BECAME THE ASSETS AND LIABILITIES OF THE SUCCESSOR AND, THEREFORE, THE ASSESSEE WAS ENTITLED TO WRITE OFF THE BAD DEBTS. IT NOTED THAT THE ASSESSEE HAD NOT ONLY TREA TED THE AMOUNT AS A DEBT OWED TO IT BUT HAD ALLOWED THE INT EREST ACCRUED THEREON TO BE ASSESSED IN ITS HAND AS THE I NTEREST CONSTITUTED PART OF THE DEBT. AT THE INSTANCE OF TH E COMMISSIONER, A REFERENCE WAS MADE TO THE ANDHRA PR ADESH HIGH COURT FOR ITS OPINION ON THE QUESTION SET FORT H EARLIER. THE HIGH COURT ANSWERED THE QUESTION IN THE AFFIRMATIVE AND AGAINST THE DEPARTMENT. 6. IT IS NOT DISPUTED THAT THE ASSESSEE SUCCEEDED TO THE BUSINESS OF THE PREDECESSOR-FIRM AND TOOK OVER ALL ITS ASSETS AND LIABILITIES, INCLUDING THE DEBT DUE FROM LAXMI TRADING CO. ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 21 THE BUSINESS CARRIED ON BY THE PREDECESSOR-FIRM WAS NOW CARRIED ON BY THE ASSESSEE. THE FACTS ALSO SHOW THA T THE ASSESSEE PAID INCOME-TAX ON THE INTEREST INCOME ACC RUING ON THE DEBT FOR THE ASSESSMENT YEAR 1963-64. IT IS ALS O NOT DISPUTED THAT THE PARTIES EFFECTED A SETTLEMENT ON 31-3-1965 WHEREBY A SUM OF RS. 25,000 WAS ACCEPTED BY THE ASS ESSEE IN SATISFACTION OF THE DEBT AND THAT THE BALANCE OF RS . 15,100 WAS WRITTEN OFF BY THE ASSESSEE AS AS IRRECOVERABLE. TH E QUESTION IS WHETHER MONEY OWED BY A DEBTOR UNDER A TRANSACTION WITH A PREDECESSOR-FIRM CAN BE WRITTEN OFF AS IRRECOVERABL E IN THE ACCOUNTS OF ITS SUCCESSOR, THE ASSESSEE, IN A SUBSE QUENT YEAR AND COULD BE CLAIMED AS A BAD DEBT UNDER CLAUSE (VI I) OF SUB- SECTION (1) OF SECTION 36. CLAUSE (VII) OF SUB-SECT ION (1) OF SECTION 36 PROVIDES: '(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING C LAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THE REIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 (I) TO (VI)** ** (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF ANY DEBT, OR PART THEREOF, WHICH IS ESTABLISHED TO HAVE BECOME A BAD DEBT IN THE PREVIOUS YEAR :' SUB-SECTION (2) OF SECTION 36 DECLARES : '(2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THEREOF, THE FOLLOWING PROVISIONS SHALL APPLY (I) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF (A) HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR OR OF AN EARLIER PREVIOUS YEAR, OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE, AND ( B ) HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THAT PREVIOUS YEAR ; ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 22 ( II ) IF THE AMOUNT ULTIMATELY RECOVERED ON ANY SUCH DEBT OR PART OF DEBT IS LESS THAN THE DIFFERENCE BETWEEN THE DEBT OR PART AND THE AMOUNT SO DEDUCTED, THE DEFICIENCY SHALL BE DEDUCTIBLE IN THE PREVIOUS YEAR IN WHICH THE ULTIMATE RECOVERY IS MADE ; (III) ANY SUCH DEBT OR PART OF DEBT MAY BE DEDUCTED IF IT HAS ALREADY BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF AN EARLIER PREVIOUS YEAR, BUT THE INCOME-TAX OFFICER HAD NOT ALLOWED IT TO BE DEDUCTED ON THE GROUND THAT IT HAD NOT BEEN ESTABLISHED TO HAVE BECOME A BAD DEBT IN THAT YEAR ; ( IV ) WHERE ANY SUCH DEBT OR PART OF DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE PREVIOUS YEAR AND THE INCOME-TAX OFFICER IS SATISFIED THAT SUCH DEBT OR PART BECAME A BAD DEBT IN ANY EARLIER PREVIOUS YEAR NOT FALLING BEYOND A PERIOD OF FOUR PREVIOUS YEARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR IN WHICH SUCH DEBT OR PART IS WRITTEN OFF, THE PROVISIONS OF SUB-SECTION (6) OF SECTION 155 SHALL APPLY.' 7. SECTION 28 OF THE ACT, REFERRED TO IN SUB-SECTION (1) OF SECTION 36, PROVIDES THAT INCOME UNDER THE HEAD 'PR OFITS AND GAINS OF BUSINESS OR PROFESSION', SHALL BE CHARGEAB LE TO INCOME- TAX. THE PROFITS AND GAINS OF A BUSINESS ARE CHARGE D TO INCOME- TAX. TO COMPUTE THE PROFITS AND GAINS SO CHARGEABLE , SECTION 36 PROVIDES FOR ALLOWING A NUMBER OF DEDUCTIONS. EACH OF THE DEDUCTIONS MUST RELATE TO THE BUSINESS. IF THE SAME ASSESSEE WAS CARRYING ON A BUSINESS AND HE WROTE OFF A DEBT RELATING TO THE BUSINESS AS IRRECOVERABLE, HE WOULD WITHOUT DOU BT BE ENTITLED TO A CORRESPONDING DEDUCTION UNDER CLAUSE (VII) OF SUB- SECTION (1) OF SECTION 36 SUBJECT TO THE FULFILMENT OF THE CONDITIONS SET FORTH IN SUB-SECTION (2) OF SECTION 36. IF A BUSINESS, ALONG WITH ITS ASSETS AND LIABILITIES, IS TRANSFERRED BY ONE OWNER TO ANOTHER, WE SEE NO REASON WHY A DEBT S O TRANSFERRED SHOULD NOT BE ENTITLED TO THE SAME TREA TMENT IN THE HANDS OF THE SUCCESSOR. THE RECOVERY OF THE DEBT IS A RIGHT TRANSFERRED ALONG WITH THE NUMEROUS OTHER RIGHTS CO MPRISING THE SUBJECT OF THE TRANSFER. IF THE LAW PERMITS THE TRANSFEROR TO TREAT THE WHOLE OR PART OF THE DEBT AS IRRECOVERABL E AND TO CLAIM A DEDUCTION ON THAT ACCOUNT, IT SEEMS DIFFICU LT TO ACCEPT ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 23 THAT THE SAME RIGHT SHOULD NOT BE RECOGNISED IN THE TRANSFEREE. IT IS MERELY AN INCIDENT FLOWING FROM THE TRANSFER OF THE BUSINESS, TOGETHER WITH ITS ASSETS AND LIABILITIES, FROM THE PREVIOUS OWNER TO THE TRANSFEREE. IT IS A RIGHT WHI CH SHOULD, ON A PROPER APPRECIATION OF ALL THAT IS IMPLIED IN THE TRANSFER OF A BUSINESS, BE REGARDED AS BELONGING TO THE NEW OWNER . UNLESS THE LANGUAGE OF THE STATUTE PLAINLY AND CLEARLY COM PELS A CONSTRUCTION TO THE CONTRARY, THE NORMAL RULE OF TH E LAW SHOULD BE GIVEN ITS PROPER PLAY. IT IS TRUE THAT CLAUSE (I ) OF SUB-SECTION (2) OF SECTION 36 DECLARES THAT A DEDUCTION CAN BE ALLOWED ONLY IF THE DEBT, OR PART THEREOF, HAS BEEN TAKEN INTO A CCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THAT PREVIO US YEAR OR AN EARLIER PREVIOUS YEAR AND THAT IT HAS ALSO BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HAT PREVIOUS YEAR. IN THE PRESENT CASE, THE DEBT WAS TAKEN INTO ACCOUNT IN THE INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1963-64 WHEN THE INTEREST INCOME ACCRUING THEREON WAS TAXED IN THE HANDS OF THE ASSESSEE. THE INTEREST WAS TAXED AS IN COME BECAUSE IT REPRESENTED AN ACCRETION ACCRUING DURING THE EARLIER YEAR ON MONEY OWED TO THE ASSESSEE BY THE DEBTOR. T HE ITEM CONSTITUTED INCOME BECAUSE IT REPRESENTED INTEREST ON A LOAN. THE NATURE OF THE INCOME INDICATED THE TRANSACTION FROM WHICH IT EMERGED. THE TRANSACTION WAS THE DEBT AND THAT D EBT WAS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE A SSESSEE OF THE RELEVANT PREVIOUS YEAR. IT IS THE SAME ASSESSEE WHO HAS SUBSEQUENTLY, PURSUANT TO A SETTLEMENT, ACCEPTED PA RT PAYMENT OF THE DEBT IN FULL SATISFACTION AND HAS WRITTEN OF F THE BALANCE OF THE DEBT AS IRRECOVERABLE IN HIS ACCOUNTS. IT APPEA RS, THEREFORE, THAT THE CONDITIONS IN BOTH SUB-CLAUSES (A) AND ( B ) OF CLAUSE (I) OF SUB-SECTION (2) OF SECTION 36 ARE SATISFIED IN T HE PRESENT CASE AND THE HIGH COURT AS WELL AS THE TRIBUNAL AND THE AAC ARE RIGHT IN THE VIEW WHICH THEY TOOK. 8. IT SEEMS TO US THAT EVEN IF THE DEBT HAD BEEN TAKE N INTO ACCOUNT IN COMPUTING THE INCOME OF THE PREDECESSOR- FIRM ONLY AND HAD SUBSEQUENTLY BEEN WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE, THE ASSES-SEE WOULD STILL HAVE BEEN ENTITLED TO A DEDUCTION OF THE AMOUNT WRITTEN OFF A S A BAD DEBT. IT IS NOT IMPERATIVE THAT THE ASSESSEE REFERRED TO IN SUB-CLAUSE (A) MUST NECESSARILY MEAN THE IDENTICAL ASSESSEE RE FERRED TO IN SUB-CLAUSE (B). A SUCCESSOR TO THE PERTINENT INTERE ST OF A PREVIOUS ASSESSEE WOULD BE COVERED WITHIN THE TERMS OF SUB- CLAUSE (B). THE SUCCESSOR ASSESSEE, IN EFFECT, STEP S INTO THE SHOES OF HIS PREDECESSOR. ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 24 9. ACCORDINGLY, WE HOLD THAT THE ASSESSEE IN THE INST ANT CASE WAS ENTITLED TO THE DEDUCTION AS A BAD DEBT OF THE SUM OF RS. 15,100 WRITTEN OFF BY IT IN ITS ACCOUNTS OF THE PRE VIOUS YEAR AS IRRECOVERABLE. HENCE, WE DECLINE TO INTERFERE WITH THE REASONED OR DER OF THE LD. CIT (A). DISALLOWANCE OF TRAINING EXPENSES: (GROUND NO. 2 OF ITA NO. 5734/2016) 25. THE ASSESSEE HAS CLAIMED EXPENSES ON ACCOUNT OF SERVICE TRAINING SCHOOL UNDER THE HEAD SELLING AND DISTRIBUTION EX PENSES. IT WAS SUBMITTED THAT THESE EXPENSES PERTAIN TO TRAINING O F THE EMPLOYEES TO EQUIP THEMSELVES WITH THE LATEST TECHNOLOGICAL DEVE LOPMENT. THE AO HELD THAT THE TRAINING IS AKIN TO SKILL DEVELOPMENT OF T HE TECHNICIANS AND IS ENDURING IN NATURE AND RELATED TO BRAND IMAGE OF TH E COMPANY AND HENCE CAPITAL IN NATURE. THE AO DISALLOWED 1/3 RD OF THE EXPENSES HOLDING THAT THEY ARE NOT ALLOWABLE IN ONE SINGLE YEAR. DURING TH E ARGUMENTS, IT WAS SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF C OMMERCIAL VEHICLES WHICH NEEDS CONTINUOUS INNOVATION AND DEVELOPMENT. THE EXPENSES WERE INCURRED FOR IMPARTING THE TRAINING TO THE DRIVERS OF THE DEALERS SO THAT THEY WILL BECOME ADEPT IN HANDLING AND DRIVING THE VEHICLES. IT WAS SUBMITTED THAT THE ASSESSEE RECRUITS NEW EMPLOYEES FROM TIME TO TIME WHO NEEDS TO BE TRAINED FOR REQUISITE SKILLS AND IS AN ONGOING PROCESS. 26. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 27. WE FIND THAT THE ASSESSEE IS IN THE BUSINESS OF SELLING COMMERCIAL VEHICLES WHEREIN TRAINING OF THE DRIVERS AND OTHER TECHNICIANS IS A BUSINESS EXPEDIENCY. OWING TO THE NEW RECRUITMENT A S WELL AS JOB ROTATION, OFFBOARDING AND ATTRITION OF EMPLOYEES, T HE TRAINING IS TAKEN TO BE AN ONGOING PROCESS FOR ANY INDUSTRY. THE ASSESSI NG OFFICER ITA NOS. 580, 581 & 5734/DEL/2016 VE COMMERCIAL VEHICLES LTD. 25 OBSERVATION THAT IT GOES TO IMPROVE THE BRAND BUILD ING, IF AT ALL, IS COLLATERAL BENEFIT. THERE IS NO PROVISION IN THE IN COME TAX ACT FOR APPORTIONING THIS EXPENDITURE OVER A PERIOD OF THRE E YEARS AS INVOKED BY THE ASSESSING OFFICER. SECTION 37(1) MANDATES THAT ANY EXPENDITURE HAS TO BE ALLOWED IN ENTIRETY IF IT IS SPENT IN CONNECT ION WITH BUSINESS OF THE ASSESSEE. THERE CANNOT BE ANY FORMULA BASIS, CRITER IA ADOPTED BY THE AO WHILE DISALLOWING 2/3 RD OF SUCH EXPENDITURE. AT THE SAME TIME, THIS EXPENDITURE CANNOT BE TREATED AS CAPITAL EXPENDITUR E TOO. RELIANCE IS BEING PLACED ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF TAPARIA TOOLS LTD. VS JCIT 372 ITR 605 ON THE ISSUE OF DEFERRED REVENUE EXPENDITURE. HENCE, WE HEREBY HOLD THAT THE DISALLO WANCE MADE BY THE AO IS LEGALLY NOT TENABLE. APPEAL OF THE REVENUE ON THIS GROUND IS DISMISSED. 28. IN THE RESULT, THE APPEALS OF THE REVENUE ARE D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/04/2020. SD/- SD/- (SUSHMA CHOWLA) (DR. B.R.R. KUMAR) VICE PRESIDENT ACCOUNTANT MEM BER DATED: 30/04/2020 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR