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2018 (2) TMI 1701 - AT - Income TaxDisallowance of lease rent - Held that - CIT has allowed the assessee a deduction of ₹ 2,40,000/- per annum for both the years under consideration and has disallowed the remaining amount i.e. ₹ 12.60 lakh. During the course of proceedings before us, the Ld. AR has only relied on the findings of the ITAT in assessee s own case for earlier years as aforementioned and he has not brought out any new fact or evidence in support of his contention for allowance of an amount exceeding ₹ 2,40,000/- per annum. Accordingly, we hold that as the Ld. CIT (A) has already allowed a deduction of ₹ 2,40,000/- per annum to the assessee for both the years under consideration, no further relief needs to be extended to the assessee in this regard. - Decided against assessee Disallowance of business expenditure - addition on the ground that the same was personal in nature - Held that - The impugned expenditure has been incurred on buying car accessories for a vehicle which is not owned by the assessee company but by the employee of the company. Accordingly, we uphold the sustenance of disallowance by the Ld. CIT (A) in both the years under consideration - Decided against assessee Disallowance of amount incurred on repair and maintenance of computers - Held that - We agree with the averments of the Ld. AR that these expenses were incurred to keep the assets of the assessee-company in a running condition and they were essentially in the nature of routine repair and maintenance expenditure. The department has also not brought on record any finding of fact that a new asset had been created by spending these amounts. Therefore, we allow ground of the assessee s appeals Assessment of income earned by the assessee by providing services under the head income from business - Held that - This issue is covered in favour of the assessee by the order of the ITAT in assessee s own case for assessment years 2002-03, 2003- 04 and 2006-07 as noted that the assessee had been offering income from consultancy etc. as a business income and the same had been duly accepted by the department since 1988-89. ITAT has further noted that the Assessing Officer, without assigning any valid reason, concluded that it was income from other sources. The ITAT has also noted that the assessee, right from assessment year 1988-89 had been providing various types of services to its franchisees in India and also to its Associated Enterprises. Thereafter, the ITAT upheld the adjudication of the Ld. CIT (A) in holding that the services income received was chargeable as business income. - Decided against revenue Addition on account of royalty expenses - Held that - in the approval, Secretariat of Industrial Assistance (SIA), Govt. of India has used the expression royalty as well as Fee for technical services loosely and interchangeably. It was also noted by the ITAT that these payments were directly related to the business and were incurred wholly and exclusively for running the franchisees within India. This adjudication by the ITAT in assessee s own case also for assessment years 2004-05, 2005-06, 2007-08 and was also upheld by the Hon ble Delhi High Court. During the course of proceedings before us, department could not point out any legal or factual error in the adjudication so reached by the Ld. CIT (A).- Decided against revenue Claim of depreciation on transferred assets - Held that - The facts surrounding this issue are that during the previous year 1988-89 relevant to assessment year 1989-90, some restaurants in Delhi were sold by the assessee on an itemized sale basis wherein all the fixed assets pertaining to these outlets stood transferred to the buyer. The consideration received was appropriated against the security deposit and advance rentals of the restaurants and all fixed assets were transferred at nil consideration. Since no separate sale consideration was received in respect of fixed assets, no reduction was made on account of the same in the block assets and the block of assets continued to exist and, therefore, depreciation was claimed in respect of block of assets. This issue is also covered in favour of the assessee by the order of the ITAT for assessment years 2002-03, 2003-04 and 2006-07 in assessee s own case - Decided against revenue Addition on account of prior period expenses - Held that - As it is the assessee s contention that these expenses were claimed during the year under consideration because the invoices relating to these expenses were received by the assessee during the year under consideration and, therefore, the liability to pay the amounts crystallized only when the invoices were received, CIT (A), while allowing the claim of the assessee in both the years, has followed his orders for earlier assessment years wherein in similar circumstances, he had allowed identical expenses of earlier years. The department could not bring on record any evidence to distinguish the facts in these two years from the facts in earlier years - Decided against revenue Disallowance of 50% of administrative expenses - Held that - The assessee had entered into a tripartite agreement with its franchisee and the subsidiary company wherein it was provided in the tripartite agreement that the franchisee was to pay advertisement and promotional contribution and the assessee company may not pay a separate contribution. The coordinate bench of the ITAT went on to note that the subsidiary was to carry out on no-profit/no-loss basis. The Coordinate Bench of the ITAT held that AO had disallowed the expenses attributable to the subsidiary but the disallowance was not correct as ultimately it was the assessee who had to contribute all the sums as the assessee can either bear the cost of expenses incurred by the subsidiary or separately remit the amount to the subsidiary and, thus, it was the assessee who had to essentially contribute the amounts. - Decided against revenue Addition made on account of Supply Chain Management and reimbursement of expenses received from M/s Pizza Fast Food Pvt. Ltd. - Held that - ITAT s order for assessment year 2002-03 went on to hold that it would create unnecessary complications by excluding these receipts from assessment year 2002-03 and include them in assessment year 2001-02. Thus, it is evident that the ITAT has held that the impugned receipts on account of Supply Chain Management as well as reimbursement of general and administrative expenses were to be taxed in assessment year 2002-03. Once these have been taxed in assessment year 2002- 03, there is no question of bringing them to tax in assessment year 2001-02.
Issues Involved:
1. Validity of reassessment proceedings under Section 148 of the Income Tax Act, 1961. 2. Disallowance of lease rent for rent-free accommodation for the Managing Director. 3. Disallowance of business expenditure as personal in nature. 4. Disallowance of business expenditure as capital in nature. 5. Classification of service income as 'income from business' versus 'income from other sources'. 6. Disallowance of royalty expenses. 7. Disallowance of depreciation on transferred assets. 8. Disallowance of prior period expenses. 9. Disallowance of 50% of administrative expenses. 10. Taxability of Supply Chain Management fees and reimbursement of expenses. Detailed Analysis: 1. Validity of Reassessment Proceedings: - Assessee's Grounds: The assessee challenged the validity of the reassessment proceedings under Section 148 of the Income Tax Act, 1961. - Tribunal's Decision: The ground was not pressed by the assessee for both assessment years 2000-01 and 2001-02, and thus, it was dismissed. 2. Disallowance of Lease Rent: - Assessee's Argument: The assessee argued that the lease rent for the Managing Director's accommodation was in accordance with the employment contract and should be allowed as a business expense. - Tribunal's Decision: The ITAT upheld the partial disallowance of the lease rent, allowing only ?2,40,000 per annum as a deduction, consistent with earlier years' decisions. 3. Disallowance of Business Expenditure as Personal in Nature: - Assessee's Argument: The assessee contended that the expenses were incurred as per company policy and were taxed as perquisites in the hands of the employees. - Tribunal's Decision: The ITAT upheld the disallowance, stating that the assessee did not provide sufficient evidence to prove that the expenses were obligatory business expenses. 4. Disallowance of Business Expenditure as Capital in Nature: - Assessee's Argument: The assessee argued that the expenses were for routine repairs and maintenance, such as purchasing RAM and hard disks, and should be treated as revenue expenditure. - Tribunal's Decision: The ITAT allowed the deduction of these expenses, agreeing that they were for maintaining the assets in running condition and did not create new assets. 5. Classification of Service Income: - Department's Argument: The department challenged the classification of service income as 'income from business'. - Tribunal's Decision: The ITAT upheld the classification of service income as 'income from business', citing consistent treatment in earlier years and acceptance by the department. 6. Disallowance of Royalty Expenses: - Department's Argument: The department argued that the royalty expenses should be treated as capital in nature. - Tribunal's Decision: The ITAT upheld the deletion of the addition, stating that the royalty expenses were directly related to the business and were incurred wholly and exclusively for running the franchisees within India. 7. Disallowance of Depreciation on Transferred Assets: - Department's Argument: The department challenged the allowance of depreciation on transferred assets. - Tribunal's Decision: The ITAT upheld the allowance of depreciation, following earlier decisions where it was held that the block of assets continued to exist, and thus, depreciation was claimable. 8. Disallowance of Prior Period Expenses: - Department's Argument: The department argued that the expenses did not pertain to the assessment years under consideration. - Tribunal's Decision: The ITAT upheld the deletion of the addition, agreeing that the liability to pay crystallized when the invoices were received, consistent with earlier decisions. 9. Disallowance of 50% of Administrative Expenses: - Department's Argument: The department challenged the deletion of the disallowance of 50% of administrative expenses. - Tribunal's Decision: The ITAT upheld the deletion, stating that the subsidiary operated on a no-profit/no-loss basis, and the assessee was ultimately responsible for the expenses. 10. Taxability of Supply Chain Management Fees and Reimbursement of Expenses: - Department's Argument: The department challenged the deletion of the addition on account of Supply Chain Management fees and reimbursement of expenses. - Tribunal's Decision: The ITAT upheld the deletion, noting that these receipts were to be taxed in the subsequent assessment year as per earlier decisions. Conclusion: The appeals by the assessee for both assessment years were partly allowed, while the appeals by the department for both assessment years were dismissed. The ITAT's decisions were largely consistent with earlier rulings and upheld the findings of the Commissioner of Income Tax (Appeals) on most issues.
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