2014 (5) TMI 220 - AT - Income Tax

Deletion made u/s 40(a)(ia) of the Act - Disallowance of Royalty expenses - Payment of TDS not made Held that - CIT(A) was rightly of the view that while deleting the addition has noted that Assessee had deducted the TDS on the last day of previous year and the entire amount of TDS was deposited in bank before the due date of depositing TDS - no amount can be disallowed under the provisions of Section 40(a)(ia) of the Act with respect to amounts on which TDS was deposited in time - the deposit of TDS in bank was through cheques and the cheques were not dishonoured - Revenue could not controvert the findings of CIT(A) thus, there is no reason to interfere with the order of CIT(A) Decided against Revenue. Disallowance of building repair and maintenance expenses Majority expenses pais through cheques Held that - CIT(A) rightly upheld the addition made by AO and noted that Assessee had failed to give the proof of expenditure before AO - the Assessee has failed to prove that the expenditure has been incurred wholly and exclusively for the purpose of business and the expenditure is not in the nature of capital expenditure - in the absence of any material on record to support the Assessee s claim, there was no reason to interfere with the order of CIT(A) Decided against Assessee. Disallowance of depreciation on trade mark Depreciation not allowed on entire amount Held that - CIT(A) perused the agreement entered by the Assessee with J.M. Advertising and Marketing Ltd and has noted that the ownership of trademark did not rest wholly or partly with the Assessee and the payment were of enduring benefit and capital is in nature and therefore it was neither allowable u/s 37(1) as Revenue expenditure nor qualified for depreciation u/s 32(1) of the Act - the amount of depreciation claimed did not match with the additions made and he therefore directed the AO to verify the figures and if needed rectify the mistake as such no material has been brought on record by Assessee to controvert the findings of CIT(A) thus, there was reason to interfere with the order of CIT(A) Decided against assessee.

Summary

Issues:
1. Disallowance of royalty expenses under section 40(a)(ia) of the Income Tax Act.
2. Disallowance of building repair and maintenance expenses.
3. Disallowance of depreciation claimed on trademark.

Analysis:

Issue 1: Disallowance of Royalty Expenses
The Revenue appealed against the CIT(A)'s order regarding the addition of Rs. 21,95,958 under section 40(a)(ia) of the Income Tax Act. The Assessing Officer (A.O) disallowed the entire Royalty Expenditure as TDS was remitted late. However, CIT(A) held that the TDS was deposited before the due date, except for a small amount, and considered the payment to be within the time frame. The Revenue's appeal was dismissed as the Assessee had deducted TDS on time and deposited the amount before the due date, as per the Circular of the Board. The Tribunal found no reason to interfere with CIT(A)'s decision, upholding that no amount could be disallowed under section 40(a)(ia) for timely TDS deposits.

Issue 2: Disallowance of Building Repair and Maintenance Expenses
The A.O disallowed building repair and maintenance expenses of Rs. 4,92,250 as the Assessee failed to provide adequate evidence to prove the genuineness of the expenses. The CIT(A) upheld the disallowance, stating that the Assessee did not satisfy the conditions under section 37(1) of the IT Act for claiming the deduction. The Tribunal confirmed the CIT(A)'s decision, as the Assessee could not prove that the expenses were incurred wholly and exclusively for business purposes. The ground of the Assessee was dismissed due to the lack of supporting evidence.

Issue 3: Disallowance of Depreciation on Trademark
The A.O disallowed the depreciation claimed on trademark as the Assessee was not the owner of the trademark. The CIT(A) upheld the disallowance, emphasizing that the ownership did not transfer to the Assessee, making the payment capital in nature and not eligible for depreciation. The Tribunal affirmed the CIT(A)'s decision, noting that the Assessee failed to provide evidence to support the claim, and the depreciation amount claimed did not align with the actual figures. The Assessee's appeal was dismissed as the ownership of the trademark did not rest with the Assessee, rendering the claim ineligible for depreciation under the Income Tax Act.

In conclusion, the Tribunal dismissed the Revenue's appeal and the Assessee's Cross-objection, upholding the decisions made by the CIT(A) regarding the disallowance of expenses and depreciation claims. The judgments were pronounced on 02-05-2014.