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2013 (8) TMI 139 - AT - Income TaxNon-deduction of TDS u/s 194C - franchise fees paid by the assessee to the Licensee - CIT(A) deleted the addition - Held that - As decided in assessee s own in 2012 (4) TMI 440 - DELHI HIGH COURT it is held that the tenor and purport of the terms of the agreement were that it was not a case where the licensee was doing any work for the assessee even within the wider meaning of the term any work as defined in Section 194C - In favour of assessee. Disallowance u/s 14A read with Rule 8D - CIT(A) partly deleted the addition - Held that - CIT(A) has sustained the disallowance just by an estimate based at the rate of 5% without looking into whether the expenditure which has been disallowed has a proximate relationship with the income which has been earned by the assessee not forming part of total income. Therefore, set aside the order of the CIT(A) and restore taback to the file of AO with a direction to re-decide after giving the finding with all the expenditure whether have a proximate relationship with the income earned by the assessee on the shares and than accordingly he should estimate the disallowance - in favour of revenue for statistical purposes. Bonus paid to directors - disallowance u/s 36(1)(ii) - CIT(A) deleted the addition - Held that - As decided in assessee s own case 2010 (12) TMI 746 - ITAT, Delhi wherein held that as one of the directors would have received the bonus as dividend in case bonus was not paid. Otherwise, the bonus has been paid as per resolution of the Board of Directors. Therefore, the provision contained in section 36(1)(ii) is not applicable - Decided in favor of assessee. Addition on a/c of non-refundable portion of advance fee - CIT(A) deleted the addition - Held that - As decided in assessee s own case 2010 (12) TMI 746 - ITAT, Delhi only that part of the receipt is taxable in this year which accrued to the assessee as income. Decided in favor of assessee. Addition on a/c of bad debts - CIT(A) deleted the addition - Held that - As decided in TRF Ltd. Vs. CIT 2010 (2) TMI 211 - SUPREME COURT w.e.f. 01.04.1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact has become irrecoverable. It is enough of the bad debt is written off as irrecoverable in the accounts of the assessee. In favor of assessee. Addition on a/c of processing charges - CIT(A) deleted the addition - Held that - As decided in India Cement Ltd. Vs. CIT 1965 (12) TMI 22 - SUPREME Court such expenses are clearly allowable under section 36(1)(iii). In favor of assessee. Addition on a/c of advance written-off - CIT(A) deleted the addition - Held that - The assessee has written off the advance given to the employees, when the employees left the employment as the amount no more could be recovered from the employee. CIT(A) although deleted the disallowance u/s 36(1)(vii), but section 36(1)(vii) is not applicable, but this will be a loss incidentally to the business of the assessee as the advance was given during the course of business. In favor of assessee. Disallowance of 4/5 of the advertisement expenditure - Held that - the expenditure on publicity and advertisement has to be treated as revenue in nature which is allowable fully in the year in which it has been incurred. The expenditure was incurred to facilitate the appellant s trading operations. No fixed capital was created by this expenditure and there was no advantage which accrued to the appellant in the capital nature. Once the assessee claims the deduction for whole amount of such expenditure, even in the year in which it is incurred, and the expenditure fulfills the tests laid down u/s 37 and it has to be allowed. Only in exceptional cases of the nature of expenses as mentioned in Madras Industrial Investment Corporation Ltd. (1997 (4) TMI 5 - SUPREME Court), the expenditure can be allowed to be spread over, that too when the assessee chooses to do so. The same ratio has been laid down in the case of CIT vs. CITI Financial Consumer Finance Ltd 2011 (3) TMI 622 - Delhi High Court . In favor of assessee.
Issues Involved:
1. Non-deduction of TDS under section 194C. 2. Disallowance under section 14A read with Rule 8D. 3. Disallowance of bonus paid to directors under section 36(1)(ii). 4. Addition of non-refundable portion of advance fee. 5. Addition of bad debts under section 36(1)(vii) and section 36(2)(i). 6. Addition of processing charges as capital expenditure. 7. Addition of advance written-off. 8. Disallowance of extra depreciation on computer peripherals/accessories. Issue-wise Detailed Analysis: 1. Non-deduction of TDS under section 194C: The revenue contended that the assessee failed to comply with section 194C by not deducting TDS on franchise fees. The Tribunal noted that this issue had been previously decided in favor of the assessee by the Delhi High Court in the assessee's own case for the assessment years 2005-06 and 2006-07. Since the facts remained unchanged, the Tribunal followed the precedent and deleted the disallowance, confirming the CIT(A)'s order. Thus, this ground was dismissed. 2. Disallowance under section 14A read with Rule 8D: The assessee had earned dividend income and disallowed a sum suo moto. The assessing officer applied Rule 8D, resulting in a higher disallowance. The CIT(A) reduced the disallowance. The Tribunal noted that Rule 8D is prospective from 24.03.2008, and thus not applicable for the relevant assessment year. The Tribunal directed the assessing officer to re-evaluate the disallowance, ensuring a proximate relationship between the expenditure and the exempt income. This ground was allowed for statistical purposes. 3. Disallowance of bonus paid to directors under section 36(1)(ii): The assessing officer disallowed the bonus paid to directors, which was deleted by the CIT(A). The Tribunal observed that this issue was covered by its earlier decision in the assessee's own case for the assessment years 2005-06 and 2006-07, which was upheld by the Delhi High Court. Consequently, this ground was dismissed. 4. Addition of non-refundable portion of advance fee: The assessee booked part of the fees as advance fee for courses spanning two accounting periods. The assessing officer added this amount as income for the relevant year. The CIT(A) deleted the addition, following the Tribunal's earlier decision in the assessee's case. The Tribunal found no illegality in the CIT(A)'s order and dismissed this ground. 5. Addition of bad debts under section 36(1)(vii) and section 36(2)(i): The assessing officer added the bad debts claimed by the assessee. The Tribunal cited the Supreme Court's decision in TRF Ltd. vs. CIT, which held that debts written off in the books are allowable. Thus, this ground was dismissed. 6. Addition of processing charges as capital expenditure: The assessing officer treated processing charges for a term loan as capital expenditure. The Tribunal referred to the Supreme Court's decision in India Cement Ltd. vs. CIT, allowing such expenses under section 36(1)(iii). This ground was dismissed. 7. Addition of advance written-off: The assessing officer added the advance written-off by the assessee. The Tribunal noted that the advance was given during the course of business and written off when employees left, making it a business loss. Thus, the deletion by CIT(A) was confirmed. 8. Disallowance of extra depreciation on computer peripherals/accessories: The assessing officer disallowed extra depreciation on computer peripherals/accessories. Both parties agreed that this issue was covered by the Tribunal's earlier decision in the assessee's favor for the assessment years 2005-06 and 2006-07. Thus, this ground was dismissed. Additional Grounds in Subsequent Appeals: Advertisement Expenditure: The assessing officer disallowed 4/5 of advertisement expenditure, considering it a long-term benefit. The CIT(A) deleted the disallowance, citing Supreme Court decisions that such expenses are revenue in nature and fully deductible in the year incurred. The Tribunal upheld the CIT(A)'s order, dismissing this ground. Depreciation on Computer Peripherals: Similar to the previous assessment year, this issue was dismissed based on the Tribunal's earlier decision. Conclusion: All appeals filed by the revenue were dismissed, with the Tribunal confirming the CIT(A)'s decisions or directing re-evaluation where necessary. The order was pronounced in open court on 31.05.2013.
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