2023 (4) TMI 740 - AT - Income Tax

Disallowance of non compete fee - assessee had acquired running businesses of various bottlers companies - HELD THAT - CIT(A) had upheld the order of Ld. AO and the issue was carried forward in the assessment year 2002-03 where Tribunal had upheld the view of ld. Tax Authorities below. Assessee s appeal in this regard stands admitted before Hon ble Delhi High Court 2015 (9) TMI 1712 - DELHI HIGH COURT - Subsequently the appeals for 2001- 02 and 2003-04 have been admitted on the same substantial question of law by Hon ble Delhi High Court. That being the states of facts of the legacy issue the propriety requires to follow the rules of consistency as there is nothing to differ. Thus the issue is decided against the assessee. Consequently the grounds in that regard raised in the respective A.Y. stand dismissed. Disallowance of depreciation claimed on acquisition of distributors list - assessee had appointed as its distributor in Chennai which was earlier distributor of competing product from which it had built a large customer base in Chennai - HELD THAT - As relying judgment of Hon ble Supreme Court in CIT vs. Rajasthan Breweries Ltd. 2011 (11) TMI 727 - SC ORDER of Hon ble Delhi High Court in CIT vs. Oswal Agro Mills 2010 (12) TMI 947 - DELHI HIGH COURT DCIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd 2013 (8) TMI 300 - GUJARAT HIGH COURT Bombay High Court judgment in DIT vs. HSBC Asset Management (I) (P) Ltd. 2014 (10) TMI 103 - HIGH COURT OF BOMBAY and certain judgments of the Tribunal it was submitted that once an asset enters into block of asset and depreciation benefit has been given in the initial year of claim the same cannot be disturbed in the subsequent years. It can be observed that the Ld. tax authorities below have disallowed the expenditure on the basis of non-production of relevant evidence with regard to nature of agreement of assessee with M/s. S.R. Minerals Water. However the fact of allowance of the expenditure in 2003-04 is not disputed by the Revenue. Thus the settled proposition of law that if in the initial year of claim the depreciation is allowed the claim cannot be disturbed in the subsequent years has not been followed by the Ld. Tax Authorities below on the basis of lack of agreement between the assessee and M/s. S.R. Minerals Water, to examine the nature of receipt cannot be sustained and the grounds arising out of this issue in the respective assessment years are allowed in favour of the assessee. Disallowance to the extent of 10% of the processing charges - processing charges were claimed during the relevant previous years and the same have been disallowed on adhoc basis on the basis of non-sustenance of same on the basis of notices issued to the concerned parties - HELD THAT - The bench accordingly is inclined to restore the issue to the files of Ld. AO with direction to examine the issue of processing charges on the basis of evidence made available by the assessee showing genuineness of the payments made to the suppliers. The non-availability of the suppliers or their failure to appear on the behest of assessee is not required to be considered to discredit the expenditure otherwise established from books and mode of payment. Accordingly the ground arising out of this issue in appeal of assessee for the assessment year 2004-05 and 2005-06 are allowed for statistical purposes. Disallowance of CSR expenses - HELD THAT - Expenditure was incurred on activities like installation of handpumps distribution of shoes uniform etc. to school students drought relief measures etc. Ld. AO however considered that these expenses were not substantiated and that the same were ineligible for deduction u/s 37(1) of the Act. Ld. CIT(A) applying Explanation 2 to Section 37(1) of the Act inserted by the Finance Act 2014 with effect from 01.04.2015 observed the same to be clarificatory in nature and made applicable to A.Y. 2004-05. In this context it can be observed that the Raipur Tribunal Bench in the case of Jindal Power Limited 2016 (7) TMI 203 - ITAT RAIPUR and Co-ordinate Delhi Tribunal in The National Small Industries Corp. Ltd. 2019 (2) TMI 1538 - ITAT DELHI while relying CIT vs. Vatika Townships Pvt. Ltd. 2014 (9) TMI 576 - SUPREME COURT have held that the explanation is not retrospective. These decisions of the Tribunal have been followed by Co-ordinate Bench in case of Honda Motorcycle and Scooter India Pvt. Ltd. 2020 (9) TMI 62 - ITAT DELHI . This bench is of considered opinion that there is nothing substantiates to hold a different opinion and accordingly the ground is decided in favour of the assessee. Disallowance expenses incurred on Ice- Boxes - HELD THAT - This bench is of considered opinion that the nature of expenditure on the articles once examined by Co-ordinate Bench cannot be interfered without there being substantial basis to disagree that not being there accordingly following the Co-ordinate Bench decision in assessee s own case for A.Y. 2002-03 the ground is decided against the assessee.

Summary

Issues Involved:
The judgment involves various issues including disallowance of non-compete fee, disallowance of depreciation on distributors list, adhoc disallowance of processing charges, disallowance of CSR expenses, disallowance under section 40(a)(ia) of the Act, and disallowance of expenses on Ice-Boxes.

Issue no. 1 - Disallowance of Non-Compete Fee:
The issue arises from the disallowance of non-compete fee claimed as deferred revenue expenditure. The assessing officer disallowed the deduction considering it as capital expenditure. The CIT(A) upheld the order, and the issue was carried forward to subsequent years. The issue was decided against the assessee based on the principle of consistency.

Issue no. 2 - Disallowance of Depreciation on Distributors List:
The disallowance of depreciation claimed on the acquisition of a distributors list was challenged. The assessee claimed it as a capital expenditure towards acquiring an intangible asset. The Ld. AO disallowed it due to lack of evidence, but the Tribunal allowed it based on previous decisions and the law that depreciation once allowed should not be disturbed in subsequent years.

Issue no. 3 - Adhoc Disallowance of Processing Charges:
The issue involves adhoc disallowance of processing charges claimed for work outsourced to third parties. The Ld. CIT(A) deleted the disallowance in previous years, but the matter was restored to the AO for further examination. The bench directed the AO to re-examine the issue based on evidence provided by the assessee, emphasizing that guesswork cannot be a basis for disallowance.

Issue no. 4 - Disallowance of CSR Expenses:
The disallowance of CSR expenses for the assessment year 2004-05 was challenged. The Ld. AO considered the expenses ineligible for deduction, but the Ld. CIT(A) applied a clarificatory provision which was held not retrospective by various Tribunals. The bench decided in favor of the assessee based on the non-retrospective nature of the provision.

Issue no. 6 - Disallowance of Expenses on Ice-Boxes:
The disallowance of expenses incurred on Ice-Boxes was raised exclusively for A.Y. 2006-07 and 2007-08. The assessee claimed the expenses were for business promotion and advertisement, while the Tribunal considered them capital in nature based on previous decisions. The bench upheld the disallowance following the Co-ordinate Bench decision for A.Y. 2002-03.

Conclusion:
The judgment partially allowed the appeals of the assessee and allowed those of the Revenue for statistical purposes, based on the detailed analysis and determination of each issue.