9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (12) TMI 1502 - AT - Income TaxDeduction u/s 35AB - AO reiterated the addition based on the orders passed in the earlier assessment years - HELD THAT - On mere reading of the provisions of section 35AB of the Act, it would reveal that once the claim was allowed in the first year of payment of lump-sum consideration, the balance 5 instalments shall be allowed as deduction in succeeding 5 years without necessity of looking into the admissibility or otherwise of the claim. Once the claim was allowed in the first year in which lump-sum consideration was paid, the claim in succeeding 5 years shall be allowed automatically unless and until the claim allowed in the initial year was not disturbed under the process known to the law. Therefore, it would suffice to hold that once the claim for deduction u/s 35AB was allowed in initial year, such claim cannot be disallowed subsequently, without disturbing the decision in the initial year. The balance of claim in succeeding 5 years should be allowed as deduction without adjudicating on admissibility of the law. Therefore, we remand this ground of appeal no.1 to the file of the Assessing Officer with direction to allow claim of deduction u/s 35AB of the Act after due verification, if it is found claim u/s 35AB was allowed in the initial year of payment of lump-sum consideration. We held that the claim for deduction u/s 35AB should be allowed in the year under consideration, once the claim was allowed as deduction in the initial assessment year, in the circumstances, it is not necessary to deal with the additional evidence filed before us as the claim for deduction u/s 35AB for the year under consideration does not relate to the initial year payment of lump-sum consideration. Thus, the first ground of appeal raised by the assessee stands partly allowed for statistical purposes. Disallowance of royalty expenses - CIT(A) holding that incremental running royalty expenditure of 2.25% is capital in nature - HELD THAT - Royalty is paid in the case of running business and in terms of number of vehicles sold there is no increase in the capacity and existing productivity. Therefore, royalty paid is to the extent of 2.75% of number of vehicle sold is a revenue expenditure. The relevant findings of the ld. CIT(A) is hereby upheld. Thus, we do not find any infirmity in the order of the ld. CIT(A) holding that the royalty paid in terms of percentage sale is revenue expenditure. Thus, the ground of appeal raised by the Revenue stands dismissed. Disallowance of miscellaneous expenditure - Addition on account of capital etc. on the presumption that the possibility of incurring expenditure for non-business of personal nature cannot be ruled out - HELD THAT - This addition is made merely based on the presumption, assumption, not based on any material brought on record by the AO - CIT(A) restricted the disallowance to Rs. 2,25,000/- even without referring to any material on record. The approach of both the AO as well as the ld. CIT(A) making ad- hoc disallowance cannot be accepted in the absence of any evidence of bogus payments and the disallowance of part of payment on assumption and conjectures has to be rejected. The lower authorities are not justified in assuming that the deduction was actually incurred for personal/non- business purposes without bringing any evidence on record. Therefore, we direct the AO to allow the entire miscellaneous expenses. Ad-hoc disallowance of telephone and travelling expenses - AO disallowed 10% of the travelling expenditure on the ground that the vouchers are self-made - HELD THAT - On careful perusal of the order of the assessment, it would reveal that the AO had resorted disallowance of 10% of the travelling expenditure solely on the ground that the vouchers are self-made and there is no allegation by AO that the expenditure is bogus in nature. Therefore, we do not find any infirmity in the order of the ld. CIT(A). Thus, this ground of appeal no.1 filed by the Revenue is dismissed. Allowance of prior period expenses and sales tax set off written off in the books of account - HELD THAT - CIT(A) considering the evidence filed before him came to the conclusion that the liability on account of technical assistance was crystallized during the previous year relevant to the assessment year under consideration considering the fact that the invoice for the technical assistance fees was received during the previous year relevant to the assessment year under consideration. Similarly, the ld. CIT(A) also held that the sales tax claim written off can be allowed as deduction considering the orders of the sales tax authorities passed during the year under consideration. Therefore, we find that the decision of the ld. CIT(A) is based on the proper appreciation of evidence filed in support of both the claims.
Issues Involved:
1. Deduction under section 35AB of the Income Tax Act. 2. Classification of royalty expenditure as capital or revenue. 3. Ad-hoc disallowance of miscellaneous expenses. 4. Disallowance of travelling and telephone expenses. 5. Disallowance of prior period expenses. Issue-wise Detailed Analysis: 1. Deduction under section 35AB of the Income Tax Act: The appellant, a company engaged in manufacturing and selling cars, claimed a deduction under section 35AB for technical know-how fees. The Assessing Officer disallowed the claim, arguing that the consideration was not paid in cash. The Tribunal noted that once a claim under section 35AB is allowed in the initial year, it must be allowed in subsequent years unless the initial year's claim is disturbed. Therefore, the matter was remanded to the Assessing Officer for verification to ensure the initial year's claim was allowed. 2. Classification of royalty expenditure as capital or revenue: The appellant argued that the royalty expenditure should be treated as revenue. The Assessing Officer had disallowed the entire royalty payment, considering it capital in nature. However, the CIT(A) held that only the incremental royalty was capital expenditure, and the rest was revenue. The Tribunal upheld the CIT(A)'s decision, referencing various High Court rulings that royalty paid as a percentage of sales is typically considered revenue expenditure. 3. Ad-hoc disallowance of miscellaneous expenses: The Assessing Officer made an ad-hoc disallowance of Rs. 25,00,000 from miscellaneous, staff welfare, and advertisement expenses, suspecting non-business purposes. The CIT(A) reduced this to Rs. 2,25,000. The Tribunal found that disallowances based on assumptions without evidence are unjustified and directed the Assessing Officer to allow the entire amount. 4. Disallowance of travelling and telephone expenses: The Assessing Officer disallowed 10% of travelling and telephone expenses, citing self-made vouchers. The CIT(A) allowed these expenses, following the Tribunal's order for the previous assessment year (1999-2000). The Tribunal upheld the CIT(A)'s decision, noting the absence of any allegation of bogus expenses. 5. Disallowance of prior period expenses: The Assessing Officer disallowed prior period expenses related to technical assistance fees and sales tax set-off. The CIT(A) allowed these expenses, considering the evidence that the liabilities crystallized during the relevant assessment year. The Tribunal upheld the CIT(A)'s decision, finding it based on proper evidence. Separate Judgments: - For the assessment year 2000-01, the Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal. - For the assessment year 2001-02, the Tribunal similarly partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal. Conclusion: The Tribunal's comprehensive analysis addressed each issue, emphasizing the importance of evidence and legal consistency in tax deductions and disallowances. The judgment clarified the treatment of technical know-how fees, royalty payments, and the necessity of substantiating claims with proper documentation.
|
