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2019 (3) TMI 1612 - AT - Income TaxDisallowance of Late Delivery Charges - company follows mercantile system of accounting and expenses relating the previous year have been properly provided to arrive the correct profit during the year - HELD THAT - Late Delivery Fees and pointed out that the issue in earlier year had been decided partly in favour of assessee. The CIT(A) notes that though the assessee had provided details of customer names invoice number and percentage of Late Delivery Charges but had not provided the copies of purchase orders showing Late Delivery Charges were payable. The Tribunal further while deciding appeal of assessee for assessment year 2007-08 had also considered the said issue and applying the ratio laid down in earlier years had remitted the issue back to the file of AO - following the same parity of reasoning we remit this issue also to the file of AO to follow the directions of Tribunal in earlier years and decide the issue after affording reasonable opportunity of hearing to the assessee. Addition u/s 14A r.w.r. 8D - HELD THAT - The issue arising in the present appeal is similar to the issue before the Tribunal in Capgemini Technology Services India Limited Vs. DCIT 2018 (3) TMI 540 - ITAT PUNE and following the same parity of reasoning where the Assessing Officer has failed to record satisfaction having regard to the accounts of assessee we hold that there is no merit in the order of Assessing Officer since there is no proper satisfaction being recorded by him. Disallowance of R D units purchased as per Technical License Agreement - whether it is mere case of purchase of equipment for R D projects or the payment is in the form of royalty paid by the assessee licensee to the licensor? - disallowance u/s 40(a)(i) for non deduction of TDS - HELD THAT - When the assessee has purchased a product in order to carry out improvements in its technology for future development and its sales thereafter then such purchases cannot be said to be payment of royalty. It may be pointed out that additional purchase obligation for R D units was though as per terms of Technology Transfer Agreement but its procurement could not be held to be payment of royalty to WED. The grant of license to use existing technology for the manufacture of W200 and 220 engines by the assessee is an independent activity and the terms of agreement for payment of royalty are in that regard or for the same. The purchase of two R D units though emanates from the same agreement cannot be held to be payment of royalty . We may refer to the definition of royalty under section 9(1)(vi) of the Act in this regard which clearly lays down that the payment should be for use or use of any technology. In the present case the payment is made for purchase of equipment for R D purpose. We thus find no merit in the orders of authorities below in holding that the aforesaid payment is royalty under both domestic Income Tax Law and also under the Treaty between India and USA. Hence we direct the Assessing Officer to allow the claim of assessee. - The grounds of appeal raised by assessee are thus allowed. Depreciation allowed on windmill in respect of cost of allied civil construction erection and commissioning and whether the same were integral part of windmill - HELD THAT - Depreciation on windmill is to be allowed even on the cost like erection and commissioning charges electric items application charges etc. which are capitalized to windmill. Following the same parity of reasoning we dismiss the ground of appeal No.1 raised by Revenue. Depreciation on Printers UPS and other allied items @ 60% - AO was of the view that Printers UPS and other allied items were not eligible for deduction @ 60% i.e. rate applicable to computers - HELD THAT - CIT(A) has allowed the claim of assessee. The issue stands settled by various decisions of Tribunal that the assessee is entitled to higher claim of depreciation at 60% on Printers UPS and other allied items as in the case of computers. Consequently there is no merit in the plea of Revenue and the ground of appeal No.2 raised by Revenue is thus dismissed. Disallowance of commission paid to Directors u/s 40A(2) - HELD THAT - In assessment year 2007-08 Tribunal has allowed the payment of commission rejecting the plea of AO that it is excessive payment in view of provisions of section 40A(2) of the Act. Following the same parity of reasoning we find no merit in the ground of appeal No.3 raised by Revenue and the same is dismissed. The grounds of appeal raised by Revenue are thus dismissed.
Issues Involved:
1. Disallowance of Late Delivery Fees 2. Disallowance of Expenses under Section 14A 3. Disallowance of R&D Units Purchased under Technical License Agreement 4. Depreciation on Allied Civil Construction and Erection and Commissioning for Windmill 5. Depreciation on Printers, UPS, and Allied Items 6. Disallowance under Section 40A(2) for Commission Paid to Directors Issue-wise Detailed Analysis: 1. Disallowance of Late Delivery Fees: The assessee contended that the disallowance of ?10,04,852/- for Late Delivery Charges was erroneous as the company follows the mercantile system of accounting. The CIT(A) upheld the disallowance due to the provision being made on an ad-hoc basis and the lack of supporting documents. The Tribunal, referencing its previous orders for earlier assessment years, remitted the issue back to the Assessing Officer for reconsideration, allowing the ground for statistical purposes. 2. Disallowance of Expenses under Section 14A: The assessee argued that the entire interest expenditure should not be disallowed under Rule 8D(ii) of the Rules, and the Assessing Officer failed to record satisfaction before invoking Rule 8D. The Assessing Officer had disallowed ?30,12,67,295/- under Rule 8D, later rectified to ?4,33,59,413/-. The Tribunal found no proper satisfaction recorded by the Assessing Officer regarding the suo motu disallowance of ?5 lakhs by the assessee and held the disallowance invalid, referencing the Supreme Court’s decision in Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT. 3. Disallowance of R&D Units Purchased under Technical License Agreement: The assessee purchased engines under a Technology License Agreement for R&D purposes, which the authorities below treated as royalty payments, thus disallowing ?3,72,81,428/- under section 40(a)(i) for non-deduction of TDS. The Tribunal, after examining the agreement and the nature of the payments, concluded that the purchase of engines for R&D could not be equated with royalty payments. It directed the Assessing Officer to allow the claim, rejecting the authorities’ view. 4. Depreciation on Allied Civil Construction and Erection and Commissioning for Windmill: The Revenue challenged the CIT(A)’s decision allowing accelerated depreciation on allied civil construction and erection and commissioning as part of the windmill. The Tribunal upheld the CIT(A)’s decision, referencing its earlier order in the assessee’s case, confirming that such costs are integral to the windmill and eligible for accelerated depreciation. 5. Depreciation on Printers, UPS, and Allied Items: The Revenue contested the allowance of higher depreciation at 60% for printers, UPS, and related items, arguing they do not fall under the definition of computers. The Tribunal dismissed this ground, affirming the CIT(A)’s decision and citing consistent Tribunal decisions allowing higher depreciation for such items as part of computers. 6. Disallowance under Section 40A(2) for Commission Paid to Directors: The Revenue appealed against the deletion of ?46 lakhs disallowed under section 40A(2) for commission paid to Directors. The Tribunal, following its earlier decision in the assessee’s case, found no merit in the Revenue’s ground, holding that the payment was reasonable and rejecting the excessive payment claim under section 40A(2). Conclusion: The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed. The Tribunal directed the Assessing Officer to reconsider certain disallowances and upheld the CIT(A)’s decisions on other issues, ensuring a detailed examination of the facts and legal provisions involved.
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