2020 (11) TMI 695 - AT - Income Tax

Disallowing the non-compete fee - Nature of expenditure - revenue or capital expenditure - HELD THAT - The above issue stands decided against the assessee by the Tribunal in assessee s own case for A.Y. 2002- 03 Tribunal again, in assessee s own case for A.Y. 2001-02 2020 (4) TMI 823 - ITAT DELHI has decided the issue regarding disallowance of non-compete fee against the assessee by following the decision of the Tribunal in assessee s own case for A.Y. 2002-03. In view of the consistent decision of the Tribunal in assessee s own case, the grounds raised by the assessee have to be decided against the assessee. Disallowing being 1/5th of service charge and processing charges debited to the Profit Loss Account - HELD THAT - CIT(A) upheld the action of the AO on the ground that the assessee failed to demonstrate before him with any evidence to substantiate such service charges and processing charges. While doing so, he also rejected the additional evidences filed before him. It is the submission of the ld. Counsel that such additional evidences were crucial for deciding the issue before the CIT(A) which he should have admitted. Further, once he has called for a remand report from the AO, he should have admitted those additional evidences. It is also his alternate submission that in subsequent assessment years, i.e., from A.Y. 2006-07 to 2009-10, such disallowances made by the AO were deleted by the CIT(A) and in A.Y. 2010-11, no such disallowance has been made by the AO. - we deem it proper to restore the issue to the file of the AO with a direction to grant one final opportunity to the assessee to file the requisite details and reconcile the differences between outstanding appearing in its books of account and the balance appearing in the accounts of the third parties. The assessee is directed to file the requisite details and necessary evidences to substantiate the claim of such service charges and processing charges. MAT computation u/s 115JB - CIT (A) directing the AO to exclude the share premium amount from the book profit calculated for the purposes of Section 115JB - HELD THAT - No infirmity in the order of the CIT(A) approving the adjustment of security premium account with brought forward losses. Further, the Hon ble Supreme Court in the case of Apollo Tyres 2002 (5) TMI 5 - SUPREME COURT has held that the AO does not have the jurisdiction to go beyond the net profit shown in the Profit Loss Account except to the extent provided in the Explanation to section 115J which has been relied on by the CIT(A). In view of the above and in view of the detailed reasoning given by the CIT(A) at para 6.3 of his order, we do not find any infirmity in the same in absence of any contrary material brought to our notice by the ld. DR. Accordingly, the order of the CIT(A) is upheld and the ground raised by the Revenue is dismissed.

Summary

Issues Involved:
1. Disallowance of non-compete fee as capital expenditure.
2. Disallowance of 1/5th of service and processing charges.
3. Addition on account of excise duty exemption.
4. Inclusion of share premium amount in book profit for MAT purposes.

Issue-wise Detailed Analysis:

1. Disallowance of Non-compete Fee as Capital Expenditure:
The assessee claimed a non-compete fee of ?48,34,13,706 as revenue expenditure, which the AO disallowed, treating it as capital expenditure. The CIT(A) upheld this disallowance. The Tribunal noted the consistent decisions in the assessee's own cases for previous assessment years (A.Y. 2002-03 and A.Y. 2001-02) where the non-compete fee was held to be capital expenditure. Therefore, the Tribunal dismissed the grounds raised by the assessee, including the additional ground, maintaining the disallowance of the non-compete fee as capital expenditure.

2. Disallowance of 1/5th of Service and Processing Charges:
The AO disallowed ?9,27,19,720, being 1/5th of service and processing charges, due to the assessee's failure to provide details and justifications. The CIT(A) upheld this disallowance, rejecting additional evidence submitted by the assessee. The Tribunal, considering the assessee's argument that adequate opportunity was not provided and the additional evidence should have been admitted, restored the issue to the AO. The Tribunal directed the AO to grant the assessee a final opportunity to file requisite details and reconcile differences with third-party accounts, thereby allowing the grounds for statistical purposes.

3. Addition on Account of Excise Duty Exemption:
The assessee did not press grounds related to the addition on account of excise duty exemption (Ground Nos. 13-17). Consequently, the Tribunal dismissed these grounds as not pressed.

4. Inclusion of Share Premium Amount in Book Profit for MAT Purposes:
The AO included ?2,086.14 crores from the share premium account in the book profit for MAT purposes, arguing it was utilized to write off accumulated brought forward losses, thus partaking the character of a revenue receipt. The CIT(A) deleted this addition, reasoning that the share premium account is not a reserve and its reversal need not be reflected in the profit & loss account. The CIT(A) relied on the decision of the Hon'ble Delhi High Court and the Supreme Court in Apollo Tyres Ltd. vs. CIT, holding that the AO cannot go beyond the net profit shown in the profit & loss account except as provided in the Explanation to section 115JB. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Conclusion:
The appeal filed by the assessee was partly allowed for statistical purposes, and the appeal filed by the Revenue was dismissed. The Tribunal's order was pronounced on 19.10.2020.