TaxTMI 
TaxTMI 
2015 (11) TMI 1825
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Income-tax (Appeals) erred in upholding the action of Assessing Officer in disallowing foreign travel expenditure of Rs. 6,04,421/-. 3. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in enhancing the disallowance by applying provision of section 195 and adding entire expenditure of Rs. 12,25,938/- to total income. The action of Assessing officer for treating the market research expenditure of Rs. 12,25,938/- as capital expenses is also bad in law. 4. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) erred in upholding the action of Assessing Officer in treating capital subsidy of Rs. 1,16,48,027/-". 3. Brief facts of the case are that, the assessee company is engaged in the business of manufacturing of Non Alcoholic Beverage Base (NABB), fruit juice based drink, Manufacturing of Packed drinking water, Manufacturing of Pet Performs, confectionaries, etc. The relevant facts qua the issue raised in ground no. 1 are that, the AO noted that assessee had claimed business advances written off as deductions u/s 37. The assessee had claime....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ance of foreign tour travel expenditure of Rs. 6,04,421/-. 7. The AO required the assessee to submit the foreign travel expenditure of the Directors debited to the profit and loss aggregating to Rs. 6,04,421/- and required the justification for such an expenditure for the purpose of the business. In response, the assessee furnished the details of foreign travelling expenses, however, the AO held that it cannot be established on facts that the expenditure was incurred for the purpose of business. Accordingly, he disallowed the claim. 8. The Ld. CIT(A) too has confirmed the action of the AO on the ground that specific details of the tour undertaken as the Directors and employees could not be furnished. 9. Before us, the Ld. Counsel submitted that the entire details and the explanation for foreign travel undertaken by the Director Shri Prakash Chavan and employees were given before the authorities below. It was stated that travel was undertaken for exploring the prospective business for acquisition of latest machinery. He further submitted that in the AY 2008-09 the Tribunal has discussed the similar disallowance made on similar grounds and has deleted the said addition, ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arket. For this purpose, it has made payment to a non-resident company. M/s Mintel International Group Ltd. The Ld. CIT(A) noted that, similar disallowance of expenditures have been allowed in the earlier years, however, in this year the peculiar fact is that the assessee has made the payment to non-resident without deduction of TDS which is in contravention of section 195. Accordingly, he show caused the assessee as to why the entire sum should not be disallowed u/s 40(a)(i). In response, the assessee had submitted that, it has paid subscription to M/s Mintel International Group Ltd. which provides global market data base about the various products and market related information in the form of reports. The said amounts represents the business income of the said entity and since, it did not had any place of business in India or PE in India, therefore, same was not taxable as per Article 7 r.w. Article 5 of Indo-Australia-DTAA. However, the Ld. CIT(A) confirmed the said addition on the ground that M/s Mintel International Group Ltd. had a huge business in India with Offices located at various places. Therefore, it is not correct to hold that it does not have a place of business in I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f fact that the said entity does has a business connection in India or has a PE in terms of Article 5 of DTAA. Nowhere it has been brought on record that M/s Mintel International Group Ltd. had any kind of PE in India or any kind of business connection in India. Rather there is a letter on record, wherein, M/s Mintel International Group Ltd. has categorically stated and certified that it has no PE or business connection in India. Once that is so, then assessee was not required to deduct TDS on such a payment and, therefore, there is no violation of section 195 and consequently no disallowance u/s 40(a)(i) can be made in the hands of the assessee. Thus, ground no. 3 raised by the assessee is allowed. 15. Lastly, the assessee has challenged the treatment of subsidy of Rs. 1,16,48,027/- as revenue receipt. 16. Relevant facts qua the issue involved are that assessee had set up an industrial unit in the State of Madhya Pradesh in pursuance of Industrial Promotion Policy, names as "Madhya Pradesh Udyog Nivesh Samvardhan Yogna 2004". As per the scheme, the subsidy was to be offered in the form of refund of VAT or CST paid if the investment in setting up of industrial unit is made. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l submitted a copy of the scheme and submitted that preamble of the said scheme was for the pursuance of setting up of an industrial plant for employment generation and for better infrastructure. The objects of the industrial promotion policy of the "Madhya Pradesh Udyog Nivesh Samvardhan Yogna" was to accelerate the pace of industrialization, to maximize the employment prospects and to develop the infrastructure etc. in the backward areas. The preamble and the objects of industrial promotion policy (English version) was also filed before us and submitted that once the purpose of subsidy was for setting up of industry and for infrastructural growth, then same has to be reckoned as capital subsidy. In support of his contention, he strongly relied upon the decision of CIT vs. Ponni Sugars & Chemicals Ltd, reported in [2008] 306 ITR 392 and also upon the decision of Delhi High Court in the case of ITO vs. Bougain Blliea Multiplex Entertain Centre Pvt Ltd, reported in [2015| 317 ITR 14 (Delhi). Thus, he submitted that the purpose for which subsidy has been given has to be examined and here in this case it was for setting up of an industrial unit, therefore, it has to be treated as capi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e scheme, it is absolutely clear that the subsidy provided is not for assisting the assessee for augmenting the profit or help in running of the business, albeit it is for setting up of new industrial unit, for promotion of employment, growth, infrastructure in the backward areas of Madhya Pradesh. Thus, such a subsidy though given in the form of refund of VAT or CST is on capital account. Accordingly, we hold that the subsidy received by the assessee cannot be taxed as revenue, as it is on capital account, hence capital receipt. Accordingly, ground no. 4 is allowed. 20. Now, we will take-up revenues appeal in ITA No. 5964/Mum/2010 vide which following grounds have been raised :- "(i) That the Ld. CIT(A) erred in law and facts in deleting the disallowance of Rs. 18,13,946/- made by the AO as on details of the expenditure were filed before the AO in support of the claim that the same were revenue in nature. 2. The appellant craves to leave, to add to amend and / or to alter any of the grounds of appeal, if need be. 3. The appellant, therefore, prays that on the grounds stated above, the order of the CIT(A)-39, Mumbai, may be set aside and that of the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lso include cold storage charges to preserve the pulp and the concentrate. The assessing officer without assigning any proper reason, held it to be capital expenditure. 19. Before the Ld.CIT(A), the assessee has filed exhaustive explanation which has been incorporated from pages 20 to 25 of the appellate order. The Ld.C1T(A) after going through the details of the product development expenses, held that out of disallowances of Rs. 21,20,897/- as made by the AO, sum of Rs. 13,58,256/- has been debited by the assessee as expenditure on 31.03.2008. Moreover there is increase by the assessee as expenditure on 31.03.2008. Moreover there is increase in the expenses under this head from the last year. Thus, said amount debited on the last day, reflects abnormality of the expenditure debited on the last day, reflects abnormality of the expenditure claimed by the assessee. Accordingly he held that 75% of Rs. 13,58,256/- should be disallowed. 20. Before us, the learned senior counsel submitted that the expenditures were incurred during the year only. For example, assessee has given advances of the products to its manufacturing unit/factory for testing purpose and R&D and the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gmenting the assessee's trading / business operations or to carry on the business more efficiently for profitability, leaving the fixed capital untouched, Here in this case, the assessee has changed the design of the bottle the expenditure would generally be on the revenue account, even though the advantage may have an enduring benefit for a brief period and the colour of the cap as is a regular phenomenon to be carried out between one to two years which cannot be held to be for an enduring benefit or major change in the profit making apparatus. Such, expenditures are required for either augmenting the sale or to survive in the market the market under stiff competition. Therefore, such expenditure has to be treated as revenue expenditure and, accordingly, the disallowance as confirmed by the learned Commissioner (Appeals) under the head product development expenditure is allowed. Accordingly, ground no.2, is allowed." In this year also so far as the expenditure incurred on product development and design charges, we delete the disallowance as these are purely revenue expenditure. So far as the finding of the Ld.CIT(A) that certain expenditure has been claimed on the las....