2010 (3) TMI 1175 - AT - Income Tax

2011 (5) TMI 1016 - AT

Issues Involved:
1. Disallowance of commission expenses.
2. Disallowance under Section 40A(2)(b) for reimbursement of salary.
3. Disallowance under Section 40A(2)(b) for reimbursement of marketing expenses.
4. Disallowance of ERP software expenses.
5. Disallowance of training expenses for ERP system.
6. Addition of notional interest on Inter-Corporate Deposits (ICD).
7. Disallowance of expenses on replacement of plant and machinery.
8. Disallowance of sales promotion expenses.
9. Deduction under Section 80IA on other income and trading profits.
10. Depreciation on civil structures for water pollution control equipment.
11. Addition on account of lower sale price of Giloquin.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Expenses:
The assessee claimed commission expenses, which the Assessing Officer (AO) partially disallowed due to lack of supporting evidence. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed part of the commission but upheld disallowance for Nipun Finvest Pvt Ltd due to doubts about the genuineness of the claim. The Tribunal confirmed the disallowance for Nipun Finvest Pvt Ltd, citing lack of evidence for services rendered, while allowing commission paid to Household Remedies Pvt Ltd and Mercury Enterprises based on past decisions.

2. Disallowance under Section 40A(2)(b) for Reimbursement of Salary:
The AO disallowed reimbursement of salary to Gharda Chemicals Ltd due to lack of evidence of services rendered. The CIT(A) upheld this disallowance, stating the assessee failed to substantiate the claim. The Tribunal confirmed the findings, emphasizing the onus on the assessee to prove the genuineness of the expenditure.

3. Disallowance under Section 40A(2)(b) for Reimbursement of Marketing Expenses:
The AO disallowed reimbursement of marketing expenses to Gharda Chemicals Ltd, citing lack of evidence and justification. The CIT(A) upheld the disallowance, noting the expenses appeared to be an attempt to divert profits. The Tribunal confirmed the findings, agreeing that the assessee failed to prove the nexus between the expenses and the business of the assessee.

4. Disallowance of ERP Software Expenses:
The AO treated ERP software expenses as capital in nature, allowing only 1/4th as deferred revenue expenditure. The CIT(A) upheld this view. The Tribunal restored the matter to the AO to re-examine the nature of the expenditure in light of the Special Bench decision in Amway India Enterprises vs. DCIT.

5. Disallowance of Training Expenses for ERP System:
The AO disallowed training expenses related to ERP software due to lack of evidence. The CIT(A) upheld the disallowance, noting the absence of proof of services rendered by Gharda Chemicals Ltd. The Tribunal confirmed the findings, citing the lack of evidence.

6. Addition of Notional Interest on Inter-Corporate Deposits (ICD):
The AO added notional interest on ICDs placed with Nipun Investments Pvt Ltd. The CIT(A) upheld the addition, noting the assessee's failure to prove the non-recoverability of interest. The Tribunal confirmed the addition, emphasizing the consistent accounting method and lack of evidence for non-recoverability.

7. Disallowance of Expenses on Replacement of Plant and Machinery:
The AO treated expenses on replacement of plant and machinery as capital in nature. The CIT(A) upheld the disallowance, stating the expenses provided an enduring benefit. The Tribunal confirmed the findings, agreeing that the replacement resulted in a new asset and advantage.

8. Disallowance of Sales Promotion Expenses:
The AO disallowed 25% of sales promotion expenses, assuming the entire stock of silver coins was not exhausted. The CIT(A) upheld the disallowance. The Tribunal, following the decision for the previous year, deleted the disallowance, noting the addition was based on mere presumption.

9. Deduction under Section 80IA on Other Income and Trading Profits:
The AO reduced other income and trading profits while computing deduction under Section 80IA. The CIT(A) directed the AO to recompute the deduction, excluding non-eligible income. The Tribunal restored the matter to the AO to analyze each item of other income and determine eligibility for deduction under Section 80IA.

10. Depreciation on Civil Structures for Water Pollution Control Equipment:
The AO allowed 25% depreciation on civil structures related to pollution control equipment. The CIT(A) upheld this view. The Tribunal, following its decision for the previous year, directed the AO to allow 100% depreciation on civil structures.

11. Addition on Account of Lower Sale Price of Giloquin:
The AO added the difference between the cost and selling price of Giloquin. The CIT(A) deleted the addition, noting the correct comparison showed no loss. The Tribunal upheld the CIT(A)'s findings, as the Revenue did not dispute the factual accuracy of the comparison.

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