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2021 (10) TMI 730 - AT - Income TaxNature of expenditure - consultancy expenses - revenue or capital expenditure - AO in the assessment order disallowed the expenses mainly on the ground that no evidences were furnished before him - HELD THAT - AO has nowhere held that expenses are in the nature of the capital, which results in entering benefit to the assessee. Thus, the ground taken by the revenue itself is not sustainable in absence of any finding of the Assessing Officer, which could support the ground. CIT(A) has deleted the disallowance after observing that genuineness of the expenses was not doubted by the AO in the remand report and the assessee duly deducted tax at source on the impugned payments. In our opinion, there is no infirmity in the finding of the Learned CIT(A) on the issue in dispute, accordingly, we uphold the same - Decided against revenue. Disallowance of advertisement and marketing expenses - no evidences of expenses incurred wholly and exclusively for the purpose of the business, were furnished before the Assessing Officer - HELD THAT - AO has made disallowance under section 35D of the Act without verifying the requisite condition that said expenses were incurred before commencement of the business or in connection with the expansion or setting up of new unit by the assessee. AO has also not brought on record how the benefit of expenses on advertisement spills out to future years. AO being a quasi-judicial authority cannot disallow merely on presumption basis. CIT(A) has deleted the disallowance following the decision of the Hon ble High Court and holding that even advertisement expenses incurred by the assessee on brand image as revenue in nature. We find that the Tribunal in assessment year 2009-10 2019 (1) TMI 464 - ITAT DELHI in the case of the assessee itself has held the advertisement expenses as revenue in nature As decided in own case since the genuineness of the expenditure is not in dispute and the dispute is only regarding capital or revenue expenditure in nature decided the issue in favour of the assessee holding that the expenditure incurred by the assessee on glow sign boards and a neon sign boards is revenue in. nature and allowable as deduction under section 37 (1) of the Act. - Decided against revenue. Disallowance on account of cost of equity placement - appointment of agents/dealers for carrying out operation of outlets - As per AO benefit of appointment of agents spill overs to future years and, therefore, expenses are of capital nature. However, he consider the expenses under section 35 D(1)(ii) for incurring market survey in relation to extension of the undertaking and allowed 10% of the expenses and disallowed balance expenses - HELD THAT - As AO has failed to establish that expenses incurred are before commencement of the business or in connection with extension of or setting up of new unit after commencement of the business, and, therefore disallowance under section 35 D(1)(ii) of the Act by the Assessing Officer is not justified. The order of the Ld. CIT(A) on the issue in dispute is well reasoned and we do not find any error in the same. Accordingly, we uphold the finding of the Learned CIT(A) on the issue in dispute. Ground of the appeal of the Revenue is accordingly dismissed. Disallowance on account of employees recruitment expenses - Addition made as assessee fetch benefit of such expenses for longer time - CIT(A) deleted the disallowance holding that payment made to recruitment agencies was revenue in nature - HELD THAT - We find that assessee has claimed service charges paid to recruitment agencies and charges paid for outsourcing services as revenue expenditure. AO has alleged that these expenses have provided long-term benefit to the assessee, but he has not given any reasoning as how the said expenses give long-term benefit to the assessee. DR also could not explain as how the said expenses give long-term or enduring benefit to the assessee. In view of the failure on the part of the Revenue to establish that expenses incurred are capital in nature, we do not find any error in the finding of the Learned CIT(A). Addition on account of expenses recovered from Oxygen Infovision Private Limited (OIPL) - assessee submitted that amount recovered from OIPL was credited to salary account of Sri Pramod Saxena and deduction of only net salary was claimed by the assessee - CIT-A deleted the addition - HELD THAT - As before the ld. CIT(A), the assessee has duly explained as why the said recovery of expenses has not been credited to profit and loss account. The assessee has claimed net salary (salary due minus(-) payment recovered from OIPL) paid to Mr Pramod Saxena only. DR did not find any mistake in the accounting entry carried out by the assessee. In the circumstances, we uphold the order of Ld. CIT(A) on the issue. Disallowance on account of the depreciation claimed on POS terminals - assessee claimed the depreciation at the rate of 60% claiming the POS terminals as part of the computer, whereas AO allowed the depreciation at the rate of 15% treating the POS terminals as part of plant and machinery - HELD THAT - We find that this issue is covered in favour of the assessee by the order of the Tribunal in the case of the assessee for assessment year 2009-10 2019 (1) TMI 464 - ITAT DELHI wherein Tribunal has allowed the depreciation at the rate of 60% on POS terminals. Depreciation at the rate of 60% percent on UPS - AO treated the UPS as not part of the computer and only part of plant and machinery and allowed the depreciation at the rate of 15% only - CIT(A) allowed the claim of the assessee - HELD THAT - As issue in dispute is covered in favour of the assessee by the order of the Tribunal in assessment year 2008-09 and 2010-11 2019 (2) TMI 993 - ITAT DELHI held that UPS forms part of the computer periphery and depreciation at a 60% is allowable. Disallowance under section 14A - investment in shares and mutual funds by the assessee and thus invoking Rule 8D of the Rules made disallowance - HELD THAT - As relying on case of Chemnivest 2015 (9) TMI 238 - DELHI HIGH COURT the expression does not form part of the total income in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. - Decided in favour of assessee. Late payment of Provident Fund (PF) and Employees State Insurance (ESI) - Addition u/s 36(1)(va) read with section 2(24)(x) for the reason that the assessee did not deposit the provision toward PF and ESI within the limitation stipulated in respective enactments - CIT(A) deleted the addition - HELD THAT - As relying on case of Bharat Hotels Ltd 2018 (9) TMI 798 - DELHI HIGH COURT . we restore this issue to the file of the Learned Assessing Officer for deciding afresh in accordance with law.
Issues Involved:
1. Deletion of disallowance of ?9,37,061/- on account of consultancy expenses. 2. Deletion of disallowance of ?1,33,04,522/- on account of advertisement and marketing expenses. 3. Deletion of disallowance of ?31,72,877/- on account of cost of equity placement. 4. Deletion of disallowance of ?20,10,202/- on account of employees recruitment expenses. 5. Deletion of addition of ?1,12,82,802/- made on account of expenses recovered from Oxigen Infovision Pvt. Ltd. 6. Deletion of disallowance of depreciation of ?5,19,41,056/- claimed at a higher rate of 60% on POS terminals. 7. Deletion of disallowance of depreciation of ?47,288/- claimed at a higher rate of 60% on UPS. 8. Deletion of disallowance of ?4,86,094/- made u/s 14A r.w.r. 8D. 9. Deletion of addition of ?53,627/- on account of PF contribution not allowable as deduction u/s 36(1)(va). Issue-wise Detailed Analysis: 1. Consultancy Expenses: The Revenue contended that the consultancy expenses of ?9,37,061/- were capital in nature due to enduring benefits. The Tribunal noted that the Assessing Officer disallowed the expenses due to lack of evidence but did not classify them as capital expenses. The CIT(A) deleted the disallowance after verifying the genuineness of the expenses and TDS deductions. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground. 2. Advertisement and Marketing Expenses: The Revenue argued that the advertisement expenses of ?1,33,04,522/- provided enduring benefits and should be treated as capital expenditure. The Tribunal observed that the Assessing Officer disallowed the expenses under Section 35D without establishing that they were incurred before business commencement or for new unit setup. The CIT(A) allowed the expenses as revenue expenditure, supported by High Court and Tribunal precedents. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground. 3. Cost of Equity Placement: The Revenue contended that the equity placement expenses of ?31,72,877/- were capital in nature. The Tribunal found that the Assessing Officer incorrectly categorized these expenses under Section 35D. The CIT(A) clarified that the expenses were for professional services related to due diligence and valuation, not for market surveys or agent appointments. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground. 4. Employees Recruitment Expenses: The Revenue argued that the recruitment expenses of ?20,10,202/- provided long-term benefits. The Tribunal noted that the Assessing Officer failed to demonstrate how these expenses provided enduring benefits. The CIT(A) allowed the expenses as revenue expenditure, supported by Tribunal precedents. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground. 5. Expenses Recovered from Oxigen Infovision Pvt. Ltd.: The Revenue argued that the recovered expenses of ?1,12,82,802/- should be credited to the profit and loss account. The Tribunal found that the assessee had claimed net salary after deducting the recovered amount. The CIT(A) accepted the assessee's explanation and deleted the addition. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground. 6. Depreciation on POS Terminals: The Revenue contended that POS terminals should be depreciated at 15% as plant and machinery, not 60% as computers. The Tribunal noted that the issue was settled in favor of the assessee by High Court and Tribunal precedents, which classified POS terminals as computer peripherals eligible for 60% depreciation. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground. 7. Depreciation on UPS: The Revenue argued that UPS should be depreciated at 15% as plant and machinery, not 60% as computer peripherals. The Tribunal found that the issue was settled in favor of the assessee by High Court and Tribunal precedents, which classified UPS as computer peripherals eligible for 60% depreciation. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground. 8. Disallowance under Section 14A: The Revenue contended that the disallowance of ?4,86,094/- under Section 14A was justified. The Tribunal noted that the CIT(A) deleted the disallowance based on High Court precedents, which held that Section 14A does not apply if no exempt income is received during the relevant year. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground. 9. PF Contribution: The Revenue argued that the PF contribution of ?53,627/- was not allowable as a deduction due to delayed payment. The Tribunal noted conflicting High Court decisions on the issue. The Tribunal restored the issue to the Assessing Officer for fresh consideration in accordance with law. Conclusion: The Tribunal upheld the CIT(A)'s decisions on all grounds except for the PF contribution issue, which was remanded to the Assessing Officer for fresh consideration. The appeal of the Revenue was partly allowed for statistical purposes.
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