2013 (8) TMI 57 - AT - Income Tax

Assessment pursuant to DRP order - 43 issues. Issues decided in favor of assessee - Addition of freight inward/ import clearing expenses to cost of closing inventory - Addition on account of cost of rejection of semi finished goods and obsolete items - Addition of provision for increase in price of material to the value of closing inventory - Disallowance of cost of scrap material - Adjustment on account of provision for increase in price of material as prior period expenditure or preponement of revenue - Disallowance of alleged excessive purchases price paid to related parties as per AS-18 - Disallowance of purchase under section 40(a)(ia) for alleged failure to deduct TDS u/s 194C - Disallowance of advisory services availed from Hero Corporate Services Ltd. (HCSL) - Payment received on behalf of Hero Honda Fin lease Ltd. (HHFL) deemed as dividend u/s 2(22)(e) - Addition on account of difference in amount of excise duty in inter unit transfer price of goods - Addition to value of closing stock on the basis of value reported in cost audit report - Disallowance u/s 14A as per Rule 8D - Disallowance of Rs. 4.26 crores on account of payment to LIC to cover leave encashment on the ground that same is allowable on actual payment of leave encashment under section 43B(f) of the Act; - Disallowance of Rs. 2.08 crores being the actual amount of leave encashment to employees during the year, on account of no evidence establishing such payment. - Disallowance of expenditure incurred in connection with expansion of business at Hardwar - payment of passenger tax to Government on behalf of transporters - Reimbursement of free service coupons to dealer for repair of vehicle - Payment to dealers on account of reimbursement of advertisement expenses - Reimbursement of repair and maintenance cost of Omax Auto Ltd. - TDS on reimbursement of out of pocket/ traveling expenses to consultant/ vendors - TDS on rental of leased lines from MTNL/BSNL - TDS on rent paid towards property taken on lease (matter remanded back) - TDS on management fee under a portfolio management scheme - TDS on payments exceeding exemption limit specified under 197 certificate - TDS at lower rate or wrong provision - TDS on incentive/ discount to dealers - TDS on clearing charges paid towards import consignments (matter remanded back) - TDS on reimbursement of cost of gifts distributed to customers by FX Enterprise Solutions Pvt. Ltd. - Addition on account of non-recognition of royalty income during the relevant previous year - Addition on account of non-recognition of membership under the passport scheme - Disallowance of reimbursement of foreign traveling expenses to directors/ employees, on the ground of no evidence/ proof of actual expense incurred by employees. - Disallowance of advertisement expenses on the ground of being capital in nature - payment for advertisement and publicity of the brand name of the assessee and for promotion of its product during the Cricketing events of ICC versus royalty / fee for technical services - Disallowance of provisions for advertisement expenses under section 40(a)(ia) - Disallowance of provision for warranty - Disallowance of royalty/ technical guidance fee on the following grounds a. capital expenditure; (b) applying section 40(a)(ia) for failure to deduct tax at source at rate applicable to business profits - Disallowance of export commission for alleged failure to deduct tax at source - Transfer pricing adjustments - Disallowance of alleged prior period expenses amounting to Rs. 489.07 lacs - Disallowance of excess provision for discounts/ incentives payable to dealers at the end of the relevant year, which was recovered in next year on receipt of actual bills from the dealers - Disallowance of payment made towards use of aircraft for alleged failure to deduct tax at source under section 194-I - Addition on account of outstanding liability DRP Directions - Gains from sale of investments income treated as business income - Disallowance of provision towards medical reimbursement/ leave travel allowance (DRP Directions) Issues decided against the assessee - Disallowance of provision for price increase reversed in the next year - Disallowance of deduction u/s 80-IA in relation to generation of power - Disallowance of additional depreciation of computers installed at supervisory office - Disallowance of deduction u/s 35(1)(iv) in respect of R&D assets - Disallowance of first car insurance premium on the ground of capital in nature relating to acquisition of car - Disallowance of repair/ maintenance expenses of existing assets as capital expenditure - TDS on motorbikes gifted to various winners of contestants at TV shows - TDS on use of catering services provided by hotels and room rent to hotels - TDS on hire charges of generator used at the corporate office - TDS on purchase of flowers - TDS on stitching charges of uniform for employees - TDS on provisions of various miscellaneous expenses made at the end of relevant year - Disallowance of incorrect deduction on account of additional depreciation reversed in succeeding year.

Issues Involved:
1. Disallowance under Section 14A.
2. Disallowance on account of payment to LIC for leave encashment.
3. Disallowance of additional depreciation of computers.
4. Disallowance of deduction u/s 35(1)(iv) for R&D assets.
5. Disallowance of first car insurance premium.
6. Disallowance of repair/maintenance expenses.
7. Disallowance of expansion business expenses.
8. Disallowance under Section 40(a)(ia) for non-deduction of TDS.
9. Disallowance of reimbursement of free service coupons.
10. Disallowance of car rental charges.
11. Disallowance of reimbursement of advertisement expenses.
12. Disallowance of gifts to winners of game shows.
13. Disallowance of catering services and room rent.
14. Disallowance of repair/maintenance cost of road shared with Omax.
15. Disallowance of out-of-pocket/traveling expenses to consultants/vendors.
16. Disallowance of rental of leased lines from MTNL/BSNL.
17. Disallowance of hire charges of generator.
18. Disallowance of rent paid towards property taken on lease.
19. Disallowance of purchase of flowers.
20. Disallowance of stitching charges of uniform.
21. Disallowance of management fee under a portfolio management scheme.
22. Disallowance of provisions for various expenses.
23. Disallowance of payments exceeding exemption limit under 197 certificate.
24. Disallowance of TDS at lower rate or wrong provision.
25. Disallowance of incentive/discount to dealers.
26. Disallowance of clearing charges paid towards import consignments.
27. Disallowance of reimbursement of cost of gifts distributed by FX Enterprise Solutions Pvt. Ltd.
28. Disallowance of incorrect deduction on account of additional depreciation reversed.
29. Addition on account of non-recognition of royalty income.
30. Addition on account of non-recognition of membership under the passport scheme.
31. Disallowance of reimbursement of foreign traveling expenses.
32. Disallowance of advertisement expenses.
33. Disallowance of payments to GCC and Nimbus.
34. Disallowance of provision for advertisement expenses.
35. Disallowance of certain payments under section 40(a)(ia).
36. Disallowance of provision for warranty.
37. Transfer pricing adjustments.
38. Disallowance of prior period expenses.
39. Disallowance of excess provision for discounts/incentives.
40. Disallowance of payment for use of aircraft.
41. Addition on account of outstanding liability.
42. Gains from sale of investments treated as business income.
43. Disallowance of provision towards medical reimbursement/leave travel allowance.

Detailed Analysis:

1. Disallowance under Section 14A:
The court upheld the assessee's argument that disallowance under section 14A for the assessment year (AY) cannot be computed as per Rule 8D and should be based on a reasonable method. The case was restored to the Assessing Officer (AO) for re-determination in accordance with the Delhi High Court's decision in Maxopp Investment Ltd.

2. Disallowance on account of payment to LIC for leave encashment:
The court found that the payment to LIC towards the master policy for leave encashment is allowable under section 37(1) and not disallowable under section 43B. The AO was directed to verify the evidence of payment and allow the deduction accordingly.

3. Disallowance of additional depreciation of computers:
The court held that computers installed at supervisory offices within the factory area should be regarded as part of the factory and eligible for additional depreciation under section 32(iia).

4. Disallowance of deduction u/s 35(1)(iv) for R&D assets:
The court found that the AO had not provided sufficient evidence to prove that the assets were not used for R&D purposes. The case was restored to the AO for fresh adjudication.

5. Disallowance of first car insurance premium:
The court upheld the AO's decision that the first car insurance premium is a capital expenditure and not allowable as a revenue deduction.

6. Disallowance of repair/maintenance expenses:
The court found merit in the assessee's argument that repair and maintenance expenses are regular business expenses and should be allowed as revenue expenditure. The AO was directed to verify the evidence and allow the deduction accordingly.

7. Disallowance of expansion business expenses:
The court held that the expenses incurred for the expansion of the existing business should be allowed as revenue expenditure. The AO was directed to verify the evidence and allow the deduction accordingly.

8. Disallowance under Section 40(a)(ia) for non-deduction of TDS:
The court found that the assessee had a bona fide belief that no TDS was required and that the recipients had paid the tax. The AO was directed to verify the evidence and allow the deduction accordingly.

9. Disallowance of reimbursement of free service coupons:
The court upheld the assessee's argument that the reimbursement of free service coupons to dealers is not a technical service and should not be disallowed under section 40(a)(ia).

10. Disallowance of car rental charges:
The court found that the car rental charges fall under the definition of "rent" under section 194I and should be disallowed under section 40(a)(ia) for non-deduction of TDS.

11. Disallowance of reimbursement of advertisement expenses:
The court found merit in the assessee's argument that the reimbursement of advertisement expenses is not a work contract and should not be disallowed under section 40(a)(ia). The case was restored to the AO for fresh adjudication.

12. Disallowance of gifts to winners of game shows:
The court upheld the AO's decision that the gifts given to winners of game shows are subject to TDS under section 194B and should be disallowed under section 40(a)(ia) for non-deduction of TDS.

13. Disallowance of catering services and room rent:
The court found that the payments for catering services and room rent are subject to TDS under section 194C and 194I respectively and should be disallowed under section 40(a)(ia) for non-deduction of TDS.

14. Disallowance of repair/maintenance cost of road shared with Omax:
The court found that the payment to Omax for the repair/maintenance of the shared road is a reimbursement of actual expenses and should not be disallowed under section 40(a)(ia).

15. Disallowance of out-of-pocket/traveling expenses to consultants/vendors:
The court found that the reimbursement of out-of-pocket/traveling expenses to consultants/vendors does not constitute income and should not be disallowed under section 40(a)(ia).

16. Disallowance of rental of leased lines from MTNL/BSNL:
The court found that the payment for leased lines is not "rent" under section 194I and should not be disallowed under section 40(a)(ia).

17. Disallowance of hire charges of generator:
The court upheld the AO's decision that the hire charges of the generator fall under the definition of "rent" under section 194I and should be disallowed under section 40(a)(ia) for non-deduction of TDS.

18. Disallowance of rent paid towards property taken on lease:
The court upheld the AO's decision that the rent paid towards the property taken on lease should be disallowed under section 40(a)(ia) for non-deduction of TDS.

19. Disallowance of purchase of flowers:
The court upheld the AO's decision that the payment for flower arrangements is a work contract and should be disallowed under section 40(a)(ia) for non-deduction of TDS.

20. Disallowance of stitching charges of uniform:
The court upheld the AO's decision that the stitching charges of uniforms are a work contract and should be disallowed under section 40(a)(ia) for non-deduction of TDS.

21. Disallowance of management fee under a portfolio management scheme:
The court found that the payment was for entry load fees and not management fees and should not be disallowed under section 40(a)(ia).

22. Disallowance of provisions for various expenses:
The court found that the provisions for various expenses were based on reasonable estimates and should not be disallowed. The case was restored to the AO for verification.

23. Disallowance of payments exceeding exemption limit under 197 certificate:
The court found that the payments exceeding the exemption limit under the 197 certificate should not be disallowed under section 40(a)(ia) as it is a case of short deduction of tax and not non-deduction.

24. Disallowance of TDS at lower rate or wrong provision:
The court found that the short deduction of tax should not result in disallowance under section 40(a)(ia).

25. Disallowance of incentive/discount to dealers:
The court found that the discount to dealers is not a commission and should not be disallowed under section 40(a)(ia).

26. Disallowance of clearing charges paid towards import consignments:
The court found that the payment to agents of non-resident shipping companies should not be disallowed under section 40(a)(ia). The case was restored to the AO for verification.

27. Disallowance of reimbursement of cost of gifts distributed by FX Enterprise Solutions Pvt. Ltd.:
The court found that the payment to FX Enterprise Solutions was for the procurement and distribution of gifts and should not be disallowed under section 40(a)(ia). The case was restored to the AO for verification.

28. Disallowance of incorrect deduction on account of additional depreciation reversed:
The court upheld the AO's decision to disallow the additional depreciation claimed in the current year and directed the assessee to seek rectification for the subsequent year.

29. Addition on account of non-recognition of royalty income:
The court found that the assessee had consistently followed the method of accounting for royalty income and any excess/short provision should be adjusted in the subsequent year. The addition was deleted.

30. Addition on account of non-recognition of membership under the passport scheme:
The court found that the assessee had consistently followed the method of accounting for membership fees and any excess/short provision should be adjusted in the subsequent year. The addition was deleted.

31. Disallowance of reimbursement of foreign traveling expenses:
The court found that the per diem allowance paid to employees for foreign travel is reasonable and should be allowed as a deduction. The disallowance was deleted.

32. Disallowance of advertisement expenses:
The court found that the advertisement expenses incurred for brand building and launch of new models are revenue expenses and should be allowed as a deduction. The disallowance was deleted.

33. Disallowance of payments to GCC and Nimbus:
The court found that the payments to GCC and Nimbus for sponsorship of ICC events are not royalty and should not be disallowed under section 40(a)(ia). The disallowance was deleted.

34. Disallowance of provision for advertisement expenses:
The court found that the provision for advertisement expenses was based on reasonable estimates and should not be disallowed. The case was restored to the AO for verification.

35. Disallowance of certain payments under section 40(a)(ia):
The court found that the short deduction of tax should not result in disallowance under section 40(a)(ia).

36. Disallowance of provision for warranty:
The court found that the provision for warranty was based on reasonable estimates and should be allowed as a deduction. The disallowance was deleted.

37. Transfer pricing adjustments:
The court found that the transfer pricing adjustments made by the TPO were not justified and should be deleted. The case was restored to the AO for fresh adjudication.

38. Disallowance of prior period expenses:
The court found that the prior period expenses were not pressed by the assessee and the disallowance was upheld.

39. Disallowance of excess provision for discounts/incentives:
The court found that the provision for discounts/incentives was based on reasonable estimates and should not be disallowed. The case was restored to the AO for verification.

40. Disallowance of payment for use of aircraft:
The court found that the payment for use of aircraft was for availing transport services and should not be disallowed under section 40(a)(ia).

41. Addition on account of outstanding liability:
The court found that the outstanding liability for booking amounts received from customers had not ceased to exist and should not be added to income under section 28(iv).

42. Gains from sale of investments treated as business income:
The court found that the gains from the sale of investments should be treated as capital gains and not business income. The addition was deleted.

43. Disallowance of provision towards medical reimbursement/leave travel allowance:
The court found that the provision for medical reimbursement/leave travel allowance was based on reasonable estimates and should be allowed as a deduction. The disallowance was deleted.

← Previous Next →