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TMI Blog2016 (4) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act dated 10.12.2010 at an income of ₹ 32,47,12,801/- after making following disallowances; i) ₹ 2,85,55,000/- on account of disallowance u/s 36(1)(ii) of the Act; ii) ₹ 1,58,568/- on account of disallowance u/s 14A of the Act; and iii) ₹ 1,08,735 on account of disallowance of depreciation u/s 32 of the act 5. The CIT (A) following the decision of Delhi Bench of Tribunal in the case of Creative Travel (P) Ltd. vs. ACIT in ITA No. 190/Del/2010 for A.Y. 2006-07 dated 13.5.2011 affirmed by the Hon ble Jurisdictional High Court in the case of CIT vs. M/s Creative Travel (P) Ltd. in ITA No.1672/D/2010 deleted the disallowance of ₹ 2,88,55,000/- on account of disallowance u/s 36(1)(ii) of the Act. He also deleted the disallowance of ₹ 1,58,568/- u/s 14A and ₹ 1,08,735/- on account of disallowance of deprecation u/s 32 of the Act. 6. The revenue is now in appeal before us against the aforesaid findings of the learned CIT(A). Before us the learned DR supported the order of the AO while the ld. AR on behalf of the assessee supported the findings of CIT(A). 7. Ground No.1 is regarding disallowance of ₹ 2,85,55,000/- represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction essentially on the assumption that appellant company has not declared dividend and paid dividend distribution tax and as such the claim of the appellant that the arrangement is tax neutral is not tenable. It was submitted that, in holding so, the learned officer overlooked that in the year under consideration appellant company had declared dividend of ₹ 13,89,93,870 and also paid dividend distribution tax of ₹ 1,94,93,890/- and as such the basis adopted is in disregard of the facts on record and thus not tenable. A chart tabulating details of the dividend paid along with dividend distribution tax paid for Assessment year 004-05 to Assessment year 2007-08 was also placed on record and is as under:- Assessment year Dividend paid (Rs.) Dividend distribution tax paid (Rs.) 2004-05 1,22,64,165/- 1,573,346/- 2005-06 2,04,40,275/- 26,71,286/ 2006-07 2,24,84,303/- 31,53,424/- 2007-08 13,88,93,870/- 1,94,93, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits for each year after adding back depreciation. It was submitted that, the incentive so paid to Shri Anshuman Magazine from Assessment year 2004-05 has been assessed as salary as would be evident from the tabular chart hereunder: A.Y. Incentive (Rs) Total salary Declared and assessed as salary by Anshuman Magazine in his return of income (Pages of Paper Book) Assessment u/s (Pages of paper book) 2004-05 1,19,48,350/- 1,82,95,160/- (74) 72 143(3) (90-92) 2005-06 1,91,75,160/- 2,69,01,560/- (94) 93 143(1) 2006-07 3,81,76,000/- 4,72,10,880/- (104) 102 143(3) (113) 2007-08 2,89,55,000/- 4,07,24,000/- (115) 113 143(1) iv) That similar incentive has been paid to various other senior employees of appellant company, as would be evident from tabulation hereunder: A.Y. Number of Employees to whom incentive given Total sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Radha Saomi Satsang vs. CIT 193 ITR 321 and CIT vs. J. K. Charitable Trust 308 ITR 161 vi) That burden was upon the Assessing Officer and not on the assessee to establish that, what had been paid by way of commission would have been payable by way of dividend, which on the facts of appellant remains undischarged vii) That since there existed no statutory requirement under the Income Tax Act , 1961 or even under the Companies Act' 1956 for a company to declare this sum of ₹ 2,85,55,000/- as dividend out of the profits, particularly when dividend has been separately declared. It was submitted that, unless a dividend is declared, which can only be declared out of profits, which profits can be determined only after deducting all legitimate expenses, there is no question of any sum payable as dividend viii) Reliance was also placed on the following judicial pronouncements: a) ITA No. 1900/2011Mis Creative Travel (P) Ltd. vs. ALIT for Assessment Year 2006-07 dated 13.05.2011 b) ITA No. 4746/De1/2010 DCIT vs Celsius Refrigeration (P) Ltd. for Assessment Year 2007-2008 c) 139 TTJ 48 (Del) ACIT vs Career Launcher India Ltd. d) 36 SOT 456 (Del) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year as per the statement of taxable income filed alongiwth the return. However, no dividend has been proposed of distributed among the share holders who are also directors of the company sums mentioned above have been apparently paid as commission and bonus and not as dividend to reduce the income of the company and to avoid dividend distribution tax . 5.4 I have perused through the financial statement filed by the appellant company for the financial year 2006-07 relevant to the instant assessment year. It is evident there form that, profit declared for the instant year is ₹ 24.46 crores and for the preceding year is of ₹ 18.54 crores. It is further seen that on the aforesaid profit, the assessee had declared dividend of ₹ 13.90 crores in the instant year and ₹ 31.53 lacs in the preceding year has been paid. The challans for distribution tax paid were also called for in the course of appellate proceedings and placed on record. It is thus not a case where the appellant has not proposed or distributed any dividend either in the instant year or preceding year. The assessing Officer essentially has adopted the figure of profit at ₹ 28.40 crores which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 870/- 1,94,93,890/- 5.6 Further, the sum so paid has been assessed to Tax in the hands of Shri Anshuman Magazine as salary in assessment made of Sh. Anshuman Magazine including assessment u/s 143(3) for assessment year 2004-05 and assessment year 2006-07. In the light of the aforesaid, in my opinion, the sum so paid is allowable as deduction. Infact, Hon ble Delhi High Court in the case of M/s Creative Travel (P) Ltd. in 'TA No. 1672/D/2010 noted in the case of M/s Creative Travel (P) Ltd. vs. ACTT in 1TA No. 190/D/2010 for Assessment Year 2006-07 dated 13.05.2011 has held as under: On the facts of this case, the Income Tax Appellate Tribunal has allowed the payment of bonus and commission to the employee-Directors of the assessee company under Section 36(1)(ii) of the Income Tax Act and one of the reasons given by the Tribunal, which has specifically weighed with it, is that in the past similar commission was paid to the working Directors and it was never disallowed. Mr. Aggarwal, learned counsel for the assessee has submitted that such a deduction is allowed under Section 36(1)(ii) of the Act for the past 30 years. In view of this, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in the preceding assessments u/s 143(3) of the Act and also correspondingly such incentive stands assessed as salary in the hands of Anshuman Magazine for the instant year. Further, likewise incentive paid to other employees has also been allowed as deduction. During the course of hearing the learned counsel for assessee supported the order by relying of the judgments of Hon ble jurisdictional High Court in the case of AMD Metplast (P) Ltd. v DCIT 341 ITR 563 (Del) and Controls Switchgear Contractors Ltd. v. DCIT 269 CTR 44 (Del). 11. Having gone through the aforesaid judgments, we notice that Hon ble Court in the case of Controls Switchgear Contractors Ltd. (supra) has held as under: 7. The next aspect that has to be considered is whether payment of such commissions are liable to be disallowed as an expense by virtue of Section 36(1)(ii) of the Act. At this stage it is necessary to refer the Section 36(1)(ii) of the Act, which reads as under:- any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission.. 8. It is also app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, he was entitled to the said amount. Commission was treated as a part and parcel of salary and TDS has been deducted. Ashok Gupta was liable to pay tax on both the salary component and the commission. Payment of dividend is made in terms of the Companies Act, 1956. Dividend has to be paid to all shareholders equally. This position cannot be disputed by the Revenue. Dividend is a return on investment and not salary or part thereof. Herein the consideration in the form of commission which was paid to Ashok Gupta was for services rendered by him as per terms of appointment as a managing director. 13. The aforesaid judgments are squarely apply to the facts of the assessee company. Here too, 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. Having regard to the above judicial position, the ground raised by the revenue is rejected. 14. Ground No.2 related to disallowance of ₹ 1,58,568/- u/s 14A of the Act read with Rule 8D of the I.T. Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teria 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. 16. Respectfully following the above, we do not find any infirmity in the order of CIT(A). No reasons have been stated by the ld. DR to deviate from the above conclusion. Thus, in light of the above, ground raised by the revenue is rejected. 17. Ground No.3 is regarding disallowance of deprecation of ₹ 1,08,735/- on computer accessories. The AO has held that assessee is eligible for depreciation at 15% and not at the rate of 60%. It was stated that this issue is covered by the decision of Calcutta Bench of the tribunal in the case of ITO vs. Samiran Majumdar 280 ITR 74 (AT) wherein it has been held that, printers and scanners are integral part of the computer and therefore, the same are also entitled for hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of renovation expenses amounting to ₹ 35,60,431/- ignoring the fact that the expenditure was incurred for renovation of capital assets and accordingly the same qualifies as capital expenditure. 21. Ground No.1 is regarding disallowance of ₹ 6,47,27,888/- representing commission paid to Shri Anshuman Magazine, Director of the assessee company by invoking section 36(1)(ii) of the Act. 22. We have considered the rival submission of both the parties and carefully gone through the material placed on the record. We notice that identical disallowance was made by the AO in order of assessment and deleted by CIT(A) for Assessment year 2007-08, which finding stands affirmed on appeal. Thus, in light of the discussions made in ITA No.709/Del/2012, it is clear that the issue is squarely covered in this appeal. Thus, the ground raised by the revenue in this instant appeal is rejected. 23. Ground No.2 is regarding disallowance of depreciation of ₹ 17,995/- u/s 32 of the Act on computer accessories. 24. We have considered the rival submission of both the parties and carefully gone through the material placed on the record. In light of the discussions in Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f account, a sum of ₹ 1,466.65 lakhs was charged to the profit and loss account during the year itself and the balance of ₹ 67,06,33,245 was treated as deferred revenue expenditure, which was to be charged over the balance period of forward cover which spilled over into the next assessment year. However, in the computation of income, the assessee claimed the sum of ₹ 67,06,33,245/- as deductible from the total income. The Assessing officer did not allow the aforesaid claim of ₹ 67.06 crores on the ground that the expenditure claimed pertain to the future period and not to eh period relevant to the assessment year under consideration, in as much as, the transaction in question was to safeguard against future currency fluctuations. The CIT(A) held that while the Assessing Officer was wrong in treating a portion of the expenditure, not relating to the current assessment year, as capital expenditure but, at the same time, disallowance was sustained on the ground that such expenditure did not relate to the current assessment year. On appeal the ITAT allowed the claim of expenditure. The conclusion of the Tribunal was endorsed by the Hon ble High Court after consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is capable of determination at the time of execution of the forward contract and such determination does not get postponed. 21. Therefore, the test laid down in the aforesaid judgments to treat it as business expenditure in the same year, though part of the liability occurs on a future date, is allowable as expenditure in this very year. It was a debt owed by the assessee, which accrued on the date of entering into the forward contract itself, though as per the contract, part payment was to be made in succeeding years. The expenditure under the accrual system of accounting had, thus, crystallized on the date of the contract. 7.7 It was further held as under: 4. What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the Income-tax department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of matching concept is satisfied, which up to now has been restricted to the cases of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 199 (Delhi). 7.9 For the reasons stated above, disallowance made of ₹ 27,22,514/- out of total claim of expenditure of ₹ 34,03,142/- is deleted. Grounds raised by the appellant are allowed. 27. From the aforesaid, it is apparent that disallowance made has been deleted following the judgment of Jurisdictional High Court in the case of CIT v Industrial Finance Corporation of India Ltd. (supra) and CIT v Citi Financial Consumer Finance Ltd. (supra). Following the above precedent, we do not find any infirmity in the order of CIT(A). No reasons have been stated by the ld. DR in the course of hearing to arrive at another conclusion. Thus, in light of the above, ground raised by the revenue is rejected. 28. Ground No.4 is regarding disallowance of ₹ 35,60,431/- out of the total value of expenditure of ₹ 77,88,935/- representing expenditure incurred on repair and maintenance of branch offices at Pune and Bangalore 29. We have considered the rival submission of both the parties and carefully gone through the material placed on the record. The CIT(A) has deleted the disallowance for the following reasons stated in the order: 8.5 I have carefully consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade a distinction between expenses incurred by a tenant for repairs of the premises and expenses incurred by a person who is not a tenant towards current repairs to the premises. This distinction was that a tenant would, by the very nature of his status as a tenant, not undertake expenditure as would endure beyond his likely period of tenancy or create a new asset. Whereas, an owner may undertake expenditure so as to even bring about new assets of capital nature. It was, therefore, necessary to qualify the expenditure on repairs. The deduction was, therefore, limited to expenditure on current repairs only. It follows, therefore, that the cost of repairs that have been incurred by a tenant in respect of such premises would have to be allowed under section 30(a)(i). The question of disallowing such an expenditure and relegating the assessee to claim depreciation. It has claimed deduction under section 30(a)(i). Once the assessee s claim falls within that provision there is no question of considering the question of applicability of section 32. Consequently, the question that has been framed is answered in favour of the assessee and against the Revenue. The appeal is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the presumption that a part of the building had been demolished and that the items had actually been used for erection of a new structure. However, the Tribunal also observed that for this conclusion, the Department could not bring on record any evidence to justify the stand that the expenditure was actually for erection of a new building or asset. The Tribunal also noticed that the contention of the assessee that it had undertaken major repairs to put the dilapidated columns, beams, roofs, etc., in its original position, which had become dangerous and unsafe for the workmen and hindered the normal operation of the business, was not controverted by the Departmental representative nor had any evidence to the contrary been produced before the Tribunal or the authorities below. It was ultimately concluded that employing the test indicated in Saravana Spinning Mills P. Ltd. [2007] 293 ITR 201 (SC), the assessee had incurred the said expenditure only to preserve and maintain the existing asset and that the expenditure was not of a nature which brought into being a new asset or created a new advantage of an enduring nature. Consequently, the Tribunal deleted the disallowance. 8.7 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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