2022 (11) TMI 1402 - AT - Income Tax

Depreciation on Goodwill - Assessee claimed depreciation at the rate of 25% on the opening WDV of goodwill - assessee had acquired a brewery, namely, Karnataka Breweries and Distilleries Limited through a process of demerger - HELD THAT - As Tribunal has decided the issue against the assessee in the cases for AY 2007-08 to 2009-10 2016 (9) TMI 1527 - ITAT BANGALORE and the decision will apply to the present AY also. The learned AR submits that the assessee has preferred appeal on the allowability of claim of depreciation before the Hon ble High Court of Karnataka in ITA No.61/2017 and the same is pending adjudication. The learned DR was duly heard. Disallowance u/s 14A r.w.r. 8D - HELD THAT - The disallowance should be restricted to the amount of exempt income earned by the assessee. The amendment to section 14A of the I.T. Act, which states that disallowance u/s 14A of the I.T. Act is to be resorted, whether the assessee earns exempt income or not is only prospective and does apply to the relevant assessment year. In this context, we rely on the order of Bajaj Capital Ventures (P) Ltd. 2022 (7) TMI 23 - ITAT MUMBAI . It is ordered accordingly. Addition u/s 40(a)(ia) which were year-end provisions reported in the Form 3CD - HELD THAT - We find on identical facts and circumstances, the co-ordinate Bench of the Tribunal in assessee s own case for assessment years 2013-2014 2022 (6) TMI 1433 - ITAT BANGALORE has restored the issue to the A.O. with specific directions to verify the details of payments and tax deducted and allow the expenditure where the TDS is remitted to the Government account on or before the due date for filing the return of income. Addition u/s 43B - Assessee did not remit statutory dues CST, excise duty on closing stock before the due date of filing of return of income - AO rejected the contention of the assessee and held that the CST, excise duty on closing stock collected and paid are included in the valuation of purchase, sale and inventory, then effect will be nil only if the said amounts are paid within the due date of filing return in terms of section 43B - CIT(A) held that the assessee has claimed an expenditure which is yet to be paid and is liable to section 43B disallowance - HELD THAT - We find that on identical facts, the Tribunal in assessee s own case for assessment year 2011- 2012 2022 (10) TMI 1204 - ITAT BANGALORE remitted the issue to the files of the A.O.with a direction to verify and allow the claim of the assessee taking into consideration the rectification order passed u/s.154. Withholding tax amount on foreign royalty - AO during the course of hearing noticed that the assessee has disclosed only 90% of the Royalty amount for taxation on the ground that the balance 10% would represent tax withheld by the payer and the assessee had not received the said amount either in the form of TDS certificate or actual consideration basis till date - HELD THAT - Tribunal in assessee s own case for assessment year 2010- 2011 2022 (10) TMI 1204 - ITAT BANGALORE remitted the matter to the files of the A.O. with a direction to allow credit for the tax paid in foreign countries on the doubly taxed income in accordance with the provisions of section 90/91 r.w. Rule 128 based on the documents / evidences submitted by the assessee in this regard. Addition on account of brand promotion expenses - AO held that brand being an intangible asset, any expense incurred towards development of brand or brand promotion leads to an enduring benefit and should be capitalized - HELD THAT - Following the above order of the Tribunal in the case of United Spirits Limited 2022 (4) TMI 1408 - ITAT BANGALORE we allow deduction in respect of brand promotion expenses. Capital gains and addition u/s 115JB - HELD THAT - Assessee has rightly pointed out that if the shares were cancelled in the first instance, instead of creating the Trust to hold the same, the same would not have resulted in capital gains. Since under both the arrangements, i.e., cancellation of its beneficial holding or under the Trust, there is no resultant capital gains that will be liable to tax, there is no question of painting the arrangement as colourable device. When the subject income has already been offered to tax by the Trust whereby exemptions have been claimed, the lower authorities have failed to establish the reason why the very same income has to be once again considered in the hands of a different assessee. Even if, for academic reasons, it were to be held that the income of the Trust is the income of the Assessee, given the provisions of section 10(38) of the I.T. Act, there is no reason why the benefit of the exemption cannot be extended to the assessee as well. With respect to the provisions of section 115JB of the I.T. Act, the lower authorities have sought to include the subject amount as a part of 'book profits' though the same is added to the General Reserves and not in the profit and loss account. In the event of books of accounts being prepared in accordance with the provisions of the relevant Companies Act, it is well accepted that the AO has no jurisdiction to go behind net profit shown in the profit and loss account except to the extent provided therein. As it has been held above that the said amount is not the income of the Assessee but of the Trust, there is no question of considering it as a part of book profits. On going through the impugned orders there is no effort to establish the same. Given the same, the CIT(A)/AO have erred in disturbing the book profit as considered by the Assessee. Short credit of taxes - We restore the issue raised in ground to the files of the A.O. The A.O. is directed to verify and grant TDS and TCS credit as per law. Disallowance u/s 14A added to book profits - HELD THAT - The Hon ble jurisdictional High Court in the case of CIT v. Gokaldas Images 2020 (11) TMI 345 - KARNATAKA HIGH COURT had held that disallowance u/s 14A cannot be added to the book profits for the purpose of section 115JB of the I.T. Act - we delete 14A disallowance added to the book profit.

Summary

Issues Involved:
1. Depreciation on Goodwill
2. Disallowance of Expenses under Section 14A
3. Disallowance under Section 40(a)(ia)
4. Disallowance under Section 43B
5. Addition towards Withholding Tax
6. Addition on Account of Brand Promotion Expenses
7. Addition towards Capital Gains and under Section 115JB
8. Short Credit of Taxes
9. Demand of Dividend Distribution Tax
10. Additions to Book Profit of Amounts Disallowed under Section 14A

Issue-Wise
Detailed Analysis:

1. Depreciation on Goodwill:
The assessee claimed depreciation on goodwill arising from the acquisition of Karnataka Breweries and Distilleries Limited. The AO disallowed the claim, and the CIT(A) upheld this decision based on earlier years' orders. The Tribunal also rejected the grounds, noting that the issue was pending before the High Court of Karnataka.

2. Disallowance of Expenses under Section 14A:
The AO made a disallowance under Section 14A related to exempt dividend income, invoking Rule 8D. The CIT(A) provided partial relief but upheld the disallowance for prior investments. The Tribunal restricted the disallowance to the amount of exempt income earned by the assessee, following precedents from earlier years.

3. Disallowance under Section 40(a)(ia):
The AO disallowed year-end provisions where TDS was not deducted. The CIT(A) upheld this disallowance. The Tribunal remanded the issue back to the AO to verify payments and taxes deducted, directing that the expenditure be allowed where TDS was remitted before the due date for filing the return.

4. Disallowance under Section 43B:
The AO disallowed CST and excise duty on closing stock not paid before the due date of filing the return. The CIT(A) upheld this disallowance. The Tribunal remanded the issue back to the AO to verify if the amounts were debited to the P&L account, directing deletion of the addition if not debited.

5. Addition towards Withholding Tax:
The AO added the gross royalty income, including withheld tax, to the assessee's income. The CIT(A) upheld this addition. The Tribunal remanded the issue back to the AO to allow credit for foreign tax paid on doubly taxed income, based on documents submitted by the assessee.

6. Addition on Account of Brand Promotion Expenses:
The AO treated brand promotion expenses as capital in nature. The CIT(A) upheld this view. The Tribunal allowed the deduction as revenue expenditure, following the decision in the case of United Spirits Limited, which held similar expenses as revenue in nature.

7. Addition towards Capital Gains and under Section 115JB:
The AO treated the amount transferred from UBL Trust to the assessee as long-term capital gain and added it to the income under normal provisions and Section 115JB. The CIT(A) upheld this decision. The Tribunal found no infirmity in the arrangement, noting that the income had been offered to tax by the Trust and accepted by the Department. It ordered deletion of the addition under both normal provisions and MAT.

8. Short Credit of Taxes:
The AO restricted the TDS and TCS credit claimed by the assessee. The CIT(A) did not adjudicate this issue. The Tribunal remanded the issue back to the AO to verify and grant the correct credit for TDS and TCS.

9. Demand of Dividend Distribution Tax:
The AO made an addition without any discussion or reasoning. The CIT(A) dismissed the ground without providing reasons. The Tribunal directed the AO to examine and dispose of the matter after affording a reasonable opportunity of hearing to the assessee.

10. Additions to Book Profit of Amounts Disallowed under Section 14A:
The AO added the disallowance under Section 14A to the book profits. The CIT(A) upheld this addition. The Tribunal deleted the addition, following the jurisdictional High Court's decision in the case of Gokaldas Images, which held that such disallowance cannot be added to book profits for Section 115JB purposes.

Conclusion:
The Tribunal provided relief to the assessee on several grounds, remanding some issues back to the AO for verification and directing the deletion of certain additions. The key takeaway is the Tribunal's adherence to legal precedents and its emphasis on ensuring that the correct legal principles are applied in determining the tax liability.