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2016 (4) TMI 82 - AT - Income TaxDisallowance u/s 36(1)(ii) - payment of commission - Held that - The commission has not been paid to Rashmi Magazine, other shareholder of assessee company and commission was paid to Anshuman Magazine for services rendered by him as per terms of appointment as a managing director, which has been taxed as salary in his hands in the instant year. - Decided against revenue Disallowance u/s 14A read with Rule 8D - Held that - Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the assessing officer will have to verify the correctness of such claim. In case, the assessing officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the assessing officer is to accept the claim of the assessee insofar as the quantum of disallowance under section 14A is concerned. In such eventuality, the assessing officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the assessing officer is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the assessing officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment - Decided against revenue Disallowance of deprecation on computer accessories - Held that - Since computer accessories have been held to be part of computer, therefore they are also entitled to higher rate of deprecation. Hence, the finding of ld. CIT(A) deleting the disallowance is upheld and ground raised by the revenue is dismissed.- Decided against revenue Disallowance of recruitment and training expenses - Held that - The clauses of the agreement relating to mode of payment of consideration as well as termination clause in the agreement. Thus, as the entire expenditure was incurred which admittedly have a nexus with the business of the assessee, it was treated as business expenditure allowable under section 37 of the Act.- Decided against revenue Disallowance of repair and maintenance of branch offices at Pune and Bangalore - Held that - Since the expenditure has been incurred for civil work false ceiling, binds, wiring cables, earthing at two leased premises, which are not in the nature of any permanent alterations/changes but were incurred to enable the appellant to carry on its business efficiently is not a capital expenditure but revenue expenditure - Decided against revenue
Issues Involved:
1. Disallowance under Section 36(1)(ii) of the Income Tax Act. 2. Applicability of Rule 8D for disallowance under Section 14A of the Income Tax Act. 3. Depreciation on computer peripherals. 4. Disallowance of recruitment and training expenses. 5. Disallowance of renovation expenses. Issue-wise Detailed Analysis: 1. Disallowance under Section 36(1)(ii) of the Income Tax Act: - Facts: The assessee company paid a commission of Rs. 2,85,55,000 to its Managing Director, Anshuman Magazine, who held 99% of the shares. The AO disallowed this commission under Section 36(1)(ii), arguing it was paid to avoid dividend distribution tax. - CIT(A) Decision: The CIT(A) deleted the disallowance, stating that the commission was paid as per a board resolution and was for services rendered. The CIT(A) also noted that similar payments in previous years were allowed, and the company had declared and paid dividend distribution tax. - Tribunal's Analysis: The Tribunal upheld the CIT(A)'s decision, emphasizing that the commission was for services rendered and not an alternative to dividend. The Tribunal cited past allowances of similar payments and the fact that the payment was taxed as salary in the hands of Anshuman Magazine. The Tribunal referenced judgments from the jurisdictional High Court supporting the allowance of such deductions. 2. Applicability of Rule 8D for Disallowance under Section 14A of the Income Tax Act: - Facts: The AO disallowed Rs. 1,58,568 under Section 14A, applying Rule 8D. - CIT(A) Decision: The CIT(A) directed the AO to compute the disallowance in accordance with the jurisdictional High Court's decision in Maxopp Investment Ltd., which held that Rule 8D applies prospectively from AY 2008-09. - Tribunal's Analysis: The Tribunal found no infirmity in the CIT(A)'s order and upheld the decision, following the jurisdictional High Court's guidance on the application of Rule 8D. 3. Depreciation on Computer Peripherals: - Facts: The AO allowed depreciation at 15% on computer peripherals, while the assessee claimed 60%. - CIT(A) Decision: The CIT(A) allowed the higher rate of 60% depreciation, citing decisions where peripherals were considered part of the computer. - Tribunal's Analysis: The Tribunal upheld the CIT(A)'s decision, referencing multiple judgments that supported treating computer peripherals as part of the computer, thus eligible for higher depreciation. 4. Disallowance of Recruitment and Training Expenses: - Facts: The AO disallowed Rs. 27,22,514 out of Rs. 34,03,142 claimed for recruitment and training, treating it as deferred revenue expenditure. - CIT(A) Decision: The CIT(A) deleted the disallowance, referencing the jurisdictional High Court's judgment in CIT v. Industrial Finance Corporation of India Ltd., which allowed such expenses in the year incurred. - Tribunal's Analysis: The Tribunal upheld the CIT(A)'s decision, noting that the expenses were on revenue account and incurred in the year under consideration. The Tribunal cited relevant High Court judgments supporting the immediate deduction of such expenses. 5. Disallowance of Renovation Expenses: - Facts: The AO disallowed Rs. 35,60,431 out of Rs. 77,88,935 incurred on leased premises, treating it as capital expenditure. - CIT(A) Decision: The CIT(A) deleted the disallowance, stating the expenses were for repairs and maintenance, not capital in nature, and referenced the jurisdictional High Court's judgment in CIT v. Hi Line Pens (P) Ltd. - Tribunal's Analysis: The Tribunal upheld the CIT(A)'s decision, agreeing that the expenses were for maintaining the leased premises and did not result in a new asset. The Tribunal cited relevant High Court judgments supporting the deduction of such expenses as revenue expenditure. Conclusion: The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s decisions on all issues, including the disallowance under Section 36(1)(ii), applicability of Rule 8D, depreciation on computer peripherals, and disallowances of recruitment, training, and renovation expenses. The Tribunal's decisions were based on factual correctness and supported by relevant judicial precedents.
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