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2021 (3) TMI 1 - AT - Income TaxClaim of education cess - Whether liability for education cess on income tax paid for the year ought to be allowed as tax deductable expenses while computing the taxable income. - HELD THAT - 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 . No contrary precedent has been brought to our notice by the ld.DR. Following the precedent, we allow this additional ground of appeal. - Also see SESA GOA LIMITED, VERSUS THE JOINT COMMISSIONER OF INCOME-TAX, RANGE 1, PANAJI GOA. 2020 (3) TMI 347 - BOMBAY HIGH COURT - Decided in favour of assessee. Depreciation on the expenditure of premises - revenue or capital expenditure - HELD THAT - As decided in own case 2019 (8) TMI 448 - ITAT PUNE 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. Disallowance of depreciation on the expenditure of software - HELD THAT - Once such software development have been treated as capital expenditure, then it is but natural that depreciation on the same will have to be allowed in the succeeding years as well, including the year under consideration. However, it is relevant to keep in mind that the assessments of the assessee for the assessment years 2008-09 and 2009-10 have been quashed by the Tribunal on a legal issue. Thus while granting consequential depreciation on the software development cost for the year under consideration, the AO should keep in mind to compute the opening w.d.v. by reducing not only the depreciation granted by him for the A.Y. 2007-08 but also deemed depreciation at the rate of 60% for the next two years, whose assessments have been quashed. Only the remaining amount will constitute opening w.d.v. of the software development cost on this score. Accordingly, additional ground No.3 is allowed to this extent. TP Adjustment - benchmarking export of finished goods to associated enterprises - TPO accepted that TNMM is the most appropriate method for sales - HELD THAT - Sales to its AE and non-AEs which were effected, they belongs to different geographical location, different quantities lifted and customization of products. Such differences have significant bearing on the price charged by the assessee. No adjustment has been allowed by the TPO on account of such differences. In the same manner, the ld. DR also could point out any mechanism for giving adjustment on account of such material differences. In such circumstances, the price charged from AEs and non-AEs cannot be compared under the CUP method. The Hon ble jurisdictional High Court in Pr. CIT Vs. Amphenol interconnect India Pvt. Ltd.. 2018 (3) TMI 536 - BOMBAY HIGH COURT has held that the CUP method is not appropriate method in case of geographical difference, volume difference, timing difference, risk difference and functional difference. There are significant differences in the sales made by the assessee to its AEs and non-AEs, the effect of which has neither been given by the TPO nor it has been shown that how it can be given, we hold that the action of the authorities below in applying the CUP as the most appropriate method cannot be sustained. Following the view taken by the Tribunal in the earlier year in assessee s own case 2019 (8) TMI 1053 - ITAT PUNE we set aside the impugned order and remit the matter back to the file of the AO/TPO with similar directions. Disallowance u/s.14A r.w.r. 8D - HELD THAT - Assessee , has own fund exceeding investment made and the borrowings and therefore, based on the decision of the Hon ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT and HDFC Bank 2014 (8) TMI 119 - BOMBAY HIGH COURT there should not be any disallowance of interest expenses u/s.14A. Therefore, out of the total disallowance made by the Assessing Officer u/s.14A r.w.r.8D, the disallowance in respect of interest expenditure is, therefore, deleted. Disallowance under rule 8D @ 0.5% of the average investment yielding exempt income towards administrative expenses as relying on own case 2019 (7) TMI 949 - ITAT PUNE we direct the Assessing Officer to sustain % of the disallowance on administrative expenses attributable to exempt income.
Issues Involved:
1. Claim of Education Cess 2. Claim of Depreciation on Expenditure of Premises 3. Claim of Depreciation on Expenditure of Software 4. Adjustment to International Transaction of Export of Finished Goods 5. Ad-hoc Disallowance of Miscellaneous Expenses 6. Disallowance under Section 14A of the Income Tax Act Issue-wise Detailed Analysis: 1. Claim of Education Cess: The assessee argued that the liability for education cess on income tax paid should be allowed as a tax-deductible expense. The Tribunal referenced its own previous decision in the assessee's case for AY 2005-06 and the Hon'ble Rajasthan High Court's decision in Chambal Fertilisers and Chemicals Ltd., which held that education cess is not disallowable under section 40(a)(ii) of the Income Tax Act. The Tribunal allowed this additional ground, following the precedent and judicial pronouncements. 2. Claim of Depreciation on Expenditure of Premises: The assessee sought depreciation on expenditures previously held as capital in nature. The Tribunal referenced its decision for AY 2005-06, where it directed the AO to allow depreciation on capitalized expenditures. The Tribunal directed the AO to follow similar directions for AY 2010-11, allowing this additional ground. 3. Claim of Depreciation on Expenditure of Software: The assessee requested depreciation on software development expenses disallowed as capital expenditure in AY 2007-08. The Tribunal noted that the assessee's assessments for AY 2008-09 and 2009-10 were quashed, and directed the AO to compute the opening WDV by reducing depreciation granted for AY 2007-08 and deemed depreciation for the next two years. This additional ground was allowed to this extent. 4. Adjustment to International Transaction of Export of Finished Goods: The AO/TPO applied the CUP method instead of the TNMM for certain sales, leading to an addition of ?47,00,000/-. The Tribunal referenced its own decisions for AY 2005-06 and 2006-07, where it found significant differences in sales to AEs and non-AEs, such as geographical location, quantity, and customization, which were not adjusted by the TPO. The Tribunal held that the CUP method was inappropriate and remitted the matter back to the AO/TPO for fresh determination, following the same directions as in previous years. This ground was allowed for statistical purposes. 5. Ad-hoc Disallowance of Miscellaneous Expenses: The AO disallowed ?2.59 lakhs for lack of evidence, which the CIT(A) reduced to ?1 lakh. The assessee did not press this ground due to its pettiness, and the Tribunal dismissed it as not pressed. 6. Disallowance under Section 14A of the Income Tax Act: The AO disallowed ?40,80,379/- under section 14A, which the CIT(A) reduced to ?36,30,760/-. The Tribunal noted that the assessee had sufficient own funds exceeding the investments, following the Bombay High Court's decisions in Reliance Utilities and Power Ltd. and HDFC Bank. The Tribunal deleted the disallowance of interest expenses and directed the AO to sustain 0.5% of the disallowance on administrative expenses attributable to exempt income. This ground was partly allowed. For AY 2011-12: The Tribunal noted that the issues and facts were identical to those in AY 2010-11. It applied the same decisions for additional grounds and grounds in the appeal memo, allowing the appeal partly for statistical purposes. Conclusion: Both appeals were partly allowed for statistical purposes. The Tribunal directed the AO/TPO to follow specific directions for fresh determination of certain issues and allowed certain claims based on precedents and judicial pronouncements.
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