2012 (10) TMI 758 - AT - Income Tax

Liability towards service tax - CIT(A) deleted the disallowance - Held that - payment of service tax was made by the assessee and the payments received by it from the banks and financial companies to whom the services were rendered by the assessee for which the assessee received the demand after the deduction of tax at source. The amount so received by the assessee was eligible to tax and the revenue authorities under Custom & Excise Act raised demand of tax as per provisions contained in Section 68 of the Finance Act, 1964. Also that AO has not brought any fact or evidence to substantiate the fact that the service tax payment made by the assessee was in nature of penalty - in favour of assessee. Depreciation on UPS - @60% OR 15% - Held that - AO has no reason to take a different stand for granting depreciation on computer UPS @ 15% because the computer UPS is also an inseparable peripheral to the computer which is eligible for 60% deprecation. Therefore, CIT(A) rightly allowed depreciation @60% and no reason to interfere with these findings - in favour of assessee. Disallowance u/s 40A(9) - Held that - The assessee company is continuously depositing employees share to Provident Fund (Account 10, Pension) from financial year 2004-05, 2005-06, 2006-07 and 2007-08. The DR did not dispute the fact that this payment has been complying the statutory requirements of the assessee and this kind of payment has not been disputed in the earlier years by the authorities below. Therefore, the findings of the AO cannot be sustained. CIT (A) rightly held that the demand was made on account of statutory liability of the assessee, therefore, the action of the Assessing Officer was misconceived - in favour of assessee. Non deduction of TDS - advertisement and business promotion expenses - Held that - The assessee company had given discount by its principal manufacturer during the financial year under consideration against the various promotional schemes and as per trading account submitted by the assessee before the authorities it is apparent that the assessee has shown purchases of vehicles after deducting the discount from the billing amount. But that the CIT (A) has not discussed and given a finding in this regard that how the discount given by the principal manufacturer by way of deducting the same in the sales bills raised against the assessee and the debit notes raised on assessee by the Principal (Manufacturer) to collect the payment made by principal manufacturer on account of advertisement and sales promotion expenses is co-related and deserves to be allowed as the expenditure incurred by the assessee - thus it is appropriate to restore this issued to the file of CIT(A) for adjudication - in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Deletion of disallowance of service tax payment.
2. Depreciation on UPS as part of the computer.
3. Disallowance under section 40A(9) of the Income Tax Act.
4. Disallowance of advertisement and business promotion expenses under section 40(a)(ia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Service Tax Payment:
The revenue contested the deletion of a disallowance of Rs. 2,36,547/- by the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the payment was in the nature of a penalty and thus not an allowable expenditure. The Assessing Officer (AO) had initially disallowed this amount, claiming it was revenue neutral and lacked satisfactory explanation from the assessee. However, the CIT(A) found that the service tax was a liability incurred by the assessee on payments received from banks and financial companies, which was duly discharged during the accounting period. The tribunal upheld the CIT(A)'s decision, noting that the AO failed to provide evidence that the payment was penal in nature. Consequently, the tribunal dismissed this ground of appeal.

2. Depreciation on UPS as Part of the Computer:
The revenue challenged the CIT(A)'s decision to allow 60% depreciation on the Uninterruptible Power Supply (UPS) system, arguing that the AO correctly applied a 15% depreciation rate, treating UPS as not a computer peripheral. The CIT(A) and the tribunal, however, held that the UPS is an inseparable peripheral to the computer and thus eligible for 60% depreciation. The tribunal found no reason to interfere with the CIT(A)'s findings and dismissed this ground of appeal.

3. Disallowance under Section 40A(9) of the Income Tax Act:
The AO had disallowed Rs. 1,23,654/- under section 40A(9), claiming the assessee failed to provide proof of a separate pension fund. The CIT(A) overturned this disallowance, noting that the payment was a statutory liability consistently allowed in previous years. The tribunal agreed, observing that the assessee had been depositing employees' share to the Provident Fund continuously and that this payment had not been disputed in earlier years. The tribunal dismissed this ground of appeal, supporting the CIT(A)'s decision.

4. Disallowance of Advertisement and Business Promotion Expenses under Section 40(a)(ia):
The AO disallowed Rs. 9,82,037/- spent on the Hero Honda Manufacturer (HHM) scheme, arguing that the expenses were incurred by the principal manufacturer and not the dealer, and that the assessee failed to deduct tax at source. The CIT(A) found that the expenses were for promotional schemes benefiting both the principal and the dealer, and that the amount was reimbursed through discounts on motorcycle purchases. The tribunal, however, noted that the CIT(A) did not adequately address the AO's observations regarding the correlation between discounts and promotional expenses. Consequently, the tribunal restored this issue to the CIT(A) for further adjudication, partially allowing the appeal for statistical purposes.

Conclusion:
The appeal was dismissed for grounds 1, 2, and 3, and partly allowed for ground 4, with the issue remanded to the CIT(A) for further consideration. The tribunal's decision was pronounced in the open court on 19.10.2012.