2016 (4) TMI 1384 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - HELD THAT - It is apparent that the provisions of Section 14A read with Rule 8D of the Act is not applicable for the assessment year in question i.e. 2006-2007 and was to be applicable from the assessment year 2008-09 onwards. The Bombay High Court has settled law in this connection in case Godrej Boyce Mfg. Co. Ltd. Vs. DCIT 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 by the Hon ble Bombay High Court (Supra). Accordingly this issue is hereby restored to the file of Assessing Officer to re-examine the matter afresh in accordance with law. Accordingly this issue is decided in favour of the Assessee. Disallowance of expenditure incurred by the Appellant in respect of reimbursement of property taxes to Precision Component(P) Ltd.(PCPL) - HELD THAT - As A.R. contended the reimbursement of property tax partakes the character of rent only. There is merit in its said contention also. Hence 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 Assessing Officer. 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. Expenditure incurred upon the advertisement and promotion - HELD THAT - Keeping in view of the argument advanced by the learned representative of the parties and perusing the record it is observed that this matter of controversy has already been adjudicated by the Income Tax Appellate Tribunal in the assessee s own case 2008 (4) TMI 535 - ITAT MUMBAI Moreover this matter of controversy has also been adjudicated by the Hon ble Bombay High Court in assessee s own case for the A.Y. 1998-99 wherein such expenditure has been treated as revenue expenditure. 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 - No doubt the A.O. disallowed the same but the Hon ble Tribunal in his judgment as Star India Pvt. Ltd. Vs. ACIT 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 in 2009 (3) TMI 990 - BOMBAY HIGH COURT . No doubt in the said circumstance the ground raised by revenue does not seems justifiable therefore we have arrived at this conclusion that the learned CIT(A) has passed the order correctly and judiciously on this issue which does not require to be interfered with at this appellate stage. Hence this issue is in decided in favour of the assessee. Allowance of 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 by the Hon ble High Court of Delhi while the deciding the case of CIT Vs. BSES Rajdhani Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT . The plea which has been taken by the revenue is that the depreciation which has been allowed @ 60% and the value of the paper and other materials is higher but the matter has been considered by the learned CIT(A) who allowed the same on the basis of the assessment held in the year of 2003-04 2004-05 and 2005-06. 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.

Summary

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 on 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.

Issue-wise Detailed Analysis:

Issue No. 1 & 2:
The assessee's representative did not press these issues due to the small amounts involved. Consequently, these grounds were dismissed as not pressed.

Issue No. 3:
The assessee contested the disallowance under Section 14A read with Rule 8D. The Tribunal noted that the provisions of Section 14A read with Rule 8D are not applicable for the assessment year 2006-07 and are applicable from the assessment year 2008-09 onwards. This position was supported by the Bombay High Court judgment in Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT. The Tribunal restored the issue to the Assessing Officer (A.O.) for fresh examination in accordance with the law.

Issue No. 4:
The controversy was whether the reimbursement of property taxes to Precision Component (P) Ltd. (PCPL) was justified. The A.O. had disallowed the expenditure, stating that the liability was with the licensor PCPL as per the agreement. The Tribunal found that the proportion of property tax reimbursement to rent was highly disproportionate and required fresh examination by the A.O. The Tribunal set aside the order of the CIT(A) on this issue and restored it to the A.O. for fresh examination.

Issue No. 5:
The revenue contested the allowance of expenditure on advertisement and promotion amounting to Rs. 57,78,45,583/-. The Tribunal noted that this issue had already been adjudicated in the assessee's favor by the ITAT and the Bombay High Court in previous years. Therefore, the Tribunal upheld the CIT(A)'s order allowing the expenditure.

Issue No. 6:
The revenue argued that commission income should be taxed on the raising of invoices rather than on receipt. The Tribunal noted that the assessee had changed its method of accounting to receipt basis in the assessment year 1997-98, which was upheld by the ITAT and the Bombay High Court. The Tribunal found no reason to interfere with the CIT(A)'s order and decided the issue in favor of the assessee.

Issue No. 7:
The revenue objected to the allowance of depreciation at 60% on computer peripherals. The Tribunal noted that this issue had been decided in favor of the assessee in previous years and by other judicial precedents. The Tribunal upheld the CIT(A)'s order allowing the depreciation.

Issue No. 8:
The revenue raised an issue regarding disallowance under Section 14A read with Rule 8D. The Tribunal noted that this issue had already been adjudicated while deciding the assessee's appeal, and the directions given to the A.O. in that context resolved the controversy. The issue was decided in favor of the assessee.

Issue No. 9:
The revenue filed additional grounds regarding the determination of arm's length compensation by the Transfer Pricing Officer (T.P.O). The T.P.O. had concluded that no adjustment was required to the declared arm's length price by the assessee. The Tribunal found no reason to interfere with the findings of the A.O. and the CIT(A). The issue was decided in favor of the assessee.

Conclusion:
The assessee's appeal was partly allowed, and the revenue's appeal was dismissed. The Tribunal issued directions for fresh examination on certain issues and upheld the CIT(A)'s orders on others based on previous judicial precedents and detailed analysis.