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2010 (2) TMI 761

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....conveyance expenses and telephone and postage expenses and out of local travel expenses and disallowance of foreign expenses at the rate of 25 per cent has been confirmed the order of the Assessing Officer.   4. The learned AR submitted that the assessee furnished all the relevant details before the Assessing Officer. He further submitted that the CIT(A) was of the view that no ad hoc disallowance can be made, however, he himself has sustained the ad hoc disallowance to the extent of 5 per cent. The learned AR submitted that 5 per cent of disallowance sustained by the CIT(A) is without any basis. The CIT(A) in the case of foreign travel expenses confirmed the disallowance 25 per cent wrongly observing that the explanation of the assessee has not supported by documentary evidence. The learned AR further submitted that the assessee furnished details of foreign travelling expenses at pages 12 to 18 of the paper book, which is in respect of staff of the assessee. The learned AR submitted that ad hoc disallowance cannot be made and in support of his contention, he relied upon the following judgments:-   1. Monarch Foods (P.) Ltd. v. Asstt. CIT [1996] 54 TTJ (Ahd.) 405. &nbsp....

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.... has not been considered and appreciated the provisions of the Income-tax Act in this regard. Sub-clauses (i), (ia) and (ib) of section 40(a) of the Act has been substituted for sub-clause (i) by the Finance (No. 2) Act, 2004 with effect from 1-4-2005 which provides that in case tax was deductible and was also deducted during the last month of the previous year on or before the due date specified in sub-section (1) to section 139 of the Act and if the same is paid in this period no disallowance is to be made. The learned AR submitted that these two items are in respect of March, 2005 and for which the payment made by the assessee on 21-6-2005 which is well within the time before the due date of filing of return under section 139(1) of the Act.   10. The learned DR, on the other hand, relied upon the order of CIT(A).   11. We have heard the learned representatives of the parties and perused the record. The issue to be examined in the case under consideration is related to section 40(a) of the Act which reads as under:-   "40. Amounts not deductible:- Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in comput....

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....ter the end of the said previous year, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.   Explanation:- For the purposes of this sub-clause,-   (i) "commission or brokerage" shall have the same meaning as in clause (i) of the Explanation to section 194H;   (ii) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;   (iii) "professional services" shall have the same meaning as in clause (a) of the Explanation to section 194J;   (iv) "work" shall have the same meaning as in Explanation III to section 194C;   (v) "rent" shall have the same meaning as in clause (i) to the Explanation to section 194-I;   (vi) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;   (ib) any sum paid on account of securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004." [Emphasis supplied]   11.1 On plain reading of above section, we find that the CIT(A) has allowed the claim of the assessee for Rs. 52,800 which is in accordance with abov....

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....for the enduring benefit of assessee's business. The payment has been made to M/s. SCI Molecules India (P.) Ltd. For the first time during the year under consideration for research which is to be used for the new product development as stated above. Therefore, the payment of Rs. 32,25,600 made to M/s. SCI Molecules India (P.) Ltd., neither can be allowed under section 35 of the Act, for the reasons discussed in the foregoing paragraph nor under section 37 of the Income-tax Act. So far as, balance payment made to Hi-tech Analytical Work and Hi-tech Bio-lab is concerned, I find that the payment has been made for analysis of heavy metal and sample analysis and the same payment has been consistently made in the earlier year also. It is nothing but day-to-day expenses incurred on analysis of sample, day-to day production checking and analysis and quality control, etc. and, therefore, the Assessing Officer has also accepted the same as revenue expenditure. Thus, considering the totality of the facts, I hold that out of the total expenditure claimed amounting to Rs. 69,10,693 only the payment made to Income-tax Act, being capital expenditure in nature as against disallowance made by the A....

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....ed in any previous year shall be deducted for that previous year:-   ** ** **   Explanation:- Where any capital expenditure has been incurred before the commencement of the business, the aggregate of the expenditure so incurred within the three years immediately preceding the commencement of the business shall be deemed to have been incurred in the previous year in which the business is commenced."   14.1 From the plain reading of section 35 of the Act, we find that the scope of this section is limited to only the following sums incurred or paid by the assessee:-   (1) Revenue expenditure on scientific research related to his business [Section 35(1)(i)].   (2) Amount paid to an approved scientific research association or institution or university, etc., to be used for scientific research [Section 35(1)(ii)].   (3) Amount paid to an approved company registered in India with the main object of scientific research and development to be used for scientific research [Section 35(1)(ia)].   (4) Amount paid to approved university, college or institution to be used for research in social science or statistical research related to the class of busine....