TaxTMI 
TaxTMI 
2015 (7) TMI 526
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.... the contention of the assessee that DEPB Incentives be not taxed on the accrual basis. iii. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing. 3. In ITA No. 2750/Del/2013, the assessee has raised the following grounds of appeal: i. That on the facts and in the circumstances of the case where the Id. AO made an addition of Rs. 6,93,653/ - by disallowing the Research & Development expenses aggregating to Rs. 9,24,871/ - which were treated as capital expenditure being classified as Intangible Assets after allowing depreciation @ 25%, the Id CIT(A)-X, New Delhi was wrong in directing the Id AO to treat 50% of expenses as capital in nature and the remaining as revenue. ii. That on the facts and in the circumstances of the case where the Id AO made an addition of Rs. 2,01,442/ - by disallowing TS 16949 certification charges of Rs. 2,68,589/- which were treated as capital expenditure being classified as Intangible Assets after allowing depreciation @ 25%, the Id CIT(A)-X, New Delhi was wrong in directing the Id AO to treat 50% of expenses as capital in nature and the remaining as revenue. iii. That the Id CIT(A)....
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....0% of Rs. 4,55,000/- and thereby making net addition of Rs. 1,82,000/-. The Assessing Officer also disallowed a sum of Rs. 7,99,639/- incurred on the maintenance of building on the ground that the expenditure in the nature of capital and the resultant in the creation of capital asset. However, allowed the depreciation at the rate of 10% thereon. The Assessing Officer also disallowed the commission paid to Managing Director to the tune of Rs. 37,48,450/- on the provisions of Section 36(1)(ii) of the Act. The Assessing Officer brought to tax sum of Rs. 80,76,609/- on the ground that the assessee company should have accounted for the DEPB benefits on the accrual basis. Aggrieved by the above additions, an appeal was filed before the CIT(A) who vide order dated 13th February, 2013 partly allowed the grounds of appeal. Aggrieved by this order, the assessee is before us with the present appeal, which we shall now deal with ground-wise. ITA No. 2750/Del/2013 for AY 2005-06: 5. Ground no. 1 relates to the disallowance of the research and development expenditure. The submission made before the CIT(A) on this disallowance of R&D expenditure are as follows: "Addition of Rs. 6,93,653/....
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.... disallowance of TS 16949 certification charges of Rs. 2,68,589/-. The assessee company made the following submissions before the CIT(A): " 13. The company caters to OEM's customers in the domestic market as well as in the international market. The ISO/TS 16949 an international standard for technical specification which was jointly developed by the International Automotive Task Force (IATF) members. This document, coupled with customer-specific requirements defines quality system requirements for use in the automotive supply chain. TS 16949 applies to the design/development, production and, when relevant, installation and servicing of automotive-related products. All the leading automobile manufacturers support ISO/TS 16949 as a valid supplier approval mechanism. There are recognized certification bodies, which satisfies the supporting vehicle manufacturers, who after conducting audit issues the certificates. The certificate validity generally is three years. The audit may be necessary again in case or changes/modification in the ISO/TS 16949 document or as and when required by the customer. 14. During the year an amount of Rs. 2,68,859/- was incurred under this head deta....
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....o 4 challenges the disallowance of software development expenses amounting to Rs. 4,55.000 - which were capitalized as computer software and after allowing depreciation @ 60% resulted into an addition of Rs. 1,82,000/-. 19. During the year a production software was developed for the company by M/s Neel Kamal Softwares Pvt Ltd. for Rs. 4,55,000/-. After installation it was found unsuccessful therefore its use was suspended and no asset of any enduring benefit came into existence. 20. In order to decide the nature of expenditure whether it is capital or revenue three tests i.e. ownership test, enduring benefit test and functional test have to be applied and if acquisition of a computer software results into accrual of advantage of enduring nature i.e. more than two years it may be capitalized provided functional test is also satisfied. 21. In the present case 'a production software' is acquired, however, as the Software could not be used for the purpose of production no enduring benefit ever accrued to the company and keeping in view the fact that it also could not satisfy the functional test the amount of expenditure will remain a revenue expenditure which cannot be cap....
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....the year under consideration no construction of any capital nature whatsoever has been undertaken by the company. The existing factory building as well as other facilities needs and require continuous sometimes maintenance/upkeepment and renovation/replacement in respect of any irreparable damages. 25. During the year under consideration certain expenditure were incurred for renovation/replacement of existing facilities as under: S. No. Particulars Amount (in Rs.) Remarks 1. Renovation of Scrap Store 78,000/- An existing facility which required major repairs. 2. Renovation of existing Actuator Line 56,179/- An existing facility which required replacement of existing old wooden partitions, plaster and replacement of ceiling. 3. Renovation of existing 94,560/- An existing facility where lab existing plaster was replaced with tiles and replacement of old wooden partitions. 26. It is apparent that each and every expenditure incurred related to the existing structures/building and facilities, which required repair/replacement/renovation and no new/fresh structure of any nature whatsoever came into existence. F....
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....s salary, commission and other allowances to the managing director of the company against the services rendered by him. The total remuneration included commission amounting to Rs. 37,48,450/- in respect of sales to OEM. 30. The total paid up capital of the company as at 31.03.2005 stood at Rs. 31,27,920/- divided into 3,12,792 equity shares of Rs. 10/- each fully paid up as under: Folio Name & Address No. of Shares (%) 4. Mr. R.K. Bhandari 138896 (44.41) 5. Ms. Sonia Bhadari 17500 (05.59) 6. M/s Hella Asia Pacific 56396 (50.00) Holdings Pvt. Ltd. Total 312792 (100.0) Out of the total share capital. Shri Rahul Kabir Bhandari, MD was holding the 138896 equity shares i.e. 44.41% of the total shareholding of the company. 31. The Id. AO held that the commission has been paid to the Managing Director who was also a shareholder. Section 36(1)(ii) has been specially inserted to ensure that companies do not avoid tax by distributing profits to their members/shareholders as bonus or commission instead of dividend. In the instant case, it is clear that profit which would have been....