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of <h1>Court Decision: Deductions Upheld for New Plant & Technical Fees; Cash Payments Disallowed</h1> The High Court upheld the Tribunal's decision allowing deduction under section 80-IA for a new plant, emphasizing the distinctiveness of the plant from ... Deduction u/s 80-IA in respect of the “third series” of plant put up for production of ossein – AO submit that plant is not a distinct/separate industrial unit - held that tribunal should verify the facts after inspection to entitle the assessee relief u/s 80IA – tribunal rightly allowed deduction in respect of payments made for technical know-how & expenditure on feasibility study, as it was for business purpose – payments in cash exceeding the specified limit were rightly disallowed by ITAT Issues involved:1. Entitlement to deduction under section 80-IA of the Income-tax Act for a new plant.2. Disallowance of R & D cess payment.3. Disallowance of deduction claimed under section 35AB for technical know-how fees.4. Disallowance of cash payments exceeding Rs. 20,000 under section 40A(3).5. Disallowance of expenditure related to scrapped projects.Issue 1: Entitlement to deduction under section 80-IA:The case revolved around whether the assessee was entitled to deduction under section 80-IA of the Income-tax Act for a new plant. The Assessing Officer contended that common facilities used for the new plant made it part of the existing industry, while the Tribunal found the new plant to be distinct and separate. The Tribunal based its decision on the insignificance of investment in common facilities compared to the total investment in the new plant. The Revenue argued that the new plant was not a new industry as it relied on common facilities. The Tribunal's decision was challenged by the Revenue, emphasizing the need for physical verification by the Tribunal. The High Court directed the Tribunal to conduct an inspection to verify the existence and setup of the new plant, considering the lack of new material to support a different conclusion from the Assessing Officer's findings.Issue 2: Disallowance of R & D cess payment:Regarding the disallowance of R & D cess payment, the Assessing Officer disallowed the claim, but the Tribunal allowed it, citing the statutory liability of the assessee to pay the cess under central legislation. The High Court upheld the Tribunal's decision, noting that the payment was in the nature of a cess and satisfied the conditions under section 43B of the Act.Issue 3: Disallowance of deduction under section 35AB:The dispute over the deduction claimed under section 35AB for technical know-how fees involved the capitalization of the expenditure by the assessee. While the Department argued that the payment was capital in nature, the Tribunal found it to be for business purposes related to setting up a plant for manufacturing gelatin. The High Court agreed with the Tribunal's decision, emphasizing that the expenditure was for business purposes, as required by the Act.Issue 4: Disallowance of cash payments exceeding Rs. 20,000:The Assessing Officer disallowed cash payments exceeding Rs. 20,000 made to the same party, but the Tribunal held that disallowance should apply to individual payments exceeding the threshold. The High Court supported the Tribunal's decision, noting that the amendment allowing clubbing of expenditures for disallowance was to take effect in the next financial year.Issue 5: Disallowance of expenditure related to scrapped projects:The Tribunal allowed the expenditure related to scrapped projects, considering it as business expenditure for conducting feasibility studies for business expansion. The High Court concurred with the Tribunal's finding, upholding the allowance of the expenditure as permissible under the Income-tax Act. The High Court sustained the Tribunal's order for the relevant years, except for the issue related to section 80-IA, which was remanded for fresh consideration after the inspection.This detailed analysis of the judgment covers all the issues involved in the case, providing a comprehensive overview of the legal arguments and decisions made by the Tribunal and the High Court.
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