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2019 (8) TMI 1053 - AT - Income TaxViolation of Section 144C - validity of the order passed u/s.143(3) r.w.s. 144C stating that the Assessing Officer had passed draft assessment order without following the mandate as laid down u/s.144C - HELD THAT - Firstly assessment order in the present case was passed u/s.143(3) r.w.s. 144C of the Act. There is no such demand notice that is being sent and therefore the character of the assessment order is that of the draft assessment order. Therefore there is no violation of Section 144C. We therefore uphold the validity of assessment order passed u/s. 143(3) r.w.s.144C of the Act. Thus additional ground No.1 is dismissed. Non- disallowance of Educational Cess - HELD THAT - It is seen that relying on Circular F. No. 91/58/66-ITJ(19) dt. 18th May 1967 the Hon ble Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd. 2018 (10) TMI 589 - RAJASTHAN HIGH COURT has held that Education cess is not disallowable u/s 40(a)(ii) of the Act. The said judgment has also been followed by the Pune bench of the Tribunal in DCIT vs. Bajaj Allianz General Insurance Company Ltd. 2019 (8) TMI 370 - ITAT PUNE a copy of which has been placed on record by the ld. AR. No contrary precedent has been brought to our notice by the ld. DR. Following the precedent we allow this additional ground of appeal Depreciation on the amount of capital expenditure incurred by the assessee on certain premises - HELD THAT - For the A.Y. 2004-05 in which the Tribunal noticed that the assessee purchased a property during the year and carried out suitable repairs/renovation to make it fit for use. The decision of the ld. CIT(A) capitalizing 40% of the expenditure as against 80% done by the AO was approved by the Tribunal. Once a particular amount has been held to be capital expenditure on a building purchased by the assessee the same has to be subjected to depreciation. As the Tribunal has approved the capitalizing of certain amount to Building account we therefore direct the AO to allow depreciation on such amount as per law. Sales to Associated Enterprises (AEs) - HELD THAT - Assessment year 2005-06 and demonstrated that the subject matter and facts for both these assessment years are similar. It is seen that sales to AEs is always more. At Page 661 onwards Volume-I of the Paper book the entire details of sales have been placed before us. AR further contended that for assessment year 2005-06 the Tribunal in assessee s own case (supra.) in detailed has determined this issue restoring the matter to the file of the AO/TPO for deciding it afresh giving certain directions.That on similarity of facts and circumstances first ground is remitted back to the file of Assessing Officer/TPO with similar directions as referred hereinabove. Thus first ground of appeal by the assessee is allowed for statistical purposes Royalty payment made by the assessee to its AEs - HELD THAT - As in assessment year 2005-06 in assessee s own case TPO is required to determine the ALP of an international transaction under one of the methods mandated under rule 10B of the Income-tax Rules 1962. Nothing of the sort has been done in the instant case. The TPO got influenced with extraneous reasons which have no bearing on the determination of the ALP of an international transaction. It is further observed that similar issue of payment of royalty came up for consideration before the Tribunal in assessee s own case for the earlier assessment years in which deletion of transfer pricing addition on payment of royalty by the ld. first appellate authority has been upheld. Considering the entire conspectus of the case including the fact that the payment of Royalty to the AEs was as per RBI norms we are satisfied that the view taken by the ld. CIT(A) is unassailable International transaction of receipt of indenting commission - HELD THAT - In the present facts and circumstances we have analyzed that no such calculation has been taken into account by the Sub-ordinate Authorities in any of their respective orders either by the Assessing Officer/TPO or DRP. Hence in the present facts and circumstances this issue is remitted back to the file of Assessing Officer/TPO for fresh adjudication and the assessee is directed to submit calculation before the Assessing Officer on the issue and thereafter the Assessing Officer shall adjudicate the same after considering our decision as rendered in assessee s own case for assessment year 2005-06(supra.). Needless to say AO/TPO shall grant reasonable opportunity of hearing to the assessee in accordance with law. Thus this ground of appeal is allowed for statistical purposes. Expenditure on premises-Treated as Capital - HELD THAT - We uphold the capitalization of expenses in relation to the premises @40% in this year also. It is directed that the assessee be allowed depreciation on such capitalized amount. Thus this ground of appeal of the assessee is partly allowed. Ad-hoc disallowance of miscellaneous expenses @ 10% - HELD THAT - Assessing Officer to the amount disallowable out of miscellaneous expenses in accordance with the directions given in the immediately two preceding years on this score.That for this year also the impugned order is set aside and the matter is remitted back to the file of Assessing Officer with similar directions and the Assessing Officer shall decide the issue accordingly after providing reasonable opportunity of hearing to the assessee. As the AO has himself disallowed 10% of the remaining expenses we direct that the disallowance for this year should be restricted to 10% instead of 15%. The Assessing Officer is also directed to verify the gifts. Thus this ground of appeal is allowed for statistical purposes. Payment of VRS expenditure is allowable or not for deduction u/s.35DDA - HELD THAT - In assessee s own case for earlier years as well. The Tribunal has held the assessee to be entitled to deduction u/s.35DDA on the basis of incurring of liability. A further direction has been given to ensure that the assessee does not get deduction on actual payment basis. The impugned order is set aside to this extent and the matter is remitted to the AO for allowing deduction only towards incurring of liability i.e. on accrual of liability towards VRS u/s.35DDA and that no amount should be allowed as deduction on payment basis.
Issues Involved:
1. Validity of the order passed u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961. 2. Non-disallowance of Educational Cess. 3. Consequential claim of depreciation on capital expenditure. 4. Sales to Associated Enterprises (AEs). 5. Royalty payment to AEs. 6. International transaction of receipt of indenting commission. 7. Benefit of variation/reduction of 5% from the Arithmetic Mean. 8. Software development expenses treated as capital. 9. Expenditure on premises treated as capital. 10. Ad-hoc disallowance of miscellaneous expenses. 11. Allowance of commission expenses. 12. Deduction of VRS expenditure u/s 35DDA. 13. Deduction u/s 35DD for amalgamation expenses. 14. Deduction towards provision for warranty. Detailed Analysis: 1. Validity of the Order Passed u/s 143(3) r.w.s. 144C: The assessee challenged the validity of the order, arguing that the Assessing Officer (AO) issued a draft assessment order along with a notice u/s 274 r.w.s. 271(1)(c) without following the mandate of Section 144C. The Tribunal found that the draft assessment order was accompanied by the notice u/s 274 r.w.s. 271(1)(c), but no demand notice u/s 156 was sent. Thus, the character of the assessment order was deemed a draft assessment order, and there was no violation of Section 144C. The additional ground was dismissed. 2. Non-disallowance of Educational Cess: The assessee argued that Education Cess should be allowed as a deduction, relying on the Hon’ble Rajasthan High Court's judgment in Chambal Fertilizers Ltd. The Tribunal followed the precedent and allowed the additional ground, stating that Education Cess is not disallowable u/s 40(a)(ii). 3. Consequential Claim of Depreciation: The assessee sought depreciation on capital expenditure incurred on premises. The Tribunal, following its earlier decision, directed the AO to allow depreciation on such capitalized amounts, maintaining consistency with the previous assessment year. 4. Sales to Associated Enterprises (AEs): The assessee contended that the disputed sales amounting to Rs. 7.28 Crores should be treated similarly to the previous year. The Tribunal remitted the issue back to the AO/TPO for fresh adjudication with similar directions as given in the earlier year. 5. Royalty Payment to AEs: The Tribunal found that the royalty payments were made as per RBI-approved rates and that the TPO's determination of Nil ALP was based on extraneous reasons. Following the precedent, the Tribunal allowed the ground in favor of the assessee. 6. International Transaction of Receipt of Indenting Commission: The Tribunal observed that the ALP of commission income was within the permissible range in the previous year. However, since no calculation was considered by the subordinate authorities, the issue was remitted back to the AO/TPO for fresh adjudication. 7. Benefit of Variation/Reduction of 5% from the Arithmetic Mean: The assessee did not press this ground, and it was dismissed as "not pressed." 8. Software Development Expenses Treated as Capital: The Tribunal noted the need for detailed verification to determine the nature and endurability of the software expenses. The issue was remitted back to the AO for adjudication, considering the documentation provided by the assessee. 9. Expenditure on Premises Treated as Capital: The Tribunal upheld the capitalization of 40% of the expenses on premises, directing the AO to allow depreciation on the capitalized amount, consistent with the previous year. 10. Ad-hoc Disallowance of Miscellaneous Expenses: The Tribunal followed its earlier decision, remitting the issue back to the AO with directions to restrict the disallowance to 10% of the remaining expenses instead of 15%. 11. Allowance of Commission Expenses: The Tribunal allowed the ground in favor of the assessee, maintaining consistency with the previous years where similar issues were decided in favor of the assessee. 12. Deduction of VRS Expenditure u/s 35DDA: The Tribunal directed the AO to allow the deduction towards the incurring of liability on accrual basis and not on payment basis, following the precedent set in the earlier year. 13. Deduction u/s 35DD for Amalgamation Expenses: The Tribunal allowed the ground in favor of the assessee, following the earlier decision where similar issues were decided in favor of the assessee. 14. Deduction Towards Provision for Warranty: The Tribunal restored the issue back to the AO to be decided as per the directions given in the earlier year. Conclusion: The appeal of the assessee was partly allowed for statistical purposes, with several issues remitted back to the AO for fresh adjudication and others decided in favor of the assessee, maintaining consistency with the previous years' decisions.
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