2022 (10) TMI 1204 - AT - Income Tax

Depreciation on goodwill - Goodwill arising on acquisition of Karnataka Breweries and Distilleries Limited and other subsidiaries - HELD THAT - The coordinate Bench of this Tribunal in the assessee s own case for AY 2007-08 2016 (9) TMI 1527 - ITAT BANGALORE has held that depreciation on goodwill is not allowable based on the facts of the case of assessee. Respectfully following that decision we hold that depreciation on goodwill is not allowable. Accordingly these grounds are dismissed. Withholding tax amount on foreign royalty - assessee made an alternative submission by stating that if gross receipts are to be taxed then the assessee would be entitled to the provisions of Double Tax Avoidance Agreement DTAA thereby the assessee should be allowed credit against the tax paid in the foreign country - HELD THAT - Under the mercantile system of accounting the income is to be offered to tax on accrual basis and therefore it is the gross income that needs to offered to tax in assessee s case here. However the assessee is entitled to claim credit for the tax paid on the doubly taxed income in accordance section 90/91 read with Rule 128 of the Income Tax Rules and in the given case this fact is also held by the CIT(Appeals) that the assessee is entitled for credit for foreign tax paid. Though the assessee has not brought any new evidence on record before us to substantiate the tax deducted by the payer in the interest of justice we are of the view that the assessee should be given an opportunity to produce the evidence. Therefore we remit the issue back to the AO with a direction to allow credit for the tax paid in foreign countries on the doubly taxed income in accordance with provisions of section 90 /91 r.w. Rule 128 based on the documents / evidences submitted by the assessee in this regard. The assessee is directed to submit the relevant documents and cooperate with the proceedings before the AO. This ground is allowed for statistical purposes. Disallowance of expenditure u/s 40(a)(ia) - TDS was not made on the year end provisions - HELD THAT - We notice that in assessee s own case 2022 (6) TMI 1433 - ITAT BANGALORE has relied on the decision in the case of Biocon Ltd 2022 (4) TMI 795 - ITAT BANGALORE and remanded the issue back to the AO to verify the details of payments and tax deducted and allow the expenditure where TDS is remitted to the Govt. account on or before the due date for filing the return of income u/s. 139(1). For the year under consideration we notice that the AO in the order u/s. 201(1) has verified the year end provisions with regard to subsequent payment and tax deduction thereon. AO did not make any addition u/s. 201(1) with respect to year end provisions and has charged only interest u/s. 201(1A) - We therefore are of the considered view that the verification of the year end provision has already been by the AO and by not making any addition u/s. 201 the AO has confirmed that tax has been deducted subsequently and remitted to the Govt. account before the due date for filing the return of income. Disallowance of depreciation by holding it as excess claim made by mistake - appellant has claimed additional depreciation on Plant Machinery and Energy saving devices - HELD THAT - CIT(Appeals) did not go into the details of the submissions but has summarily rejected the claim of the assessee while confirming the disallowance. It is also noticed that the AO while disallowing the depreciation did not call for any details in this regard from the assessee and has computed the disallowance by applying the depreciation percentages on the value of the assets. We therefore remit this issue back to the AO to verify the details of additional depreciation claimed by the assessee in the return of income and as declared in the tax audit report accordingly allow the depreciation. This ground is allowed for statistical purposes. Disallowance of Business Promotion expenses u/s 40(a)(ia) - non deduction certificate was not available at the time of payment - HELD THAT - From the above it is clear that certificate is issued for payments pertaining to FY 2009-10 and the impugned payment is made on 14.4.2009 falls within the period for which the certificate is issued. Considering all we hold no disallowance u/s. 40(a)(ia) is warranted towards payments made to GMR Sports towards business promotion expenses. Disallowance of bad advances written off u/s 36(1)(vii) - AO disallowed the same by holding that bad advances written off cannot be allowed as a deduction u/s. 36/37 and cannot be equated with bad debts written off so as to claim deduction u/s. 36(1)(vii) - HELD THAT - CIT(Appeals) while confirming the disallowance has not called for any details with regard to the break-up submitted. We further notice that he AO has also not called for any details from the assessee with regard to the bad advances written off. We therefore remit the issue back to the AO to verify the details of bad advances and decide in accordance with law. This ground is allowed for statistical purposes.

Summary

Issues Involved:
1. Depreciation on goodwill
2. Foreign royalty
3. Disallowance under section 40(a)(ia)
4. Disallowance under section 43B
5. Disallowance of depreciation
6. Disallowance of business promotion expenses under section 40(a)(ia)
7. Disallowance of bad advances written off under section 36(1)(vii)
8. Liabilities no longer required written back (specific to AY 2011-12)

Issue-wise Detailed Analysis:

Depreciation on Goodwill:
The assessee claimed depreciation on goodwill arising from the acquisition of subsidiaries. The AO disallowed this claim, and the CIT(Appeals) upheld the disallowance by relying on previous Tribunal decisions in the assessee's own case. The Tribunal followed the coordinate Bench's decision, which held that depreciation on goodwill is not allowable based on the facts of the case. Consequently, the ground was dismissed for both AY 2010-11 and AY 2011-12.

Foreign Royalty:
The AO added 10% of the royalty income withheld by foreign enterprises to the assessee's income, arguing that the gross value should be taxed. The CIT(Appeals) upheld this decision but did not provide directions regarding the credit for foreign tax paid. The Tribunal remitted the issue back to the AO to allow credit for foreign tax paid, provided the assessee submits relevant evidence. This decision was applied to both AY 2010-11 and AY 2011-12.

Disallowance under Section 40(a)(ia):
The AO disallowed expenses for year-end provisions where TDS was not deducted. The CIT(Appeals) upheld this disallowance. The Tribunal, following the decision in the assessee's own case and the case of Biocon Ltd., remanded the issue back to the AO to verify if TDS was deducted and remitted before the due date for filing the return. The Tribunal noted that the AO had verified these details in the order under section 201(1) and did not raise any demand, thus deleting the disallowance for both assessment years.

Disallowance under Section 43B:
For AY 2010-11, the assessee filed a rectification petition under section 154, which the AO accepted, deleting the disallowance. The Tribunal dismissed this ground as not pressed. For AY 2011-12, the Tribunal remitted the issue back to the AO for verification, considering the rectification order for AY 2010-11.

Disallowance of Depreciation:
The AO disallowed additional depreciation claimed by the assessee. The CIT(Appeals) upheld this disallowance without verifying the details. The Tribunal remitted the issue back to the AO to verify the details of additional depreciation claimed and allow it accordingly.

Disallowance of Business Promotion Expenses under Section 40(a)(ia):
The AO disallowed business promotion expenses paid to GMR Sports P Ltd. without TDS. The CIT(Appeals) confirmed this disallowance. The Tribunal, relying on the decision in Bovis Lend Lease India P. Ltd., held that the NIL deduction certificate issued for the financial year 2009-10 should apply to the payments made during that period, thus deleting the disallowance.

Disallowance of Bad Advances Written Off under Section 36(1)(vii):
The AO disallowed bad advances written off, stating they cannot be equated with bad debts under section 36(1)(vii). The CIT(Appeals) upheld this disallowance. The Tribunal remitted the issue back to the AO to verify the details of bad advances and decide in accordance with the law.

Liabilities No Longer Required Written Back (Specific to AY 2011-12):
The AO added back liabilities no longer required, which were written back by the assessee. The CIT(Appeals) gave partial relief. This issue was not specifically addressed in the Tribunal's decision summary provided.

Conclusion:
The appeals for both AY 2010-11 and AY 2011-12 were partly allowed, with several issues remitted back to the AO for verification and re-adjudication. The Tribunal's decisions were largely consistent across both assessment years, following precedents and ensuring due process in verifying the assessee's claims.