TaxTMI 
TaxTMI 
2015 (5) TMI 426
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....llows:- "1. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in restricting the disallowance u/s 14A to Rs. 18,02,321/- from Rs. 1,45,72,152/- and not applying Rule 8D of the Income Tax Rules which is mandatory from A.Y.2008-09. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in not providing any finding that there is no expenditure by way of interest which is not directly attributable to any particular income or receipt (as referred to in Rule 8D(2)(ii). 3. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in not accepting the fact that the sample and design created by the assessee and supplied to its potential buyers created a market and goodwill for the assessee which has and enduring benefit in soliciting customers for the assessee not only during the financial year but also on a longer basis. 4. Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 7,91,00,000/- made by the AO on account of Product development expenses. The benefit of the product development expenses of the company is derived by the company over a period of three yea....
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.... the Act. According to him, the company has a wide capital base having share capital of Rs. 19.29 crores and reserves and surplus to the tune of Rs. 201.15 crores, which shows that the company is in possession of huge own funds on which no interest is being paid and all the investment in shares and mutual funds amounting to Rs. 41.68 crores as on 31.03.2008 was made out of its own funds. It was submitted by the ld counsel that there was no fresh investment in shares/ mutual funds being made during the year under consideration but the assessee company has increased the borrowed capital (Loan Funds) by Rs. 24.93 crores., total amounting to Rs. 435.85 crores as on 31.03.2008. Copies of the annual accounts for the year ended 31.03.2008 giving the scheme of investments discloses these facts. According to him, the borrowed capital was mainly taken from banks for the purpose of working capital or capacity expansion of the business and no borrowed funds were invested outside the business. Considering the aforesaid facts the ld counsel submits that the investment made by the company was out of its own funds (share capital and reserves) in previous year and no interest was incurred earning d....
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....o disallowance could be made U/s 14 A on the ground that the interest bearing funds were invested in earning tax free dividends:- CIT Vs. HERO CYCLES LTD. (ITA No. 331 of 2009) (P & H) MARUTIUDYOG LTD. Vs. DCIT (2005) 92 ITD 119 (DEL) ESCORTS LTD. Vs. ACIT (2006) 102 ITJ (DEL) 522 SHREE SYNTHETICS. LTD Vs. CIT & ANR (2006) 205 ITR 386 (MP) 11. According to the ld counsel the same view has been taken by ITAT 'B' Bench (Delhi) in ITA No.2381/Del/2008 in the case of M/s Collections. In that case the assessee was having capital of Rs. 4,77,49,092/- and has made investment of Rs. 83,72,347/- on which tax free Income was earned. The AO has observed that the said investments were made out of working capital of the business and sum borrowed from the bank. At the end of the relevant financial year the total amount payable to the bank was Rs. 96,58,766/-. The co-ordinate Bench observed that the AO has no where specifically stated that interest bearing funds were used or investment purposes which has generated interest free income. It was held by the Tribunal that since the capital of the business is much more than the investment made, the interest expenses incurred have be....
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....n be attributed to have been paid towards investment made in share and securities. 15. However we find that the ld CIT(A) after rightly holding that Rule 8D(2)(i) and (ii) are not applicable to the case in hand, has resorted to apply Rule 8D(2)(iii) on the ground that some administrative expenses is inevitably incurred by the assessee for salary, management, telephone, stationary etc, which in our opinion is not correct because the assessee himself has suo-motto disallowed on amount of Rs. 1,72,879/- for earning exempt income/ dividend to the tune of Rs. 1,18,076/-. The AO can press into service the alternate method of making disallowance u/s 14A by invoking Rule 8D only where the AO is not satisfied with the working of disallowances given by the assessee. We find that no such dissatisfaction has been recorded by the AO to state that the suo-motto disallowance made by the assessee is incorrect and he has to resort to Rule 8D. The AO shall bear in mind that invoking Rule 8D is not mandatory, it will be resorted to only if he is not satisfied as to the correctness of the claim made by the assessee as stipulated and mandated in section 14A ; and invoking Rule 8D is not automatic ; an....
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....of overseas orders received by the assessee are on account of Its own efforts which includes products design and development. In view of the above the entire Product Development Expenses of Rs. 11.87 Crores debited to Profit & Loss Account and claimed as revenue expenses was disallowed by the AO and said expenses were treated as deferred revenue expenditure in accordance to the judgement of the Apex court In Madras Industrial Investment Corporation Ltd Vs CIT 225 ITR 802. According to ld DR it was rightly held by the AO that the benefit of the product development expenses of the Company is derived by the company over a period of three years. So one third of the product development expenses Rs. 3.95 crores is allowed in the instant assessment year and the balance Rs. 7.91 crores is disallowed for the year to be allowable over the next two years as it is held by the AO that the benefit in terms of creating market and goodwill for the assessee in the international market is available for the assessee over a period of three years for the expenditure made on the product development expenses. However on appeal by the assessee before the ld CIT(A), he erred in deleting the same holding th....
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....hat the product development expenses were deductible as revenue expenditure. In the case of Glaxo Smith Kline Consumer Healthcare Ltd. vs. ACIT 112 TTJ 94 (Chd), the ITAT even held that the "expenses incurred for introducing and developing new products of the same business were allowable as business expenses, since no new line of business was acquired". Reference was also be made to the case law of CIT vs. Bharat Earth Movers Ltd. (1986)155 ITR 321 (Kar) wherein it was held that expenditure incurred on development of products is a revenue expenditure. To the similar effect, Amritsar Bench of the ITAT, in the case of DCIT vs. Max India Ltd. (2006) 105 TTJ 1002 (Asr) had also held that the expenses incurred by the assessee for improving and developing new varieties of films were not capital in nature since these did not pertain to extension of its business nor there was any change in the installed capacity. Also , the expenses were not subject to section 35D of the Act as they were allowable under section 37(1) of the Act, even if the assessee had amortized these expenses in its books of account. 22. In the light of the aforesaid facts and case laws cited before us the ld counsel do....