M/s 20 Micron Limited, Baroda V. The Dy.CIT, Baroda Circle-4, Baroda

ITA 760/AHD/2013

• Counselvise Citation: 76020514 RSA 2013
• Duration Of Justice: 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 15-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL SRDR
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMADABAD , , , , BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND , SHRI T.R. MEENA, ACCOUNTANT MEMBER .. , ! ' # ' # ' # ' # ITA NO. 760 & 755/AHD/2013 ASSESSMENT YEAR :2009-10 20 MICRONS LIMITED C/O N C VAISHNAV & CO., 2, MARUTI FLATS, 31, HARIBHAKTI COLONY, RACE COURSE, BARODA 390007 DCIT, CIRCLE-4, BARODA V/S . V/S. DCIT, CIRCLE-4, BARODA 20 MICRONS LIMITED C/O N C VAISHNAV & CO., 2, MARUTI FLATS, 31, HARIBHAKTI COLONY, RACE COURSE, BARODA 390007 PAN NO. AAAC Z0580B (APPELLANT) .. (RESPONDENT) $ % & / BY REVENUE SHRI P. L. KUREEL, SR. D.R. % & /BY ASSESSEE SHRI S. N. SOPARKAR, A.R. '( % ! /DATE OF HEARING 11.12.2013 )*+ % ! /DATE OF PRONOUNCEMENT 21.02.2014 O R D E R PER : SHRI T.R.MEENA, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND R EVENUE IN ITA NOS. 760/AHD/13 & 755/AHD/13 RESPECTIVELY WHICH HAV E EMANATED FROM THE ORDER OF CIT(A)-III, BARODA, DATED 12.12.2012 FOR A SSESSMENT YEAR 2009-2010. BOTH CROSS APPEALS WERE HEARD TOGETHER AND ARE BEIN G DISPOSED OF BY WAY OF ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 2 THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. THE EFFECTIVE GROUNDS OF BOTH CROSS APPEALS ARE AS UNDER: ITA NO. 760/AHD/2013 (ASSESSEE'S APPEAL) 1. LD CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRM ING DISALLOWANCE MADE BY AO OF PRODUCT DEVELOPMENT EXPENSES OF RS.5 5,00,000/- CLAIMED AS REVENUE EXPENDITURE. LD. CIT(A) FAILED TO APPRECIATE THE NATURE OF SERVICES OBTAINED FROM THE SPECIALIST WAS FOR MANUFACTURE OF PRODUCT DEVELOPED BY THE APPELLANT I N MORE EFFICIENT AND COST EFFECTIVE MANNER. LD. CIT(A) OUGHT TO HAV E DELETED SUCH DISALLOWANCE IN ABSENCE OF ANY ENDURING BENEFIT RES ULTING TO THE APPELLANT. 2. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE CLAIM OF DEVELOPMENT EXPENSES BEING REVENUE IN NATURE, DEPRECIATION BE G RANTED IF IT IS HELD THAT PRODUCT DEVELOPMENT EXPENSE IS SAID TO BE STOW ENDURING BENEFIT TO THE APPELLANT. 3. LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMI NG DISALLOWANCE MADE BY AO OF 100% DEPRECIATION CLAIMED ON PARTICLE SIZE ANALYZER BEING AIR POLLUTION CONTROL EQUIPMENT. BO TH THE LOWER AUTHORITIES FAILED TO APPRECIATE WORKING OF THE PAR TICLE SIZE ANALYZER THAT ELIMINATED AIR POLLUTION MAKING IT ELIGIBLE FO R 100% DEPRECIATION. LD. IT(A) OUGHT TO HAVE GRANTED DEPRECIATION AS CLA IMED BY THE APPELLANT. 4. LD. CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMI NG ACTION OF AO IN RESTRICTING DEPRECIATION OF RS.22,09,948/- CLAIMED ON OPENING BALANCE OF BLOCK OF 100% DEPRECIABLE ASSETS TO RS.3 ,31,492/- ALLOWINGLY ONLY 15% DEPRECIATION THEREON. LD. CIT( A) ERRED IN NOT APPRECIATING THE FACT THAT THE DEPRECIATION WAS ALR EADY CLAIMED ON THE BASIS OF 100% RATE IN THE EARLIER YEAR ON THESE ASSETS THAT WAS GRANTED IN SCRUTINY PROCEEDINGS AND THERE WAS NO OC CASION FOR AO TO ALTER THE RATE OF DEPRECIATION ALLOWED. LD. CIT (A) OUGHT TO HAVE ALLOWED DEPRECIATION ON OPENING BALANCE OF WRITTEN DOWN VALUE (WDV) ON DEPRECIABLE ASSETS AS CLAIMED BY THE APPEL LANT. ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 3 ITA NO. 755/AHD/2013 (REVENUE'S APPEAL) 1. ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CA SE, AND IN LAW THE LD CIT(A)-III, BARODA HAS ERRED IN REDUCING THE DIS ALLOWANCE U/S 14A OF THE ACT FROM RS.7.29 LACS TO RS.6.31 BY DEDU CTING THE AMOUNT OF INVESTMENTS OF RS.21.44 LACS MADE IN ITS OWN FOREIGN SUBSIDIARY FROM THE TOTAL INVESTMENTS WITHOUT APPRE CIATING THE FACT THAT THE METHOD LAID DOWN UNDER RULE 8D OF I. T. RU LES 1962 PRESCRIBES THE AVERAGE VALUE OF INVESTMENTS. 2. ON THE FACTS AND ON THE CIRCUMSTANCES OF THE C ASE, AND IN LAW THE LD CIT(A)-III, BARODA HAS ERRED IN DELETING THE ADD ITION MADE ON ACCOUNT OF CAPITALIZATION OF INTEREST OF RS.62.85 L ACS WITHOUT APPRECIATING FACT THAT THE ASSESSEE FURNISHED INCOR RECT DETAILS AS DISCUSSED IN ASSESSMENT ORDER AND IN THE DETAILS SO PRODUCED BEFORE THE CIT(A) WERE NOT AVAILABLE WITH ASSESSING OFFICER WHICH SHOULD HAVE AT LEAST REMANDED BACK TO THE ASSESSING OFFICER. 3. ON THE FACTS AND ON THE CIRCUMSTANCES OF THE CAS E, AND IN LAW THE LD CIT(A)-III, BARODA HAS ERRED IN ALLOWING DEPRECI ATION @ 100% ON RS.7,11,200/- ON THE EQUIPMENT PURPORTED TO BE DUST COLLECTOR THOUGH THE ASSESSEE COULD NOT SUBSTANTIATE WITH IOT A OF EVIDENCE THAT THE EQUIPMENT QUALIFIED TO FALL UNDER AIR POL LUTION CONTROL EQUIPMENT BLOCK. 2. THE ASSESSEES GROUND NOS. 1 & 2 ARE AGAINST CON FIRMING DISALLOWANCE OF PRODUCT DEVELOPMENT EXPENSES OF RS.55,00,000/- C LAIMED AS REVENUE EXPENDITURE AND ALTERNATIVELY DEPRECIATION ON PRODU CT DEVELOPMENT EXPENSES. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF MICRONIZED MINERALS BY DRY AND WET PROCESS. PROCESS INVOLVES PURCHASE OF MATERIAL FROM MINES AS WELL EXTRACTION MATERIAL FROM OWN MINE, MICRONIZING IT TO SMALLER PARTICLE SIZE AND SELLING IT TO CUSTOMER AFTER CUSTOMIZING AS PER THEIR NEED. THE ASSESSEE COMPANY DEALS WITH LARGER NUMBER MINERALS LIKE CALC IUM CARBONATE, CHINA ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 4 CLAY, BARITES, SILICA, MICA AND SUCH OTHER NON META LLIC MINERALS. IT SELLS TO VARIOUS INDUSTRIAL USERS LIKE PAPER, PAINT AND PLAS TIC MANUFACTURERS. THE A.O. FOUND THAT ASSESSEE HAD CAPITALIZED EXPENSES INCURR ED ON SOME PROCESS KNOW-HOW OF RS.55,00,000/- IN AUDITED BALANCE SHEET . IN THE COMPUTATION OF INCOME, THE ASSESSEE REDUCED THE INCOME TO THE EXTE NT OF RS.55 LACS CLAIMING THEREBY THE EXPENSES AS REVENUE EXPENSES. THE A.O. GAVE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE, WHICH WAS AFFORDED BY THE ASSESSEE VIDE LETTER DATED 10.10.2011. THE A.O. HELD THAT T HE ASSESSEES CONTENTION IS THAT THE EXPENDITURE IS INCURRED ON THE KNOW-HOW FO R DEVELOPING OF PRODUCT. AT THE SAME TIME THE ASSESSEE PLEADS THAT IT IS MEA NT FOR COMMERCIAL PURPOSE AND SHALL BE UTILIZED BY THE ASSESSEE FOR MANUFACTU RING A PARTICULAR PRODUCT. THE ASSESSEE ITSELF ADMITTED THAT THE PRODUCT SHALL BE USEFUL IN EFFICIENCY AND SHALL BE COST EFFECTIVE. THE KNOW-HOW HAS ENDURING BENEFITS. IT IS NOT MERE DATA BANK. THE ASSESSEE ITSELF HAD THEREFORE RIGHT LY CAPITALIZED THE EXPENSES BUT HAS INCORRECTLY CLAIMED AS REVENUE EXPENSES WHI LE COMPUTING THE INCOME. THE EXPENDITURE ON THE PURCHASE OF KNOW-HOW FOR PRO DUCT DEVELOPMENT IS CAPITAL IN NATURE AND THE SAME WAS DISALLOWED AND A DDED BACK TO THE TOTAL INCOME OF THE ASSESSEE BY THE A.O. THE ASSESSEE HA D RECOGNIZED THE EXPENDITURE ON THE PURCHASE ON KNOW-HOW FOR PRODUCT DEVELOPMENT OF BEING CAPITAL IN NATURE IN REGULAR BOOKS. BUT IN COMPUTA TION, IT HAS BEEN REDUCED FROM THE INCOME. THUS, HE MADE ADDITION OF RS.55 L ACS IN THE INCOME OF THE ASSESSEE. ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 5 3. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD DISMISSED THE ASSE SSEES APPEAL BY OBSERVING AS UNDER: 5.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSION OF THE AR OF THE APPELLANT. FROM THE COPY OF THE PRODUCT DEVELOP MENT AGREEMENT, IT IS SEEN THAT THE APPELLANT HAS ENTRUSTED THE DEVELOPER WITH THE RESEARCH AND DEVELOPMENT OF DIFFERENT MINERAL PRODUCTS. AS P ER THE AGREEMENT THE APPELLANT HAS AGREED TO PAY AN AMOUNT OF RS. 1.5 CR ORE AS THE PRODUCT DEVELOPMENT FEE. SUCH FEE IS TO BE PAID IN ADVANCE. IN CONSIDERATION OF THE DEVELOPMENT FEE, THE DEVELOPERS SHALL PROVIDE T HE RESEARCH AND DEVELOPMENT SERVICES RESULTS OF WHICH SHALL BE DELI VERED IN THE FORM OF A PRODUCT DEVELOPMENT REPORT TO THE APPELLANT. AFTER THIS, THE DEVELOPERS SHALL RAISE A BILL FOR THE PRODUCT DEVELOPMENT FEE ON THE BASIS OF THE PRODUCT ALREADY DEVELOPED AND FOR WHICH TEST MARKET HAS BEEN COMPLETED. THE DEVELOPER IS REQUIRED TO TEST MARKET THE PRODUC T DEVELOPED BY IT AND TO ENSURE ITS ACCEPTANCE BY THE CUSTOMERS FOR ITS C OMMERCIAL USE. CLAUSE 6 OF THE AGREEMENT STATES AS FOLLOWS: 'DEVELOPERS SHALL DEVELOP A PROTO TYPE OR DEVISE A METHOD OF PRODUCTION (A) TO MEET THE CRITERIA FOR PRODUCTION OF THE PROD UCT DESCRIBED IN EXHIBIT A, AND (B) IS OFFERED BY DEVELOPER TO THE CLIENT AT A SPECIFIC PRICE. THE CLIENT IS UNDER NO FURTHER OBLIGATION TO PURCHASE SUCH EQU IPMENT, BUT SHALL BE ENTITLED TO THE DETAILED INFORMATION REGARDING SUCH EQUIPMENT OR METHODS AS PRESCRIBED IN THE PRODUCT DEVELOPMENT REPORT. 5.2.1 FURTHER TO THIS, CLAUSE 11 OF THE AGREEMENT S TATES THAT THE INFORMATION AND METHODS DEVELOPED OR EMPLOYED BY TH IS AGREEMENT ARE THE EXCLUSIVE PROPERTY OF THE APPELLANT AND THE DEV ELOPER CANNOT SHARE SUCH KNOWLEDGE WITH OTHERS. 5.3 THUS, FROM THIS CLAUSES OF THE PRODUCT DEVELOP MENT AGREEMENT, THIS IS QUITE EVIDENT THAT THE PAYMENTS MADE BY THE APPELLANTS TO THE DEVELOPER ARE FOR THE PURPOSES OF ACQUIRING KNOW-HO W FOR THE PURPOSES OF METHODS OF MANUFACTURING NEW PRODUCTS AND DEVELOPIN G PROTO TYPE OF EQUIPMENTS REQUIRED FOR SUCH PURPOSES. HENCE, THE A PPELLANTS CLAIM THAT ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 6 THIS EXPENSES ARE FOR THE PURPOSES OF ACQUIRING PRO CEDURE FOR BETTER MANUFACTURING KNOW-HOW FOR THE MANUFACTURE OF A PAR TICULAR PRODUCT IN MORE EFFICIENT COST EFFECTIVE MANNER IS NOT CORRECT . THE APPELLANT IS ACQUIRING AN ALTOGETHER NEW KNOW-HOW FOR MANUFACTUR E OF NEW PRODUCTS WHICH IS GIVING ENDURING BENEFIT TO THE APPELLANT A ND IT IS NOT FOR THE PURPOSES OF CARRYING OUT THE EXISTING BUSINESS OF T HE APPELLANT IN A MORE EFFICIENT WAY. HENCE THE AO HAS RIGHTLY HELD THE EX PENSES TO BE CAPITAL EXPENDITURE. FOR HOLDING SO, RELIANCE IS ALSO PLACE D UPON FOLLOWING JUDICIAL PRONOUNCEMENTS: I) 196 ITR 0237(GUJ), SAURASHTRA CEMENT AND CHEMICA L INDUSTRIES LTD.-IN THIS THE COURT HAS HELD THAT THAT THE EXPEN DITURE INCURRED IN OBTAINING THE FEASIBILITY REPORT AND THE CONSULTATI ON FEE PAID FOR THE SODA ASH PLANT WAS CAPITAL EXPENDITURE. II) 232 ITR 639(DEL),TRIVENI ENGINEERING WORKS LTD.- IN THIS THE COURT HAS HELD THAT THE AMOUNT SPENT ON THE PROJECT REPOR TS WAS NOT FOR THE PURPOSE OF FACILITATING THE ASSESSEE'S EXISTING TRA DING OPERATIONS OR ENABLING MANAGEMENT AND CONDUCT OF THE ASSESSEE'S B USINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY, WHI LE LEAVING THE FIXED CAPITAL UNTOUCHED. IF ONLY THE PROJECT REPORTS HAD BEEN SUCCESSFULLY ACCEPTED AND PUT INTO IMPLEMENTATION, THE ASSESSEE WOULD HAVE GONE INTO MANUFACTURING OF A NEW PRODUCT WHICH WOULD HAVE CER TAINLY REQUIRED INVESTMENT OF FRESH CAPITAL AND COMING INTO EXISTEN CE OF ADDITIONAL FIXED ASSETS. THE EXPENDITURE WAS, THEREFORE, ATTRIBUTABL E TO CAPITAL HAVING BEEN INCURRED WITH A VIEW TO BRINGING AN ASSET OR ADVANT AGE INTO EXISTENCE AND HAVING ENDURING BENEFIT. III) 86 ITR 38 (SC) M.K. BROTHERS PRIVATE LTD - IN THIS THE COURT HAS HELD THAT IF THE SUBJECT OF MAKING THE PAYMENT IS T O ACQUIRE A CAPITAL ASSET, THE PAYMENT WOULD PARTAKE THE CHARACTER OF A CAPITA L PAYMENT EVEN THOUGH IT IS MADE NOT IN LUMP SUM BUT BY INSTALLMEN TS OVER A PERIOD OF TIME. 5.4 HENCE IT IS HELD THAT THE PAYMENTS MADE BY THE APPELLANT TO THE DEVELOPER ARE FOR THE PURPOSES OF ACQUITION OF NEW KNOW-HOW AND HENCE THESE ARE CAPITAL EXPENDITURE IN NATURE. AS THE SAM E TIME THE APPELLANT ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 7 HAS ACQUIRED THE KNOW-HOW DURING THE YEAR AS IS EVI DENT FROM THE COPY OF THE PROJECT REPORT ON 'PRODUCT DEVELOPMENT ON HIGH ASPECT RATIO TALC' SUBMITTED BY THE APPELLANT. BUT THIS RE PORT IS DATED 20.03.2009 AND THE APPELLANT HAS NOT ADDUCED ANY EV IDENCE TO SHOW THAT SUCH KNOW-HOW WAS PUT TO USE DURING THE FINANCIAL Y EAR 2008-09. HENCE, THE ALTERNATE REMEDY PRAYED FOR BY THE APPELLANT IN THE FORM OF DEPRECIATION ON SUCH KNOW-HOW CANNOT BE GRANTED. AS A RESULT, THE SECOND GROUND OF APPEAL IS DISMISSED. 4. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEES BUSINESS IS MANUFACTURING OF MICRONIZED MINERALS BY DRY AND WET PROCESS, WHICH CAN BE VERIFIED FROM THE AUDIT REPORT AS PER PAGE NO.14 OF PAPER BOOK. DURING THE YEAR AS PER P AGE NO.12, SCHEDULES ANNEXED TO AND FORMING PART OF THE ACCOUNTS, THE DE TAILED QUANTITY AND VALUE OF VARIOUS MINERALS CONSUME HAS BEEN SHOWN IN AUDIT REPORT. THE ASSESSEE HAS AGREEMENT WITH DISPERSIVE MINERALS AND CHEMICAL S INDIA PRIVATE LIMITED DATED 12 TH DECEMBER, 2007 FOR PRODUCT DEVELOPMENT. THE PRODU CT DEVELOPMENT REPORT BY DISPERSIVE MINERALS AND CHEMI CALS INDIA PRIVATE LIMITED WAS DATED 20 TH MARCH, 2009, WHICH IS A DETAILED BOOKLET WHICH GIV ES A COMPLETE FORMALITY CARRIED OUT FOR THE DEVELOPMENT OF THE PRODUCT. THE PRODUCT DEVELOPMENT EXPENSES WERE INCURRED FOR PROD UCTS WHICH WERE USED FOR COMMERCIAL EXPLOITATION BY THE COMPANY. SINCE, THE ASSESSEE COMPANY DID NOT HAVE NECESSARY SKILL SET TO DEVELOP THESE P RODUCTS, IT HAD BEEN OUTSOURCED THIS FUNCTION FROM A SPECIALIST. EXPENS ES INCURRED FOR THE DEVELOPMENT OF NEW PRODUCT FOR WHICH EXHAUSTIVE TRI ALS WERE CARRIED OUT BY USE OF MATERIAL AND VARIOUS COMBINATIONS AND PERMUT ATIONS WERE USED. LARGELY IT INVOLVES EXPENDITURE ON MATERIAL AND MAN POWER EMPLOYED FOR ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 8 DEVELOPMENT OF A PRODUCT. THIS PRODUCT WAS LARGELY PROCESS BASED AND WHAT COMES INTO EXISTENCE IS THE PROCEDURE FOR BETTER MA NUFACTURING KNOW-HOW FOR THE MANUFACTURE OF PARTICULAR PRODUCT IN MORE EFFIC IENT AND COST EFFECTIVE MANNER. THIS DOES NOT BRING INTO EXISTENCE ANY PAT ENT OR TECHNOLOGY AND HENCE, IT IS IN NATURE OF REVENUE EXPENDITURE. AS FAR AS ACCOUNTING STANDARD ARE CONCERNED, IT IS REQUIRED TO BE CAPITALIZED IN THE BOOKS OF ACCOUNT. HE FURTHER HAS DRAWN OUR ATTENTION ON PAGE NO.33 WHERE COPY OF AGREEMENT BETWEEN BOTH THE PARTIES HAVE BEEN PLACED AND ITEM NOS. 1& 4 TO 7 SHOW THAT ASSESSEE MADE THESE PAYMENTS TO CARRY OUT RESEARCH AND DEVELOPMENT ON MINERALS PRODUCT. HE FURTHER RELIED UPON HONBLE I TAT, AMRITSAR DECISION IN CASE OF DCIT VS. MAX INDIA LTD. IN ITA NO. 239/ASR/2000, FO R A.Y. 1991-92, ORDER DATED 9 TH JUNE, 2006, WHEREIN PRODUCT DEVELOPMENT EXPENDITURE OF NEW VARIETIES OF FILMS OF PRESENT BUSINESS AND SAME DID NOT RESULT IN ENHANCING THE INSTALLED CAPACITY OF THE UNIT HELD REVENUE EXPEN DITURE. IN THIS CASE, THE ASSESSEE ALSO CAPITALIZED OR AMORTISED THE EXPENSES IN THE BOOKS OF ACCOUNT FOR 8 YEARS. HE FURTHER RELIED UPON IN CASE OF PERFECT ENGINEERING PRODUCT LTD. VS. ACIT, MUMBAI [2013] 36 TAXMANN.COM 502 (MUMBAI) , WHEREIN PART EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT EL IGIBLE FOR DEDUCTION U/S.35. HOWEVER, EXPENDITURE INCURRED ON RAW MATER IAL SUB-CONTRACTING CHARGES, POWER AND FUEL, SALARY AND WAGES, BONUS, P F, ESI, LWF, LEAVE ENCASHMENT, CANTEEN, TELEPHONE EXPENSES, PRINTING A ND STATIONARY FOREIGN TRAVEL EXPENSES AND INTEREST WERE HELD REVENUE EXPE NSES. HE FURTHER RELIED UPON IN CASE OF CIT VS. M/S. A.R. INDUSTRIES PVT. LTD. IN INCOME TA X APPEAL ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 9 NO. 272 OF 2006, ORDER DATED 01.12.2010, WHEREIN EXPENDITURE FOR DEVELOPMENT OF NEW MODELS AND SAMPLES OF THE VEHICL ES WAS ADMISSIBLE AS REVENUE EXPENSES. IN CASE OF GLAXO SMITH KLINE CONSUMER HEALTHCARE LTD. VS. ACIT, HONBLE CHANDIGARH A BENCH IN ITA NO. 379/CHD/200 4, ORDER DATED 21 ST MARCH, 2007, WHEREIN PROMOTIONAL AND TRADE MARKETI NG EXPENSES WERE HELD REVENUE EXPENDITURE. THUS, HE REQUESTED TO AL LOW THE APPEAL OF THE ASSESSEE. AT THE OUTSET, LD. SR. D.R. SUPPORTED TH E ORDER OF THE CIT(A) AND ARGUED THAT PRODUCT DEVELOPMENT REPORT DATED 20.03 .2009, THERE IS NO EVIDENCE THAT THE ASSESSEE HAD USED THE KNOW-HOW DU RING THE YEAR UNDER CONSIDERATION. THEREFORE, IT IS NOT ONLY REVENUE E XPENDITURE BUT IT IS NOT ALLOWABLE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. AS PER AUDIT REPORT, THE ASSESSEE HAD CONS UMED THE DRY MINERALS OF 74.848 METRIC TONES AND WET MINERALS OF 54.441 METR IC TONES DURING THE YEAR, WHICH HAS BEEN SHOWN SCHEDULE L OF COST OF MATERI AL AT RS.3003.74 LACS. THE EXPENDITURE OF PRODUCT DEVELOPMENT REPORT WAS A LSO CLAIMED IN COMPUTATION OF INCOME AS REVENUE EXPENDITURE. THIS HAS BEEN OUTSOURCED AS ASSESSEE DID NOT HAVE ANY SKILL/SPECIALIZED PERSONA L. AS PER AGREEMENT, THE EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT OF MINERAL PRODUCTS SUCH AS, WET GROUND CALCIUM CARBONATE, WET GROUND TALC. (HIGH ASPECT RATIO TALC.), WET GROUND ATH, WET GROUND BRUCITE, SUB MIC RON SILICA, DELAMINATED KAOLIN, HIGH ASPECT RATIO MICA, OF WHICH THE PRIORI TY HAS TO BE GIVEN TO WET GROUND CALCIUM CARBONATE, TALC, ATH AND BRUCITE AND SUBSEQUENTLY, SUCH ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 10 OTHER PRODUCTS WHICH THE CLIENT MAY FEEL FIT. THE DEVELOPER HAD AGREED TO PROVIDE TO THE ASSESSEE SERVICES RELATING TO CARRYI NG OUT OF RESEARCH AND DEVELOPMENT OF VARIOUS MINERALS PRODUCTS AS PER EXH IBIT A OF THE AGREEMENT. IT IS LOAN DRAWN PROCEEDING WHICH REQUIRED EQUIPMEN T AS WELL AS SCIENTIFIC MANPOWER TO GIVE THE PROJECT REPORT. THESE EXPENSE S CLAIMED TO BE PAID TO THE DEVELOPER FOR THE DEVELOPMENT OF NEW PROJECT FO R WHICH EXHAUSTIVE TRIALS ARE CARRIED OUT BY USE OF MATERIAL AND VARIOUS COMB INATION AND PERMUTATION. THE FINAL PROJECTS COME INTO EXISTENCE UNDER THE PR OCEDURE FOR BETTER MANUFACTURING KNOW-HOW FOR THE MANUFACTURING OF PAR TICULAR PRODUCT IN MORE EFFICIENT AND COST EFFECTIVE MANNER. THE TOTAL CON SIDERATION WAS AGREED TO RS.1.5 CRORE AS PER AGREEMENT BUT ASSESSEE HAS CLAI MED DURING THE YEAR RS.55 LACS IN THE ACCOUNTS. AS PER SECTION 35AB, W HERE THE ASSESSEE HAS PAID IN ANY PREVIOUS YEAR ANY LUMP SUM CONSIDERATIO N FOR ACQUIRING ANY KNOW- HOW FOR USE FOR THE PURPOSES OF HIS BUSINESS. 1/6 TH OF AMOUNT SO PAID SHALL BE DEDUCTED IN COMPUTING THE P&L ACCOUNT OF THE BUSINE SS FOR THAT YEAR. KNOW- HOW MEANS ANY INDUSTRIAL INFORMATION OR TECHNIQUE L IKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR IN THE WORKIN G OF A MINE, OIL WELL OR OTHER SOURCES OF MINERAL DEPOSITS (INCLUDING THE SE ARCHING FOR, DISCOVERY OR TESTING OF DEPOSITS OR THE WINNING OF ACCESS THERET O). THE PRODUCT DEVELOPMENT REPORT WAS DATED 20.03.2009 AND AGREEME NT WAS DATED 12.12.2007, WHEREAS THE ASSESSEE HAD CLAIMED THIS E XPENDITURE IN A.Y. 2009- 10. AS PER THIS AGREEMENT, THIS AMOUNT IS TO BE PA ID IN ADVANCE BUT ASSESSEE HAD NOT FURNISHED ANY EVIDENCE FOR PAYING THIS AMOU NT TO THE DEVELOPER DURING ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 11 THE YEAR. THEREFORE, A.O. IS DIRECTED TO VERIFY WH ETHER THE PROJECT REPORT WAS ACTUALLY USED FOR THE BUSINESS PURPOSES IN THIS YEA R OR NOT AND ACCORDINGLY, HE HAD PAID THE MONEY IN THE YEAR UNDER CONSIDERATION. THEREFORE, THESE GROUNDS OF APPEAL ARE SET ASIDE TO THE A.O. 6. GROUND NOS. 3 & 4 OF ASSESSEE AND GROUND NO.3 OF REVENUE ARE AGAINST NOT ALLOWING 100% DEPRECIATION ON PARTICLE SIZE ANA LYZER ADDED DURING THE YEAR IN THE BLOCK AND 50% DEPRECIATION CLAIMED IN E ARLIER YEAR AND REVENUE IS AGAINST ON ALLOWING 100% DEPRECIATION OF RS.7,11,20 0/- ON THE EQUIPMENT PURPORTED TO BE DUST COLLECTOR BY BRINGING AIR POLL UTION CONTROL EQUIPMENT. THE A.O. OBSERVED THAT IN OPENING BALANCE OF THE BL OCK OF ASSETS OF THE 100% DEPRECIABLE ASSETS WAS OF RS.22,09,948. THE ADDITI ON DURING THE YEAR WAS IN TWO PARTS. THE ADDITION BEFORE 30.09.2008 WAS OF R S.16,76,918/- AND AFTER 30.09.2008 WAS OF RS.7,11,201/-. THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS.41,42,737/- UNDER THIS BLOCK. THE A.O. GAVE REA SONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE, WHICH WAS AVAILED BY THE ASSESSEE VIDE LETTER DATED 26.09.2011. THE ASSESSEE SUBMITTED THAT THE INSTRU MENT IS A PARTICLE-SIZE ANALYZER USED FOR CLASSIFICATION OF PARTICLE SIZE O F THE MATERIAL USED AS INPUT & OUTPUT OF THE COMPANY. IT WAS ALSO STATED THAT IT IS A LABORATORY INSTRUMENT WHICH WAS USED TO ANALYZE DUST SAMPLES COLLECTED FR OM AIR BY DUST COLLECTOR. THIS INDIRECTLY HELPS IN MEASURING AIR POLLUTION AN D HENCE THE SAME HAS BEEN CLASSIFIED AS POLLUTION CONTROL EQUIPMENT. THE SAI D EQUIPMENT WHICH WAS PURCHASED FROM MALVERN INSTRUMENTS LTD. FOR RS.15,8 2,842/-. THE A.O. FURTHER HELD THAT ASSESSEE WAS NOT SURE WHETHER THIS EQUIPM ENT IS A DEVICE OF ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 12 POLLUTION CONTROL EQUIPMENT OR USED IN THE LABORATO RY. THE ASSESSEE WAS ASKED TO GIVE CERTIFICATE FROM THE COMPETENT AUTHOR ITY, PARTICULARLY, GPCB WHO HAS BEEN AUTHORIZED BY THE GOVERNMENT FOR THIS PURP OSE. BUT ASSESSEE DID NOT FURNISH ANY REPORT FROM GPCB. THE ASSESSEE CLA IMED THAT DUST COLLECTOR AND PARTICLE SIZE ANALYZER ARE POLLUTION CONTROL EQ UIPMENTS, WHICH HAVE BEEN CERTIFIED BY THE MANUFACTURER. AFTER CONSIDERING T HE ASSESSEES REPLY, THE A.O. ALLOWED DEPRECIATION @ 15% ON RS.16,76,918/- AT RS. 2,51,537/- AND @ 7.5% ON RS.7,11,201/- AT RS.53,340/-. AFTER REDUCING TH E DEPRECIATION, THE A.O. MADE ADDITION OF RS.17,27,641/- ON ACCOUNT OF DUST COLLECTOR AND PARTICLE SIZE ANALYZER. SIMILARLY, 15% DEPRECIATION WAS ALLOWED ON OPENING BALANCE OF DEPRECIABLE ASSETS AT RS.3,31,992/-. THUS, TOTAL A DDITION OF RS.36,06,097/- (RS.17,27,641/- + RS.18,78,456/-) WAS MADE BY THE A .O. 7. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD ALLOWED THE APPEAL PARTLY BY OBSERVING AS UNDER: 7.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSION OF THE AR OF THE APPELLANT. SO FAR AS DISALLOWANCE OF DEPRECIATI ON ON THE OPENING WRITTEN DOWN VALUE OF BLOCK OF ASSETS IS CONCERNED, THE APPELLANT HAS NOT EXPLAINED AS TO HOW 100% OF SUCH WDV HAS BEEN CLAIM ED AS DEPRECIATION IN THE CURRENT YEAR. THE VERY FACT THAT AMOUNT IS S HOWN AS OPENING WDV SHOWS THAT THE CONCERNED ASSETS WERE ACQUIRED IN TH E EARLIER YEAR AND DEPRECIATION @ 15% WERE CLAIMED ON THEM. THE VALUE LEFT AFTER THE DEPRECIATION CLAIMED FORM THE CLOSING WDV AS ON 31. 3.2008 AND OPENING WDV AS ON 01.04.2008. UNDER SUCH CIRCUMSTANCES, IF THE APPELLANT HAD TO CLAIM 100% DEPRECIATION ON SUCH ASSETS, THE SAME SH OULD HAVE BEEN MADE IN THE EARLIER YEAR AND NOT IN THE CURRENT YEA R. HENCE, THE AO HAS RIGHTLY ALLOWED DEPRECIATION ON SUCH OPENING WDV @ 15%. ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 13 7.2.1 SO FAR AS THE PLANTS AND MACHINERIES ACQUIRED DURING THE F.Y. 2008-09 ON WHICH 100% DEPRECIATION IS BEING CLAIMED ARE CONCERNED, THE IMPORTED PARTICLE SIZE ANALYZER IS ONLY ANALYZING T HE PARTICLE SIZE AND IT IS BEING USED FOR CLASSIFICATION OF PARTICLE SIZE OF T HE MATERIAL USED AS INPUT AND OUTPUT OF THE APPELLANT COMPANY. EVEN IF, IT IS HELPING IN POLLUTION CONTROL, THE SAME IS INDIRECT AND CONSTITUTE ONLY A PART OF ITS FUNCTION. HENCE, THIS IS NOT AN AIR POLLUTION CONTROL EQUIPME NT. HENCE THE AO HAS RIGHTLY DISALLOWED 100% DEPRECIATION ON SUCH INSTRU MENTS. 7.2.2. THE OTHER EQUIPMENT I.E. DUST COLLECTOR IS I N THE NATURE OF AIR POLLUTION CONTROL EQUIPMENT AS ITS PREVENT DUST FRO M BEING DISPERSED IN AIR AND THUS IT CONTROLS THE POLLUTION. HENCE THE A O IS DIRECTED TO PROVIDE 100% DEPRECIATION ON DUST COLLECTOR. 8. NOW THE ASSESSEE AS WELL AS REVENUE IS BEFORE US . LD. A.R. HAS DRAWN ATTENTION ON COPY OF BALANCE SHEET WHERE FIXED ASSE TS SHOWN IN SCHEDULE E. HE HAS DRAWN OUR ATTENTION ON PAGE NO.83 WHERE ADDI TION IN PLANT AND MACHINERY WAS SHOWN AT RS.44,19,897/- AFTER SEPTEMB ER, 2007 AND CLAIMED DEPRECIATION @ 100% BUT FOR LESS THAN 180 DAYS 50% AT RS.22,09,949/- WHICH HAS BEEN ALLOWED BY THE A.O. IN SCRUTINY ASSESSMENT . REMAINING DEPRECIATION OF RS.22,09,949/- WAS CLAIMED DURING T HE YEAR. THUS, THE A.O. ACCEPTED THE ASSESSEES CLAIM THAT ASSETS ARE DEPRE CIABLE @ 100%. DURING THE YEAR, ASSESSEE HAD PURCHASED AIR POLLUTION EQUI PMENT OF RS.16,76,918/- AS PER PAGE NO.93 OF THE PAPER BOOK. THE DETAILS O F SUMMARY AS WELL AS BILL ANNEXED AT SERIAL NO.75, WHICH WAS IMPORTED FROM UK BY THE ASSESSEE AND ALSO CERTIFIED BY THEM AS POLLUTION CONTROL EQUIPME NT (PAGE NO. 80 OF PAPER BOOK). REMAINING PAYMENTS RELATED TO TRANSPORTATIO N INCURRED ON CARRYING GOODS UP TO PRODUCTION SITE OF THE ASSESSEE. THERE FORE, IT IS 100% DEPRECIABLE AS PER DEPRECIATION SCHEDULE GIVEN IN T HE IT RULE. AT THE OUTSET, ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 14 LD. SR. D.R. PARTIALLY SUPPORTED THE ORDER OF CIT(A ), WHERE 100% HAS NOT BEEN ALLOWED BUT ALSO OPPOSED THAT 100% DEPRECIATION ALL OWED ON RS.7,21,201/- IS NOT ADMISSIBLE. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE A.O. ALREADY ALLOWED THE 100% DEPRECIA TION ON RS.22,09,948/- IN PRECEDING YEAR. WHEN THE A.O. HAD ACCEPTED THE ASSE TS ARE DEPRECIABLE @ 100%, THE REVENUE CANNOT DENY 100% DEPRECIATION ON REMAINING AMOUNT FOR 180 DAYS. FURTHER, ADDITION MADE DURING THE YEAR I S ALSO HAVING SIMILAR NATURE. AS PER PAGE NO.67, THE DETAILS OF ADDITION MADE DURING THE YEAR ARE AS UNDER: DETAILS OF POLLUTION CONTROL MACHINERY ADDITION DUR ING FINANCIAL YEAR 2008-09 NAME OF ASSET NAME OF VENDOR INV. NO. INV.DATE INS.DATE AMT (RS.) LOCATI ON DUST COLLECTOR 12000 M3/HR=01 NOS FILTER CONCEPT INC. 665 22-OCT-08 20-JAN-09 650001 HI- TECH FREIGHT FREIGHT FREIGH T 26-OCT-08 20-JAN-09 12000 HI- TECH MS PIPE, BEND, FLANGE VIKING INDUS PVT LTD 027 18-NOV-08 20-JAN-09 49200 HI- TECH IMPORT EXPENSES BROEKMAN LOGISTICS INDIA P LTD BLR/IM P/2008 30-APR-08 1-JUL-08 10499 HOSUR CUSTOM DUTY CUSTOM DUTY CUSTO M 2-APR-08 1-JUL-08 83577 HOSUR PARTICAL SIZE ANALIZER=01 MALVERN INSTRUMENT S LTD 1096022 897A 22-FEB-08 1-JUL-08 1582842 HOSUR 2388119 THEREFORE, A.O. IS DIRECTED TO RE-CALCULATE DEPRECI ATION @ 100% BUT CONSIDERING THE DATE OF PURCHASE OF MACHINERIES WHE THER IT IS FOR 180 DAYS OR LESS THAN 180 DAYS. ACCORDINGLY, WE SET ASIDE THIS GROUND OF APPEAL TO THE ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 15 A.O. THE LD. CIT(A) ALSO ALLOWED 100% DEPRECIATION ON DUST COLLECTOR BUT IT IS ALLOWABLE FROM THE DATE OF PURCHASE NOT FOR THE WHO LE YEAR. THUS, THESE GROUNDS OF APPEAL ARE SET ASIDE TO THE A.O. 10. GROUND NO.1 OF REVENUES APPEAL IS AGAINST REDU CING THE DISALLOWANCE U/S.14A FROM RS.7.29 LACS TO RS.6.31 LACS. THE A.O . OBSERVED THAT ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS.10,14,097/- WHIC H HAS BEEN CREDITED UNDER THE HEAD OTHER INCOME IN P&L ACCOUNT BUT IN COMPUTATION OF INCOME, IT HAD BEEN CLAIMED EXEMPTED U/S. 10(34) OF THE IT ACT . THE ASSESSEE DID NOT DISALLOW ANY AMOUNT U/S.14A OF THE IT ACT. THE A.O . GAVE REASONABLE OPPORTUNITY OF BEING HEARD, WHICH WAS AVAILED BY TH E ASSESSEE AND SUBMITTED THAT IT HAD INVESTED IN SUBSIDIARY COMPANY A SUM OF RS.21 LACS FROM INTERNAL CASH ACCRUAL FOR THE YEAR ON THE BASIS OF CASH FLOW STATEMENT. IT ALSO ARGUED THAT SECTION 14A DOES NOT APPLY IN CASE OF ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE LD. A.O. HELD THAT THE INTENTIO N OF LEGISLATURE IS THAT THE EXPENSES WHICH ARE INCURRED DIRECTLY OR INDIRECTLY TO THE INCOME WHICH IS NOT INCLUDIBLE TO THE TOTAL INCOME HAD TO BE DISALLOWED . THE SCHEME OF SECTION 14A ENVISAGE THAT WHEN SUCH EXPENSES RELATED TO EXE MPT INCOME CANNOT BE QUANTIFIED INCURRED ON ADMINISTRATIVE EXPENSES SUCH AS SALARY, BANK CHARGES, OFFICE EXPENDITURE & ANCILLARY EXPENSES GROUPED UND ER SUCH ADMINISTRATIVE COST SHALL BE QUANTIFIED BY WAY FORMULA LAID DOWN U NDER RULE 8D OF I.T.RULES 1962. THUS, HE CALCULATED DISALLOWANCE BY APPLYING RULE 8D AT RS.7,28,905/-. 11. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE A SSESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD PARTIALLY ALLOWED THE APPEAL OF THE ASSESSEE ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 16 BY OBSERVING THAT DIVIDEND FROM THE FOREIGN COMPANY IS TAXABLE AND HENCE, SUCH INVESTMENT CANNOT BE CONSIDERED FOR MAKING DIS ALLOWANCE U/S. 14A. ACCORDINGLY, DISALLOWANCE IS RESTRICTED TO RS.6.31 LACS, AS COMPUTED BY THE APPELLANT. 12. NOW THE REVENUE IS BEFORE US. LD. SR. D.R. VEH EMENTLY RELIED UPON THE ORDER OF THE A.O. AND LD. A.R. OF THE ASSESSEE SUPP ORTED THE ORDER OF CIT(A). 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. WHEN DIVIDEND FROM THE FOREIGN COMPANY IS TAXABLE THEN IT COULD NOT BE MADE PART OF DISALLOWANCE U/S. 14A. LD. CIT(A) IS RIGHT IN HOLDING THE DISALLOWANCE OF RS.6.31 LACS. ACCORDINGLY, WE DISM ISS THE APPEAL OF THE REVENUE ON THIS GROUND. 14. GROUND NO.2 OF REVENUES APPEAL IS AGAINST DELE TING THE ADDITION MADE ON ACCOUNT OF CAPITALIZATION OF INTEREST OF RS.62.8 5 LACS. THE A.O. FOUND THAT THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE ON T ERM LOAN AT RS.209.21 LACS. THE ASSESSEE ALSO HAD TAKEN SECURED LOAN WHI CH HAS BEEN INCREASED FROM RS.1474.08 LACS TO RS.1584.34 LACS UNDER THE H EAD OF TERM LOAN FROM BANK. THUS, THERE WAS INCREASE IN TERM LOAN WAS OF RS.110.26 LACS. FURTHER, THE WORKING CAPITAL FINANCE INCREASED FROM RS.1692. 41 LACS TO RS.2977.93 LACS, THE NET INCREASE IN WORKING CAPITAL FINANCE W AS RS.1285.52 LACS. THESE FUNDS WERE UTILIZED TOWARDS CAPITAL WORK-IN-PROGRES S OF RS.460.01 LACS AND TOWARDS ASSETS (EXCLUDING RS.55 LACS OF PRODUCT DEV ELOPMENT KNOW-HOW AND RS.52,000/- FOR LAND) OF RS.5,13,26,474/-. THE A.O . GAVE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE, WHICH WAS AVAILED BY THE ASSESSEE ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 17 ON 26.09.2011. IT WAS MERELY SUBMITTED BY THE ASSE SSEE BEFORE THE A.O. THAT IT DID NOT RECEIVE ANY CASH DISBURSEMENT ON LOAN. LATER ON, IT WAS SUBMITTED THAT THE ASSESSEE HAD TAKEN TERM LOAN FROM IDBI AMO UNTING TO RS.419 LACS AND INTEREST AMOUNT OF RS.16,27,241/- WAS CAPITALIZ ED DURING THE YEAR AND ADDED TO CAPITAL WORK-IN-PROGRESS. BUT THESE FACTS WERE NOT VERIFIABLE ON THE BASIS OF FIGURES DISCLOSED IN THE BALANCE SHEET FOR WORK-IN-PROGRESS AS ON 31.03.2008 AND 31.03.2009. THE LD. A.O. CALCULATED THE INTEREST @ 15% ON TERM LOAN OF RS.419 LACS AT RS.62,85,000/- WHICH WA S TREATED ATTRIBUTABLE TOWARDS CAPITAL WORK-IN-PROGRESS. THE ASSESSEE HAD CLAIMED INTEREST ON TERM LOAN OF RS.209.21 LACS. OUT OF THIS, THE INTEREST OF RS.62,85,000/- IS DISALLOWED U/S.36(1)(III). 15. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE A SSESSEE CARRIED THE MATTER BEFORE THE CIT(A) WHO HAD ALLOWED THE APPEAL BY OBSERVING THAT THE ASSESSEE HAS ALREADY CAPITALIZED RS.16,27,241/- IN WORK-IN-PROGRESS AS ON 31.03.2009. THEREFORE, FURTHER DISALLOWANCE UNDER THIS HEAD IS NOT WARRANTED. 16. NOW THE REVENUE IS BEFORE US. LD. SR. D.R. VEH EMENTLY RELIED UPON THE ORDER OF THE A.O. WHEREAS LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF CIT(A) AND ARGUED THAT ASSESSEE HAD ALREADY CAPITAL IZED RS.16.27 LACS IN WORK-IN-PROGRESS OF CAPITAL ASSETS. 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IT IS ADMITTED FACT THAT IDBIS TERM LOAN WAS DISBURSED ON 05.09.2008 AT RS.219 LACS AND RS.200 LACS ON 31.03.2009. THE ASSESSEE HAD ADMITTED BEFORE THE CIT(A) THAT THESE FUNDS WERE UTILIZED TO WARDS CAPITAL WORK-IN- ITA NOS. 760 & 755/AHD/2013 A.Y. 09-10 PAGE 18 PROGRESS AT VARIOUS LOCATION DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT RS.20 9.21 LACS INTEREST WAS PAID ON TERM LOAN. HOWEVER, IT HAD BEEN CAPITALIZE D RS.16.27 LACS IN CAPITAL WORK-IN-PROGRESS. THIS WORKING MADE BY THE APPELLA NT BEFORE THE CIT(A), WHICH HAS BEEN ACCEPTED BY THE CIT(A) WITHOUT GIVIN G ANY OPPORTUNITY TO THE A.O. FURTHER, THE DISALLOWANCE IN WORK-IN-PROGRESS ON ACCOUNT OF INTEREST DOES NOT APPEAR PROPORTIONATE TO THE TERM LOAN AND INTEREST EXPENDITURE DEBITED IN THE P&L ACCOUNT. THEREFORE, THIS ISSUE IS REQUIRED FURTHER VERIFICATION BY THE A.O. ACCORDINGLY, WE SET ASIDE THIS ISSUE T O THE A.O. THIS GROUND OF REVENUES APPEAL IS SET ASIDE. 18. IN THE COMBINED RESULT, THE ASSESSEES APPEAL I S ALLOWED FOR STATISTICAL PURPOSE AND REVENUES APPEAL IS PARTLY ALLOWED. THESE ORDERS PRONOUNCED IN OPEN COURT ON 21.02.2014 SD/- SD/- ( MUKUL KR. SHRAWAT ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA , , , , % %% % -. -. -. -. / .+ / .+ / .+ / .+ / COPY OF ORDER FORWARDED TO:- 1. $ / REVENUE 2. / ASSESSEE 3. 3 / CONCERNED CIT 4. 3- / CIT (A) 5. .78 -' , , / DR, ITAT, AHMEDABAD 6. 8:; <= / GUARD FILE. BY ORDER/ , , >/ $ ,