ITAT MUMBAI BENCH ‘K’
Greaves Cotton Ltd.
versus
Income-tax Officer
IT Appeal NO. 3103 (MUM.) OF 2011
[ASSESSMENT YEAR 2003-04]
Date of Pronouncement – 08.02.2013
ORDER
P.M. Jagtap, Accountant Member
These two appeals, one filed by the assessee being ITA No.3103/Mum/2011 and the other filed by the Revenue being ITA No. 4450/Mum/2011 are cross appeals which are directed against the order of learned CIT(Appeals)-15, Mumbai dated 10-03-2011.
2. In ground No. 1 of its appeal, the assessee has challenged the action of the learned CIT(Appeals) in setting aside the issue relating to dis allowance of Rs. 48,94,509/- on account of MK 20 Development Expenses to the AO despite the fact that all the relevant details were available on record.
3. The assessee in the present case is a Company which is engaged in the business of manufacturing and trading of engines. The return of income for the year under consideration was filed by it on 27-11-2003 declaring a loss of Rs. 71,98,89,222/-. In the profit & loss account filed along with the said return, the assessee had debited Rs. 47,76,850/- and Rs. 1,21,659/- on account of MK 20 Engine Development Expenditure. In the assessment completed u/s 143(3), the said expenditure was disallowed by the AO treating the same as of capital nature on the ground that the same was incurred for acquiring enduring benefit in terms of better sales and higher profitability owing to the development of engines. Before the learned CIT(Appeals), it was submitted on behalf of the assessee that its core business being that of manufacture and sale of various types of engines, the expenditure incurred on research to make modifications, corrections and development in the existing products as ongoing process was revenue in nature. It was also submitted that the expenditure in question being in the nature of research and development, the same was fully allowable u/s 35(2)(ia) of the Act even if the same is capital in nature. After considering these submissions made on behalf of the assessee, the learned CIT(Appeals) found that a similar issue involved in assessee’s case for assessment year 2001-02 was restored by the Tribunal to the file of the AO with the directions to verify and allow the same as per law. Respectfully following the said decision of the Tribunal rendered on similar issue in the earlier year, the learned CIT(Appeals) also restored this issue to the file of the AO with a direction to reconsider the same as per the same direction as given in assessment year 2001-02.
4. We have considered the rival submissions and also perused the relevant material on record. The learned counsel for the assessee has submitted that a similar issue was restored by the Tribunal to the file of the AO in assessment year 2001-02 with a direction to verify and allow the same as the relevant details were not available on record. She has submitted that in the year under consideration, such details however, were furnished by the assessee before the AO as well as before the learned CIT(Appeals) and the learned CIT(Appeals), therefore, ought to have decided this issue on merit instead of sending back to the AO following the order of the Tribunal for assessment year 2001-02. In our opinion, even though the relevant details in support of its claim on the issue under consideration were furnished by the assessee before the learned CIT(Appeals), he has not decided the issue on merit after verifying the said details. It is, therefore, not appropriate for us to consider and decide this issue on merit without there being any decision of the learned CIT(Appeals) available on this issue on merit. Moreover, a similar issue was restored by the Tribunal to the file of the AO in assessment year 2001-02 with a direction to verify the relevant details and allow the claim of the assessee as per law and the rule of consistency, in our opinion, was rightly applied by the learned CIT(Appeals) while sending back the similar issue to the file of the AO for deciding the same as per the same directions as given by the Tribunal in assessment year 2001-02. We, therefore, find no justifiable reason to interfere with the impugned order of the learned CIT(Appeals) on this issue and upholding the same, we dismiss ground No.1 of the assessee’s appeal.
5. The issue raised in ground No.2 of the assessee’s appeal relates to the disallowance of Rs. 7,40,215/- made by the AO and confirmed by the learned CIT(Appeals) on account of legal expenses treating the same as capital in nature. During the year under consideration, payment of Rs. 7,10,215/- made to Advocates M/s Doijode Phatraphekar Associates for preparing draft agreement for sale of loss companies’ shares were claimed under the head “Legal Expenses”. The AO as well as the learned CIT(Appeals) held the said expenditure as capital in nature and disallowed the same. Similarly, fees of Rs. 30,000/- paid by the assessee to Advocate C.M. Khorde for defending acquisition proceedings of company’s plot of factory land at village Akurdi claimed by the assessee as revenue expenditure, was disallowed by the AO as well as by the learned CIT(Appeals) treating the same as capital in nature.
6. At the time of hearing before us, the learned counsel for the assessee has not pressed the dis allowance of Rs. 7,10,215/- made on account of legal fees paid to M/s Doijode Phatraphekar Associates. She, however, submitted that the sum of Rs. 30,000/- paid to Advocate Shri C.M. Khorde should be allowed as deduction being expenditure incurred for protection of its business assets by the assessee. In reply to the query raised by the Bench, she however, has submitted that there is no evidence available with the assessee in the form of bill or receipt issued by the concerned Advocate to support and substantiate this claim and in the absence of the same, we find no justification in allowing the claim of the assessee for deduction on account of Rs. 30,000/- paid to Advocate Shri C.M. Khorde. We, therefore, uphold the impugned order of the learned CIT(Appeals) confirming the dis allowance made by the AO on account of legal expenses and dismiss ground No. 2 of the assessee’s appeal.
7. The issue raised in ground No. 3 relates to the dis allowance of Rs. 26,29,053/- made by the AO and confirmed by the learned CIT(Appeals) on account of irrecoverable debit balance written off.
8. In its profit & loss account, the assessee company had debited a sum of Rs. 40,43,690/- on account of bad debts written off. On verification, it was found that out of the said amount, a sum of Rs. 26,29,062/- represented advances given by the assessee to its suppliers. Since the said amount was never shown by the assessee as its income earlier, it was held by the AO as well as by the learned CIT(Appeals) that the same could not be allowed as bad debts u/s 36(1)(vii) read with section 37(2).
9. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. The learned counsel for the assessee has agreed that the amount in question representing advances given to the suppliers cannot be allowed as bad debts written off u/s 36(1)(vii) read with section 37(2). She, however, contended that the allow ability of the said amount as business loss as claimed by the assessee alternatively having not been considered either by the AO or by the learned CIT(Appeals), this issue may be sent back to the AO for this purpose. Since the learned DR has not raised any material objection in this regard, we restore this issue to the file of the AO for the limited purpose of examining whether the amount in question can be allowed as business loss in the year under consideration as alternative claim by the assessee. Ground No. 3 of the assessee’s appeal is accordingly treated as allowed for statistical purposes.
10. The issue raised in ground No.4 of the assessee’s appeal relates to the disallowance of Rs. 1,70,218/- made by the AO and confirmed by the learned CIT(Appeals) on account of contributions made by the assessee to various funds by invoking the provisions of section 40A(9).
11. During the year under consideration, the assessee had contributed the amounts aggregating to Rs. 1,70,218/- to the following funds:
