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TMI Blog2018 (2) TMI 1701X X X X Extracts X X X X X X X X Extracts X X X X ..... the sustenance of disallowance by the Ld. CIT (A) in both the years under consideration - Decided against assessee Disallowance of amount incurred on repair and maintenance of computers - Held that:- We agree with the averments of the Ld. AR that these expenses were incurred to keep the assets of the assessee-company in a running condition and they were essentially in the nature of routine repair and maintenance expenditure. The department has also not brought on record any finding of fact that a new asset had been created by spending these amounts. Therefore, we allow ground of the assessee’s appeals Assessment of income earned by the assessee by providing services under the head income from business - Held that:- This issue is covered in favour of the assessee by the order of the ITAT in assessee’s own case for assessment years 2002-03, 2003- 04 and 2006-07 as noted that the assessee had been offering income from consultancy etc. as a business income and the same had been duly accepted by the department since 1988-89. ITAT has further noted that the Assessing Officer, without assigning any valid reason, concluded that it was income from other sources. The ITAT has also no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received, CIT (A), while allowing the claim of the assessee in both the years, has followed his orders for earlier assessment years wherein in similar circumstances, he had allowed identical expenses of earlier years. The department could not bring on record any evidence to distinguish the facts in these two years from the facts in earlier years - Decided against revenue Disallowance of 50% of administrative expenses - Held that:- The assessee had entered into a tripartite agreement with its franchisee and the subsidiary company wherein it was provided in the tripartite agreement that the franchisee was to pay advertisement and promotional contribution and the assessee company may not pay a separate contribution. The coordinate bench of the ITAT went on to note that the subsidiary was to carry out on no-profit/no-loss basis. The Coordinate Bench of the ITAT held that AO had disallowed the expenses attributable to the subsidiary but the disallowance was not correct as ultimately it was the assessee who had to contribute all the sums as the assessee can either bear the cost of expenses incurred by the subsidiary or separately remit the amount to the subsidiary and, thus, it was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to provide franchisee support service and liaisoning support in respect of franchisees located in India and Indian subcontinent. For this, the assessee is remunerated at agreed upon rates as per the service agreement. Further, the assessee has also established a wholly owned subsidiary under the name of Yum Restaurants Marketing Private Limited which was incorporated with the sole objective of undertaking advertising, media and promotional activities exclusively for the assessee and its franchisees at the national and international level. 2.1 For the year under consideration, the assessee filed its return of income declaring a loss of ₹ 99,81,620/-. The return was initially processed u/s 143(1) of the Act at the returned loss. Subsequently, for assessment year 2002-03, Special Audit was conducted under the provisions of section 142(2A) of the Income Tax Act, 1961 (hereinafter called the Act ) wherein several additions and disallowances were made. Based on the special audit report, reassessment proceedings u/s 147 of the Act were initiated by the department and finally, vide order dated 29.12.2006, the Assessing Officer passed order u/s 143(3)/147 of the Act dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd treated as being capital in nature by the Assessing Officer. The Ld. Commissioner of Income Tax(A) also allowed the assessee s ground of claim of depreciation amounting to ₹ 1,54,49,696/-. The Ld. Commissioner of Income Tax (A) also allowed the assessee s claim by deleting addition amounting to ₹ 90,812/- on account of prior period expenses. 2.3 Now, both the assessee and the department are before the ITAT and have challenged the action of the Ld. Commissioner of Income Tax(A) and the respective grounds raised by both the parties are as under:- 2.4 The following grounds have been raised by the assessee in ITA No. 964/D/2013:- 1. That on the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) - XXI [ Ld. CIT(A) ] has erred in not adjudicating the Ground No. 2 raised by the appellant challenging the validity of the reassessment proceedings under Section 148 of the Income Tax Act, 1961 [ the Act ]. 2. That on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in partly upholding the disallowance of lease rent amounting to ₹ 12,60,000 out of the total lease rent of ₹ 15,00, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 1,81,06,661/- as against the returned income declared at Nil. This assessment was completed on 31.03.2004. Subsequently, due to special audit being ordered under the provisions of section 142(2A) of the Act for assessment year 2002-03, the Assessing Officer initiated reassessment proceedings u/s 147 and concluded the reassessment proceedings on 29.12.2006 by computing the income at ₹ 8,64,96,240/- which was then set off against the brought forward business losses and resulted in nil taxable income. In the reassessment, the Assessing Officer made the following adjustments, additions and disallowances:- S.No. Particulars Amount (Rs.) 1 Service income, treated as income from other sources as against business income 9,04,27,842 2 Disallowance of royalty paid to YRAPL 2,33,30,505 3 Disallowance of administrative expenses by hypothetical apportionment to subsidiary company, i.e. YRMPL 3,30,68,187 4 Disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from M/s Pizza Hut International LLC which were incurred by the assessee in the year under consideration but credited by the assessee in its profit and loss account in the subsequent year. The Ld. CIT (A) also allowed the assessee s claim of depreciation amounting to ₹ 1,01,98,827/-. and also directed the deletion of addition of ₹ 1,03,103/- pertaining to prior period expenses. 3.2 Now, both the assessee and the department are before the ITAT and have challenged the action of the Ld. Commissioner of Income Tax(A) and the respective grounds raised by both the parties are as under:- 3.3 Following grounds have been raised by the assessee in ITA No. 965/D/2013:- 1. That on the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) - XXI [ Ld. CIT(A) ] has erred in not adjudicating the Ground No. 2 raised by the appellant challenging the validity of the reassessment proceedings under Section 148 of the Income Tax Act, 1961 [ the Act ]. 2. That on the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in partly upholding the disallowance of lease rent amounting to ₹ 12,60,000 out of the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03,103/- made by the AO on account of prior period expenses as the assessee maintains its account on mercantile basis. 4. The Ld. AR submitted that as far as ground no. 1 in assessee s appeals for assessment year 2000-01 and 2001-02, which challenge the failure of the Ld. Commissioner of Income Tax (A) in adjudicating the assessee s challenge to the validity of reassessment proceedings was concerned, the ground was not being pressed for both the years under consideration. 4.1 With respect to ground no.2 for both the appeals of the assessee, which challenge the action of the Ld. Commissioner of Income Tax(A) in partly upholding the disallowance of lease rent amounting to ₹ 12,60,000/- out of total lease rent of ₹ 15 lakh and pertaining to rent free accommodation for the Managing Director, it was submitted that ITAT Delhi Bench had partially allowed the issue of lease rental in favour of the assessee for assessment years 2002-03, 2003-04 and 2006-07 and the annual rent of ₹ 2,40,000/- had been allowed as fair rent of the property provided to the Managing Director. The Ld. AR submitted that this accommodation was provided in accordance with the employment con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of the assessee for assessment years 2004-05, 2005-06and 2008-09 by relying upon its earlier orders. It was also submitted that the Hon'ble Delhi High Court has also upheld the issue in favour of the assessee in assessment years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09. 5.1 Similarly, in respect of department s ground no. 2 for both the years under appeal challenging the action of the Ld. Commissioner of Income Tax (A) in deleting the additions pertaining to royalty expenses, the Ld. AR submitted that this issue was also covered in favour of the assessee by the order of the ITAT for assessment years 2002-03, 2003-04 and 2006-07. It was further submitted that the ITAT followed its earlier orders in assessment years 2004-05, 2005-06, 2007-08 and 2008-09. It was also submitted that the Hon'ble Delhi High Court had also upheld the orders of the ITAT for these assessment years. 5.2 With respect to ground no. 3 of the department s appeal for assessment year 2000-01 and ground no. 6 for assessment year 2001-02 pertaining to depreciation, the Ld. AR submitted that this issue was also covered in favour of the assessee by the order of the ITAT i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment orders and placed reliance on the findings of the Assessing Officer. On the grounds taken by the assessee in its appeals, he also placed reliance on the observations of the Ld. CIT (A). 7. We have heard the rival submissions and perused the material available on record. Ground no. 1 in assessee s appeal for both the years challenging the validity of reassessment proceedings is dismissed as not being pressed by the assessee. 7.1 Ground no. 2 in the appeals of the assessee for both the years challenge partial upholding of disallowance of lease rent amounting to ₹ 12.60 lakh out of the total lease rent of ₹ 15 lakh paid by the assessee on account of rent free accommodation for its Managing Director. It is seen that this issue has been partially allowed by the ITAT in its order for assessment years 2002-03, 2003-04 and 2006-07 in ITA No. 3796/Del/2006, 4154/Del/2006, 142/Del/2007, 482/Del/2007 and ITA 5122/Del/2010 wherein, vide order dated 31.05.2011, Coordinate Bench of the ITAT has held in Para 46 that there was no dispute that the payments in this regard had been made to persons who were covered under the provisions of section 40A(2)(b) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged in the two years under appeal, also should be allowed. Ld. AR has also relied on the judgment of Hon ble Gujarat High Court in the case of Sayaji Iron Engineering Co. vs. CIT reported in 253 ITR 749 (Guj) for the proposition that the expenditure in maintenance of vehicles could not be disallowed. However, after perusing the material on record, we are of the considered opinion that the assessee has not brought on record any policy decision of the management wherein it was obligatory on the part of the assessee company to meet the expenses on purchase of car accessories for an employee. Reliance placed by the Ld. AR on the judgment of the Hon ble Gujarat High Court in the case of Sayaji Iron Engineering Co. vs. CIT (supra) also does not help the case of the assessee as in this case, the issue was partial disallowance of expenditure incurred on the maintenance of vehicles used by the director of the company and the Hon ble Gujarat High Court had held that partial disallowance was not sustainable even if there was any personal use of the vehicles by the director. However, in the case before us, the impugned expenditure has been incurred on buying car accessories for a vehicle w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT has also noted that the assessee, right from assessment year 1988-89 had been providing various types of services to its franchisees in India and also to its Associated Enterprises. Thereafter, the ITAT upheld the adjudication of the Ld. CIT (A) in holding that the services income received was chargeable as business income. This order of the ITAT was also followed by the ITAT in assessment years 2004-05, 2005-06, 2007-08 and 2000-10 and was also upheld by the Hon ble High Court of Delhi. On identical facts and respectfully following the ratio as laid down by the Coordinate Bench of the ITAT and as upheld by the Hon ble Delhi High Court in assessee s own case, we find no reason to interfere with the adjudication of the Ld. CIT (A) on this issue and we dismiss ground no. 1 raised by the department in both the years under consideration. 9.1 Ground no. 2 in both the department s appeals are also identical and challenge the action of the Ld. CIT (A) in deleting the addition on account of royalty expenses. We find that this issue is also covered in favour of the assessee by the order of the ITAT in assessee s own case for earlier assessment years viz. 2002-03, 2003-04 and 2006-07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s own case. The Coordinate Bench of the ITAT has discussed this issue in Para 25 of the said order and has also followed this order in assessment years 2004-05 and 2005-06 also. Therefore, respectfully following the adjudication made by the Coordinate Bench of the ITAT in assessee s own case (supra) we dismiss ground no. 3 of the department s appeal for assessment year 2000-01 and ground no. 6 in department s appeal for assessment year 2001-02. 9.3 Ground no. 4 in department s appeal for 2000-01 and ground no. 7 in the appeal for 2001-02 are again identical and they challenge the action of the Ld. CIT (A) in deleting the addition on account of prior period expenses. It is the assessee s contention that these expenses were claimed during the year under consideration because the invoices relating to these expenses were received by the assessee during the year under consideration and, therefore, the liability to pay the amounts crystallized only when the invoices were received. We find that the Ld. CIT (A), while allowing the claim of the assessee in both the years, has followed his orders for earlier assessment years wherein in similar circumstances, he had allowed identica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct as ultimately it was the assessee who had to contribute all the sums as the assessee can either bear the cost of expenses incurred by the subsidiary or separately remit the amount to the subsidiary and, thus, it was the assessee who had to essentially contribute the amounts. On identical facts and respectfully following the ratio of the order of the coordinate Bench of the ITAT in assessee s own case in earlier assessment years and as upheld by the Hon ble Delhi High Court, we dismiss ground no. 3 of department s appeal for assessment year 2001- 02. 9.5 Ground nos. 4 and 5 in the department s appeal for assessment year 2001-02 are related grounds and challenge the deletion of addition made on account of Supply Chain Management and reimbursement of expenses received from M/s Pizza Fast Food Pvt. Ltd. This issue has been discussed in ITAT s order for assessment year 2002-03 wherein, in Para 26, 27 and 28, the findings of the ITAT have been recorded. In assessment year 2002-03, the department had contested action of the Ld. CIT (A) in including an income of ₹ 3,01,500/- as taxable in assessment year 2002-03 whereas as per the department, it pertained to assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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