M/s. Nomus Comm-Systems, Baroda v. The ACIT.,Circle-2(2),, Baroda

ITA 1216/AHD/2010 | 2005-2006
Pronouncement Date: 29-04-2014 | Result: Dismissed

Appeal Details

RSA Number 121620514 RSA 2010
Assessee PAN AABFN2482L
Bench Ahmedabad
Appeal Number ITA 1216/AHD/2010
Duration Of Justice 4 year(s) 9 day(s)
Appellant M/s. Nomus Comm-Systems, Baroda
Respondent The ACIT.,Circle-2(2),, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 29-04-2014
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 29-04-2014
Date Of Final Hearing 28-03-2014
Next Hearing Date 28-03-2014
Assessment Year 2005-2006
Appeal Filed On 19-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE SHRI D.K. TYAGI J.M. & SHRI ANIL CHATURVE DI A.M.) I.T. A. NO. 1216 /AHD/2010 (ASSESSMENT YEAR: 2005-06) M/S NOMUS COMM-SYSTEMS 601 GUNJAN TOWER OFF. ALEMBIC GORWA ROAD BARODA-390023 V/S ACIT CIRCLE-2(2) BARODA (APPELLANT) (RESPONDENT) PAN: AABFN2482L APPELLANT BY : SHRI MILIN MEHTA A.R. RESPONDENT BY : SHRI K.C. MATHEWS SR. D.R. ( )/ ORDER DATE OF HEARING : 28-03-2014 DATE OF PRONOUNCEMENT : 29-04-2014 PER SHRI ANIL CHATURVEDI A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-II BARODA DATED 21.01.2010 FOR A.Y. 2005-06. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A PARTNERSHIP FIRM STATED TO HAVE BEEN ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF ELECTRONIC PRODUCTS. IT FILED ITS RETURN OF INCOME FOR AY 2005-06 ON 28.10.2005 DECLA RING TOTAL INCOME OF ITA NO 1216/ AHD/2010 . A.Y. 2005- 06 2 RS 50 74 595/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 2 8.12.2006 AND THE TOTAL INCOME WAS DETERMINED AT RS 1 16 13 140/-. AG GRIEVED BY THE ORDER OF AO ASSESSEE CARRIED THE MATTER BEFORE CIT(A). C IT(A) VIDE ORDER DATED 21.02.2010 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A) ASSESSEE IS NOW IN APPEAL BEFORE US. THE EFFECTIVE GROUNDS RAISED BY THE ASSESSEE READS AS UNDER:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING LEGAL AND PROFESSIO NAL CHARGES AMOUNTING TO RS. 3 00 000/- INVOKING PROVISION OF SECTION 40A(2)(B) OF THE INCO ME TAX ACT 1961. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN FACT AND IN LAW IN CONFIRMING ADDITION OFRS. 15 00 000/- MADE B YAO BY DISALLOWIN G EXPENDITURE ON SCIENTIFIC RESEARCH CLAIMED U/S 35 OF THE ACT ON THE GROUND THAT THE FIRM HAD NOT LAID OUT ANY FUNDS FOR ACQUISITION OF THE CAPITAL ASSET AND THEREFORE IT CANNOT BE HELD THAT THE FIRM HAD 'INCURRED' ANY CAPITAL EXPENDITURE. 1 ST GROUND IS WITH RESPECT TO DISALLOWANCE OF RS 3 00 000/- U/S 40A(2)(B) OF THE ACT. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AO NO TICED THAT ASSESSEE HAS PAID RS 3 LAC TO 'INTERNATIONAL FINANCE AND TEC HNICAL CONSULTANT' A PROPRIETORY CONCERN OF SHRI VINODKANT SANGHANI FAT HER OF SHRI JIGNESH SANGHANI A PARTNER OF THE FIRM. THE PAYMENT WAS ST ATED TO HAVE BEEN MADE TOWARDS RETAINERSHIP SERVICES PROVIDED BY IT I N THE FIELD OF ACCOUNT FINANCE AND INVESTMENT ADVISORY SERVICES AND FURTH ER ASSESSEE HAS BEEN STATED TO HAVE MADE INVESTMENTS IN MUTUAL FUNDS ON ITS ADVICE. AO DISALLOWED THE EXPENSES AS HE WAS OF THE VIEW THAT ASSESSEE HAS NOT BEEN ABLE TO PROVE THAT ANY SERVICES WERE RENDERED BY SHRI VINODKANT SANGHANI MR VINODKANT SANGHANI WAS NOT AN EXPERT I N THE FIELD OF ACCOUNT FINANCE AND INVESTMENT ADVISORY SERVICES A ND THOUGH THE ASSESSEE HAD MADE INVESTMENTS OF RS 1.22 CRORE IN E STABLISHED MUTUAL FUNDS OF PRUDENTIAL ICICI AND HDFC BUT HAD EARNED A PALTRY DIVIDEND OF ONLY RS 92 619/-. HE ACCORDINGLY HELD THAT ASSESSEE HAD FAILED TO ESTABLISH THE SERVICES AND THE PAYMENT WAS A COLOUR ABLE DEVISE TO REDUCE ITA NO 1216/ AHD/2010 . A.Y. 2005- 06 3 THE BURDEN OF TAX. HE ACCORDINGLY DISALLOWED THE EX PENSES. AGGRIEVED BY THE ORDER OF AO ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) UPHELD THE DISALLOWANCE BY HOLDING AS UNDER:- 2.3.1 HAVE CONSIDERED THE SUBMISSIONS OF THE AUTHOR IZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER. THE APPELLANT HAS FILED THE PROFESSIONAL Q UALIFICATION OF SHRI SANGHANI. HE IS A B.SC(HONS) B.SC (TECH) MACS FROM USA. SHRI V.A. SANGHANI HAS INDUSTRIAL EXPERIENCE OF 43 YEARS IN FERTILIZER AND PETROCHEMICALS. HE HAS -WORKED IN FERTILIZER CO RPORATION OF INDIA LTD. IN GSFC AND OTHER COMPANIES WHEREIN HE HAS CONTRIBUTED VASTLY TO THE FIELD OF FERTILIZER AND CHEMICALS. 26 PUBLICATIONS HAVE BEEN MADE BY SHRI SANGHANI ALL DEALING -WITH F ERTILIZER AND CHEMICALS. THERE IS NOTHING ON RECORD OF SHRI VINODKANT A. SANGHANI TO LEAD TO THE CONCLU SION THAT HE IS IN ANY WAY QUALIFIED TO DEAL WITH T HE TASK WHICH HAS BEEN CLAIMED TO HAVE BEEN HANDLED BY HIM. AS BROUGHT OUT BY THE ASSESSING OFFICER NOT MUCH PROFESSIONAL EXPERTISE IS REQUIRED TO PARK 1.2 2 CRORES OF THE FIRM IN ESTABLISHED MUTUAL FUNDS. THE PROFITS EARNED FROM SUCH DEPOSITS BEING RS.92 6 19/- ALSO DO NOT JUSTIFY THE PAYMENT OF RS.3 00 000/- TO SHRI VINODKANT A. SANGHANI.. THE A PPELLANT'S SUBMISSIONS THAT SECTION 40A(2)(B) SPEAKS OF DISALLOWANCE OF EXPENSES WHICH ARE CONSID ERED TO BE EXCESSIVE OR UNREASONABLE BASED ON FAIR MARKET VALUE OF SIMILAR SERVICES AND NOT ABOUT TOTAL DISALLOWANCE OF EXPENSES IS ALSO WITHOUT MERIT. THE ASSESSING OFFICER HAS MADE THE DISALLOWA NCE ON THE GROUNDS THAT THE ASSESSEE HAS FAILED TO ESTABLISH THE SERVICES RENDERED BY SHRI VINODKANT A . SANGHANI. IN THE ABSENCE OF ANY EVIDENCE TO SHOW THAT SERVICES WERE INDEED RENDERED BY SHRI VINODKAN T A. SANGHANI THE PAYMENT OF ANY AMOUNT TO HIM IS CONSIDERED TO BE UNREASONABLE AND EXCESSIVE. HENCE THE DISALLOWANCE OF RS.3 00 000/- MADE BY THE ASSESSING OFFICER IS JUSTIFIED AND IS CONFIRMED. 5. AGGRIEVED BY THE ORDER OF CIT(A) ASSESSEE IS NOW I N APPEAL BEFORE US. BEFORE US LD AR REITERATED THE SUBMISSIONS MADE BE FORE AO AND CIT(A). ON THE OTHER HAND ID DR SUPPORTED THE ORDER OF AO AND CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN ADMITTED FACT THAT ASSESSEE HAS MADE PAYMENT OF RS 3 LACS TO THE PROPRIETARY CONCERN OF THE FATHER OF ONE OF THE PAR TNER OF THE FIRM AND THUS THE PAYMENT IS TO A PERSON SPECIFIED IN S. 40A(2)(B) OF THE ACT. THE PAYMENT IS STATED TO HAVE BEEN MADE FOR RETAINERSHIP SERVICES PROVIDED BY IT IN THE FIELD OF ACCOUNT FINANCE AND INVESTMENT ADVISORY SERVICE S. CIT(A) HAS NOTED THAT THAT THOUGH SHRI VINODKANT SANGHANI IS HIGHLY TECHN ICALLY PROFESSIONALLY QUALIFIED PERSON BUT THERE IS NOTHING ON RECORD TO LEAD TO THE CONCLUSION THAT SHRI VINODKANT SHANGANI WAS QUALIFIED TO DEAL WITH THE TASKS WHICH HAS BEEN CLAIMED TO HAVE BEEN HANDLED BY HIM. AO HAS ALSO NO TED THAT THOUGH THE ASSESSEE HAD INVESTED RS 1.22 CRORE IN REPUTED MUTU AL FUNDS BUT HAD EARNED A PALTRY DIVIDEND OF APPROX RS 90 000/- AND IT ALSO DOES NOT JUSTIFY THE PAYMENT OF RS 3 LACS. BEFORE US THE LD A.R. HAS NO T PLACED ANY MATERIAL ON ITA NO 1216/ AHD/2010 . A.Y. 2005- 06 4 RECORD TO CONTROVERT THE FINDINGS OF AO AND CIT(A). FURTHER DURING THE COURSE OF HEARING THE LD A.R. WAS ASKED TO FILE EVIDENCE SHOWING INVOLVEMENT OF SHRI SHANGANI IN VARIOUS ACTIVITIES TO WHICH THE A SSESSEE VIDE LETTER DATED 28 TH MARCH 2014 SUBMITTED THAT IT COULD NOT LAY HAND ON ANY EVIDENCE AS THE MATTER WAS MORE THAN 10 YEARS OLD. CONSIDERING THE TOTALITY OF THE AFORESAID FACTS AND WHEN ASSESSEE HAS NOT SUBSTANTIATED THE C LAIM FOR EXPENSES WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A ) AND THUS THIS GROUND OF THE ASSESSEE IS DISMISSED. 2 ND GROUND IS WITH RESPECT TO CONFIRMATION OF DISALLOW ANCE OF RS 15 LACS CLAIMED U/S 35 OF THE ACT: 7. AO NOTICED THAT ASSESSES HAS CLAIMED EXPENDITURE OF RS 43 43 505/- (COMPRISING OF REVENUE EXPENSES OF RS 6 44 828/- AN D CAPITAL EXPENDITURE OF RS 36 98 877/-) ON ACCOUNT OF RESEAR CH & DEVELOPMENT (R&D) EXPENDITURE. FROM THE DETAILS OF EXPENDITURE AO NOTICED THAT ASSESSEE HAD PURCHASED A FLAT FOR RS 17 LACS FROM SHRI VINODKANT SANGHANI THE FATHER OF ONE OF THE PARTNER ON 30.3 .2003. THE AFORESAID FLAT WAS ALREADY IN USE OF ASSESSEE AND IT WAS ALSO PAYI NG RENT. HE ALSO NOTICED THAT ANOTHER FLAT FOR RS 15 LACS WAS PURCHA SED ON 30.3.2005 FROM SHRI JAYESH SANGHANI A PARTNER OF THE FIRM. ASSESS ING OFFICER ALSO NOTED THAT ASSESSEE HAD NOT BEEN ABLE TO ESTABLISH THE SC IENTIFIC ACTIVITY CARRIED OUT BY IT AND NO NEW EMPLOYEE WAS ENGAGED FOR SCIEN TIFIC RESEARCH. HE THUS CONCLUDED THAT THE TRANSACTION OF PURCHASE OF FLAT WAS MADE JUST TO CLAIM THE EXPENDITURE U/S 35 OF THE ACT. HE THUS DI SALLOWED THE ENTIRE EXPENDITURE OF RS 43 43 505/- CLAIMED BY THE ASSESS EE. AGGRIEVED BY THE ORDER OF AO ASSESSEE CARRIED THE MATTER BEFORE CIT (A). CIT(A) GRANTED PARTIAL RELIEF TO THE ASSESSEE BY UPHOLDING THE DIS ALLOWANCE OF RS 15 LACS BY HOLDING AS UNDER:- 8.2. IN APPEAL IT IS SUBMITTED THAT THE APPELLANT W AS REQUIRED TO PRODUCE ALL THE VOUCHERS/BILLS/SUPPORTING EVIDENCE REGARDING R&D EX PENSES. EACH AND EVERY VOUCHER WAS VERIFIED BY ITA NO 1216/ AHD/2010 . A.Y. 2005- 06 5 THE ASSESSING OFFICER AND NONE OF THE EXPENSES WERE FOUND TO BE IN THE NATURE OFNON BUSINESS EXPENSES. IT WAS FURTHER CONTENDED THAT THE FIELD OF INFORMAT ION AND TECHNOLOGY IS GROWING AT VERY HIGH SPEED. THE RATE OF OBSOLESCENCE IS VERY HIGH AND THE APPEL LANT IS REQUIRED TO MAINTAIN ITS PRODUCTS COMPATIBL E WITH THE LATEST TECHNOLOGY AVAILABLE IN THE MARKET. TO TRANSFER DATA SMOOTHLY WITH TOTAL INTEGRITY NE W AND BETTER DATA COMMUNICATION TECHNIQUE IS REQUIRED TO BE DEVELOPED. 2NCE A DEDICATED RESEARCH & DEVELOPMENT CENTRE FOR CARRYING OUT R&D ACTIVITIES IS MAINTAINED. THE R&D CENTRE AT HYDERABAD WAS THE R&D CENTRE AT HYDERABAD WAS ESTABLISHED IN THE YEAR 1991. BY THE CONCENTRATED EFFORTS OF ITS R&D STAFF THE APPELLANT WAS ABLE TO DEVELOP MORE TH AN 50 DIFFERENT PRODUCTS SOFTWARE AND PERIPHERALS. IT WAS SUBMITTED THAT THE APPELLANT WAS THE FIRST T O INTRODUCE THE INTERNATIONAL STANDARD MODEM IN INDIA. THE FIRST ROUTER IN INDIA TO OFFER BUILT IN MODEM AND INTERFACE CONVERTER WAS DEVELOPED BY THE APPELLANT. VARIOUS PRODUCTS ARE BEING DEVELOPED WHI CH HAVE BEEN APPROVED BY THE DEPARTMENT OF TELECOMMUNICATION GOVERNMENT OF INDIA. THE APPELLA NT ALSO SUBMITTED THE DETAILS OF R & D PROJECT WISE INCLUDING THE NAMES OF THE TEAM LEADER AND THE ENGINEERS. IT WAS SUBMITTED THAT THE APPELLANT DOE S NOT HAVE ANY TECHNICAL COLLABORATION WITH ANY COMPA NY WITHIN OR OUTSIDE INDIA NOR HAS IT INCURRED ANY EXPENDITURE FOR PURCHASE OF FOREIGN TECHNOLOGY. SIN CE THE APPELLANT IS IN FACT ENGAGED IN THE ACTIVITI ES R&D THE ADDITION MADE BY THE ASSESSING OFFICER WAS NOT JUSTIFIED. IT WAS ALSO SUBMITTED THATTHE REVENUE EXPENSES INCURRED AT BARODA INCLUDE EXPENSE S ON TESTING THE APPELLANT'S PRODUCTS AT VARIOUS GOVERNMENT APPROVED TECHNOLOGY CENTERS AMOUNTING TO RS.3 88 546/- THE BALANCE AMOUNT OFRS.9 220/- INCLUDES MINOR EXPENDITURE INCURRED ON PURCHASE OF TOOLS AND SPARES FOR THE R & D CENTRE. IT WAS FURTHER CONTENDED THAT THE ASSESSING OFFICER HAS DISALLOWED THE EXPENSES ON THE GROUND THAT THE CAPITAL EXPENDITURE AT BARODA WAS INCURRED ON 30 03.2005. IT IS SUBMITTED THAT EVEN IF THE AS SET IS PURCHASED OF THE LAST DAY OF THE ACCOUNTING YEAR THE ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTION. I N THE CASE OF GUJARAT ALUMINUM EXTRUSION PVT LTD. 263 ITR 453 THE GUJARAT HIGH COURT HELD THAT THE EXPENDITURE HAS TO BE INCURRED IN A RELEVANT PREVIO US YEAR. IN THE INSTANT CASE DESPITE THE FACT THAT THE EXPENDITURE WAS INCURRED ON 30.03.2005 THE ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTION. IN THE REMAND REPORT THE ASSESSING OFFICER REITERATED THAT THE M AJOR CAPITAL EXPENDITURE AT BARODA AMOUNTING TO RS.33 74 936/-WAS INCURRED ON 30.03.2005 FOR PURCHA SING BUILDING FOR R & D. THEREFORE IT CANNOT BE ESTABLISHED BY THE ASSESSEE BY WAY OF EVIDENCES THA T THE ABOVE PREMISES WERE USED FOR R & D PURPOSE AT THIS PLACE ACQUIRED ON 30.03.2005 IN VIEW OF TH E ABOVE SUCH CAPITAL EXPENDITURE CANNOT BE CONSIDERED AS ACTUALLY USED FOR THE ABOVE RESEARCH AND DEVELOPMENT ACTIVITY AND THEREFORE THE ADDITION MADE BY THE ASSESSING OFFICER WITH RESPECT TO THE C APITAL EXPENDITURE MAY BE UPHELD'. IN RESPONSE TO THE REMAND REPORT IT WAS SUBMITTED BY THE LEARNED AUTHORIZED REPRESENTATIVE THAT THE FACT THAT THE APPELLANT IS ENGAGED IN R & D ACTIVIT IES IS ACCEPTED BY THE ASSESSING OFFICER. THE ONLY OBJECTION IS WITH REGARD TO THE CAPITAL EXPENDITURE INCURRED BY THE APPELLANT AT ITS BARODA UNIT AMOUNTING TO RS.33 74 936/-. ALLOWABILITY OF CAPITA L EXPENDITURE IS DEALT IN SECTION 35(L)(IV) R.W.S. 35(2)(IA) OF THE ACT. THE FACT THAT THE ASSETS PURC HASED WERE NOT PUT TO USE IN THE YEAR OF PURCHASE I S NOT A VALID GROUND FOR DISALLOWING THE SAID EXPENSE S. FOR THE PURPOSE OF ELIGIBILITY IT IS THE 'INCURRENCE' THAT IS IMPORTANT AND NOT THE USE. IT IS ESTABLISHED THAT THE APPELLANT HAS BEEN CARRYING ON R & D ACTIVITIES IN THE OFFICE SITUATED AT BARODA. THE CAPITAL EXPENDITURE OF RS 33 74 936/- SHOULD BE ALLOWED. THE HON'BLE GUJARAT HIGH COURT HELD THAT D EDUCTION U/S. 35 IS TO BE GIVEN ONLY IN THE YEAR IN WHICH THE EXPENDITURE WAS INCURRED. SINCE IN THE AP PELLANT'S CASE THE EXPENDITURE WAS INCURRED IN THE CURRENT YEAR THE ADDITION MADE BY THE ASSESSING OFF ICER SHOULD BE DELETED. DURING THE COURSE OF APPELLATE PROCEEDINGS THE APPELLANT WAS REQUESTED TO FILE COPIES OF THE DOCUMENTS PERTAINING TO PURCHASE OF THE CAPITAL ASSETS. THE APPELLANT FILED A COPY OF THE REGISTERED DEED-WITH REGARD TO PURCHASE OF PROPERTY FROM SHRIVINODKANT A. SANGHANI OF RS.17 00 000/- DATED 30 03.2005 A COPY OF THE AMENDMENT TO THE PARTNERSHIP DEED DATED 30 03 2 005 STATING THAT SHRI JIGNESH SANGHANI OWNS A PROPERTY WITH AN FSI AREA OF 1700 SO. FT IN THE BU ILDING COMMUNITY KNOWN AS SUBHANPURA BARODA AND THE OWNERSHIP OF THE SAID PROPERTY IS INTRODUCED AS CAPITAL CONTRIBUTION TO THE PARTNERSHIP FIRM BY SH RI JIGNESH SANGHANI WAS ALSO FILED IN SUPPORT OF EXPEN DITURE ON CAPITAL ASSETS. ON PERUSAL OF THE PARTNERSHIP DEED THE APPELLANT WA S REQUESTED TO SHOW CAUSE HOW INTRODUCTION OF CAPITAL INTO THE FIRM SHOULD BE .CONSIDERED TO BE A N EXPENSE ELIGIBLE FOR DEDUCTION U/S. 35. THE LEARN ED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE APPELL ANT HAS INTRODUCED THIS BUILDING AS HIS CAPITAL CONTRIBUTION AND HAS TREATED THE TRANSFER VALUE UND ER THE HEAD CAPITAL GAIN. HOWEVER THERE WAS NO RESPONSE TO THE QUESTION OF HOW CAPITAL INTRODUCTIO N SHOULD BE CONSIDERED AS AN EXPENSE. RELIANCE WAS PLACED BY THE APPELLANT ON THE DECISION OF THE CIT VS. SUNDARAM FINANCE LTD. 223 ITR 455 (MAD) WHEREIN THE ASSESSEE COMPANY TRANSFERRED CERTAIN PL ANT AND MACHINERY PURCHASED BY IT TO ITS SCIENTIFIC ITA NO 1216/ AHD/2010 . A.Y. 2005- 06 6 RESEARCH CELL. THE MADRAS HIGH COURT HELD THAT EXPE NDITURE INCURRED FOR THE PURCHASE OF MACHINERY SENT ON'TRANSFER TO THE SCIENTIFIC RESEARCH CELL IS ELIGIBLE FOR DEDUCTION U/S. 35. IN THE PRESENT CAS E NO EXPENDITURE HAS BEEN INCURRED BY THE APPELLANT. IN THE CASE OFBELPAHAR REFRACTORIES LTD. VS. CIT 207 ITR 144 (ORISSA) IT WAS HELD THAT: 'THE WORDS 'INCURRED IN ANY PREVIOUS YEAR' IN CLAUS E (IA) OF SECTION 35(2) CATEGORICALLY LAY DOWN THAT THE ENTIRE CAPITAL EXPENDITURE INCURRED IN ANY PREV IOUS YEAR CAN BE DEDUCTED FOR THAT PREVIOUS YEAR ONLY THESE WORDS EXCLUDE THE POSSIBILITY OF ANY CO NFUSION AS TO WHETHER THE CAPITAL EXPENDITURE INCURRED IN ANY PRECEDING YEAR CAN BE DEDUCTED IN THE PREVIOUS YEAR OR NOT. THE WORK 'INCUR' MEANS TO BECOME LIABLE TO. WHEN AN EXPENDITURE IS S AID TO HAVE BEEN INCURRED IT MAY CONNOTE ACTUAL PAYMENT OR IT COULD BE THAT THE PERSON CONCERNED HAS MERELY BECOME LIABLE FOR PAYMENT BUT HAS NOT ACTUALLY MADE PAYMENT. WHEN A PER SON HAS MADE ADVANCE PAYMENT BUT HAS NOT BECOME LIABLE FOR PAYMENT HE C ANNOT BE SAID TO HAVE INCURRED ANY EXPENDITURE. THE WORK 'INCUR' MEANS ACTUALLY SPENT'. THE OXFORD DICTIONARY DEFINES THE WORD 'EXPENDITURE ' AS THE ACTION OF SPENDING FUNDS OR THE AMOUNT OF MONEY SPENT. THE APPELLANT HAS INCURRED EXPENDITURE CAPITAL IN NATURE TO THE EXTENT OF RS. 21 98 67 7 /-. 'IN VIEW OF THE DECISION OF THE GUJARAT HIGH CO URT IN THE CASE OF GUJARAT ALUMINUM EXTRUSION PVT. LTD. (SUPRA) THE CAPITAL EXPENDITURE TO THIS EXTEN T IS ALLOWED. WITH REGARD TO INTRODUCTION OF 'CAPI TAL IN PARTNERSHIP FIRM SINCE THE SAME DOES NOT CONSTITUT E EXPENDITURE THE ADDITION TO THE EXTENT OF RS.15 00 000/- IS CONFIRMED. SINCE THE APPELLANT IS CARRYING ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS REVENUE EXPENSE CLAIMED IS TO BE ALLOWED. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE MADE TO THE EXTENT OF RS.28 43 505/-. 8. AGGRIEVED BY THE ORDER OF CIT(A) ASSESSEE IS NOW I N APPEAL BEFORE US. 9. BEFORE US LD AR REITERATED THE SUBMISSIONS MADE BE FORE AO AND CIT(A). HE FURTHER SUBMITTED THAT IT IS NOT THE CASE OF THE RE VENUE THAT THE EXPENSE HAS NOT BEEN INCURRED BY THE ASSESSEE ON SCIENTIFIC RES EARCH. HE FURTHER SUBMITTED THAT FOR THE PURPOSE OF ELIGIBILITY OF EX PENSES U/S 35 'INCURRING' OF EXPENSES IS IMPORTANT AND NOT THE USE. HE THUS SUBM ITTED THAT THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE IS ELIGIBLE FO R DEDUCTION AND THE SAME SHOULD BE ALLOWED. LD D.R ON THE OTHER HAND SUPPORT ED THE ORDER OF AO. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CIT(A) WHILE UPHOLDING THE DISALLOWANCE OF RS 15 LA CS HAS NOTED THAT PROPERTY OF 1700 SQ FT OWNED BY SHRI JAYESH SANGHANI WAS INT RODUCED AS HIS CONTRIBUTION TO THE FIRM. HE HAS NOTED THAT INTRODU CTION OF CAPITAL CONTRIBUTION IN THE FIRM BY THE PARTNER DOES NOT CONSTITUTE EXPE NDITURE. BEFORE US THE ID A.R. HAS NOT PLACED ANY MATERIAL ON RECORD TO CONTR OVERT THE FINDINGS OF CIT(A) NOR HAS HE PLACED ANY BINDING DECISION IN HI S SUPPORT. THE DECISION RELIED BY THE ASSESSEE ARE DISTINGUISHABLE ON FACTS AND THEREFORE ARE NOT ITA NO 1216/ AHD/2010 . A.Y. 2005- 06 7 APPLICABLE TO THE PRESENT CASE. IN VIEW OF THE AFOR ESAID WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF CLT(A) AND TH US THIS GROUND OF ASSESSEE IS DISMISSED. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED IN OPEN COURT ON 29 - 04 - 2014. SD/- SD/- (D.K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR. ITAT AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT AHMEDABAD