Section 43B and commercial expediency supported deductions, while depreciation on closed-unit R&D assets was upheld.
Section 43B was applied to the unpaid bottling fee issue, with the same reasoning as in connected earlier years leading to treatment in favour of the assessee. Depreciation on research and development assets of a closed unit was not denied merely for non-use in the relevant year, and the related R&D expenditure disallowance under section 35(1)(iv) was left undisturbed. Technical service charges under the subsequent agreement were held deductible as business expenditure because the arrangement was found, on the facts, to reflect commercial expediency and not a tax-avoidance device. The concurrent findings on these matters were not interfered with.
Issues: (i) Whether the unpaid bottling fee was liable to be treated as actual payment on furnishing of bank guarantee so as to attract section 43B of the Income-tax Act, 1961; (ii) whether depreciation on research and development assets relating to a closed unit could be denied for want of use in the relevant previous year and whether the associated research and development expenditure was disallowable under section 35(1)(iv) of the Income-tax Act, 1961; (iii) whether technical service charges paid under the subsequent agreement were deductible as business expenditure on grounds of commercial expediency.
Issue (i): Whether the unpaid bottling fee was liable to be treated as actual payment on furnishing of bank guarantee so as to attract section 43B of the Income-tax Act, 1961.
Analysis: The dispute turned on the applicability of section 43B. The Court noted that the issue had already been answered in the connected matters for the earlier assessment years and that the same reasoning governed the present assessment year as well.
Conclusion: The issue was answered against the Revenue and in favour of the assessee.
Issue (ii): Whether depreciation on research and development assets relating to a closed unit could be denied for want of use in the relevant previous year and whether the associated research and development expenditure was disallowable under section 35(1)(iv) of the Income-tax Act, 1961.
Analysis: The Court applied its earlier answer in the connected appeals to the depreciation question and found no ground to take a different view. The challenge to the disallowance of research and development expenditure also did not disclose any error warranting interference with the findings recorded by the Tribunal and the High Court.
Conclusion: The issue was decided against the Revenue and in favour of the assessee.
Issue (iii): Whether technical service charges paid under the subsequent agreement were deductible as business expenditure on grounds of commercial expediency.
Analysis: The Court accepted the factual finding that the subsequent agreement was not a subterfuge or clandestine device to reduce tax liability and that the arrangement was supported by commercial considerations. The Court treated the conclusion as a finding of fact based on the material on record and found no infirmity in the concurrent view of the Tribunal and the High Court.
Conclusion: The issue was decided against the Revenue and in favour of the assessee.
Final Conclusion: The concurrent findings on the tax deductions, depreciation claim, and technical service charges required no interference, so the revenue appeals failed in substance.
Ratio Decidendi: Concurrent findings of fact on commercial expediency and the absence of a tax-avoidance device, together with the applicability of section 43B and the earlier binding answer on the depreciation issue, will not be disturbed in appeal absent demonstrable infirmity.
TaxTMI 
AI Drafter ✕
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