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2021 (6) TMI 884 - AT - Income TaxDepreciation on Goodwill - HELD THAT - We in the backdrop of the aforesaid judgment of the Hon ble Supreme Court in the case of Smifs Securities ltd. 2012 (8) TMI 713 - SUPREME COURT are unable to concur with the view taken by the lower authorities that goodwill is not a depreciable asset eligible for depreciation, and accordingly, vacate the same. Resultantly, the disallowance of the assessee s claim for depreciation on goodwill is vacated. Disallowance of Staff welfare expenses - HELD THAT - Admittedly, in the present case also, the A.O while resorting to an ad hoc disallowance out of the staff welfare expenses had not called upon the assessee to furnish the details in respect of the staff welfare expenses which as per him were not verifiable. As such, the assessee had suffered the aforesaid part disallowance of staff welfare expenses without being afforded a sufficient opportunity of being heard. We, thus, in terms of our aforesaid observations are of the considered view that the ad hoc/estimated disallowance of the staff welfare expenses made by the A.O/DRP cannot be sustained and is liable to be vacated. Disallowance of Commission expenses - confirmations of the parties to whom commission was claimed to have been paid by the assessee were not filed in the course of the assessment proceedings - HELD THAT - As material placed on record by the assessee to substantiate the authenticity of the commission expenses; that confirmations from all the dealers could not be obtained after lapse of a substantial period of 5 years (aprox); the PAN Nos. of majority of the parties were furnished by the asssessee; commission expense of ₹ 1.099 crores incurred by the assessee against its sales of ₹ 3,176.56 crores worked out at a miniscule figure of 0.03% of its sales; the assessee had duly demonstrated before the DRP the reason and justification for incurring the commission expenditure; and allowability of a similar claim of commission expenses in the past; and respectfully following the aforesaid order of the Tribunal in the assessee s own case, we find no justification in disallowance of a similarly placed assessee s claim for deduction of commission expenses - We, thus, in terms of our aforesaid observations direct the A.O to vacate the disallowance of commission expenses. Ad hoc disallowance w.r.t miscellaneous expenditure - HELD THAT - On objection filed by the assessee, the DRP had wrongly observed that the disallowance was being restricted to 5% as against 10% made by the A.O, as the facts were never so. Be that as it may, the A.O in his impugned order passed u/s 153A/143(3) r.w.s 144C(1), dated 31.10.2011 though referred to the aforesaid mistake of the DRP but without pointing out as to what all expenses were not supported by documentary evidence, therein restricted the disallowance on an ad hoc basis As neither of the lower authorities had pointed out as to what all expenses out of total miscellaneous expenseswere not supported by documentary evidence, therefore, no ad hoc disallowance under such circumstances could justifiably have been made. In our considered view a disallowance of an expense made by an A.O in the thin air can by no means be sustained. We vacate disallowance made by the A.O/DRP w.r.t the miscellaneous expenses.
Issues Involved:
1. Disallowance of depreciation on goodwill. 2. Ad hoc disallowance of staff welfare expenses. 3. Disallowance of commission payments. 4. Non-grant of credit for tax deducted at source (TDS). 5. Non-grant of credit for self-assessment tax. 6. Calculation of interest under Sections 234A(3), 234B, and 234D. 7. Initiation of penalty proceedings under Section 271(1)(c). Detailed Analysis: 1. Disallowance of Depreciation on Goodwill: The assessee claimed depreciation on goodwill, which was disallowed by the Assessing Officer (A.O.) and upheld by the Dispute Resolution Panel (DRP). The Tribunal referenced the Supreme Court judgment in CIT Vs. Smifs Securities Ltd. (2012) 348 ITR 302 (SC), which recognized goodwill as a depreciable asset under 'Explanation 3(b)' to Sec. 32(1) of the Act. Consequently, the Tribunal allowed the depreciation claim on goodwill for all assessment years involved. 2. Ad Hoc Disallowance of Staff Welfare Expenses: The A.O. disallowed 10% of staff welfare expenses due to lack of detailed documentation, which the DRP reduced to 5%. The Tribunal noted that similar disallowances in previous years were not sustained due to lack of specific evidence or reasoning by the A.O. The Tribunal vacated the ad hoc disallowance, citing insufficient grounds for such disallowance. 3. Disallowance of Commission Payments: The A.O. disallowed commission payments due to lack of confirmations and other details. The DRP upheld this disallowance. The Tribunal admitted additional evidence (confirmations) provided by the assessee and found substantial compliance with the requirements. It noted that the disallowance was not justified given the efforts made by the assessee to obtain confirmations and the lack of any evidence suggesting the payments were not genuine. The Tribunal vacated the disallowance of commission expenses for all assessment years involved. 4. Non-grant of Credit for Tax Deducted at Source (TDS): The assessee claimed that the A.O. did not grant credit for TDS. The Tribunal remanded the issue to the A.O. for verification and directed to grant the credit if found in order. 5. Non-grant of Credit for Self-Assessment Tax: The assessee also claimed that the A.O. did not grant credit for self-assessment tax. The Tribunal remanded this issue to the A.O. for verification and directed to grant the credit if found in order. 6. Calculation of Interest under Sections 234A(3), 234B, and 234D: The assessee disputed the interest calculated under Sections 234A(3), 234B, and 234D. The Tribunal, having vacated the additions/disallowances, directed the A.O. to recompute the interest accordingly. 7. Initiation of Penalty Proceedings under Section 271(1)(c): The assessee contested the initiation of penalty proceedings. The Tribunal dismissed this ground as premature, noting that it could be contested once the penalty is actually levied. Conclusion: The Tribunal allowed the appeals of the assessee for all assessment years involved, vacating the disallowances and remanding certain issues back to the A.O. for verification and appropriate action. The Tribunal's decisions were based on substantial compliance by the assessee and lack of specific evidence or reasoning by the lower authorities to justify the disallowances.
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