2022 (10) TMI 158 - AT - Income Tax

Disallowance of testing and coordination expenses - Disallowance of the expenditure primarily for the reason of non-deduction of tax at source - HELD THAT - AO has made a passing reference to section 37(1) - Commissioner (Appeals) having found that the reasoning of the assessing officer, in so far as, it relates to non-deduction of tax at source is factually incorrect, proceeded to sustain a part of the disallowance by stating that they are not wholly and exclusively for the purpose of business. On a perusal of invoices placed before us, it is observed that assessee, indeed, has incurred the expenses for testing of the product. Therefore, the observation of Commissioner (Appeals) that the expenditure incurred is not wholly and exclusively for the purpose of business appears to be without verification of facts on record. In any case of the matter, it has been brought to our notice by the learned representative of the assessee, which has not been controverted by learned Departmental Representative, in the preceding assessment years, the revenue has never doubted the nature and character of the expenditure to be for the purpose of business. Accordingly, we delete the disallowance. Disallowance of management fee - Disallowance under dispute was made on the basis that assessee had not deducted tax at source. However, it is the claim of assessee that tax, in fact, was deducted at source and deposited to the government account during the year. Considering assessee s contention, we direct the assessing officer to verify assessee s claim by examining the relevant TDS challan and other material on record and delete the disallowance made if it is found that the assessee has deducted tax at source. Disallowance of depreciation on goodwill - As in earlier assessment years, we respectfully follow the decision of the coordinate Bench, as relying on Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT and allow assessee s claim. Accordingly, assessing officer is directed to delete the disallowance.

Summary

Issues:
1. Disallowance of testing and coordination expenses
2. Disallowance of management fee
3. Disallowance of depreciation on goodwill

Issue 1: Disallowance of Testing and Coordination Expenses
The appeal arises from an order concerning the disallowance of testing and coordination expenses by the assessing officer under Section 40(a)(i) of the Act. The Commissioner (Appeals) disallowed a portion of the expenses, stating they were not incurred wholly and exclusively for business purposes under Section 37(1) of the Act. The Tribunal noted that the assessing officer primarily disallowed the expenses due to non-deduction of tax at source. The Commissioner (Appeals) upheld part of the disallowance based on business purpose criteria. However, the Tribunal found that the expenses were indeed related to business activities, as evidenced by invoices. The Tribunal observed that similar payments in preceding years were allowed, indicating a consistent business purpose. Consequently, the Tribunal held the disallowance by the Commissioner (Appeals) as unjustified and deleted the disallowance amount.

Issue 2: Disallowance of Management Fee
The assessing officer disallowed the management fee under Section 40(a)(i) due to alleged non-deduction of tax at source, a decision upheld by the Commissioner (Appeals). The Tribunal noted a discrepancy in the disallowance amount mentioned in the appeal grounds and the actual disallowed sum. The appellant claimed that tax was deducted at source and deposited during the year, supported by TDS challan. Both the appellant and the Departmental Representative agreed on this point. The Tribunal directed the assessing officer to verify the TDS challan and relevant records to confirm the deduction, instructing deletion of the disallowance if tax deduction was indeed made.

Issue 3: Disallowance of Depreciation on Goodwill
The appellant contested the disallowance of depreciation on goodwill, citing a favorable decision in its own case for the assessment year 2007-08. Referring to a previous Tribunal decision and the Supreme Court's ruling in a related case, the Tribunal allowed the appellant's claim for depreciation on goodwill. Given the consistent favorable decisions in earlier assessment years, the Tribunal directed the assessing officer to delete the disallowance of depreciation on goodwill.

In conclusion, the Tribunal allowed the appeal, overturning the disallowances of testing and coordination expenses, management fee, and depreciation on goodwill. The Tribunal's decisions were based on the evidence presented, past rulings, and legal interpretations of relevant sections of the Income Tax Act.