TaxTMI 
TaxTMI 
2018 (10) TMI 291
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....ads to the factory premises as permissible deduction u/s 37(1) of the Income Tax Act, 1961, when the ownership remains with government. 4. "The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of appeal." 3. During the year under consideration the assessee was engaged in the business of manufacturing of essential oils, perfumery and flavor compounds. The return of income was electronically filed on 23.09.2011 vide acknowledgement no. 289542701230911 declaring total income of Rs. 2,49,11,990/- which was processed u/s 143(1). The case was selected for scrutiny and notice u/s 143(2) dated 13.09.2012 was issued by the Assessing Officer and duly served upon the assessee. The questionnaire was issued on 30.05.2013 along with notices u/s 142(1) of the Income Tax Act, 1961. Notice u/s 142(1) was issued on 08.10.2013. After the change of the Assessing Officer, fresh notice u/s 142(1) was issued on 22.11.2013. On behalf of the assessee Chartered Accountant and Authorized Representative attended the proceedings from time to time and filed submissions and necessary details which....
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.... landed cost of the machine. Further the advance was paid on 19.01.2011 whereas machine was delivered on 14.09.2011 and installed on 06.02.2012. The fact that there was substantial time gap of several months between order and delivery and then between delivery and installation supports the assessee's case that the machine was customized to specifications. The fact that the assessee showed the advance made towards the R&D machine as capital work in progress as on 31.03.2011 also supports the above contention. Further M/s Fricke Abfulltechnik Gmbh & Co, Germany is a global giant and the Indian assessee much smaller in size and stature had to accept the conditions of Fricke in order to secure supply of the specialized R&D machine. The Ld. AR further submitted that the advance given to the M/s Fricke Abfulltechnik Gmbh & Co, Germany was non refundable and was subject to forfeiture in view of above facts that the specialized machine was under development in terms of their quotation/ confirmation of order dated 19.01.2011 placed at Page No. 59- 71 in the paper book and therefore the advance given by the assessee did not represent a general advance but was made as a condition precedent....
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....) The Hon'ble Gujarat High Court in case of the Commissioner Of Income- Tax vs Gujarat Aluminium Extrusions 2003 263 ITR 453 Guj The Ld. AR further submitted that the Ground nos.1 & 2 of the revenue are tax neutral as the R&D machine had been delivered and installed in the next financial year. The Ld. AR submitted that if in any case the claim of the assessee is not admissible in the AY 2011-12, then it is admissible in AY 2012-13 and therefore there is no revenue loss involved. The Ld. AR submitted the Computation of Income for AY 2012-13 enclosed to the paper book. The Ld. AR also relied upon the Hon'ble Supreme Court decision in case of Excel Industries 358 ITR 295 (SC). In view of above facts and judicial pronouncements and considering the fact that the issue raised in ground nos.1 & 2 is tax neutral, the Ld. AR submitted that the said grounds deserve to be decided against the revenue and in favour of the assessee. 8. As regards to Ground No. 3, the Ld. AR submitted that the undisputed facts on the issue as is also borne out from the ground of the revenue, are that the external road to the factory premises was constructed/repaired, ownership of which remains with governme....
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.... fact that the assessee showed the advance made towards the R&D machine as capital work in progress as on 31.03.2011 also supports the above contention. The advance given to the M/s Fricke Abfulltechnik Gmbh & Co, Germany was non refundable and was subject to forfeiture in view of above facts that the specialized machine was under development in terms of their quotation/ confirmation of order dated 19.01.2011 placed at Page No. 59-71 in the paper book and therefore the advance given by the assessee did not represent a general advance but was made as a condition precedent to secure the customized machine and hence the money paid upto 31.03.11. Thus, we agree that the money paid was nothing but expenditure incurred by the assessee. This fact is further strengthened by the fact that the terms of trade did not have any cancellation clause and in any case would have meant forfeiture of advance so made. Therefore the money paid could not have been received back from the German company at will and represented firm commitment towards the purchase of R&D machine and as such the facts of the assessee's case are distinguishable from the facts of case of TOM Ltd. vs. Commissioner of Income ....
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....s. c) The AR has also submitted that there is no dispute regarding the fact that the machine were installed in A.Y. 2012-13 and the AR has emphasized that no claimed U/s 35 of the I.T. Act 1961 has been claimed by the appellant in the next year. The AR also submitted that in view of the decision of Gujarat Aluminium Extrusions 133 Taxman the Hon'ble High Court has made the following observations in paras 16 to 19 which are reproduced as under:- "16. The object behind the enactment of s.35 of the Act is to encourage research and development activities by the assessee. As an incentive, the legislature has given this benefit by way of deduction in respect of the capital expenditure incurred by the assessee. This is a provision for the benefit of the assessee ad if the assessee incurs capital expenditure for the purpose of research and development during the relevant previous year, in our opinion, the Revenue should not deprive the assessee of the benefit of deduction under the provisions of s.35 of the Act even if the asset is not put to use for research and development. It is a settle legal position that the provision for exemption or relief should be c....
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....earch and further in view of the latest decisions of TVS Motors (supra), Gujarat Aluminum Extrusions (supra), the claim made by the appellant U/s 35(1)(iv) is fully justified. Therefore, I am inclined to accept the contention of the AR regarding this ground. The A.O. is directed to allow this ground of the appellant. Accordingly, this Ground is allowed in favour of the appellant." We found that various judicial decision submitted by the Ld. AR upheld the view that the acquisition and installation of the R&D machine is not a prerequisite for allowing deduction u/s 35(1)(iv) and the expenses incurred for constructing and acquiring the fixed assets are allowable with reference to the work in progress and machinery in transit also. Thus, there is no need to interfere with the finding of the CIT(A). Ground Nos. 1 and 2 of the Revenue's appeal are dismissed. 10. As regards Ground No. 3, the external road to the factory premises was constructed/repaired by the Assessee for which the ownership remains with government. The Assessing Officer has relied upon the judgment of the Hon'ble Supreme court in the case of Travancore Cochin Chemical Ltd vs. CIT(SC) 106 ITR 900, which wa....