BAYER CROPSCIENCE LTD, MUMBAI V. ADDL CIT RG 10(3), MUMBAI

ITA 7619/MUM/2013

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6804 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2008-2009
• Appeal Filed On: 27-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POOJA SWARUP
• Assessee Lawyers: PARAS S SAVLA; KEERTHIGA SHARMA
• Keywords: Capital asset; Gift; Depreciation; Business expenditure; Earning of tax free income; Non-deduction of tax; Bad and doubtful debts; Commercial expediency; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 142(1); 14A; 37(1); 32; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.7619/M/2013 ASSESSMENT YEAR: 2008-09 M/S. BAYER CROPSCIENCE LTD., 1 ST FLOOR, OLYMPIA, CENTRAL AVENUE, HIRANANDANI GARDENS, POWAI, MUMBAI- 400 076 PAN: AAACB9651K VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE 10(3), MUMBAI (APPELLANT) (RE SPONDENT) ITA NO.145/M/2014 ASSESSMENT YEAR: 2008-09 DY. COMMISSIONER OF INCOME TAX- 10(3), ROOM NO.451, 4 TH FLOOR, AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI - 40 VS. M/S. BAYER CROPSCIENCE LTD., 1 ST FLOOR, OLYMPIA, CENTRAL AVENUE, HIRANANDANI GARDENS, POWAI, MUMBAI- 400 076 PAN: AAACB9651K (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI PARAS S. SAVLA, A.R. & MS. KEERTHIGA SHARMA, A.R. REVENUE BY : MS. POOJA SWARUP, D.R. DATE OF HEARING : 09.03.2018 DATE OF PRONOUNCEMENT : 07.06.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THESE CROSS APPEALS FILED BY THE ASSESSEE, AS WELL AS THE REVENUE ARE FILED AGAINST ORDER OF THE CIT(APPEALS) -22, ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 2 MUMBAI DATED 10.10.13 AND IT PERTAINS TO A.Y. 2008-09 . SINCE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THESE APP EALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. THE ASSESSEE HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL: 1. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND T HE COMMISSIONER OF INCOME- TAX (APPEALS) -- XXII, MUMBAI ('LEARNED C[T(A)') HA S ERRED IN UPHOLDING THE ORDER PASSED BY THE ADDITIONAL COMMISSIONER OF INCOME-TAX , RANGE 10(3), MUMBAI ('LEARNED AO') WHICH WAS BAD IN LAW TO THE EXTENT O F ADDITIONS CONFIRMED BY THE LEARNED CIT(A). 2. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CITA) HAS ERRED IN UPHOLDING DISALLOWANCE OF CLUB EXPENSES, A GGREGATING TO RS.2,31,157 ON THE ALLEGED GROUND THAT VOUCHERS SUBSTANTIATING THE CLA IMS WERE NOT PRODUCED BEFORE THE LEARNED CITA). 3. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C1TA) HAS ERRED IN UPHOLDING DISALLOWANCE MADE BY THE LEARNED A() BY APPLYING PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES, 1962 ('THE RULES') WHILE MAKING A DISALLOWANCE UNDER SECTION 14A OF THE INCOME-TAX ACT, '1961 ('TH E ACT') 4. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CITA) HAS ERRED IN UPHOLDING DISALLOWANCE OF GIFT EXPENSES, A GGREGATING TO RS. 19,95,476. 5. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CITA) HAS ERRED IN CONFIRMING DISALLOWANCE OF COMPENSATION PA YMENT OF RS. 75,00,000 TO MR. SS MOHLA ON THE ALLEGED GROUND THAT THE SAME IS IN THE NATURE OF COMMISSION ON WHICH TAX HAS NOT BEEN DEDUCTED AS PER PROVISIONS O F SECTION 40(A)(IA) OF THE ACT. 6. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN NOT APPROPRIATELY ADJUDICATING OIL DISALLO WANCE OF RS. 19,04,044 BEING WRITE-OFF OF DOUBTFUL DEPOSITS BY THE APPELLANT AND MERELY DIRECTING THE LEARNED AO FOR VERIFICATION OF CLAIM. 7. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CITA) HAS ERRED IN UPHOLDING DISALLOWANCE MADE BY THE LEARNED AO IN RESPECT OF IRRECOVERABLE ADVANCES WRITTEN OFF (IN THE NATURE O F DUTY ENTITLEMENT PASS BOOK SCHEME CREDIT AND DUTY DRAWBACK) AGGREGATING TO RS. 51,45,651. 8. ON FACTS AND IN CIRCUMSTANCE OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE UNDER SECTION 40A( 2) OF THE ACT OF RS. 22,45,472, BEING 50% OF PAYMENT MADE TO BAYER POLYCHEM LIMITED ON THE ALLEGED GROUND THAT THE APPELLANT FAILED TO JUSTIFY THIS PAYMENT. 9. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN NOT APPROPRIATELY ADJUDICATING ON THE DISA LLOWANCE OF RS. 1,68,39,128 BEING ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 3 UNREALIZED FOREIGN EXCHANGE FLUCTUATION LOSS ON TRA NSLATION OF TRADE RECEIVABLES AND TRADE PAYABLES AND MERELY DIRECTING THE LEARNED AO FOR VERIFICATION OF CLAIM. 10. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CITA) HAS ERRED IN NOT APPROPRIATELY ADJUDICATING ON THE DISA LLOWANCE OF RS. 1 5,38,445 BEING UNREALIZED FOREIGN EXCHANGE LOSS, WHICH IS NOT CAPI TAL IN NATURE AND MERELY DIRECTING THE LEARNED AO FOR VERIFICATION OF CLAIM. 11. ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CT'I'(A) HAS ERRED IN NOT ADJUDICATING ON THE ADDITIONAL GRO UND RELATING TO CLAIM OF RS. 2,35,60,494 BEING AMOUNT ERRONEOUSLY DISALLOWED UND ER SECTION 40(A) OF THE ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF INSE CTICIDES AND OTHER CHEMICAL FOR PLANT PROTECTION, FILED ITS R ETURN OF INCOME FOR A.Y. 2008-09 ON 30.09.08 DECLARING TOTAL I NCOME OF RS.96,43,60,035/-. THE ASSESSEE COMPANY ALSO FILED ITS REVISED RETURN ON 29.03.09 DECLARING TOTAL INCOME OF RS.97,23,32,188/-. THE CASE HAS BEEN SELECTED FOR S CRUTINY AND NOTICES UNDER SECTION 143(2) AND 142(1) WERE IS SUED. IN RESPONSE TO NOTICES, THE AUTHORISED REPRESENTATIVE O F THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED V ARIOUS DETAILS, AS CALLED FOR. THE ASSESSEE ALSO MADE VARI OUS ADDITIONAL CLAIMS IN THE COURSE OF SCRUTINY ASSESSM ENT PROCEEDINGS. THE ASSESSMENT HAS BEEN COMPLETED UND ER SECTION 143(3) ON 27.10.11 DETERMINING THE TOTAL IN COME AT RS.101,29,01,750/-, INTER ALIA MAKING VARIOUS ADDITIO NS LIKE DISALLOWANCE OF CLUB EXPENSES, DISALLOWANCE UNDER S ECTION 14A, DISALLOWANCE OF PRODUCT TRIAL EXPENSES TREATIN G IT AS CAPITAL IN NATURE, DISALLOWANCE OF GIFT EXPENSES, DI SALLOWANCE OF COMPENSATION PAID TO EMPLOYEE UNDER SECTION 40(A )(IA), REJECTION OF BAD DEBT CLAIM, DISALLOWANCE OF WRITTE N OFF OF DOUBTFUL ADVANCES, DISALLOWANCE OF PAYMENTS MADE TO ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 4 ASSOCIATE CONCERN UNDER SECTION 40A(2) ETC. THE AO ALSO REJECTED VARIOUS ADDITIONAL CLAIMS MADE BY THE ASSE SSEE ON THE GROUND THAT ADDITIONAL CLAIMS MADE BY THE ASSES SEE CANNOT BE ALLOWED AT THIS STAGE WITHOUT FILING REVI SED RETURN BY RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZ INDIA LTD. VS. CIT 284 ITR 323. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). THE ASSE SSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS ON ADDITIONS MA DE BY THE AO WHICH HAS BEEN REPRODUCED BY THE LD. CIT(A) IN HI S ORDER. THE LD. CIT(A) AFTER CONSIDERING RELEVANT SUBMISSIO NS OF THE ASSESSEE PARTLY ALLOWED THE APPEAL, WHEREIN HE HAS D ELETED ADDITIONS MADE BY THE AO TOWARDS DISALLOWANCE OF PR ODUCT TRIAL EXPENSES AND DISALLOWANCE OF WRITTEN OFF OF D OUBTFUL DEBTS, HOWEVER, CONFIRMED ADDITIONS MADE BY THE AO T OWARDS DISALLOWANCE OF GIFT EXPENSES, DISALLOWANCE OF COMPE NSATION FOR FAILURE TO DEDUCT TDS UNDER SECTION 40(A)(IA) O F THE ACT, WRITE OFF OF BAD AND DOUBTFUL ADVANCES, DISALLOWANCE OF IRRECOVERABLE ADVANCES WRITTEN OFF, DISALLOWANCE OF PAYMENTS MADE TO ASSOCIATE CONCERN UNDER SECTION 40A(2) OF T HE ACT, HOWEVER, ALLOWED PARTLY RELIEF IN RESPECT OF DISALLO WANCE OF PAYMENT OF CLUB MEMBERSHIP FEES AND DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A AND ALSO SET ASIDE TH E ISSUE OF DISALLOWANCE OF UNREALIZED FOREIGN EXCHANGE GAIN FO R FURTHER VERIFICATION. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFOR E US. ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 5 4. THE FIRST ISSUE THAT CAME UP BEFORE US FOR CONSID ERATION IS DISALLOWANCE OF CLUB MEMBERSHIP OF FEE IS OF RS.2,3 1,157/-. THE AO DISALLOWED CLUB MEMBERSHIP OF RS.2,31,157/- O UT OF TOTAL EXPENDITURE INCURRED BY THE ASSESSEE OF RS.14,3 6,157/- ON THE GROUND THAT THE ASSESSEE COULD FURNISH EVIDE NCES TO THE EXTENT OF RS.12,05,000/- AND FOR THE REMAINING AMOUNT OF RS.2,31,157/- NO EVIDENCES HAVE BEEN FILED TO JUSTIF Y THE EXPENDITURE INCURRED ON THE CLUB MEMBERSHIP FEES. I T IS A CONTENTION OF THE ASSESSEE THAT IT HAS FURNISHED EV IDENCES ON SAMPLE BASIS TO THE EXTENT OF RS.12,05,000/- BEING 84 % OF THE TOTAL EXPENDITURE. THE INVOICES FOR THE BALANCE AM OUNT COULD NOT BE SUBMITTED BEFORE THE AO DUE TO PAUCITY OF TI ME. HOWEVER, THE SAME HAS BEEN FURNISHED BEFORE THE LD. CIT(A) VIDE SUBMISSION DATED 22.01.13, HOWEVER, THE LD. CIT( A) WITHOUT CONSIDERING THE SAME HELD THAT THE REMAININ G INVOICES WERE NOT SUBMITTED BEFORE HIM AND ACCORDINGLY UPHEL D THE DISALLOWANCES MADE BY THE AO. THE ASSESSEE FURTHER CONTENDED THAT THE ASSESSEE HAD INCURRED VARIOUS EX PENSES UNDER THE HEAD CLUB MEMBERSHIP WHICH ARE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS ON LY TO FACILITATE THE ASSESSEE TO CONDUCT ITS BUSINESS MOR E SMOOTHLY AND EFFICIENTLY. THE LOWER AUTHORITIES WERE ERRED IN DISALLOWING MERELY FOR THE REASON THAT NO DETAILS HAVE BEEN FIL ED INCLUDING THE EVIDENCES FILED BEFORE THE LD. CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIAL ON RECORD. THE AO DISALLOWED PARTIAL AMOUNT OF RS.2,3 1,157/- OUT OF TOTAL CLUB MEMBERSHIP EXPENSES OF RS.14,37,157 /- ON THE GROUND THAT THE ASSESSEE FAILED TO FURNISH EVID ENCES. IT IS ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 6 THE CONTENTION OF THE ASSESSEE THAT IT HAS FILED DE TAILS FOR BALANCE AMOUNT OF RS.2,30,623/- BEFORE THE LD. CIT(A) VIDE ITS SUBMISSION DATED 22.01.13. SUCH DETAILS HAVE BEEN F URNISHED BEFORE US IN THE FORM OF PAPER BOOK. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE NEEDS TO BE REEXAMIN ED BY THE AO, IN THE LIGHT OF EVIDENCES FILED BY THE ASSESSEE. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF AO AND DIRECT HI M TO CONSIDER THE ISSUE AFRESH AFTER AFFORDING A REASONABLE OPPOR TUNITY OF HEARING TO THE ASSESSEE. 6. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION IS DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO EX EMPT INCOME UNDER SECTION 14A OF THE INCOME TAX ACT, 196 1. THE FACTS WITH REGARD TO THE IMPUGNED ORDER ARE THAT DU RING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD EARNED DI VIDEND INCOME OF RS.1,03,17,000/- WHICH WAS CLAIMED EXEMPT UNDER SECTION 10(34) OF THE ACT. THE ASSESSEE ALSO HAD MA DE SUO- MOTO DISALLOWANCE OF RS.21,26,636/- IN ITS RETURN OF INCOME. HOWEVER, SUCH DISALLOWANCE HAS BEEN REVISED TO RS.4, 15,300/- VIDE ITS SUBMISSION DATED 23.08.11 BEFORE THE AO. TH E AO HAS DISALLOWED THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME UNDER SECTION 14A BY INVOKING RULE 8D(2)(I), RULE 8D(2)(II) & RULE 8D(2)(III) AND DETERMINED DISALLOW ANCE OF RS.48,16,710/- AND MADE ADDITIONS OF RS.26,90,074/- AFTER REDUCING SUO-MOTO DISALLOWANCE MADE BY THE ASSESSEE OF RS.21,26,636/-. ACCORDING TO THE AO, AS PER THE PRO VISIONS OF SECTION 14A OF THE ACT, DISALLOWANCE OF EXPENSES IN CURRED IN RELATION TO EXEMPT INCOME OUGHT TO BE MADE IRRESPEC TIVE WHETHER THE EXEMPT INCOME WAS EARNED OR NOT. THE A O ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 7 FURTHER OBSERVED THAT THE ASSESSEE HAS NOT MAINTAIN ED SEPARATE BOOKS OF ACCOUNTS PERTAINING TO ITS EXEMPT INCOME AND INCURRED COMMON FUNDS WHICH CANNOT BE SEGREGATE , THEREFORE, INVOKED RULE 8D(2) AND DETERMINED DISALL OWANCE AS PER PRESCRIBED METHOD PROVIDED THEREUNDER. THE LD. CIT(A) UPHELD ADDITION MADE BY THE AO UNDER RULE 8D(2)(I) & (III). HOWEVER, DIRECTED THE AO TO VERIFY THE DISALLOWANCE WORKED OUT UNDER RULE 8D(2)(II) BY OBSERVING THAT THE ASSE SSEE HAS INCURRED CERTAIN INTEREST PAYMENTS TOWARDS ACQUISIT ION OF PLANT AND MACHINERY, SECURITY DEPOSIT ETC. AND IT WAS NOT P OSSIBLE FOR THE ASSESSEE TO INVEST THE SAID FUNDS TO EARN E XEMPT INCOME. 7. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS MADE SUO-MOTO DISALLOWANCE OF RS.4,15,300 /- TOWARDS EXPENDITURE INCURRED TO EARN EXEMPT INCOME AND SUCH COMPUTATION HAS BEEN FURNISHED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. THE AO HAS NEITHER CONTROV ERTED NOR RECORDED ANY SATISFACTION AS REGARD DISALLOWANCE OF FERED BY THE ASSESSEE. HENCE, THE AO CANNOT MADE FURTHER DISALLOWANCE BY INVOKING RULE 8D(2) OF INCOME TAX R ULES, 1962. THE ASSESSEE FURTHER SUBMITTED THAT ITS INVE STMENTS IN MUTUAL FUNDS OF RS.44,41,64,000/- ARE OUT OF ITS OWN FUNDS WHICH IS EVIDENT FROM THE FACT THAT ITS OWN FUNDS A RE MORE THAN VALUE OF INVESTMENTS AND ALSO ITS CURRENT YEAR CASH PROFITS ITSELF IS MORE THAN THE VALUE OF INVESTMENT S, THEREFORE, THE QUESTION OF INTEREST DISALLOWANCE DOES NOT ARIS E. IN THIS REGARD, RELIED UPON PLETHORA OF JUDGMENTS, INCLUDING THE ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 8 JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 34 0 (BOM). 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIAL ON RECORD. THERE IS NO DISPUTE WITH REGARD TO APPL ICABILITY OF PROVISIONS OF SECTION 14A. THE ASSESSEE ITSELF HAS MADE SUO- MOTO DISALLOWANCES IN ITS RETURN OF INCOME FOR RS.2 1,26,636/-. HOWEVER, SUCH DISALLOWANCE HAS BEEN RECOMPUTED TO RS.4,15,300/- DURING THE COURSE OF ASSESSMENT PROCEE DINGS. THE DISPUTE IS WITH REGARD TO COMPUTATION WORKED OU T BY THE AO BY INVOKING RULE 8D(2) OF INCOME TAX RULES, 1962. ACCORDING TO THE ASSESSEE, NO DISALLOWANCE IS CALLED FOR IN RESPECT OF INTEREST EXPENSES AS IT HAS NOT INVESTED ANY BORROWED FUNDS IN MUTUAL FUNDS WHICH EARNED EXEMPT INCOME WHICH IS EVIDENT FROM THE FACT THAT ITS OWN FUNDS A RE MORE THAN VALUE OF ITS INVESTMENTS. THE ASSESSEE FURTHER CONTENDED THAT WHEN MIXED FUNDS ARE AVAILABLE, BOTH INTEREST F REE AND INTEREST BEARING, THEN A PRESUMPTION WOULD ARISE THA T INVESTMENT COULD BE OUT OF INTEREST FREE FUNDS AVAI LABLE WITH THE ASSESSEE. WE FIND FORCE IN THE ARGUMENTS OF TH E ASSESSEE FOR THE REASON THAT THE HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) HAS HELD THAT WHEN MIXED FUNDS ARE AVAILA BLE A GENERAL PRESUMPTION IS DRAWN THAT THE INVESTMENTS I N SECURITIES WHICH EARN THE EXEMPT INCOME ARE OUT OF OWN FUNDS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT ONCE T HE ASSESSEE HAS PROVED THE AVAILABILITY OF OWN FUNDS I N EXCESS OF VALUE OF INVESTMENTS, THEN THE QUESTION OF DISALLOW ANCE OF INTEREST EXPENSES UNDER RULE 8D(2)(II) DOES NOT ARI SE. IN THIS ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 9 CASE, THE ASSESSEE HAS FILED NECESSARY DETAILS TO P ROVE AVAILABILITY OF OWN FUNDS. HENCE, WE ARE OF THE CON SIDERED VIEW THAT THE AO WAS INCORRECT IN DISALLOWING INTER EST EXPENSES UNDER RULE 8D(2)(II) OF INCOME TAX RULES, 1962 AND ACCORDINGLY DIRECT HIM TO DELETE DISALLOWANCE OF IN TEREST EXPENSES WORKED OUT UNDER RULE 8D(2)(II). 9. IN SO FAR AS DISALLOWANCE OF DIRECT EXPENSES UND ER RULE 8D(2)(I) THE ASSESSEE ITSELF HAS COMPUTED A SUM OF RS.4,15,300/- AND THERE IS NO DISPUTE WITH REGARD TO SUCH DISALLOWANCES. THE AO FURTHER QUANTIFIED A SUM OF RS.19,06,210/- @ 0.5% OF AVERAGE VALUE OF INVESTMENTS. THE ASSESSEE CONTENDED THAT ONLY THOSE EXPENSES WHICH H AVE PROXIMATE NEXUS WITH THE EXEMPT INCOME ARE REQUIRED TO BE DISALLOWED. SINCE IT HAS ALREADY WORKED OUT DISALL OWANCE OF DIRECT EXPENSES NO FURTHER DISALLOWANCE IS REQUIRED UNDER RULE 8D(2)(III). THE ASSESSEE ALSO HAS TAKEN A PLEA OF S TRATEGIC INVESTMENTS FOR WHICH IT HAS RELIED UPON CERTAIN JU DICIAL PRECEDENTS. WE FIND THAT INITIALLY THE ASSESSEE HAS MADE SUO- MOTO DISALLOWANCE OF RS.21,26,636/-, HOWEVER SUCH DISALLOWANCE HAS BEEN REVISED TO RS.4,15,300/-. THE AS SESSEE CLAIMED THAT ITS DISALLOWANCE OF RS.4,15,300/- IS DIRE CT AND PROXIMATE EXPENSES THEREFORE, THE AO CONSIDERED SUCH DISALLOWANCE UNDER RULE 8D(2)(I) OF INCOME TAX RULE S, 1962. THE AO HAS FURTHER DISALLOWED AN AMOUNT OF RS.19,06,2 10/- UNDER RULE 8D(2)(III). WE FIND THAT FROM ASSESSMEN T YEAR 2008-09 ONWARDS THE DISALLOWANCE CONTEMPLATED UNDER SECTION 14A SHALL BE WORKED OUT UNDER RULE 8D(2) OF INCOME TAX RULES, 1962. IN THIS CASE, THE ASSESSEE HAS NOT ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 10 MAINTAINED SEPARATE BOOKS OF ACCOUNTS. IT HAS MAIN TAINED COMMON BOOKS OF ACCOUNTS WHERE COMMON EXPENDITURE H AS BEEN INCURRED. IN THE ABSENCE OF SEPARATE BOOKS OF ACCOUNTS IT IS DIFFICULT TO ASCERTAIN EXACT AMOUNT OF EXPEND ITURE INCURRED FOR EARNING EXEMPT INCOME. UNDER THESE CIRCUMSTANCE S, THE ONLY WAY TO QUANTIFY DISALLOWANCE IS BY INVOKING RU LE 8D(2)(III) OF INCOME TAX RULES, 1962. THE ASSESSEE HAS NOT DISP UTED COMPUTATION WORKED OUT BY THE AO INCLUDING AVERAGE VALUE OF INVESTMENTS. THE ASSESSEE IS ONLY ON THE POINT THA T THE AO HAS NOT RECORDED HIS SATISFACTION BEFORE DISALLOWIN G FURTHER EXPENSES. WE FIND NO MERITS IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE AO HAS ARRIVED AT A SATISFA CTION BY REJECTING COMPUTATION WORKED OUT BY THE ASSESSEE TO WARDS SUO-MOTO DISALLOWANCES WHICH MEANS THAT THE AO HAS CONSIDERED THE NATURE OF EXPENSES INCURRED BY THE A SSESSEE AND ALSO DISALLOWANCES QUANTIFIED IN THE LIGHT OF E XEMPT INCOME EARNED FOR THE YEAR AND HENCE WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS RIGHT IN INVOKING R ULE 8D(2)(III) TO QUANTIFY DISALLOWANCE IN RESPECT OF E XPENSES INCURRED IN RELATION TO EXEMPT INCOME. HENCE, WE A RE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE COMPU TATION WORKED OUT BY THE AO UNDER RULE 8D(2)(III). 10. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION I S DISALLOWANCE OF GIFT EXPENSES OF RS.19,95,476/-. THE A SSESSEE HAD INCURRED GIFT EXPENSES WHICH WERE GIVEN TO EMPL OYEES, THE DEALERS, CUSTOMERS AND OTHER BUSINESS ASSOCIATES AND SOME GIFTS TO GOVERNMENT OFFICIALS ON FESTIVAL OCCA SIONS. DETAILS OF EXPENSES WERE SUBMITTED TO THE AO. THE AO ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 11 DISALLOWED GIFT EXPENSES ON THE GROUND THAT THE ASS ESSEE HAD FAILED TO FURNISH EVIDENCES FOR ACTUAL UTILISATION OF GIFT ITEMS, THEIR NECESSITY AND PURPOSE OF BUSINESS AND ACCORDI NGLY, DISALLOWED THE ENTIRE EXPENDITURE INCURRED BY THE A SSESSEE. IT IS THE CONTENTION OF THE ASSESSEE THAT EXPENSES INC URRED UNDER GIFT EXPENSES ARE WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS WHICH ARE GIVEN TO EMPLOYEES, DEALERS AND CUSTOMERS ON FESTIVAL OCCASIONS. THE ASSESSEE FURTHER CONTEND ED THAT THE SAID EXPENSES WERE INCURRED TO FACILITATE SMOOT H CONDUCT OF BUSINESS, THEREFORE, THE AO WAS INCORRECT IN DISA LLOWING SUCH EXPENSES. 11. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIAL ON RECORD, WE DO NOT FIND ANY MERITS IN THE ARGUMENTS O F THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HAS FAILE D TO FILE ANY EVIDENCES TO PROVE NECESSITY OF GIFTS GIVEN TO EMPL OYEES, ASSOCIATES AND GOVERNMENT OFFICIALS IN RELATION TO ITS BUSINESS ACTIVITY. BASICALLY THE EXPENSES IN THE NATURE OF G IFTS AND REWARDS ARE IN THE NATURE OF PERSONAL EXPENSES AND HENCE CANNOT BE ALLOWED AS DEDUCTABLE UNDER SECTION 37(1) OF THE INCOME TAX ACT 1961. MERE PAYMENT OF FRINGE BENEFIT TAX ON SUCH EXPENSES WOULD NOT DISCHARGE THE ASSESSEES OB LIGATION TO PROVE SUCH EXPENSES TO SAY THAT THESE ARE INCURR ED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE L D. CIT(A) AFTER CONSIDERING THE RELEVANT SUBMISSIONS HAS RIGH TLY CONFIRMED ADDITIONS MADE BY THE AO. WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE ORDER OF THE LD. CIT(A). HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD. CIT(A) A ND REJECT GROUND RAISED BY THE ASSESSEE. ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 12 12. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION I S DISALLOWANCE OF COMPENSATION PAYMENT OF RS.75,00,000/ - UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961 FOR FAILURE TO DEDUCT TAX AT SOURCE. THE FACTUAL MATRIX OF THE CASE IN DISPUTE IS THAT THE ASSESSEE HAS APPOINTED MR. SS M OHLA A RETIRED EMPLOYEE OF THE ASSESSEE COMPANY FOR SECURI NG ORDER ON THEIR BEHALF. THE ASSESSEE HAS PAID COMMISSION TO MR. SS MOHLA BASED ON THE SALES GENERATED BY HIM. MR. SS M OHLA HAD FILED A CIVIL SUIT BEFORE THE HONBLE DELHI HIG H COURT MAKING A CLAIM OF RS.1,07,55,260/-. THE ASSESSEE HAS SETTLED THE CLAIM FOR AN AMOUNT OF RS.75 LAKHS. THE AO DISA LLOWED COMPENSATION PAID TO MR. SS MOHLA ON THE GROUND THAT SUCH EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDITURE WHICH GIVES ENDURE ADVANTAGE TO THE ASSESSEE. THE AO FURTHER OB SERVED THAT EVEN IF THE PAYMENT WAS CONSIDERED TO BE REVEN UE IN NATURE THEN THE PAYMENT WOULD BE AKIN TO SALARY TO EX- EMPLOYEE OR A CONTRACTUAL PAYMENT FOR SETTLEMENT OF CONTRACT AND WOULD BE LIABLE TO TDS. SINCE ASSESSEE HAS FAIL ED TO DEDUCT TDS, THE AO DISALLOWED SUCH EXPENDITURE UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961. THE LD. CIT(A ) CONFIRMED ADDITIONS MADE BY THE AO BY HOLDING THAT THERE WAS NO EMPLOYER EMPLOYEE RELATIONSHIP AT THE TIME OF PA YMENT OF SUCH COMPENSATION, HOWEVER, THE SAID PAYMENT WAS PUR ELY IN NATURE OF DISPUTED COMMISSION AND THE ASSESSEE OUGH T TO HAVE DEDUCTED THE TAX ON THE SAME. SINCE ASSESSEE FAILED TO DEDUCT TDS ON COMMISSION PAYMENT THE AO WAS RIGHT I N DISALLOWING SUCH COMPENSATION UNDER SECTION 40(A)(I A) OF THE ACT. ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 13 13. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT COMPENSATION PAID TO MR. SS MOHLA IS ONE TIME, FULL AND FINAL SETTLEMENT WHICH WAS PAID AS PER THE SETTLEMENT BEF ORE HONBLE DELHI HIGH COURT AND ALSO SUCH PAYMENT IS M ADE FOR THE PURPOSE OF RESTRAINING MR. SS MOHLA FROM SHARIN G ANY CONFIDENTIAL DOCUMENT, INFORMATION, BUSINESS AND TRA DE SECRET OF THE ASSESSEE WITH ANY COMPETITOR OR THIRD PARTY. THE ASSESSEE FURTHER CONTENDED THAT NOWHERE IN THE SAID AGREEMENT IT IS STATED THAT THE PAYMENT MADE TO MR. SS MOHLA IS IN LIEU OF COMMISSION FOR SECURING ORDERS, THERE FORE, THE QUESTION OF DEDUCTION OF TDS DOES NOT ARISE. IN TH IS REGARD, THE LD, A.R. RELIED UPON CERTAIN JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F CIT VS. ASHOK LEYLAND LTD. (1972) 86 ITR 549. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE F ACT THAT THERE IS NO EMPLOYER AND EMPLOYEE RELATIONSHIP BETW EEN THE ASSESSEE AND MR. SS MOHLA. WHEN COMPENSATION WAS P AID TO MR. SS MOHLA HE WAS NO LONGER AN EMPLOYEE OF THE ASS ESSEE. THE ASSESSEE ITSELF ADMITTED THAT IT HAS PAID COMMI SSION TO MR. SS MOHLA FOR SECURING ORDERS ON THEIR BEHALF. SI NCE THE DISPUTE CROPPED UP BETWEEN THE ASSESSEE AND MR. SS MOHLA THE MATTER WENT TO COURT AND THE SAME HAS BEEN SETT LED BEFORE THE COURT FOR PAYMENT OF RS.75 LAKHS. THE AS SESSEE HAS DESCRIBED SUCH PAYMENT AS COMPENSATION PAID TO MR. SS MOHLA FOR NOT DISCLOSING CONFIDENTIAL DOCUMENT, INFO RMATION, BUSINESS AND TRADE SECRETS OF THE ASSESSEE WITH ANY COMPETITOR OR THIRD PARTY. ALTHOUGH THE ASSESSEE C LAIMS THAT ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 14 PAYMENT MADE TO MR. SS MOHLA IS IN THE NATURE OF COMPENSATION FOR WHICH THE PROVISIONS OF TDS HAS NO APPLICATION, ON PERUSAL OF FACTS AVAILABLE ON RECORD , WE FIND THAT SUCH PAYMENT IS IN THE NATURE OF COMMISSION FO R SECURING ORDERS, THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT MERE CHANGE IN NOMENCLATURE OF THE EXPENSES DOES NOT ABS OLVE THE ASSESSEE FROM THE RESPONSIBILITY OF COMPLYING WITH APPLICABLE TDS PROVISIONS. IN THIS CASE, THE ASSESSEE ITSELF H AS ADMITTED THAT IT HAS PAID COMMISSION FOR SECURING ORDERS. O NCE THE PAYMENT IS IN THE NATURE OF COMMISSION OBVIOUSLY TH E ASSESSEE OUGHT TO HAVE DEDUCTED TDS UNDER SECTION 1 94H OF THE ACT. SINCE THE ASSESSEE HAS FAILED TO DEDUCE TD S, THE AO HAS RIGHTLY DISALLOWED SUCH EXPENDITURE UNDER SECTI ON 40(A)(IA) OF THE ACT. THE LD. CIT(A) AFTER CONSIDE RING THE RELEVANT SUBMISSIONS HAS RIGHTLY CONFIRMED ADDITION S MADE BY THE AO. IN SO FAR AS CASE LAWS RELIED UPON BY THE ASSESSEE, WE FIND THAT ALL THE CASE LAWS ARE RENDERED ON DIFF ERENT SET OF FACTS AND HAS NO APPLICATION TO THE FACTS OF THE AS SESSEES CASE. HENCE, WE ARE INCLINED TO UPHOLD THE FINDING OF THE LD. CIT(A) AND REJECT THE GROUND RAISED BY THE ASSESSEE . 15. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM THE ASSESSEE AS WELL AS FROM REVENUES APPEAL IS DI SALLOWANCE OF WRITE OFF OF DOUBTFUL DEPOSITS OF RS.19,04,044/-. THE ASSESSEE HAD CLAIMED DEDUCTION OF WRITE OFF OF DEPO SITS WHICH WERE LONG OUTSTANDING AND HAD BECOME IRRECOVERABLE. THE SAID DEPOSITS CONSIST OF EARNEST MONEY GIVEN TO CUS TOMERS, DISTRIBUTORS AND GOVERNMENT AGENCIES WHICH WERE WRI TTEN OFF AS IRRECOVERABLE. THE AO DISALLOWED WRITE OFF OF B AD DEBTS ON ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 15 THE GROUND THAT THE CONDITIONS PRESCRIBED UNDER SEC TION 36(2) WERE NOT SATISFIED AS THE SAID DEPOSITS WERE NEVER A TRADING DEPOSITS BUT BALANCING ITEMS, HENCE, DEDUCTION COULD NOT BE ALLOWED UNDER SECTION 36(1)(VII) OF THE ACT. THE L D. CIT(A) PARTLY ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING THAT THOUGH THE WRITE OFF OF DEPOSITS WOULD NOT FALL WIT HIN THE PURVIEW OF SECTION 36(1)(VII), IT WOULD BE ALLOWABLE AS BUSINESS LOSS UNDER SECTION 28 OF THE ACT, PROVIDED THE DEPO SITS WERE TRADE ADVANCES. ACCORDINGLY, DIRECTED THE AO TO VER IFY THE NATURE OF ADVANCES AND ALLOW ONLY TRADE ADVANCES. 16. THE LD. A.R. SUBMITTED THAT PLACING DEPOSITS WITH CUSTOMERS, DISTRIBUTORS AND GOVERNMENT AGENCIES AT THE TIME OF SUBMITTING TENDERS WAS A BUSINESS REQUIREMENT AN D SUCH DEPOSITS ARE INCURRED WHOLLY AND EXCLUSIVELY FOR TH E PURPOSE OF BUSINESS. THE LD. A.R. FURTHER SUBMITTED THAT THE S AID WRITE OFF IS ALLOWABLE UNDER SECTION 37(1) OF THE ACT, BEI NG REVENUE IN NATURE AND INCURRED WHOLLY AND EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS. IN THIS REGARD, HE RELIED UPON CERTAIN JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MOHAN MAKING INDIA LTD. VS. CIT 59 D TR 401(DEL HC). 17. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE AO DISALLOWE D WRITE OFF OF IRRECOVERABLE DEPOSITS ON THE GROUND THAT SU CH DEPOSITS WERE NEVER A TRADING DEPOSITS, BUT BALANCING ITEMS A ND SAME COULD NOT BE ALLOWED UNDER SECTION 36(1)(VII) OF TH E ACT, AS THE CONDITION PRESCRIBED UNDER SECTION 36(2) WERE NOT S ATISFIED. IT ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 16 IS THE CONTENTION OF THE ASSESSEE THAT DEPOSITS IN THE NATURE OF EARNEST MONEY DEPOSITS ARE KEPT WITH VARIOUS PARTIE S WHICH ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND OUT OF TAX SUFFERED INCOME. THE ASSESSEE FURTH ER CONTENDED THAT IT HAS WRITTEN OFF OF SUCH IRRECOVER ABLE DEPOSITS IN ITS BOOKS OF ACCOUNTS AND HENCE COMPLIED WITH TH E PROVISIONS OF SECTION 36(1)(VII) READ WITH SECTION 36(2). THEREFORE, THE AO WAS INCORRECT IN DISALLOWING WRITE OFF OF DEPOSITS. HAVING HEARD BOTH THE PARTIES, WE FIND ME RITS IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT WHEN DEPOSITS ARE GIVEN TO VARIOUS PARTIES WHILE FILING TENDERS A RE IN THE NATURE OF BUSINESS EXPENDITURE WHICH ARE INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. WE FURTHER OBSERVE THAT THE ASSESSEE HAS WRITTEN OFF OF SUCH DEPOSITS IN ITS BOOKS OF ACCOUNTS WHICH FULFILS THE CONDITIONS PRESCRIBED UNDER SECTION 36(1)(VII) OF THE ACT. HOWEVER, THE FACT RE MAINS THAT THE DEPOSITS WRITTEN OFF BY THE ASSESSEE ARE BALANC E SHEET ITEMS AND NOT PART OF TRADING RECEIPTS. IF THE ASSE SSEE HAS GIVEN DEPOSITS OUT OF ITS TAX SUFFERED INCOME, THEN OBVIOUSLY SUCH DEPOSITS ARE COMING WITHIN THE AMBIT OF BAD DE BTS WRITTEN OFF UNDER SECTION 36(1)(VII) OF THE ACT. IF THE ASSESSEE HAS GIVEN SUCH DEPOSIT OUT OF ITS BORROWINGS THEN O BVIOUSLY IT DOES NOT FULFILL THE CONDITIONS PRESCRIBED UNDER SE CTION 36(2) OF THE ACT. HENCE, THE LD. CIT(A) HAS RIGHTLY SET ASIDE THE ISSUE TO THE FILE OF AO TO VERIFY WHETHER SUCH ADVANCES A RE TRADE ADVANCES OR NOT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE LD. CIT(A) WAS RIGHT IN SETTING ASIDE THE I SSUE TO THE FILE OF THE AO TO VERIFY THE NATURE OF ADVANCES. TH ERE IS NO ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 17 GRIEVANCE IS CAUSED TO THE ASSESSEE. THE ASSESSEE C AN FILE NECESSARY EVIDENCES BEFORE THE AO TO PROVE WHETHER SUCH ADVANCES ARE IN THE NATURE OF TRADE ADVANCES OR NOT . HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD. CI T(A) AND REJECT THE GROUND RAISED BY THE ASSESSEE. 18. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION I S DISALLOWANCE OF IRRECOVERABLE ADVANCES OF RS.51,45, 651/-. THE ASSESSEE HAS CLAIMED A DEDUCTION OF WRITE OFF O F ADVANCES WHICH INCLUDES DEBIT BALANCE OUTSTANDING IN DEPB PR OVISION ACCOUNT AND AMOUNT RECEIVABLE FOR DUTY DRAWBACK FOR RECOVERY FROM VIETNAM EXPORTS AS THE SAME WERE IRRECOVERABLE . THE AO DISALLOWED WRITTEN OFF OF IRRECOVERABLE ADVANCES ON THE GROUND THAT SUCH ADVANCES WERE NOT BAD DEBTS OF CUS TOMERS AND HENCE COULD NOT BE ALLOWED UNDER SECTION 36(1)( VII) OF THE ACT. THE AO FURTHER OBSERVED THAT THE ASSESSEE FAIL ED TO SHOW CAUSE HOW THESE ADVANCES WERE IRRECOVERABLE. IT IS THE CONTENTION OF THE ASSESSEE THAT EXPORT INCENTIVE IN THE FORM OF DUTY ENTITLEMENT OF PASS BOOK ACCRUED AT THE TIME O F EXPORTS ARE OFFERED TO TAX AT THE TIME OF EXPORT AND CORRES PONDING AMOUNT IS SHOWN UNDER RECEIVABLE AS ADVANCE DUE. TH E ASSESSEE FURTHER CONTENDED THAT THE OBJECTIVE OF TH IS SCHEME WAS TO OFFSET THE INCIDENCE OF CUSTOMS DUTY BY GIVI NG CREDIT FOR TAX IS PAID. TO CLAIM THE SET OFF OF THE IMPORT DU TY PAYABLE AGAINST THE DEPB BALANCE, THE ASSESSEE SHOULD MAKE APPLICATION TO THE CUSTOMS AUTHORITIES WITHIN THE T IME LIMIT OF 24 MONTHS FROM THE DATE OF EXPORT. IF THE APPLICATI ON IS NOT MADE WITHIN THE TIME FRAME, THE DEPB BALANCE LAPSES . THE ASSESSEE HAS VERIFIED THE DEPB CLAIMS AND FOUND THA T ALL ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 18 CLAIMS ARE OUTSTANDING FOR MORE THAN SIX MONTHS AND THEY ARE NOT CLAIMABLE AND HENCE AN AMOUNT OF RS.39,39,160/- WAS WRITTEN OFF. 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THERE IS NO DISPUTE WITH REGARD TO THE F ACT THAT WHEN EXPORT INCENTIVES ARE CLAIMED AGAINST EXPORTS SUCH INCENTIVES ARE TAXABLE IN THE YEAR IN WHICH SUCH EX PORTS WERE MADE. THE ASSESSEE CLAIMS THAT IT HAS OFFERED DEPB CLAIMS IN THE YEAR IN WHICH THE EXPORTS WERE MADE AND CORRESP ONDING AMOUNT HAS BEEN SHOWN AS RECEIVABLE FROM THE GOVERN MENT. SINCE THE TIME HAS LAPSED FOR LODGING A CLAIM WITH THE AUTHORITIES, THE ASSESSEE COULD NOT RECOVER SUCH IN CENTIVES AND ACCORDINGLY WRITTEN OFF IN ITS BOOKS OF ACCOUNT S. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REAS ON THAT WHEN EXPORT INCENTIVE IS OFFERED TO TAX IN THE EARL IER PERIOD BY SHOWING THE AMOUNT AS RECEIVABLE, THEN WRITE OFF OF SUCH ADVANCE AS IRRECOVERABLE IS IN THE NATURE OF BAD DE BT WHICH CAN BE CLAIMED AS DEDUCTION UNDER SECTION 36(1)(VII ) OF THE INCOME TAX ACT, 1961. HOWEVER, THERE IS A CONTRADIC TION IN THE CLAIM MADE BY THE ASSESSEE IN ITS BOOKS OF ACCO UNTS AND THE SUBMISSIONS MADE BEFORE THE AUTHORITIES. THE AS SESSEE HAS CLAIMED AN AMOUNT OF RS.51,45,651/- AS IRRECOVERA BLE ADVANCES, HOWEVER, AS PER THE SUBMISSIONS THE AMOUNT WRITTEN OFF WAS AT RS.39,39,160/-. THEREFORE, WE ARE OF THE VIEW THAT THE ISSUE NEEDS TO BE REEXAMINED BY THE A O IN THE LIGHT OF SUBMISSIONS OF THE ASSESSEE. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF AO AND DIRECT HIM TO EXAMINE T HE CLAIM WITH NECESSARY EVIDENCES BEFORE ALLOWING THE CLAIM. IF THE ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 19 ASSESSEE IS ABLE TO FILE EVIDENCES TO THE EXTENT OF RS.51,45,651/-, THEN THE AO IS DIRECTED TO ALLOW WRI TE OFF IRRECOVERABLE ADVANCES. 20. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION I S ADHOC DISALLOWANCE OF 50% OF PAYMENT MADE TO BAYER POLYCH EM LTD. OF RS.22,45,472/-. THE ASSESSEE HAD MADE A PAYMENT O F RS.44,90,944/- TO BAYER POLYCHEM LTD. A SUBSIDIARY C OMPANY FOR SUPPLY OF SUPPORT SERVICES AND SUPPLY OF MANPOW ER. THE AO HAS DISALLOWED AMOUNT PAID TO ASSOCIATE CONCERN ON THE GROUND THAT THE PAYMENTS WERE EXCESSIVE AND UNREASO NABLE. IT IS THE CONTENTION OF THE ASSESSEE THAT FOR DISAL LOWANCE TO BE MADE UNDER SECTION 40A(2)(B) OF THE ACT, THE AO FIRS T OUGHT TO HAVE FORMED AN OPINION THAT THE PAYMENT WAS EXCESSI VE IN NATURE AND THEN TO COMPARE WITH PREVAILING MARKET R ATES. THE AO HAS DISALLOWED 50% OF AMOUNT PAID TO ASSOCIATE C ONCERN WITHOUT COMPARING SUCH PAYMENTS TO THE PREVAILING M ARKET RATES. 21. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIAL ON RECORD, WE FIND FORCE IN THE ARGUMENTS OF THE ASSESS EE FOR THE REASON THAT THE ASSESSEE HAS FURNISHED NECESSARY DE TAILS OF PAYMENT MADE TO ITS SUBSIDIARY COMPANY FOR RENDERIN G SERVICES. THE AO HAS MADE ADHOC DISALLOWANCE OF 50% WITHOUT ANY REFERENCE TO COMPARABLE CASES TO COME T O THE CONCLUSION THAT PAYMENTS MADE BY THE ASSESSEE ARE E XCESSIVE AND UNREASONABLE. HENCE, WE DIRECT THE AO TO DELET E ADDITIONS MADE TOWARDS DISALLOWANCE OF PAYMENTS MAD E UNDER SECTION 40(2)(B) OF THE INCOME TAX ACT, 1961. ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 20 22. THE NEXT ISSUE THAT CAME UP FOR CONSIDERATION I S DISALLOWANCE OF UNREALIZED FOREIGN EXCHANGE PERTAIN ING TO TRADE RECEIVABLES. THE ASSESSEE CLAIMED A TOTAL FOR EIGN EXCHANGE LOSS OF RS.2,58,00,129/-. THIS INCLUDES BOTH REALIZED AS WELL AS UNREALIZED FOREIGN EXCHANGE LOSS. OUT OF THE SAID AMOUNT A SUM OF RS.1,68,39,128/- PERTAINS TO UNREALI ZED FOREIGN EXCHANGE LOSS ARISING OUT OF REVALUATION OF TRADE RECEIVABLES AS PER ACCOUNTING STANDARD 11 ISSUED BY THE ICAI. THE AO DISALLOWED UNREALIZED AND REALIZED FOREIGN E XCHANGE LOSS ON THE GROUND THAT SUCH LOSS IS IN NATURE OF N OTIONAL LOSS WHICH WAS PROVIDED IN THE BOOKS OF ACCOUNTS ON MARK ED TO MARKET BASIS, THEREFORE, CANNOT BE ALLOWED AS DEDUC TION. THE LD. CIT(A), BY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF CIT V/S. WOODWARD GOVERNOR INDIA PVT. LTD. 312 ITR 254 (SC), DIRECTED THE AO TO VERIFY WHETHER THE SAID AMOUNT OF UNREALIZED FOREIGN EXCHANGE WAS RELATED TO TRADING ITEMS AND ALLOW AS PER THE JUDGMENTS OF THE HONBLE SUPREME COURT. THE LD. A.R. FOR THE ASSESSEE SUBMITTE D THAT IN RESPECT OF UNREALIZED FOREIGN EXCHANGE LOSS OF RS.1,68,39,128/- THE AO WHILE GIVING EFFECT TO THE O RDER OF THE LD. CIT(A) HAS ALLOWED. THEREFORE, HE DOES NOT WANT TO PRESS THE GROUND. ACCORDINGLY, THE GROUND TAKEN BY THE ASS ESSEE CHALLENGING THE SAID ADDITION HAS BEEN DISMISSED AS NOT PRESSED. 23. IN SO FAR AS GROUND NO.10 TOWARDS UNREALIZED FO REIGN EXCHANGE LOSS OF RS.15,38,445/- THE AO DISALLOWED SU CH LOSS ON THE GROUND THAT IT PERTAINS TO CAPITAL ASSETS WH ICH OUGHT TO ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 21 HAVE BEEN ADDED TO THE CONCERNED ASSET. IT IS THE C ONTENTION OF THE ASSESSEE THAT ALTHOUGH IT HAS CONCEDED SUCH LOSSES BEFORE THE AO INADVERTENTLY, FILED NECESSARY DETAILS TO PROVE THAT OUT OF TOTAL LOSS OF RS.15,38,445/- A SUM OF RS.14,54,445/- PERTAINS TO REVENUE ACCOUNT AND THE BALANCE AMOUNT OF RS.84,000/- RELATES TO CAPITAL ACCOUNT. 24. HAVING HEARD BOTH THE SIDES, WE FIND THAT THE LD . CIT(A) HAS ALREADY SET ASIDE THE ISSUE TO THE AO TO CONSID ER IT AFRESH IN THE LIGHT OF DECISION OF HONBLE SUPREME COURT I N THE CASE OF CIT V/S. WOODWARD GOVERNOR INDIA PVT. LTD. 312 ITR 25 4 (SC). THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO GRIEVANCE CAUSED TO THE ASSESSEE. THE ASSESSEE CAN FILE NECESSARY DETAILS BEFORE THE AO TO PROVE THE LOSS W HETHER IT PERTAINS TO REVENUE OR CAPITAL IN NATURE. WE FURTHE R OBSERVE THAT THE ASSESSEE ITSELF HAS ADMITTED WHILE GIVING EFFECT TO THE ORDER OF THE LD. CIT(A) THE AO HAS ALLOWED UNREALIZE D FOREIGN EXCHANGE LOSS. THEREFORE, WE ARE OF THE CONSIDERED V IEW THAT THERE IS NO MERITS IN THE GROUND TAKEN BY THE ASSES SEE AND ACCORDINGLY WE REJECT GROUND TAKEN BY THE ASSESSEE. 25. THE ISSUE RAISED IN GROUND NO.11 IS WITH REGARD TO NON ADJUDICATION OF ADDITIONAL GROUND BY LD. CIT(A) AS F ILED BY THE ASSESSEE RELATING TO THE ALLOWANCE OF CLAIM OF RS.2,35,60,494/- WHICH WAS WRONGLY DISALLOWED BY THE ASSESSEE WHILE FILING THE RETURN OF INCOME UNDER SE CTION 40(A) OF THE ACT. ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 22 26. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WHILE COMPUTING THE TOTAL INCOME HAS WRONGLY DISALLOWED A SUM OF RS.2,35,60,494/- UNDER SECTION 40(A) OF THE ACT ON T HE BELIEF THAT TAX AT SOURCE HAS NOT BEEN DEDUCTED ON THE SAM E AS PER THE PROVISION OF THE ACT. SUBSEQUENTLY IN A.Y. 2009 -10 IT WAS REALIZED BY THE ASSESSEE THAT TDS WAS NOT APPLICABL E ON THE SAID EXPENSES AND ACCORDINGLY THE SAME WERE CLAIMED IN THE RETURN OF INCOME FOR A.Y. 2009-10. HOWEVER, THE AO DUR ING THE ASSESSMENT PROCEEDINGS DID NOT ALLOW THE DEDUCT ION OF THE SAID SUM ON THE GROUND THAT THE SAME PERTAINS TO TH E EARLIER YEAR AND NOT ADMISSIBLE DURING THE YEAR. 27. IN THE APPELLATE PROCEEDINGS, THE ASSESSEE FILED THE ADDITIONAL GROUND VIDE LETTER DATED 12.07.2013 BEFO RE THE FIRST APPELLATE AUTHORITY REQUESTING FOR THE ADMISSION AN D ADJUDICATION OF ADDITIONAL GROUND ON THIS ISSUE. HO WEVER, THE LD. CIT(A) DID NOT ADJUDICATE THE SAME. 28. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS WITHIN ITS R IGHT TO RAISE THE ADDITIONAL GROUND QUA THE DEDUCTION NOT CLAIMED BEFORE THE AO DURING THE YEAR. THE ASSESSEE HAS RAISED THE ISSUE BEFORE THE FIRST APPELLATE AUTHORITY WHO HAS NOT AD JUDICATED THE SAME. IN OUR OPINION, THE ISSUE NEEDS TO BE REST ORED TO THE FILE OF THE LD. CIT(A) SO THAT THE SAME COULD BE DECIDED ON MERITS. THE CASE OF THE ASSESSEE IS SQUARELY COVERE D BY THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CIT VS. PRUTHVI BROKERS AND SHAREHOLDERS PVT. LTD. (2012) 349 ITR 336 (BOM.) IN WHICH THE HONBLE BOMBA Y HIGH ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 23 COURT HAS HELD THAT THE ASSESSEE CAN RAISE BEFORE T HE APPELLATE AUTHORITIES ANY ADDITIONAL GROUND QUA TH E DEDUCTION WHICH WAS NOT CLAIMED IN THE RETURN OF INCOME. SINC E WE HAVE SENT BACK SOME ISSUES TO THE AO SO WE THINK IT PROP ER TO RESTORE THIS ISSUE BACK TO THE FILE OF THE AO WITH THE DIRECTION TO DECIDE THE SAME AFTER AFFORDING REASONABLE OPPOR TUNITY TO THE ASSESSEE AS PER THE FACTS AND APPLICABLE PROVI SIONS OF LAW. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 29. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ITA NO.145/M/2014 (REVENUES APPEAL) 30. THE FIRST ISSUE THAT CAME UP FOR CONSIDERATION FROM REVENUES APPEAL IS DISALLOWANCE OF PRODUCT TRIAL E XPENSES. THE ASSESSEE HAD INCURRED PRODUCT TRIAL EXPENSES OF RS.4,29,72,544/-. THE ASSESSEE HAS INCURRED SAID EXP ENSES TO CONDUCT SUBSTANTIAL TESTS BEFORE A PRODUCT CAN BE U SED IN A PARTICULAR CROP. SUCH EXPENSES WERE MANDATORILY IN CURRED TO REGISTER THE PRODUCT. THE AO HAS ALLOWED DEDUCTION OF RS.2,05,23,457/- UNDER SECTION 35 OF THE ACT, HOWEVE R, DID NOT ALLOW WEIGHTED DEDUCTION WITH RESPECT TO THE SA ME. FURTHER, THE AO HAS DISALLOWED AN AMOUNT OF RS.2,24,4 9,087/- CONSIDERING IT TO BE CAPITAL IN NATURE. THE LD. CI T(A) BY FOLLOWING VARIOUS JUDICIAL PRECEDENTS AS WELL AS TH E DRP DIRECTIONS FOR A.Y. 2007-08 HELD THAT THE EXPENSES N OT COVERED UNDER SECTION 35 OF THE ACT, FOR WEIGHTED DEDUCTION, BUT WOULD BE ALLOWABLE UNDER SECTION 37 OF THE ACT, UNLESS IT DID NOT ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 24 CREATE ANY ENDURING BENEFIT. THE RELEVANT PART OF T HE ORDER OF THE LD. CIT(A) IS EXTRACTED BELOW: 4.1 THE AO HAD DISCUSSED THE ISSUE IN PARA 6 OF THE ASSESSM ENT ORDER. THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND MARKETING OF PESTICIDES AND INSECTICIDES WHICH ARE TOXIC IN NATURE AND HENC E IT IS MANDATORY TO GET PRODUCTS REGISTERED WITH CENTRAL INSECTICIDES BOAR D & REGULATORY COMMITTEE OF INDIA. AS A PART OF REGISTRATION PROCESS, THE PRODU CT TRIALS ARE REQUIRED TO BE CONDUCTED TO CHECK WHETHER THE PRODUCT COULD BE USE D FOR CERTAIN OTHER CROPS OR SEEDS. THE TRIALS ARE CONDUCTED WITH APPROVED RESEA RCH INSTITUTES. THE AO WAS OF THE VIEW THAT THE NEW PRODUCT TRIAL RUN EXPENSES GI VES ENDURING BENEFIT AND IT ENABLES THE APPELLANT COMPANY TO ENTER INTO A NEW M ARKET AND HENCE IT WAS OF CAPITAL IN NATURE. THE EXPENSES ARE SPECIFICALLY AL LOWED U/S.35 AND HENCE, THE SAME CANNOT BE ALLOWED U/S.37 AS IT WAS OF CAPITAL IN NA TURE. 4.2 THE SUBMISSION OF THE PRODUCT TRIAL PROCESS IS AS FOLLOWS: 2.3.1 MODUS OPERANDI OF THE PRODUCT TRIAL PROCESS IS AS FOLLOWS : 2.3.1.1 SINCE THE APPELLANT IS IN THE BUSINESS OF M ANUFACTURING AND MARKETING PESTICIDES AND INSECTICIDES WHICH ARE TOXIC IN NATU RE, THE APPELLANT CARRIES OUT CERTAIN IN-HOUSE CHECKS AND ANALYSIS ON THE EXISTIN G LINE OF PRODUCTS THAT CAN BE USED ON VARIOUS CROPS (COMMERCIALLY). FOR SUCH CHEC KING AND ANALYSIS, THE APPELLANT INCURS SUBSTANTIAL COSTS THEREON. 2.3.1.2 IT IS PERTINENT TO NOTE THAT MOLECULES/ PRO DUCTS ARE RESEARCHED AND DEVELOPED BY THE APPELLANTS PARENT COMPANY I.E. BAY ER CROPSCIENCE AG ('BCS AG') IN GERMANY. OUT OF THE PRE-DEVELOPED MOLECULES/ PRO DUCTS, SPECIFIC MOLECULES / PRODUCTS ARE IDENTIFIED BY THE APPELLANT FOR FURTHE R DEVELOPMENT, REGISTRATION AND SALE IN INDIA. 2.3.1.3 INTERNAL DEVELOPMENT ANALYSIS IS CARRIED OU T BY THE APPELLANT IN THE FIELDS ON VERY SMALL- SCALE FOR ASCERTAINING THE PRODUCT S UITABILITY, TO INDIAN AGRO-CLIMATIC CONDITIONS (LIKE DOSAGES, TARGET CROPS, PESTS, DISE ASES, WEEDS, ETC.) 2.3.1.4 BEFORE THE PRODUCTS CAN BE COMMERCIALLY MAR KETED IN INDIA, THE APPELLANT IS REQUIRED TO GET THESE PRODUCTS (PESTICIDE AND / OR INSECTICIDE FORMULATIONS) REGISTERED WITH CENTRAL INSECTICIDES BOARD & REGULA TORY COMMITTEE ('REGULATORY AUTHORITY). 2.3.1.5 THE REGULATORY AUTHORITY GRANTS REGISTRATIO N ONLY AFTER THOROUGH EVALUATION OF THE PRODUCT FOR ITS QUALITY, EFFICACY AND SAFETY TO HUMAN BEINGS AND THE ENVIRONMENT UNDER INDIAN AGRO-CLIMATIC CONDITIONS F OR WHICH A 'REGISTRATION DOSSIER' HAS TO BE PROVIDED BY THE APPELLANT TO SUC H REGULATORY AUTHORITY. 2.3.1.6 IN ORDER TO PREPARE THE 'REGISTRATION DOSSI ER', THE APPELLANT ENGAGES VARIOUS RESEARCH ASSOCIATIONS AND INSTITUTIONS TO C ARRY OUT ANALYSIS ON APPELLANTS ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 25 PRODUCTS. THESE RESEARCH ASSOCIATIONS AND INSTITUTI ONS PROVIDE REPORTS ON PRODUCT QUALITY, EFFICACY, SAFETY, ETC WHICH THE APPELLANT USES TO PREPARE A 'REGISTRATION DOSSIER' TO BE SUBMITTED TO THE REGULATORY AUTHORIT Y FOR OBTAINING REGISTRATION. 2.3.1.7 IT IS IMPORTANT TO NOTE THAT THE PRODUCT QU ALITY, BIO-EFFICACY AND TOXICOLOGYREPORTS OBTAINED FROM ABOVE MENTIONED RES EARCH ASSOCIATION AND INSTITUTIONS IS ONE OF THE IMPOTENT REQUISITE FOR T HE 'REGISTRATION DOSSIER'. 2.3.1.8 THUS, AS CAN BE SEEN FROM THE ABOVE THAT P AYMENTS TO RESEARCH ASSOCIATIONS AND INSTITUTIONS, ETC IS PRIMARILY FOR OBTAINING PRODUCT QUALITY, BIO- EFFICACY AND TOXICOLOGY REPORTS WHICH ARE REQUIRED INGREDIENTS IN ORDER TO PREPARE THE REGISTRATION DOSSIER AND OBTAIN APPROVAL FROM REGULATORY AUTHORITY TO COMMENCE COMMERCIAL PRODUCTION OF SELECTED PRODUCTS . 2.3.1.9 THE PROCESSES UNDER TAKEN BY THE APPELLANT AND THE RESEARCH ASSOCIATIONS AND INSTITUTIONS IS DETAILED AS UNDER FOR EASE OF U NDERSTANDING: BCSL IDENTIFIES PRODUCTS (FROM VARIOUS PRODUCTS DEV ELOPED BY BCS AG) FOR FURTHER DEVELOPMENT, REGISTRATION AND SALE IN INDIA INTERNAL DEVELOPMENT ANALYSIS AND CHECKING IS CARRI ED OUT BY BCSL IN THE FIELD ON VERY SMALL-SCALE FOR ASCERTAINING THE PRODUCT SUITABILITY TO INDIAN AGRO-CLIMATIC CONDITIONS THE RESULTS ARE DISCUSSED IN INTERNAL MEETINGS AND PRODUCTS ARE GIVEN GO-AHEAD FOR INITIATING THE PRODUCT REGISTRATION PROCESS PRODUCT QUALITY, BIO-EFFICACY AND TOXICOLOGY ANALYS IS WITH THE APPROVED RESEARCH ASSOCIATION/UNIVERSITY/COLLEGE 1) BIO-EFFICACY & RESIDUES-FIELD ANALYSIS AT STATE AGR ICULTURAL UNIVERSITY (SAUS), GOVERNMENT INSTITUTES & PRIVATE LABORATORIES 2) TOXICOLOGY ANALYSIS IN PRIVATE LABORATORIES 3) CHEMISTRY & PACKAGING AT QUALITY ASSURANCE & DEVELO PMENT DEPARTMENT LABORATORIES (QADDL) OF BCSL PREPARATION OF REGISTRATION DOSSIER PRODUCT QUALITY, BIO-EFFICACY AND TOXICOLOGY ANALYS IS REPORTS RECEIVED FROM RESEARCH ASSOCIATIONS/UNIVERSITY/COLLEGES/OTHER INSTITUTIONS IS ANALYSED AND COMPILED INTO REGISTRATION DOSSIER FOR SUBMISSION TO THE REGULATORY AUTHORITY FOR REGISTRATION. REGISTRATION DOSSIER IS SCRUTINIZED AND DEFICIENC IES MAY BE RAISED BY THE REGULATORY AUTHORITY-REPLIES GIVEN BY BCSL REGISTRATION DOSSIER IS SCRUTINIZED AND DEFICIENC IES MAY BE RAISED BY THE REGULATORY AUTHORITY-REPLIES GIVEN BY BCSL PRODUCT REGISTRATION GRANTED BY THE REGISTRATION AU THORITY 2.3.1.10 THE APPELLANT IS MAKING PAYMENT TO RESEARC H ASSOCIATIONS AND INSTITUTIONS FOR CONDUCTING BIO-EFFICACY AND TOXICOLOGY ANALYSIS ON ITS EXISTING LINE OF PRODUCTS, WHICH ARE CARE GOOSED IN THE BOOKS OF ACCOUNTS UNDE R THE HEAD 'PRODUCT TRIAL EXPENSES. THE PAYMENTS TO THE APPROVED RESEARCH ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 26 ASSOCIATIONS/UNIVERSITY/COLLEGE/OTHER INSTITUTION A RE IN THE NATURE OF 'SPONSORSHIPS'. 2.3.1.11 IN THIS CONNECTION, WE ARE ENCLOSING HEREW ITH A SAMPLE COPY OF THE REPORT PROVIDED BY SUCH RESEARCH ASSOCIATIONS TO THE APPEL LANT VIDE ANNEXURE 6, PAGE 118 TO 131 OF PAPERBOOK. 2.3.2 EXPENDITURE INCURRED ON PRODUCTS IN THE EXIST ING LINE OF BUSINESS 2.3.6.1 IN THE PRESENT CASE, APPELLANT HAS INCURRE D THE SAID PROAUCT TRIAL EXPENSES TO CHECK WHETHER ANY OF ITS EXISTING LINE OF PRODUC TS (WHICH HAVE ALREADY BEEN RESEARCHED., DEVELOPED AND ARE COMMERCIALLY BEING E XPLOITED) COULD BE USED FOR CERTAIN OTHER CROPS OR SEEDS. THUS, BY INCURRING EX PENSES ON THE EXISTING LINE OF PRODUCTS, THE APPELLANT DOES NOT RECEIVE ANY ENDURI NG BENEFIT WHICH IS CAPITAL IN NATURE. HENCE, THE SAME OUGHT TO BE ALLOWED AS A DE DUCTION. THE EXPENSES ARE FOR THE EXISTING INC OF BUSINESS I.E. MANUFACTURING, PR OCESSING AND REFINING OF INSECTICIDES, FUNGICIDES,WEEDICIDES, RODENTICIDES A ND OTHER CHEMICALS USED IN THE PROTECTION OF CROPS. 2.3.6.2 IN SUPPORT OF OUR CLAIM, WE WISH TO STATE T HAT IN THE DECISION BY THE AMRITSAR TRIBUNAL IN CASE OF DCIT VS MAX INDIA LTD (105 TTJ 1002), IT WAS HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR- IMPROVEME NT IN PRODUCT SPECIFICATIONS OF BOPP FILMS AND TO DEVELOP NEW VARIETIES OF BOPP FIL MS ALREADY MANUFACTURED BY IT, NOT BEING RELATED TO SETTING UP OF A NEW UNIT OR EX PANSION OF THE EXISTING UNIT, IS ALLOWABLE AS REVENUE EXPENDITURE. 2.36.3 EVEN IN THE CASE OF ESCORTS LTD. VS ACIT (10 4 ITD 427), THE DELHI TRIBUNAL HAS HELD THAT IF NEW PROJECTS UNDERTAKEN BY THE ASSESSE E WERE IN THE EXISTING LINE OF ASSESSEE'S BUSINESS, THEN THE EXPENDITURE INCURRED ON EXPANSION AND DIVERSIFICATION OF THE EXISTING BUSINESS IS ALLOWABLE AS A DEDUCTIO N U/S 37(1) OF THE ACT. THIS VIEW HAS BEEN RE-ITERATED BY THE PUNJAB & HARYANA HIGH C OURT IN THE CASE OF CIT VS. AVON CYCLES LIMITED (303 ITR 345). 2.3.6.4 THE APPELLANT HAS INCURRED THE SAID EXPENSE S SOLELY FOR THE PURPOSE OF CARRYING ON AND FOR FURTHERANCE OF ITS BUSINESS ACT IVITIES ARID THUS, THIS EXPENDITURE OUGHT TO BE ALLOWED AS A DEDUCTION. 2.3.3 THERE IS NO ENDURING BENEFIT AS A RESULT OF P RODUCT TRIAL EXPENSES 2.3.7.1 IT IS RE-ITERATED THAT THE APPELLANT IS MAN DATORILY REQUIRED TO GET ITS PRODUCTS REGISTERED WITH THE REGULATORY AUTHORITY BEFORE THE PRODUCTS CAN BE COMMERCIALLY MARKETED IN INDIA. AS A PAN OF THIS REGISTRATION PR OCESS, VARIOUS PRODUCT QUALITY, BIO- EFFICACY AND TOXICOLOGY ANALYSIS ARE REQUIRED TO HE CONDUCTED. THUS, SUCH EXPENDITURE IS STATUTORILY NECESSARY FOR APPELLANT IN ORDER TO CARRY ON ITS BUSINESS ACTIVITIES. HENCE, THESE EXPENSES OUGHT TO BE ALLOW ED AS A DEDUCTION UNDER SECTION 3 7(1) OF THE ACT. BY INCURRING EXPENDITURE ON TESTING OF EXISTING LIN E OF PRODUCTS OF THE APPELLANT WHICH MAY /MAY NOT BE USED ON ANOTHER CROP OR SEED, NO BENEFIT OF ENDURING NATURE ACCRUES TO THE APPELLANT. IT IS REVENUE EX PENDITURE' IN NATURE. 2.3.7.2 IN THE DECISION OF THE HON'BLE HIGH COURT O F KERALA IN THE CASE OF CIT VS ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 27 KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD (182 ITR 62), IT WAS HELD THAT EXPENSES INCURRED IN INVESTIGATION RESEARCH AND FEA SIBILITY STUDY ARE IN THE NATURE OF REVENUE EXPENSES, IF WITHOUT INCURRING SUCH EXPENSE S, IT WOULD NOT HAVE BEEN POSSIBLE FOR THE ASSESSEE TO CARRY ON BUSINESS. 2.3.7.3 THE TEST OF ENDURING BENEFIT ALONE IS NOT C ONCLUSIVE FOR TREATING ANY EXPENDITURE AS CAPITAL EXPENDITURE AND IT IS NECESS ARY , TO ASCERTAIN WHETHER SUCH EXPENDITURE RESULTS INTO AN ADVANTAGE OF ENDURING N ATURE TO THE ASSESSEE IN THE CAPITAL FIELD OR THE REVENUE FIELD SO AS TO DECIDE THE EXACT NATU R E OF SUCH EXPENDITURE. RELIANCE IS PLACED ON DECISION OF THE HON'BLE SUPRE ME COURT OF EMPIRE JUTE COMPANY LTD VS. CIT[124 ITR 1]. 2.3.7.4 THE TEST FOR ALLOWABILITY OF AN EXPENDITURE AS A DEDUCTION UNDER SECTION 37(1) IS TO JUDGE, WHETHER THE EXPENSE HAS BEEN INCURRED WITH THE SOLE OBJECT OF FURTHERING THE TRADE OR BUSINESS INTEREST OF THE AS SESSEE UNALLOYED OR UNMIXED WITH ANY OTHER CONSIDERATION AND THAT EXPENDITURE WAS NE CESSITATED OR JUSTIFIED BY COMMERCIAL EXPEDIENCY. RELIANCE IS PLACE ON THE DEC ISION OF THE HON'BLE HIGH COURT OF PUNJAB AND HARYANA IN THE CASE OF JAMNA AUTO INDUST RIES VS CIT (167 TAXMANN 192). 2.3.7.5 IN THE CASE OF GUJARAT SMALL SCALE INDUSTRI ES CORPORATION LTD VS. CIT [142 ITR 35], THE HON'BLE GUJARAT HIGH COURT HAS HELD THAT E XPENDITURE INCURRED BEFORE MARKETING THE PRODUCT IN ORDER TO TEST ITS SUITABIL ITY FOR MARKETING, IS EXPENDITURE OF THE NATURE OF REVENUE. IN THE ABSENCE OF THESE TEST ING CHARGES, THE APPELLANT WOULD NOT BE ABLE TO MARKET ITS PRODUCTS. 2.3.7.6 FURTHER, IT IS SUBMITTED THAT THE OBSERVATI ON OF THE LEARNED AO THAT SECTION 35 IS A SPECIFIC FOR ALLOWING RESEARCH RELATED EXPE NSES AND ACCORDINGLY IT CANNOT BE ALLOWED UNDER SECTION 37(1) OF THE ACT IS INCORRECT . WE WISH TO HIGHLIGHT THAT SECTION 37(1) OF THE ACT, IS A RESIDUARY SECTION AS PER WHI CH, ANY EXPENDITURE (NOT BEING CAPITAL/ / PERSONA / PENAL IN NATURE) WHICH IS NOT COVERED BY SECTIONS 30 TO 36 OF THE ACT AND IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, WOULD BE ALLOWED AS A DEDUCTION. 2.3.7.7 ACCORDINGLY, CONSIDERING THE FACTS OF THE C ASE AND THE JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE, WE WISH TO SUBMIT T HAT THE EXPENSES INCURRED BY THE APPELLANT ON PRODUCT TRIAL, ARE REVENUE IN NATU RE AND AS SUCH ALLOWABLE UNDER SECTION 37(1) OF THE ACT. 2.3.7.8 FURTHER WE WOULD LIKE TO SUBMIT THAT THE L EARNED AO, IN HIS ASSESSMENT ORDER (REFER 6TH PARA ON PAGE 6), HAS HIMSELF STATE D THAT THE EXPENDITURE ON PRODUCT TRIALS AGGREGATING OF RS.2,24,49,087 IS NOT COVERED UNDER SECTION 35 OF THE ACT. ACCORDINGLY, WHERE THE EXPENSES DO NOT FALL WITHIN THE SPECIFIC CATEGORY I.E. SECTION 35 OF THE ACT, THE SAME NEEDS TO BE ALLOWED AS 'REV ENUE' EXPENDITURE UNDER SECTION 37(1) OF THE ACT. 23.4 WE WISH TO SUBMIT THAT THE ABOVE STAND OF THE APPELLANT HAS BEEN CONFIRMED BY THE DRP DURING AY 2007-08 PROCEEDINGS. FOR AY 20 07-08, THE APPELLANTS FACTS OF THE CASE WERE IDENTICAL TO THE FACTS OF THE CASE FO R THE YEAR UNDER CONSIDERATION. AFTER DULY ANALYSING AND VERIFYING THE FACTS OF THE CASE FOR AY 2007-08, THE HON'BLE DRP HAVE ACCEPTED THE CONTENTIONS OF APPELLANT TO A LLOW PRODUCT TRIAL EXPENSES PAID TO ASSOCIATIONS / INSTITUTIONS (OTHER THAN THE INST ITUTIONS NOTIFIED UNDER SECTION 35(1)(II) OF THE ACT FOR WHICH WEIGHTED DEDUCTION I S ALLOWABLE) AS REVENUE IN NATURE ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 28 AND ALLOWED DEDUCTION FOR THE SAME UNDER SECTION 37 (1) OF THE ACT. COPY OF DIRECTIONS ISSUED BY DRP FOR AY 2007-08 IS ATTACHED HEREWITH VIDE ANNEXURE 7, PAGE 132 TO 143 OF PAPERBOOK FOR READY REFERENCE. 2.3.5 WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS OF THE APPELLANT, DEPRECIATION BE ALLOWED ON SUCH PRODUCT TRIAL EXPENSES. 2.3.8.1 WITHOUT PREJUDICE TO THE AFORESAID CONTENTI ONS THAT THE PRODUCT TRAIL EXPENSES OUGHT TO BE CONSIDERED AS REVENUE IN NATUR E AND ALLOWED AS DEDUCTION, THE APPELLANT WISHES TO SUBMIT AS UNDER: 2.3.8.2 SINCE THE LEARNED AO HAS ALLEGED THAT THE E XPENSES INCURRED ON PRODUCT QUALITY, BIO-EFFICACY AND TOXICOLOGY ANALYSIS ARE ' CAPITAL EXPENDITURE' WHICH GIVES ENDURING BENEFIT TO THE ASSESSEE, IT IS SUBMITTED T HAT THE APPELLANT OUGHT TO BE ALLOWED DEPRECIATION TINDER SECTION 32 OF THE ACT. 2.3.8.3 AS MENTIONED ABOVE, APPELLANT IS REQUIRED T O INCUR EXPENSES ON PRODUCT QUALITY, BIO-EFFICACY AND TOXICOLOGY ANALYSIS IN OR DER TO OBTAIN APPROVAL FROM THE REGULATORY AUTHORITY. THIS REGISTRATION IS NECESSAR Y FOR THE COMPANY TO COMMERCIALLY MANUFACTURE AND SELL ITS PRODUCTS. ACCORDINGLY, WHE RE THESE EXPENSES ARE REGARDED AS CAPITAL IN NATURE (AS HELD BY THE LEARNED AO IN THE YEAR UNDER CONSIDERATION), IT IS SUBMITTED THAT THE DEPRECIATION SHOULD BE ALLOWED T O THE APPELLANT BY TREATING THE SAME AS 'KNOW HOW' OR BUSINESS OR COMMERCIAL RIGHT. 2.3.8.4 THE TERM 'KNOW HOW' HAS BEEN EXPLAINED UNDE R SECTION 32 OF THE ACT AS ANY INDUSTRIAL INFORMATION OR TECHNIQUE LIKELY TO ASSIS T IN THE MANUFACTURE OR PROCESSING OF GOODS OR IN THE WORKING OF A MINE, OIL-WELL OR O THER SOURCES OF MINERAL DEPOSITS (INCLUDING SEARCHING FOR DISCOVERY OR TESTING OF DE POSITS FOR THE WINNING OF ACCESS THERETO). IT IS SUBMITTED THAT BASED ON THE FACTS A ND PROCESS EXPLAINED ABOVE AS A RESULT OF INCURRING THESE EXPENSES THERE IS A TECHN IQUE WHICH IS REGISTERED WITH THE REGULATORY AUTHORITY, WHICH ASSISTS APPELLANT IN MA NUFACTURING AND SELLING THE PRODUCTS. THUS, WHERE THESE EXPENSES ARE REGARDED A S CAPITAL IN NATURE, DEPRECIATION OUGHT TO BE ALLOWED TO THE COMPANY AS 'KNOW-HOW'. 2.3.8.5 FURTHER, AS HELD BY THE LEARNED AO, SINCE T HE EXPENSES INCURRED GIVES ENDURING BENEFIT TO THE APPELLANT BY ENABLING IT TO REGISTER THE PRODUCT AND COMMERCIALLY MANUFACTURE AND SELL THE SAME, IT IS S UBMITTED THAT SUCH PAYMENTS COULD FALL WITHIN THE MEANING OF 'BUSINESS OR COMME RCIAL RIGHT' AND THUS, ELIGIBLE FOR DEPRECIATION UNDER SECTION 32 OF THE ACT. 2.3.8.6 RELIANCE IS PLACED ON THE FOLLOWING CASE L AWS WHERE THE MEANING OF BUSINESS AND COMMERCIAL RIGHT HAS BEEN ELABORATED : TECHNO SHARES & STOCKS LTD. & ORS. VS. CIT [327 ITR 323] (SC) SKYLINE CATERERS (P) LTD. VS. ITO [118 TTJ 344] (MU MBAI TRIBUNAL) KOTAK FOREX BROKERAGE LTD. VS. ACIT [33 SOT 237] (M UMBAI TRIBUNAL) ACIT VS. AMERICAN EXPRESS SERVICES INDIA LTD. [ITA 74/2003 ITA 75/2003 ITA 653/2005] (MUMBAI TRIBUNAL) ITO VS MEDICORP TECHNOLOGIES INDIA LTD. [122 TTJ 39 4] (CHENNAI TRIBUNAL) ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 29 ACIT VS REAL IMAGE TECH. (P) LTD. [120 TTJ 983] (CH ENNAI TRIBUNAL) ASHOKA INFO (P) LTD. VS. ACIT [123 TTJ 77] (PUNE TR IBUNAL). 4.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT, THE IMPUGNED ASSESSMENT ORDER. THE PRODUCT TRIAL RUN EXPENDITURE S ARE INCURRED BY THE APPELLANT TOWARDS MANUFACTURE OF A NEW PRODUCT IN THE EXISTIN G LINE OF BUSINESS. SINCE THE INSECTICIDES AND PESTICIDES ARE TOXIC IN NATURE, SU CH PRODUCTS NEEDS TO BE REGISTERED WITH THE REGULATORY AUTHORITY AS MENTIONED ABOVE. B EFORE GETTING THE REGISTRATION, THE PRODUCT HAS TO BE TESTED FOR ITS EFFICACY AND T OXICITY. THE APPELLANT HAD DEBITED A SUM OF RS.4,29,72,544/- TOWARDS PRODUCT TRIAL EXPEN SES UNDER THE HEAD 'MISCELLANEOUS EXPENSES. THE AO FOUND THAT OUT OF TOTAL RS.4.29 CRORES INCURRED, A SUM OF RS.2,05,23,457/- ALONE WAS PAID TO RECOGNIZE D ASSOCIATIONS /UNIVERSITIES /ORGANIZATIONS, ETC WHICH GETS COVERED U/S.35(1)(II ) AND NOTICED THAT THE BALANCE RS.2,24,49,087/- WAS NOT COVERED U/S.35 HENCE, DID NOT ALLOW THE SAME AS EXPENDITURE. THE QUESTION AS TO WHETHER THE EXPENSE S INCURRED FOR GETTING REGISTRATION WITH STATUTORY AUTHORITIES TOWARDS NEW PRODUCT DEVELOPED WOULD AMOUNT TO CAPITAL OR REVENUE EXPENDITURE NEEDS TO B E ADDRESSED. IT IS THE CONTENTION OF THE APPELLANT THAT TEST OF ENDURING B ENEFIT ALONE CANNOT DECIDE AS TO WHETHER AN EXPENDITURE IS CAPITAL NOR NOT, FOR WHIC H RELIANCE WAS PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF EM PIRE JUTE CO. REPORTED IN 124 ITR 1. RELIANCE WAS ALSO PLACED ON THE 'FOLLOWING D ECISIONS :- (I) ESCORTS LTD. VS. ACIT 104 LTD 427 (DELHI ITAT) (II) CIT VS. AVON CYCLES LTD. (303 ITR 345) (P & H) (III) JAMNA AUTO INDUSTRIES VS. CIT (167 TAXMANN 19 2) (P& H) 4.4 FURTHER, A COPY OF THE DIRECTIONS ISSUED TO TH E AO BY THE HON'BLE DRP IN THE APPELLANT'S OWN CASE FOR A.Y.2007-08 WAS FURNISHED WHICH IS AVAILABLE IN ANNEXURE-7 OF THE PAPER-BOOK IN PAGES 132 TO 143. THE HON'BLE DRP HAD DISCUSSED THE ISSUE IN PARA 9 TO 9.4 OF ITS ORDER WHILE ADJUDICATING GROUN D NO.4 SPECIFICALLY RAISED AGAINST THE DISALLOWANCE OF PRODUCT TRIAL EXPENSES AMOUNTIN G TO RS.2,92,03,883/-. THE RELEVANT PORTION OF THE FINDING OF THE HON'BLE DRP IN PARS 9.4 IS AS UNDER :- 9.4 DRP HAS CAREFULLY CONSIDERED THE FACTS OF THE CASE, AOS FINDINGS AND OBSERVATIONS AND THE AND THE ASSESSEES SUBMISSION INCLUDING THE CASE LAW CITED ABOVE. CONSIDERING THAT THE EXPENDITURE INCURRED I S ONLY IN THE COURSE OF EXISTING BUSINESS AND EXISTING LINE OF BUSINESS, AND THAT TH E PRODUCT TRIAL RUNS DOES RIOT BRING INTO EXISTENCE ANY NEW BUSINESS ASSET (AS THE TESTE D PRODUCT MAY OR MAY NOT HE INTRODUCED IN THE MARKET) AND THE NATURE OF EXPENDI TURE BEING ONLY THE TESTING THE TOXICITY AND THE SUITABILITY FOR APPLICATION, IN TH E INDIAN MARKET AND EXPENDITURE ALSO INCLUDES CONTRIBUTIONS/PAYMENTS MADE TO APPROVED SC IENTIFIC INSTITUTIONS, CRP IS OF THE VIEW THAT THE EXPENDITURE INCURRED IS REVENUE I N NATURE. ALL THE FOUR DECISIONS CITED ABOVE FULLY SUPPORT SUCH VIEW. THE EXPENDITURE INCURRED IS ALLOWABLE AS DEDUCTION EITHER UNDER SECTION 35(1)(II) TO THE EXT ENT THE RELEVANT CONDITIONS ARE FULFILLED AND THE BALANCE AS DEDUCTION U/S. 37. HE NCE, THE ASSESSEE'S CLAIM FOR DEDUCTION IS APPROVED. THE PROPOSED ADDITION SHOUL D BE DROPPED/DELETED .' 4.5 IN VIEW OF THE CLEAR FINDING GIVEN BY THE HON' BLE DRP, I AM OF THE VIEW THAT THE EXPENDITURE WHICH IS NOT COVERED U/S.35(1)(II) NEEDS TO BE ALLOWED U/S.37 AND ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 30 HENCE, THE ADDITION MADE BY THE AO IS HEREBY DELETE D. THIS GROUND OF APPEAL IS ALLOWED . 31. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) WAS ERRED IN DIRECTING THE AO TO CONSIDER THE ADDITIONAL CLAIM O F WEIGHTED DEDUCTION ON ACCOUNT OF PRODUCT TRIAL EXPENSES WITH OUT EXAMINING FULFILLMENT OF CONDITION FOR THE SAME. TH E LD. D.R. FURTHER SUBMITTED THAT LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE PRODUCT TRIAL EXPENSES DO NOT FALL IN THE AMBIT OF SECTION 37 OF THE ACT, AS THE SAME RELATES TO CAPITA L EXPENDITURE. THE LD. D.R. FURTHER SUBMITTED THAT THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE WITHOUT AP PRECIATING THE FACT THAT THE PRODUCT TRIAL EXPENSES ARE GIVING ENDURING BENEFIT TO THE ASSESSEE THEREFORE, IT IS A CAPITAL IN NATURE AND NOT ALLOWABLE UNDER SECTION 37 OF THE ACT. 32. IT IS THE CONTENTION OF THE ASSESSEE THAT PRODU CT TRIAL EXPENSES ARE INCURRED TO DEVELOP PRODUCT BEFORE A P RODUCT CAN BE USED ON PARTICULAR CROP. THEREFORE, SUCH EXPENSE S ARE DEDUCTABLE UNDER SECTION 37 OF THE ACT. THE LD. A.R . FURTHER SUBMITTED THAT IN ASSESSEES OWN CASE FOR A.Y. 2006- 07, THE ITAT HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE, W HEREIN IT HAS BEEN HELD THAT PRODUCT TRIAL EXPENSE IS ALLOWAB LE UNDER SECTION 37 OF THE ACT. THE LD. A.R. FURTHER SUBMITT ED THAT PRODUCT TRIAL EXPENSES ARE ELIGIBLE FOR WEIGHTED DE DUCTION UNDER SECTION 35 OF THE ACT, AS SUCH EXPENSES ARE I N NATURE OF R&D EXPENSES, THEREFORE, THE AO WAS INCORRECT IN NOT ALLOWING WEIGHTED DEDUCTION. ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 31 33. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS INCURRED PRODUCT TRIAL EXPENSES TO DEVELOP A PARTICULAR PRODUCT BEFORE SUCH PRODUCT WAS USED ON A PARTICULAR CROP. WE FURTHER NOTICE THAT ITAT, IN ASSESSEES OWN CASE FOR A.Y. 2006-07 IN ITA NO.7978/M /2010 HAS ALLOWED PRODUCT TRIAL EXPENSES CLAIMED BY THE A SSESSEE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELO W: 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL BEFORE US WE FIND THAT WHILE DEALING WITH THE OBJECTIONS FILED B Y THE ASSESSEE FOR THE A WHY 2007- 08 THE DRP HAD ALLOWED THE DIRECTION UNDER SECTION 35 OF THE ACT. IN OUR OPINION, THE TEST TO DECIDE THE NATURE OF THE EXPENDITURE I. E. CAPITAL OR REVENUE EXPENDITURE THE BASIC THING TO BE SEEN IS AS TO WHETHER THE EXP ENDITURE IS FOR RUNNING THE BUSINESS OF THE ASSESSEE SMOOTHLY. IF THE EXPENDITU RE IS INCURRED FOR DAY-TO-DAY BUSINESS ACTIVITIES OF THE ASSESSEE AND NOT FOR ACQ UIRING SOME ASSET IT HAS TO BE ALLOWED AS REVENUE EXPENDITURE. IN THE CASE BEFORE US, IT IS A FACT THAT NO NEW ASSET CAME INTO EXISTENCE. SECONDLY, THE EXPENDITURE INCU RRED WAS BASICALLY FOR CARRYING OUT THE BUSINESS. PAYMENT TO GOVERNMENT AGENCIES WO ULD NOT MAKE ANY EXPENDITURE CAPITAL/REVENUE. THEREFORE, REVERSING T HE ORDER OF THE AO, GOA -14 IS DECIDED IN FAVOUR OF THE ASSESSEE. 34. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE BENCH OF THE TRIBUNAL, WE A RE OF THE VIEW THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION TO WARDS PRODUCT TRIAL EXPENSES UNDER SECTION 37 OF THE INCO ME TAX ACT, 1961. IN SO FAR AS ASSESSEES CLAIM OF WEIGHTE D DEDUCTIONS UNDER SECTION 35, WE FIND THAT THE ASSES SEE HAS FAILED TO FILE ANY KIND OF EVIDENCES TO PROVE THAT SUCH R&D EXPENDITURE HAS BEEN APPROVED BY THE COMPETENT AUTH ORITY TO BE ELIGIBLE FOR WEIGHTED DEDUCTION, THEREFORE WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO MERIT IN THE ARGUM ENTS OF THE ASSESSEE THAT THE ASSESSEE IS ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SECTION 35 OF THE INCOME TAX ACT, 1961. THE L D. CIT(A) AFTER CONSIDERING THE RELEVANT SUBMISSIONS HAS RIGH TLY ALLOWED THE CLAIM. WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LD. ITA NO.7619/M/2013 M/S. BAYER CROPSCIENCE LTD. 32 CIT(A). HENCE, WE ARE INCLINED TO UPHOLD THE FINDING S OF THE LD. CIT(A) AND REJECT THE GROUND RAISED BY THE REVEN UE. 35. ACCORDINGLY, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 36. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR THE STATISTICAL PURPOSES AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.06.2018. SD/- SD/- (SAKTIJIT DEY) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 07.06.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.