Tribunal grants opportunity to assessee, partially allows appeals, directs deletion of disallowances

The Tribunal partly allowed both appeals, granting the assessee another opportunity to substantiate certain claims and directing the deletion of disallowances related to depreciation on technical know-how. The disallowances for the assessment years 2011-12 and 2012-13 were upheld due to lack of evidence after a fire incident destroyed relevant documents. However, the Tribunal acknowledged the difficulties faced by the assessee and granted a chance to provide evidence for certain claims, restoring the issue back to the Assessing Officer for reconsideration. Additionally, the Tribunal directed the treatment of R & D expenses as capital, allowing depreciation on technical know-how and deleting the disallowances made by the AO.

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Issues:
- Disallowance of prior period interest, exchange rate fluctuation, and depreciation on technical know-how for assessment year 2011-12.
- Disallowance of earnest money deposit written off and depreciation on technical know-how for assessment year 2012-13.

Analysis:
1. The appeals were filed against the CIT(A)'s orders regarding disallowances made by the AO for the assessment years 2011-12 and 2012-13. The assessee's premises suffered a fire incident, destroying all relevant documents. The disallowances were upheld due to lack of evidence.

2. For the assessment year 2011-12, disallowances included prior period interest, exchange rate fluctuation, and depreciation on technical know-how. The assessee failed to substantiate these claims due to the loss of documents in the fire. The AO disallowed these amounts, which were confirmed by the CIT(A).

3. In the assessment year 2012-13, disallowances were related to earnest money deposit written off and depreciation on technical know-how. The assessee explained these write-offs as irrecoverable deposits and capital expenditure on R & D, respectively. However, due to the lack of evidence post-fire incident, these disallowances were upheld.

4. The assessee argued that the disallowances were unjustified as the fire incident made it impossible to provide evidence. The AO and CIT(A) rejected the explanations, leading to the disallowances. The assessee requested another opportunity to procure evidence post-fire.

5. The Tribunal acknowledged the difficulties faced by the assessee post-fire and granted one more opportunity to substantiate the claims of prior period expenses, exchange rate fluctuation, and earnest money deposit write-offs. The issue was restored back to the AO for reconsideration.

6. Regarding the disallowance of depreciation on technical know-how, the Tribunal found the Revenue's treatment of R & D expenses as revenue in nature unjustified. The Revenue had allowed these expenses in previous years as capital expenditure. The Tribunal directed the entire expenses to be treated as capital, allowing depreciation on the same and deleting the disallowances made by the AO.

7. Ultimately, the Tribunal partly allowed both appeals for statistical purposes, granting the assessee another opportunity to substantiate certain claims and directing the deletion of disallowances related to depreciation on technical know-how.

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