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2016 (4) TMI 1353 - AT - Income TaxDisallowance u/s 14A read with Rule 8D - HELD THAT - As relying on GODREJ AND BOYCE MFG. CO. LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER 2010 (8) TMI 77 - BOMBAY HIGH COURT no doubt the expenditure incurred to earn the exempt income is liable to be disallowed on reasonable basis by providing the reasonable opportunity to the assessee in accordance with the law specifically in view of the observations made Disallowance of expenditure incurred in respect of reimbursement of property taxes to Precision Component(P) Ltd.(PCPL) - Assessee has drawn support from a letter claimed to have been signed by the assessee and the land lord, which states that the assessee here in should reimburse the property tax - HELD THAT - The monthly rent paid by the assessee was ₹ 1,16,000/-. The property tax reimbursed by the assessee works out to ₹ 30,63,248/-, which works out to about 26 months of rent. This proportion appears to be highly disproportionate and beyond human conduct and probabilities. A tenant, under normal circumstances would not agree to bear such a high cost. Hence there appears to be merit in view taken by tax authorities. However, we notice that they have taken adverse view without conducting any enquiry. There is merit in assessee contention that the reimbursement of property tax partakes the character of rent only - what is required to be seen is as to whether to aggregate amount of rent plus reimbursements compares well with the earlier years payment. If it does not compare well, then it is the duty of the assessee to justify the payment. This issue required fresh examination at the end of AO. Accordingly we set aside the order of learned CIT(A) on this issue and restore this issue to the file of Assessing Officer for fresh examination. Allowance of the expenditure incurred upon the advertisement and promotion - HELD THAT - As decided in assessee's own case 2008 (4) TMI 535 - ITAT MUMBAI , 2006 (7) TMI 569 - ITAT MUMBAI , 2009 (3) TMI 990 - BOMBAY HIGH COURT , 2009 (8) TMI 1246 - BOMBAY HIGH COURT such expenditure has been treated as revenue expenditure. Accrual of income - commission accrued to the assessee on the date of actual receipt of commission or on the date of payment by the client directly to the principal and not on the raising of invoices - when the commission received by the assessee company is required to be taxed? - HELD THAT - The assessee company in the assessment year 1997-98 changed his method of accounting to show the said commission on receipt basis. No doubt, the A.O. disallowed the same but the Hon ble Tribunal in his judgment 2006 (7) TMI 569 - ITAT MUMBAI found justifiable to tax an amount at the time of receipt and appeal against the said order was dismissed by the Hon ble Bombay High Court 2009 (3) TMI 990 - BOMBAY HIGH COURT - Decided against revenue Depreciation @ 60% on computer peripherals like rack, printer, port, routers, cord etc. - HELD THAT - This controversy has been decided by the Tribunal in case filed as DCIT Vs. Datacraft India Ltd. 2010 (7) TMI 642 - ITAT, MUMBAI and CIT Vs. BSES Rajdhani Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT as held computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60% . TP adjustment - determination of arm s length compensation as per order of the Transfer Pricing Officer(T.P.O) - HELD THAT - In view of the report of Transfer Pricing Officer no adjustment was made to declare the arm s length price by the assessee, therefore, in view of the said circumstance no addition on account of transfer pricing adjustment was being made to taxable income declined by the assessee. Nothing came into notice that the findings given by the Assessing Officer as well as learned CIT(A) were wrong against law and fact. Hence this issue is decided in favour of assessee and against the revenue.
Issues Involved:
1. Disallowance of expenditure on leasehold improvements. 2. Addition on account of advances written off. 3. Disallowance under section 14A read with Rule 8D. 4. Disallowance of reimbursement of property taxes. 5. Allowance of expenditure incurred for advertisement and promotion. 6. Accrual of commission income. 7. Depreciation on computer peripherals. 8. Disallowance under section 14A read with Rule 8D (Revenue’s Appeal). 9. Determination of arm’s length compensation by Transfer Pricing Officer. Detailed Analysis: Issue No. 1 & 2: The assessee did not press these issues due to the small amounts involved. Therefore, these grounds were dismissed as not pressed. Issue No. 3: The assessee argued against the disallowance under section 14A read with Rule 8D, stating that the provisions were not applicable for the assessment year 2006-07. The Tribunal referred to the Bombay High Court's ruling in Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT, which clarified that Rule 8D is applicable from the assessment year 2008-09 onwards. The Tribunal restored the issue to the Assessing Officer for fresh examination, directing a reasonable basis for disallowance after providing the assessee an opportunity to present relevant material. Issue No. 4: The controversy involved the disallowance of ?30,63,248/- for reimbursement of property taxes to Precision Component (P) Ltd. The Tribunal noted that while the agreement placed the liability on the licensor, the assessee reimbursed the property tax contrary to the agreement terms. The Tribunal found the reimbursement disproportionate to the rent and required fresh examination by the Assessing Officer to justify the payment. The issue was restored to the Assessing Officer for further scrutiny. Issue No. 5: The revenue contested the allowance of ?57,78,45,583/- for advertisement and promotion expenses. The Tribunal upheld the CIT(A)'s decision, referencing previous Tribunal and Bombay High Court rulings in the assessee’s favor, treating such expenses as revenue expenditure. The Tribunal found no reason to interfere with the CIT(A)'s order. Issue No. 6: The revenue challenged the timing of commission income accrual. The Tribunal upheld the CIT(A)'s decision that commission income should be taxed on receipt basis, aligning with the Tribunal's earlier decision and the Bombay High Court's dismissal of the revenue's appeal. The issue was decided in favor of the assessee. Issue No. 7: The revenue objected to the allowance of 60% depreciation on computer peripherals. The Tribunal referenced previous Tribunal and Delhi High Court decisions allowing such depreciation rates. The Tribunal found no reason to interfere with the CIT(A)'s order and rejected the revenue's plea. Issue No. 8: The revenue raised an issue regarding disallowance under section 14A read with Rule 8D. The Tribunal noted that this matter had already been addressed in the assessee's appeal, with directions given to the Assessing Officer for implementation. The issue was resolved in favor of the assessee. Issue No. 9: The revenue raised additional grounds regarding arm’s length compensation as determined by the Transfer Pricing Officer (TPO). The TPO's report found no adjustment to the declared arm’s length price, and no addition was made to the taxable income. The Tribunal upheld the findings of the Assessing Officer and CIT(A), deciding the issue in favor of the assessee. Conclusion: The assessee's appeal was partly allowed, and the revenue's appeal was dismissed. The Tribunal provided detailed directions for fresh examination by the Assessing Officer on certain issues, while upholding the CIT(A)'s decisions on others. The order was pronounced in open court on 1st April 2016.
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