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TMI Blog2014 (5) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 2. In confirming the disallowance made by the AO with respect to the Appellant's alternate claim that expenditure of Rs. 53,88,637/- pertaining to legal and professional fees incurred on acquisition of unit from Bilag be allowed as deduction under Section 37(1) of the Act. 3. In confirming the disallowance made by the AO with respect to Rs. 1,13,57,742/- claimed on incidental expenses incurred on acquisition of assets from Bilag, which were capitalized along with the assets so purchased. 4. In confirming the disallowance made by the AO with respect to the professional fees of Rs. 2,374,987/- reimbursed to SCCL, in relation to services provided by Ernst & Young Private Limited ('E&Y'), on account of non-deduction of taxes at source. The appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Honourable Income-tax Appellate Tribunal to decide this appeal according to the law. For the above and other grounds and reasons which may be submitted during the course of hearing of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed as revenue expense. 9. Against these observations, the assessee is in appeal before the ITAT. 10. Before us, the AR submitted that in grounds, the assessee is only contesting the issue pertaining to legal and Professional Fee paid at Rs. 53,88,637/-. The AR has conceded on item 1 and item 2 in the above table. 11. From the submissions made before the CIT(A), it was submitted that the assessee claimed Rs. 10,77,727/-, being 1/5th of Rs. 53,88,637/-, as deferred expense, u/s 35D. It was further submitted before the CIT(A) that the AO, to disallow the expenditure, observed that since the assessee did not deduct TAS, hence the expense of Rs. 10,77,727/- (Rs. 53,88,637/-) was not allowed. 12. The assessee pointed out to the CIT(A) that the issue of TDS was neither called for nor discussed before the AO. Hence disallowance on that basis was not only incorrect (APB 18, 19), but against the principals of natural justice. The AR further pointed out that the CIT(A) rejected the contentions of the assessee, i.e. allowing Rs. 10,77,727/- (being 1/5th of Rs. 53,88,637/-) u/s 35D or under section 37(1). The CIT(A), held that the expense is in the nature of capital expenditure. Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed thereon. 20. Grounds no. 1 & 2 are therefore treated as allowed for statistical purposes. 21. Ground no. 3 pertains to excess claim of depreciation at Rs. 1,13,57,742/-. 22. The facts pertaining to the issue are, that the assessee claimed depreciation amounting to Rs 11,357,742 on capitalization of incidental expenses incurred in accordance with the acquisition of assets from Bilag. Towards purchase of the manufacturing facility from Bilag (i.e. including machinery furniture and patents), the assessee incurred incidental expenses like stamp duty, registration fees, sales tax and legal and professional fees. The assessee, therefore, capitalized the above expenses along with the cost of assets accordingly, claimed depreciation on the assets purchased. Because of certain commercial exigiencies, the assessee was unable to operate the manufacturing facility purchased from Bilag on its own, immediately. The assessee, therefore, entered into a Facility User agreement with Bilag, thereby granting them the right to use the facilities (building, plant and machinery and furniture) for manufacture of the products. 23. During the course of assessment proceedings the AO asked the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bursement of expenses. The AO disregarded the submissions made by the assessee and disallowed the depreciation, as claimed by the assessee. 26. The assessee challenged the disallowance before the CIT(A) and reiterated the submissions made before the AO. 27. The CIT(A), after considering the submissions of the assessee came to a conclusion that the assessee acquired the manufacturing unit from Bilag and in that connection incurred certain expenses. He further observed that after the unit was acquired, the unit was leased back to Bilag. The CIT(A) came to the conclusion that the provisions of Explanation 4A to section 43(1) clearly applies to the issue and hence, the claim of depreciation by the assessee on Bilag assets had to be disallowed. 28. Aggrieved, the assessee is before the ITAT. 29. Before us, the AR reiterated the submissions and facts as made before the revenue authorities and submitted that incidental expenses had been apportioned thereon. The AR also informed that before the revenue authorities the assessee had not claimed depreciation on goodwill and non-compete fee, which the assessee wants to claim, by way of additional grounds of appeal, filed before us. 30. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the assessee reimbursed the payment of USD 53,221 to SCCL, being the share pertaining to the assessee. It was further submitted that the transaction between SCCL and E&Y was on PTP basis and placing reliance on Circular no.726 dated 18.10.1995, that the payment made by a non resident to a resident professional are exempt from TAS requirement and therefore, payment made by SCCL to E&Y was not subject deduction of TAS & consequently, the payment made to SCCL by the assessee being reimbursement of its share only, therefore, the assessee did not deduct TAS. 38. The CIT(A) did not accept the arguments of the assessee and held the same to be facade, because, the resident E&Y conducted systems audit on the assessee, which would have had the assessee's approval and simply because the payment has been routed through the non-resident parent, would not absolve the liability of the assessee for non deduction of TAS and also the assessee cannot be allowed to take shelter of CBDT Circular no.726 dated 18.10.1995. 39. The assessee is now before the ITAT. 40. Before us, the AR reiterated the submissions made before the revenue authorities that the payment made to SCCL was simply in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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