AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (1) TMI 775
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....e Learned CIT(A)/AO erred on the facts presented before them and have not given due cognizance to the fact that technical services received by the Appellant during the financial year 2004-05 were imperative for the purpose of establishing its business operations in India and thus cannot be treated as capital expenditure for the Assessee. 3. The Learned CIT(A) erred in concluding that these expenses incurred did not pertain to the existing business carried out by the Appellant and grossly erred in failing to appreciate that the expenses incurred were in the nature of fee for technical services and were not towards any new business. The expenses were in fact towards the Appellant's existing business of 'tyres' and the project was an extension of the Appellant's existing business. 4. In concluding that the payment for technical services are capital in nature, the Learned CIT(A)/ AO has also completely ignored the fact that these expenses are wholly and exclusively for the purpose of the business of the Appellant, and accordingly their commercial expediency is of no relevance for the purpose of their allowability under section 37(1) of the Act. 5. The Learned C....
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....equisite details and the case was discussed with him. 3. Michelin-Apollo India is a joint venture between Michelin group of France and Apollo Tyres Ltd. in India incorporated on 17.11.2003 to carry out the business of manufacturing and trading of tyres and tubes for trucks and buses and passenger cars. During the year under consideration, the assessee was engaged in the import and resale (trading) of tyres for passenger cars, trucks and buses, in the replacement market segment in India. Consequently, reference was made to the Transfer Pricing Officer (TPO) u/s 92CA(1) of the Act who has passed order dated 30.09.2008 u/s 92CA(3) stating that no adverse inference is drawn in respect of international transaction undertaken by the assessee during the financial year 2004-05. 4. During the year of assessment the assessee stated to have paid an amount of Rs. 1,42,04,926/- towards technical fees under the head 'professional and legal expenses'. Provisions of agreement entered into between the assessee and its partners go to prove that the technical fee paid by the assessee towards receipt of certain rights to use technology by the assessee for manufacture of tyres was expenditure which w....
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....llant at Rs. 6,08,24,758/- as assessed by the A.O. as against the declared loss of Rs. 7,81,94,190/-. 10. The appellant claimed to have paid an amount of Rs. 1,42,04,926/- during the period of assessment towards technical fee under the head 'professional and legal expenses'. The A.O. relied upon the operative part of agreement entered into between the assessee and its partner M/s. Apollo Tyres Ltd., which is reproduced as under: ".. WHEREAS, MATL has entered into a Michelin Technology License Agreement dated November 17, 2003 ("Michelin Technology License Agreement ") with Societe de Technologie Michelin ("STM") and Michelin Recherche et Technique S.A. ("MRT") under which tvfATL has received certain rights to use the Technology (as defined hereinafter) in order for MATL to manufacture frock and bus radial lyres ("Product" as herein after defined). 11. A.O. observed that the technical fee paid by the assessee towards receipt of certain rights to use technology by the assessee for the manufacture of Tyres was expenditure which was clearly in the nature of capital expenditure and relied upon the judgements cited as KCP Ltd. Vs CIT 242 ITR 659 (S.C.) and CITS Vs Reinz Talbros Pvt.....
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..../- being in the nature of capital expenditure on the sole ground that when the said amount was expended by the appellant for availing the technical services to assess the feasibility of the project was eventually hived off / discounted such expenditure are to be treated as infructuous expenditure and as such are in the nature of capital expenditure. 16. However, the Hon'ble Jurisdictional High Court in the case of Indo Rama Synthetics (I) Ltd. (supra) has made fine distinction in the capital and revenue expenditure in para 10 of the judgement reproduced in the preceding para of this order by observing that if the expenditure is incurred for starting of a new business not carried out by the assessee earlier, then such expenditure is held to be of capital in nature. However, if the expenditure incurred is in respect of the same business which is already carried out by the assessee even if for the expansion of business, to start a new unit which is the same as earlier business and there is unity of control of creating funds then such expenditure is to be treated as business expenditure. No doubt, Hon'ble Jurisdictional High Court in the case of Triveni Engineering Works Ltd. ....
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....nt of Rs. 1,15,368/- claimed on account of making provision for payment of gratuity has never been paid. Provisions contained u/s 40A(7) of the Act explicitly says that no deduction shall be allowed in respect of any provision made in business hence, Ld. CIT(A) has rightly confirmed the addition of Rs. 1,15,368/- made on this account. 21. The assessee has also claimed an amount of Rs. 2,44,328/- as deduction on account of contribution to EPF during the year under consideration. Undisputedly, the aforesaid payment being contribution to EPF was deposited late even after the date of filing of income tax return. The A.O. as well as Ld. CIT(A) by relying upon the provisions contained u/s 2(24)(x) of the Act disallowed the deduction amounting to Rs. 2,44,328/- on account of contribution to EPF on the ground of late deposit. However, the Hon'ble Jurisdictional High Court in the judgement cited as CIT Vs Aimil Ltd. (2010) 321 ITR 508 (Del.) decided the issue in controversy. The operative part of the judgement supra is reproduced as under: "BUSINESS EXPENDITURE - DEDUCTION ONLY ON ACTUAL PAYMENT - PROVIDENT FUND AND ESI CONTRIBUTIONS MADE BEFORE FILING RETURN - ALLOWABLE - INCOME-TAX....