The ACIT,(OSD)Circle-8, Ahmedabad V. Skaps Industries India Pvt.Ltd., Ahmedabad

ITA 588/AHD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60315 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 24-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Assessee Lawyers: V K MOONDRA
• Keywords: Capital asset; Revenue expenditure
• Section: 143(3); 194C

Judgement Text

ITA NO.588/AHD/11 ASSESSMENT YEAR 2006-07.. 1 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT AND SHRI ANIL CHATURVEDI A.M.) I.T.A. NO. 588/AHD/2011 (ASSESSMENT YEAR: 2006- 07) ASSISTANT COMMISSIONER OF INCOME TAX (OSD), CIRCLE-8, AHMEDABAD. (APPELLANT) VS. SAKPS INDUSTRIES INDIA PVT. LTD., PLOT NO.20, SURVEY NO.423, MAHAGUJARAT INDUSTRIAL ESTATE, MORAIYA, SANAND, AHMEDABAD. (RESPONDENT) PAN: AADCP2779D APPELLANT BY : SHRI RAHUL KUMAR, SR. D.R. RESPONDENT BY : SHRI V. K. MOONDRA. ( )/ ORDER DATE OF HEARING : 15-3-2012 DATE OF PRONOUNCEMENT : 4-5-2012 PER: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER OF LD. CIT (A)-XIV, AHMEDABAD DATED 26-11-2010 FOR THE ASSESSM ENT YEAR 2006- 07. 2. THE REVENUE HAS RAISED FOLLOWING EFFECTIVE GROUN DS:- ITA NO.588/AHD/11 ASSESSMENT YEAR 2006-07.. 2 1. THE LD. CIT (A)-XIV AHMEDABAD HAS ERRED IN LA W AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.2,93,323/- MADE BY THE A.O. ON ACCOUNT OF FOREIGN EXCHANGE LOSS ON PURCHAS E OF MACHINERY. 2. THE LD. CIT (A)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN REDUCING THE DISALLOWANCE FROM RS.6,13,140 /- TO RS.2,64,553/- MADE ON ACCOUNT OF PRESUMPTIVE INTERE ST ON ACQUISITION OF FIXED ASSETS. 3. THE LD. CIT (A)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.1,10,300/- MADE BY THE A.O. ON ACCOUNT OF NON DEDUCTION OF TDS ON LC CHARG ES PAID TO NON-RESIDENT PARENT COMPANY. 4. THE LD. CIT (A)-XIV, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,04,986/- MAD E BY THE A.O. ON ACCOUNT OF PRELIMINARY EXPENSES U/S. 35D OF THE ACT. 3. THE BRIEF FACTS ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF SLIT TAPE WOVEN FABRICS. THE RETUR N OF INCOME WAS FILED ON 7-12-2007 DECLARING LOSS OF RS.46,71,710/- . ASSESSMENT WAS COMPLETED U/S 143(3) ON 14-12-2009 BY MAKING VARIOU S ADDITIONS AND THE LOSS WAS DETERMINED AT RS.33,77,200/-. AGGRIEVE D BY THE ORDER OF A.O. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFO RE THE LD. CIT(A). CIT(A) DELETED CERTAIN DISALLOWANCES MADE AND THERE FORE, REVENUE IS NOW IN APPEAL BEFORE US. 4. GROUND NO.1 DISALLOWANCE OF RS.2,93,323/- ON A CCOUNT OF FOREIGN EXCHANGE LOSS ON PURCHASE OF MACHINERY. ITA NO.588/AHD/11 ASSESSMENT YEAR 2006-07.. 3 4.1. DURING THE YEAR, ASSESSEE HAD PURCHASED MACHIN ERY FROM WEST POINT FOUNDRY AND MACHINE CO. LTD., AND THE LOSS ON EXCHANGE FLUCTUATION OF RS.2,93,323/- WAS DEBITED TO PROFIT AND LOSS ACCOUNT. THE A.O. HELD THAT AS THE SAME RELATED TO ACQUISITI ON OF NEW PLANT AND MACHINERY, THE SAME SHOULD HAVE BEEN CAPITALIZED AN D NOT CHARGED TO PROFIT AND LOSS ACCOUNT. CIT(A) DELETED THE ADDITI ON BY HOLDING AS UNDER:- 6.2 . DURING THE COURSE OF APPELLATE PROCEEDINGS THE A.R . SUBMITTED THAT THE LD. A.O. HAS MADE DISALLOWANCE O F RS.2,93,323/- WITHOUT GOING INTO DEPTH OF THE TRANS ACTION AND FACTS THAT ON DATE OF FINALIZATION OF BALANCE SHEET AND ON DATE OF FILING INCOME TAX RETURN FOR A.Y. 2006-07, THE ASSE SSEE WAS REQUIRED TO GIVE AN ACCOUNTING TREATMENT OF FOREIGN EXCHANGE GAIN OR LOSS ON ACQUISITION OF FIXED ASSETS PURCHAS ED IN FOREIGN CURRENCY BY CHARGING IT TO PROFIT AND LOSS ACCOUNT AS AN EXPENSE. ON THAT DATE, AS PER THE ACCOUNTING STANDA RDS ISSUED BY THE ICAI THE ASSESSEE WAS REQUIRED TO CHARGE THE FOREIGN EXCHANGE LOSS TO PROFIT AND LOSS ACCOUNT AND WAS NO T ALLOWED TO CAPITALIZE THE SAME TO THE RESPECTIVE FIXED ASSET. THE ASSESSEE HAS DULY EXERCISED THE REQUIREMENT OF THE ACCOUNTIN G STANDARD AS NON-COMPLIANCE OF THE SAME WOULD HAVE LED TO ADV ERSE LEGAL CONSEQUENCES FROM THE ICAI AND BANKERS. IT NEEDS TO BE NOTED THAT THE ACCOUNTING TREATMENT OF EXCHANGE GAIN/LOSS ON FIXED ASSET PURCHASED IN FOREIGN CURRE NCY IS COVERED BY ACCOUNTING STANDARD (AS) 11 ISSUED BY TH E ICAI. THE ORIGINAL AS11 WAS ISSUED BY THE ICAI IN 1994 WHEREI N IT WAS HELD THAT EXCHANGE GAIN/LOSS ON ACQUISITION OF FIXED ASS ETS WAS REQUIRED TO BE CAPITALIZED. IN 2003, AS 11 (REVISED) WAS ISSUED WITH EFFECT FRO M 1 ST APRIL, 2004 WHEREIN IT WAS HELD THAT THE EXCHANGE GAIN/LOS S ON ACQUISITION OF FIXED ASSETS WAS REQUIRED TO BE CHAR GED TO PROFIT AND LOSS ACCOUNT AND COULD NOT BE CAPITALIZED. ITA NO.588/AHD/11 ASSESSMENT YEAR 2006-07.. 4 FINALLY, ON 31 ST MARCH, 2009, A NOTIFICATION NO. GSR 225[E] WAS ISSUED BY THE MINISTRY OF CORPORATE AFFAIRS ON 31 ST MARCH, 2009 WHEREIN IT WAS HELD THAT FOR ALL FINANCIAL YEARS CO MMENCING ON OR AFTER 7 TH DECEMBER, 2006 AND ENDING ON OR BEFORE 31 ST MARCH, 2011, THE COMPANIES MAY NOT CHARGE THE EXCHANGE GAI N/LOSS ON ACQUISITION OF FIXED ASSETS TO PROFIT AND LOSS ACCO UNT. THEY MAY EITHER CAPITALIZE THE SAME OR TRANSFER TO FOREIGN CURRENCY MONETARY ITEM TRANSLATION DIFFERENCE ACCOUNT AND A MORTIZE EQUALLY OVER THE LIFE OF THE ASSET. THUS, IT IS VERY CLEAR THAT ON 31 ST MARCH, 2006, WHEN THE ASSESSEE BOOKED AN EXCHANGE LOSS OF RS.2,93,323/-, THE AS 11 (REVISED) WAS APPLICABLE, ACCORDING TO WHICH, HE IS REQUIRED TO CHARGE THE LOSS TO PROFIT AND LOSS ACCOUNT. FOR YOUR REFERENCE, COPY OF AS 11 (REVISED) ISSUED BY THE ICAI ON THE EFFECT OF FOREIGN EXCHANGE GAIN/LOSS ON ACQU ISITION OF FIXED ASSETS AND THE COPY OF LEDGER ACCOUNT OF THE FOREIGN EXCHANGE LOSS ACCOUNT AND THE VENDOR WEST POINT FOU NDRY & MACHINE CO. FROM WHOM THE ASSET WAS PURCHASED ARE A TTACHED HEREWITH. COPY OF THE NOTIFICATION NO. GSR 225(E) I SSUED BY THE MINISTRY OF CORPORATE AFFAIRS ON 31 ST MARCH, 2009 IS ALSO ATTACHED HEREWITH FOR YOUR READY REFERENCE. ACCORDINGLY, YOUR GOOD SELF ARE REQUESTED TO DELETE THE ADDITION MADE. 6.3. THE ABOVE FACTS AND SUBMISSIONS GIVEN BY THE A R OF THE APPELLANT HAVE BEEN VERIFIED AND FOUND ACCEPTABLE. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED AN HELD THAT THE D ISALLOWANCE MAY BE DELETED. 4.2. AGGRIEVED BY THE ORDER, THE REVENUE IS IN APPE AL BEFORE US. THE LD D.R. STRONGLY ARGUED THAT AS THE EXCHANGE LO SS WAS WITH RESPECT TO THE PURCHASE OF MACHINERY, BEING A CAPIT AL ASSET, THE SAME WAS RIGHTLY DISALLOWED BY THE A.O. HE URGED THAT AS PER THE PROVISIONS OF SECTION 43A, THE SAME SHOULD HAVE BEEN CAPITALIS ED. ON THE OTHER ITA NO.588/AHD/11 ASSESSMENT YEAR 2006-07.. 5 HAND, THE LD. A.R. STATED THAT THE ASSESSEE WAS RIG HT IN TREATING THE INTEREST AS REVENUE EXPENSES IN VIEW OF THE MANDATO RY REQUIREMENT OF ACCOUNTING STANDARD ISSUED BY THE INSTITUTE OF CHAR TERED ACCOUNTANTS OF INDIA. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE US. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS PURCHASED MACHINERY, THE EXCHANGE LOSS OF RS.2,93,3 23/- PERTAINS TO THE ACQUISITION OF MACHINERY BEING A CAPITAL ASSET. FOR DEBITING THE LOSS ON EXCHANGE, THE ASSESSEE RELIED HEAVILY ON TH E ACCOUNTING TREATMENT PRESCRIBED IN REVISED ACCOUNTING STANDARD , AS11 (REVISED) RELATING TO THE EFFECTS OF CHANGES IN FO REIGN EXCHANGE RATES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNT ANTS OF INDIA. 6. IN THE CASE OF WOODWARD GOVERNOR INDIA (P) LTD. VS. CIT (2007) 294 ITR 451 (DEL) IT HAS BEEN HELD AS UNDER: SEC.43A NOW PROVIDES THAT THE AMOUNT BY WHICH THE LIABILITY IS INCREASED OR REDUCED AS A RESULT OF CHANGE IN THE R ATE OF EXCHANGE DURING THE YEAR PREVIOUS YEAR AFTER THE ACQUISITION OF SUCH ASSET WOULD BE TAKEN INTO ACCOUNT AT THE TIME OF MAKING P AYMENT IRRESPECTIVE OF THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE. IT THEREFORE FOLLOWS THAT IN TERMS OF PROVISIONS OF SE C. 43A, THE AMOUNT OF EXCHANGE FLUCTUATION WITH REFERENCE TO ACQUISITI ON NEEDS TO BE CAPITALIZED. 7. IN VIEW OF THE ABOVE FACTUAL POSITION, WE ARE OF THE CONSIDERED VIEW THAT RATIO OF THE WOODWARD GOVERNOR (SUPRA) SQ UARELY APPLIES TO ITA NO.588/AHD/11 ASSESSMENT YEAR 2006-07.. 6 THE FACTS OF THE ASSESSEE. WE THEREFORE ARE OF THE VIEW THAT THE CIT(A) WAS WRONG IN ALLOWING THE DEDUCTION OF INTEREST AS REVENUE EXPENDITURE. WE ACCORDINGLY UPHOLD THE VIEW OF A.O. ACCORDINGLY THIS GROUND OF REVENUE IS ALLOWED. 8. GROUND NO.2 IS WITH RESPECT TO REDUCING HE DISAL LOWANCE FROM RS 6,13,140/-, TO RS. 2,64,554/- MADE ON ACCOUNT OF PRESUMPTIVE INTEREST ON ACQUISITION OF FIXED ASSETS. 8.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS T HE A.O. OBSERVED THAT THE ASSESSEE HAD CAPITAL WIP OF RS.8. 94 CRORE AS ON 31- 3-2006 AND DURING THE YEAR IT HAD ALSO PURCHASED AS SETS WORTH RS.25.58 CRORE. THE AO OBSERVED THAT THE ASSESSEE H AD ALSO TAKEN TERM LOANS ON WHICH IT HAD PAID INTEREST. THE A.O. WAS OF THE VIEW THAT SINCE TERM LOANS HAVE BEEN UTILIZED FOR ACQUISITION OF ASSETS, THE INTEREST ON THE SAME SHOULD HAVE BEEN CAPITALIZED. HE COMPUTED RS.6,13,140/- AS THE INTEREST THAT SHOULD HAVE BEEN CAPITALIZED AND ACCORDINGLY DISALLOWED IT FROM INTEREST EXPENSE. 8.2. THE ASSESSEE BEING AGGRIEVED TOOK THE MATTER I N APPEAL BEFORE CIT (A). CIT (A) REDUCED THE DISALLOWANCE FROM RS.6 ,13,140/- TO RS.2,64,553/- BY HOLDING AS UNDER:- 7. THE A.O. HAS DISALLOWED RS.6,13,140/- ON GROUND S OF PRESUMPTIVE INTEREST ON ACQUISITION OF FIXED ASSETS NOT CAPITALIZED. IN RESPECT OF THE ASSETS APPEARING UND ER THE HEAD CAPITAL WORK IN PROGRESS OF RS.2,94,44,458/-, NO BO RROWED FUNDS WERE USED FOR ACQUISITION OF THE SAID ASSETS AND TH E ENTIRE FUNDS ITA NO.588/AHD/11 ASSESSMENT YEAR 2006-07.. 7 WERE PAID FROM OWNED FUNDS SUCH AS SHARE CAPITAL AN D INTERNAL ACCRUALS. IN RESPECT OF THIS ADDITION, AND AFTER VERIFYING TH E FINDINGS OF THE A.O. IN HIS ORDER AND THE SUBMISSIONS GIVEN BY THE A.R. IN THEIR SUBMISSION DATED 16-3-2010, IT WAS CONCLUDED THAT LOOKING TO THE NATURE OF TRANSACTIONS AND FUNDS INVOLVED, I T IS NOT POSSIBLE TO IDENTIFY THE EXACT UTILIZATION OF OWNED FUNDS AND BORROWED FUNDS FOR ACQUISITION OF THE SAID FIXED AS SETS. HENCE,. THE AR WAS ADVISED TO SUBMIT A CALCULATION OF DISAL LOWABLE INTEREST EXPENSE FOR ACQUISITION OF THE SAID PLANT AND MACHINERY BY APPLYING THE RATE OF INTEREST BEING PAID ON TERM LOANS TO THE DATE OF PURCHASE OF THE RELATED MACHINERY. IN REPLY, THE LD. AR SUBMITTED A DETAILED WORKING O F DISALLOWABLE INTEREST EXPENSE TO THE TUNE OF RS.2,6 4,553/- VIDE THEIR SUBMISSION DATE 13-4-2010 AND HELD THAT : IN RESPECT OF DISALLOWANCE ON GROUNDS OF INTEREST CAPITALIZATION OF RS. 6,13,140/-, WE HAVE WORKED OUT A FORMULA BY WHICH THE CORRECT FIGURE OF INTEREST WHICH SHOULD BE DISALLOW ED ON ACCOUNT OF NON-CAPITALIZATION IS DERIVED. WE HAVE WORKED OUT THE EXACT DATE OF PURCHASE OF AL L ITEMS APPEARING IN CAPITAL WORK IN PROGRESS OF RS.2.94 CR ORES AND APPLIED THE RATE OF INTEREST OF 11.75% AT WHICH THE TERM LOANS HAVE BEEN TAKEN FROM SBI AND BANK OF INDIA. FOR YOU R REFERENCE, THE SANCTION LETTERS FROM SBI AND BANK OF INDIA SPE CIFYING THE RATE OF INTEREST ON SUCH TERM LOAN ARE ATTACHED HER EWITH FOR YOUR REFERENCE. AS PER THE DETAILED CALCULATION ATTACHED, THE DISAL LOWANCE COMES TO RS.2,64,553/- WHICH IS ACCEPTABLE TO US. KINDLY TAKE THE SUBMISSIONS AND CALCULATIONS ON REC ORD AND DO THE NEEDFUL. 7.1. THE ABOVE SUBMISSIONS AND CALCULATIONS SUBMITT ED BY THE LD. AR HAVE BEEN VERIFIED AND FOUND ACCEPTABLE. ACC ORDINGLY, ITA NO.588/AHD/11 ASSESSMENT YEAR 2006-07.. 8 THIS GROUND OF APPEAL IS PARTLY ALLOWED AND THE DIS ALLOWANCE BE REDUCED TO RS.2,64,553/-. 9. AGGRIEVED BY THE ABOVE ORDER OF LD. CIT (A), THE REVENUE IS NOW IN APPEAL BEFORE US. 10. BEFORE US, THE LD. D.R. CONTENDED THAT THE A.O. WAS RIGHT IN DISALLOWING THE INTEREST AS ASSESSEE HAD UTILIZED F UNDS ON WHICH IT HAD PAID INTEREST. FURTHER, THE DISALLOWANCE OF THE INTEREST IS BASED ON THE WORKING SUBMITTED BY THE ASSESSEE. THE D.R. THE REFORE CONTENDED THAT THE ORDER OF THE AO BE UPHELD. THE LD. A.R. ON THE OTHER HAND RELIED ON THE ORDER OF CIT (A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORDS PRODUCED BEFORE US. IT IS AN UNDISPUTED FACT THAT O WN FUNDS AND BORROWED FUNDS HAVE BEEN UTILIZED FOR PURPOSE OF AC QUISITION OF FIXED ASSETS. THE LD. CIT(A) HAS ON THE BASIS OF CALCULAT ION SUBMITTED BY THE ASSESSEE, AFTER VERIFICATION FOUND THE CALCULAT ION ACCEPTABLE AND REDUCED THE DISALLOWANCE FROM RS 6,13,140/- TO RS. 2,64,553/-. THE LD. D.R. COULD NOT BRING ANY FACT TO CONTROVERT THE WOR KING AS GIVEN BY THE ASSESSEE AND ACCEPTED BY CIT(A). WE ARE THEREFO RE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE VIEW TAKE N BY THE CIT (A). ACCORDINGLY, WE DISMISS THE GROUND OF REVENUE. 12. GROUND NO.3 IS WITH RESPECT TO DISALLOWANCE OF RS 1,10,300/- MADE BY AO ON ACCOUNT OF NON DEDUCTION OF TDS ON L/ C CHARGES PAID TO NON RESIDENT PARENT COMPANY. ITA NO.588/AHD/11 ASSESSMENT YEAR 2006-07.. 9 13. THE FACTS ARE THAT ASSESSEES PARENT COMPANY IN USA HAD PAID L/C OPENING CHARGES OF RS.5,51,500/- ON BEHALF OF A SSESSEE AND THE SAME WAS REIMBURSED BY ASSESSEE AND DEBITED TO PREL IMINARY EXPENSE. ON REIMBURSEMENT NO TDS WAS DEDUCTED BY TH E ASSESSEE. OUT OF TOTAL [PRELIMINARY CHARGES 1/5 TH (RS.1,10,300) WAS CLAIMED AS EXPENSE U/S. 35D.ACCORDING TO A.O., SINCE THE ASSES SEE HAD NOT DEDUCTED TDS ON REIMBURSEMENT, THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION AND THEREFORE DISALLOWED RS.1,10,300/-. T HE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A). BEFORE CIT(A ), THE ASSESSEE CONTENDED THAT SINCE THE AMOUNT PAID WAS IN NATURE OF REIMBURSEMENT, NO TDS WAS REQUIRED TO BE DEDUCTED. ASSESSEE ALSO RELIED ON VARIOUS DECISIONS. CIT(A) DELETED THE ADD ITION BY HOLDING THAT SINCE THE PAYMENT MADE BY APPELLANT IS IN NATU RE OF REIMBURSEMENT, THEY ARE NOT SUBJECT TO REQUIREMENTS OF DEDUCTION OF TDS U/S. 40(A)(IA) AND 195 AND ACCORDINGLY HE ALLOW ED THE APPEAL OF THE ASSESSEE AND DELETED THE ADDITION. 14. AGGRIEVED BY THE DECISION, REVENUE IS NOW IN AP PEAL BEFORE US. THE LD. D.R. COULD NOT FURNISH ANYTHING CONTRARY NO R CONTROVERT THE FINDING OF CIT (A). 15. THE LD. A.R. ON THE OTHER HAND REITERATED THE S UBMISSIONS MADE BEFORE CIT(A) AND CONTENDED THAT THE AMOUNTS PAID W ERE IN THE NATURE OF REIMBURSEMENTS. HE RELIED ON THE DECISIONS OF IT O VS. DR. WILLMAR SCHWABE (2005) 3 SOT 71 (ITAT) WHERE IT HAS BEEN HE LD THAT REIMBURSEMENT OF EXPENSES DID NOT ATTRACT THE PROVI SIONS OF SECTION 194C AND TDS IS NOT REQUIRED TO BE DEDUCTED. HE ALS O RELIED ON THE ITA NO.588/AHD/11 ASSESSMENT YEAR 2006-07.. 10 DECISIONS CITED BEFORE CIT(A). THE A.R. FURTHER SUB MITTED THAT NO DISALLOWANCE HAS BEEN MADE IN SUBSEQUENT YEAR WHILE MAKING ASSESSMENT U/S. 143(3) FOR ASSESSMENT YEAR 2007-08. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN VIEW OF THE UNDISPUTED FACTS THAT THE AMOUNT PAID WAS REIMBURSEMENT AND NOT INCOME, NO DISALLOWANCE MADE IN SUBSEQUENT ASSESSMENT YEAR, WE RESPECTFULLY CONCURRING WITH TH E VIEW OF THE CO- ORDINATE BENCH IN THE CASE OF ITO VS. DR. WILLMAR S CHWABE (SUPRA) UPHOLD THE VIEW TAKEN BY CIT (A) AND DISMISS THE GR OUND OF REVENUE. 18. GROUND NO.4 IS WITH RESPECT TO DELETION OF ADDI TION OF RS 1,04,986/- MADE BY AO ON ACCOUNT OF PRELIMINARY EXP ENSES U/S 35D. 19. ASSESSEE HAD CLAIMED DEDUCTION OF RS.17.90 LAKH U/S. 35D. ON VERIFICATION THE AO FOUND SOME OF THE EXPENSES WERE NOT COVERED U/S 35D. AFTER DISCUSSION WITH THE ASSESSEE, A.O. DISAL LOWED RS.1,04,986/- AS BEING THE EXPENSES WHICH WERE NOT ELIGIBLE FOR DEDUCTION U/S. 35D. 20. AGGRIEVED BY THE ORDER OF THE A.O. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT (A). CIT (A) DELETED THE ADDI TION BY HOLDING AS UNDER:- 10.1. THE LD. A.O. HAS GROSSLY ERRED IN MAKING ADDI TION OF RS.1,04,986/- ON GROUNDS THAT THOSE EXPENDITURE W ERE NOT ELIGIBLE FOR DEDUCTION U/S. 35D. THE ABOVE EXPENDIT URE WERE MADE AT THE TIME OF INCORPORATION OF THE COMPANY AN D WERE ITA NO.588/AHD/11 ASSESSMENT YEAR 2006-07.. 11 INCURRED FOR THE PURPOSE OF PRELIMINARY AND PREOPER ATIVE PROCEDURES TO INITIATE THE WORKING OF THE COMPANY A ND HENCE ELIGIBLE U/S.35D.THE LD. A.O. HAS NOT GONE INTO THE DEPTH OF THE TRANSACTION AND MADE ADDITION IN HASTE WITHOUT KNOW ING THE FACT OF THE CASE AND NATURE OF TRANSACTION. A COPY OF THE WORKING OF THE ELIGIBLE AND NON-ELIGI BLE EXPENSES AS DECIDED BY THE LD. A.O. IS ATTACHED HEREWITH WHI CH CLEARLY IDENTIFIES THE EXACT NATURE OF THE EXPENSE. OUT OF A TOTAL PRELIMINARY AND PREOPERATIVE EXPENSES OF RS. 90,01, 617.78, THE LD. A.O. HAS HELD INELIGIBLE EXPENSES TO THE EXTENT OF RS.5,24,928.94 AND ONE-FIFTH OF THE SAME RS.1,04,98 6/- AS CLAIMED BY THE ASSESSEE U/S. 35D HAS BEEN DISALLOWED. THE I TEMS WHICH HAVE BEEN DISALLOWED HAVE BEEN HIGHLIGHTED UNDER TH E CATEGORY OF SUCH OTHER ITEMS AS MAY BE PRESCRIBED FOR SETTI NG UP THE PROJECT COPY OF SUCH WORKING IS ATTACHED HEREWITH FOR YOUR REFERENCE. ACCORDINGLY, YOUR GOOD-SELF ARE REQUESTED TO DELETE THE ADDITION MADE. 10.2. THE ABOVE SUBMISSIONS OF THE LD. A.R. HAVE BEEN VERIFIED AND FOUND TENABLE. ACCORDINGLY, THE ABOVE DISALLOWA NCE IS HEREBY DELETED. 21. AGGRIEVED BY THE ORDER OF CIT (A), THE REVENUE IS NOW IN APPEAL BEFORE US. 22. THE LD. A.R. REITERATING THE ARGUMENTS AS MADE BEFORE THE CIT (A) AND RELYING ON ORDER OF CIT (A), REQUESTS THAT THE ORDER OF CIT (A) BE UPHELD. NO CONTRARY FACTS BROUGHT ON RECORD BY THE LD. D.R. BEFORE US. 23. FROM THE ORDER OF CIT (A), IT IS CLEAR THAT HE HAS VERIFIED THE EXPENSES AND FOUND THE CONTENTION OF THE ASSESSEE T O BE CORRECT. ITA NO.588/AHD/11 ASSESSMENT YEAR 2006-07.. 12 FURTHER FROM THE ASSESSMENT ORDER FOR A.Y. 2007-08 PASSED ON 28-12- 2010 IT IS SEEN THAT NO DISALLOWANCE ON THAT GROUND HAS BEEN MADE. WE ARE THEREFORE OF THE VIEW THAT NO INTERFERENCE I S REQUIRED TO THE FINDING AND DECISION OF CIT (A). ACCORDINGLY, WE UP HOLD THE DECISION OF CIT (A) AND DISMISS REVENUES GROUND. 24. GROUND NOS.5 AND 6 BEING GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ADJUDICATION. 25. IN THE RESULT, THE REVENUES APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED IN OPEN COURT ON 4-5- 2012. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-XIV, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. ITA NO.588/AHD/11 ASSESSMENT YEAR 2006-07.. 13 1.DATE OF DICTATION 29 - 3 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 29 /3 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 3 - 5 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 4 - 5 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 4 - 5 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7 - 5 -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..