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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI O.P. KANT & SHRI K.N. CHARY
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘E’ NEW DELHI
BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI K.N. CHARY, JUDICIAL MEMBER [Through Video Conferencing]
ITA No.5467/Del/2016 Assessment Year: 2007-08
ACIT, Vs. M/s. Oxigen Services India Circle -19(1), Pvt. Ltd., New Delhi 201-202, Himalaya House, 6, Vijay Block, Laxmi Nagar, Delhi PAN :AABCI1405K (Appellant) (Respondent)
Appellant by Sh. Vipul Kashyap, Sr.DR Respondent by Sh. Satyen Sethi, Adv. Sh. A.T. Panda, Adv. Date of hearing 12.08.2021 Date of pronouncement 30.09.2021
ORDER PER O.P. KANT, AM:
This appeal by the Revenue is directed against order dated 12/08/2016 passed by the learned Commissioner of Income-tax (Appeals)-7, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2007-08, raising following grounds: 1. “On the facts and under the circumstances of the case, the Id. CIT(A) has erred in deleting the disallowance of Rs.9,37,061/- on account of counseltancy expenses treating it as business
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expenditure instead of expenses incurred are as ‘capital in nature” without appreciating the facts that the expenses are in the nature of capital and result in enduring benefit.
On the facts and under the circumstances of the case, the Id. CIT(A) has erred in deleting the disallowance of Rs. 1,33,04,522/- on account of advertisement and marketing expenses treating it as revenue expenditure instead of capital expenditure without appreciating the facts that advertisement and publicity expenses when compared to previous year was not substantiated with documentary evidences and these expenses are of enduring benefit, are in the nature of capital.
On the facts and under the circumstances of the case, the Id. CIT(A) has erred in deleting the disallowance of Rs. 31,72,877/- on account of disallowance out of cost of equity placement amounting to Rs.31,72,877/- treating it as revenue expenditure instead of capital expenditure without appreciating the facts that equity placement expenses are of enduring benefit and to be treated as capital in nature instead of revenue expenditure”. 4. On the facts and under the circumstances of the case, the Id. CIT(A) has erred in deleting the disallowance of Rs. 20,10,202/- made on account of employees recruitment by treating it as revenue expenditure instead of capital expenditure without appreciating the facts that the expense are of enduring benefit and to be treated as capital in nature instead of revenue expenditure.
On the facts and under the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,12,82,802/- made by the Assessing Officer on account of expense recovered from Oxigen Infovision Pvt. Ltd by ignoring the fact that the assessee company has credited income from sale of pins, commission on bills collection, registration fees from retail operators.
On the facts and under the circumstances of the case, the ld. CIT(A) has erred in deleting the disallowance of depreciation of Rs.5,19,41,056/- claimed at a higher rate of 60% on POS terminals by assessee company without appreciating the facts that Explanation (xi) to section 36 clearly defining the meaning of computer and since the POS Terminals are not covered under the block of assets within the ‘computer.
On the facts and under the circumstances of the case, the Id. CIT(A) has erred in deleting the disallowance of depreciation of Rs.47,288/- claimed at a higher rate of 60% on UPS by assessee company without appreciating the facts that since UPS cannot be
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treated as a part of computer since the technology which goes into making UPS is not developing so rapidly to make it obsolete in the short span, it can be treated as ‘plant and machinery’ and depreciation @ 15% is to be allowable under the head ‘plant and machinery. 8. On the facts and under the circumstances of the case, the Id. CIT(A) has erred in deleting the disallowance of Rs.4,86,094/- made by the Assessing Officer u/s 14A r.w.r. 8D. 9. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the Assessing Officer of Rs.53,627/- of PF contribution is not allowable as deduction u/s 36(l)(va) and is assessee’s income as per provisions of section 2(24)(x) of the Income-tax Act, 1961 by ignoring the Explanation given to Section 36(1 )(va) of the Income-tax Act, 1961 in respect of due date. 10. The appellant craves to be allowed to add any fresh ground of appeal and/or delete or amend any of the ground of appeal. 2. Briefly stated facts of the case are that the assessee company (formerly known as ‘India Prepaid Services Private Limited’) is engaged in business of trading in electronic recharge coupons and collection of payments for postpaid bills of various telecom operator. For the year under consideration, the assessee filed return of income electronically on 12/11/2007, declaring loss of ₹ 19,09,19,350/-. The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. The assessment under section 143(3) of the Act was completed on 29/12/2009 after making certain addition/disallowances. On further appeal, the Ld. CIT(A) allowed partly to the assessee. Aggrieved with the finding of the Ld. CIT(A), the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.
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Before us, the parties appeared through Video Conferencing facility. The assessee filed a paper-book (pages 1 to 76 ) physically as well as electronically. 4. Qua the ground No. 1 (one), the learned DR submitted that Ld. CIT(A) has allowed the consultancy charges of ₹ 9,37,061/- as revenue expenditure though same are in the nature of the capital expenditure in view of the enduring benefit to the assessee. 4.1 The Learned Counsel of the assessee, on the other hand, relied on the order of the learned CIT(A) and submitted that Learned CIT(A) has allowed the expenses in view of the remand report submitted by the Assessing Officer and, therefore, Assessing Officer is not justified in agitating this issue again before the Tribunal. 4.2 We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The Learned Assessing Officer made disallowance observing as under: “(C) Consultancy Charges (Marketing) : Rs.9,37,061/- No evidence, whatsoever, have been filed to establish that the expenses expended are wholly and exclusively for the purpose of business. Name, address, or confirmation and purpose of Consultancy Charges (Marketing) spent has not been acknowledged with evidences. In the absence of the same, the sum of Rs.9,37,061/- shown under the head Consultancy Charges is disallowed and added back to the total income of the assessee. Penalty u/s 271(1)(c) of the Act is also initiated for concealment of income and for furnishing of inaccurate particulars. Disallallowance of Consultancy Charges : Rs.9,37,061” 4.3 The Ld. CIT(A) deleted the disallowance observing as under:
“10.2 The AO disallowed Rs.9,37,061/- claimed under the head consultancy charges as no evidence was furnished justifying that the expenses was incurred wholly and exclusively for the purpose of business. The appellant had furnished details of the expenditure under the head advertisement and publicity expenses and ledger
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accounts of the impugned expenditure in remand proceedings. The appellant has relied on the copy of the ledged account and invoices to support its claim for consultancy charges in the nature of creative retainership fees paid for designing advertisement posters, brochures etc. Since genuineness of the said expenditure is not doubted by the AO in the Remand Report and the appellant deducted TDS on the impugned payments, it is held that the said expenditure is incurred wholly and exclusively for the business purpose and is allowable under the provisions of section 37(1) of the Act. The addition of Rs.9,37,061/- made by the AO is directed to be deleted. These grounds of appeal are ruled in favour of the appellant.”
4.4 We find that Assessing Officer in the assessment order disallowed the expenses mainly on the ground that no evidences were furnished before him. The Assessing Officer has nowhere held that expenses are in the nature of the capital, which results in entering benefit to the assessee. Thus, the ground taken by the revenue itself is not sustainable in absence of any finding of the Assessing Officer, which could support the ground. Further, the Ld. CIT(A) has deleted the disallowance after observing that genuineness of the expenses was not doubted by the Assessing Officer in the remand report and the assessee duly deducted tax at source on the impugned payments. In our opinion, there is no infirmity in the finding of the Learned CIT(A) on the issue in dispute, accordingly, we uphold the same. The ground No. 1 (one) of the appeal of the Revenue is accordingly dismissed. The ground No. 2(two) relates to disallowance of ₹ 5. 1,33,04,522/- by the Assessing Officer on account of advertisement and marketing expenses. 5.1 Qua the ground, the learned DR supported the grounds and submitted that no evidences of expenses incurred wholly and exclusively for the purpose of the business, were furnished before
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the Assessing Officer. He submitted that advertisement of brand gives enduring benefit to the assessee and, therefore, these are capital in nature and liable to be disallowed as business expenses. 5.2 On the contrary, the Learned Counsel of the assessee relied on the order of the Learned CIT(A) and submitted that advertisement expenses are of the routine nature for promotion of the sales during the year under consideration and, therefore, allowable as business expenditure. He further submitted that ground is covered in favour of the assessee in assessee’s own case for assessment year 2009-10 (ITA No. 3812/Del/2015 dated 07/01/2019) and four 2008-09 and 2010-11 (ITA no. 3765 & 3766/De//2015 dated 15/02/2019. 5.3 We have heard the rival submission of the parties on the issue in dispute and perused the relevant material on record. The assessee debited advertisement and publicity expenses of ₹ 1,47,82,802/- in profit and loss account. The Assessing Officer though observed that there is exceptional increase in expenses of 420% as compared to last year and no details of parties in support of claim was filed before him, however, he considered the expenses in terms of section 35D of the Act i.e. expenses incurred in connection with expansion of the undertaking and allowed 10% of the expenses as deduction during the year under consideration and balance amount of ₹ 1,33,04,522/- was disallowed. Before the Ld. CIT(A), the assessee submitted that advertisement expenses were incurred on promoting the business of the company and provision of glow sign, signboards, posters, printing of brochures, manuals, souvenirs and promotional event and said
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expenses were neither incurred before the commencement of the business nor in connection with the setting up of new unit after commencement of the business. The Ld. CIT(A) deleted the disallowance observing as under: “11.3 I have carefully considered the assessment order and written submissions furnished by the Ld. AR. There is no dispute that the advertisement expenditure is incurred by the appellant in the relevant assessment year. The AO has not disputed that this expenditure is incurred wholly and exclusively for the purpose of business. The Hon'ble Delhi High Court in the case of CIT vs. Salora International Ltd. 308 ITR 199 has held that advertisement of such nature is allowable as revenue expenditure u/s 37(1) of the Act This decision was followed by the Hon'ble ITAT, Delhi in the case of ACIT vs. Citi Financial Consumer Finance Ltd. in ITA No. 2687, 2688 and 5191/Del/2010 and ITA No. 3144, 3145 and 5541/Del/2010 in A. Y. 2003-04 to 2005-06 in the decisions dated 20.04.2012 while allowing the claim of advertisement and publicity expenditure as revenue expenditure incurred wholly and exclusively for the purpose of business. In DCIT vs. Core Healthcare Ltd. 308 ITR 363, the Hon'ble Gujarat High Court has held that advertisement expenses incurred by the assessee to create brand image were allowable as revenue expenditure In any case the action of the AO in invoking the provisions of Section 35D(2Hd)Js not in order as the impugned expenditure is not incurred in connection with extension or setting up of a new unit after commencement of business. Therefore, following the above decisions of the Hon'ble High Courts and the Hon'ble Tribunal Delhi ITAT, it is held that advertisement and publicity expenses of Rs.1,47,82,802/- is revenue expenditure incurred wholly and exclusively for the purpose of business of the appellant and is allowable as such Disallowance of Rs.1,33,04,522/- is directed to be deleted. These grounds of appeal are ruled in favour of the appellant.”
5.4 We find that the Learned Assessing Officer has made disallowance under section 35D of the Act without verifying the requisite condition that said expenses were incurred before commencement of the business or in connection with the expansion or setting up of new unit by the assessee. The Learned Assessing Officer has also not brought on record how the benefit of expenses on advertisement spills out to future years. The
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Assessing Officer being a quasi-judicial authority cannot disallow merely on presumption basis. The Ld. CIT(A) has deleted the disallowance following the decision of the Hon’ble High Court and holding that even advertisement expenses incurred by the assessee on brand image as revenue in nature. We find that the Tribunal in assessment year 2009-10 in the case of the assessee itself has held the advertisement expenses as revenue in nature observing as under: “28. We have considered the rival arguments made by both the sides and perused the material available on record. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case considered the advertisement and market expenditure of Rs.3,90,82,609/- incurred by the assessee as capital expenditure in nature as against revenue expenditure treated by the assessee and allowed depreciation on the same. He, accordingly, made addition of Rs.1,71,08,949/-. We find the Ld. CIT(A) treated such advertisement expenditure as revenue in nature and is allowable u/s 37 (1) of the IT Act. We do not find any infirmity in the order of the CIT(A) on this issue. The Hon'ble Delhi High Court in the case of CIT (A) Vs. Pepsico Holdings India Private Limited has held that expenditure incurred on glow sign and neon sign are expenditure on advertisement and publicity allowable as deduction u/s 37 (1) of the IT Act. While holding so the Hon’ble High Court Has relied on the decision of Hon'ble Supreme Court in the case of Empire Jute Vs. CIT reported 124 ITR 1. The Hon’ble Delhi High Court in the case of CIT vs. Orient Ceramics and Industries Ltd. (2013) 358 ITR 49 (Del) has held that expenditure incurred by the assessee on Glow Sign Boards is revenue expenditure allowable as deduction u/s 37 (1) of the IT Act. Since the genuiness of the expenditure is not in dispute and the dispute is only regarding capital or revenue expenditure in nature, therefore, in view of the decisions cited above, we are of the considered opinion that the CIT(A) is justified in treating the same as revenue expenditure in nature. The order of the CIT(A) is thus upheld and th^ ground raised by the revenue is dismissed.”
5.5 Following the finding of the Tribunal in assessment year 2009-10, the Tribunal in assessment year 2008-09 and 2010-11 has allowed the advertisement expenses in terms of section 37(1)
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of the Act. The relevant finding of the Tribunal is reproduced as under: “11. On a perusal of the order dated 7/1/2019 in ITA No. 3812/Del/2015 for assessment year 2009-10 in assessee's own case, we find that the a coordinate Bench of this Tribunal considered the contentions on either side in the light of the decisions cited before them and reached a conclusion that the decisions in the cases of PepsiCo Holdings India Private Ltd (supra) and Orient Ceramics and Industries Ltd (supra) are applicable to the facts of the case. Further, since the genuineness of the expenditure is not in dispute and the dispute is only regarding capital or revenue expenditure in nature decided the issue in favour of the assessee holding that the expenditure incurred by the assessee on glow sign boards and a neon sign boards is revenue in. nature and allowable as deduction under section 37 (1) of the Act. 12. In the absence of any compelling reasons to take a different view in assessee's own case for an earlier year, we find it difficult to deviate from the view taken by a coordinate Bench of this Tribunal in assessee's own case for the subsequent year, namely, 2009-10. We, accordingly, respectfully following the decisions of the Hon'ble jurisdictional High Court and also the view taken by a coordinate Bench of this Tribunal in assessee's own case for the assessment year 2009-10 hold that the findings of Ld. CIT(A) on this aspect do not suffer any infirmity and no interference by us is warranted. We accordingly dismiss ground No. 2 of revenue's appeal.”
5.6 Respectfully following the finding of the Tribunal (supra) and in the facts and circumstances of the case for the year under consideration, we do not find any infirmity in the finding of the Learned CIT(A) on the issue in dispute and, accordingly, we uphold the same. The ground No.2 (two) of the appeal of the Revenue is accordingly dismissed. The ground No.3 of the appeal relates to disallowance of ₹ 6. 31,72,877/- on account of cost of equity placement. 6.1 Qua the issue in dispute, the Learned DR relied on the order of the Assessing Officer, whereas the Learned Counsel of the assessee relied on the order of the Learned CIT(A).
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6.2 We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The assessee claimed expenses of ₹ 35,25,418/- as cost of equity placement. The finding of Learned Assessing Officer qua the issue in dispute is reproduced as under: “(E) Cost of Equity Placement: Rs 35,25,418/- No bills or vouchers or any supporting documents have been filed in support of the claim of Equity placement expenditure. It is orally submitted that the expenses related to appointment of agents/dealers for carrying out assessee’s business. Retail Outlets are operated through equity placement agents, whose responsibility is to appoint and monitor functioning of ROs. It has been submitted that there are more than 3000 ROs operating throughout the country, equity placement are appointed to monitor and to appoint ROs. The benefit of such expenses on appointment of agents spills over to future years, it is held that cost of equity placement expenses are having enduring in nature and should be capitalized. Further, the provisions of Section 35 D(1)(ii) of Act, specifies that where an assessee, being an Indian Company, incurred any expenditure in connection with the extension of his undertaking, the assessee shall, in accordance with and subject to the provisions of this Section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the extension of the business is completed. The assessee’s case falls under the category of sub section 2(d) of Section 35 D of Act. Further as per Section 35D(2)(iii), the expenditure referred to conducting market survey or any otner survey necessary for the business of the assessee is also held to be of capital in mature. In the case of the assessee, through market survey ROs are being appointed and necessary business are being carried out after making survey only. So any expenses incurred for undertaking such survey or paid to an agency which is indulged in such work are held to be capital in nature. In view of the same, Rs 3,52,541 is allowed to be amortised during the year under consideration, and the balance amount of Rs 31,72,877/- is disallowed and added back to the total income of the assessee . Penalty u/s 271 (1)(c) of the Act is also initiated for concealment of income and for furnishing of inaccurate particulars.
Disallowance out of Cost of Equity Placement: Rs 31,72,877”
6.3 Ld. CIT(A) has deleted the disallowance observing as under:
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“12.3 I have carefully considered the assessment order and written submissions furnished by the Ld. AR. The impugned expenditure is not incurred with reference to appointment of agents/dealers for carrying out the appellant’s business, neither does it pertain to conducting the market survey or any other survey as stated by the AO. In my view, the expenditure is incurred in the regular course of the business of the appellant and is governed by commercial expediency giving it a revenue character. The impugned expenditure cannot be categorized as expense within the meaning of Section 35D(1)(ii) of the Act. The factum of genuineness of expenditure is not denied. Since the expenditure is incurred wholly and exclusively for the purpose of business of the appellant and is revenue in nature, it is allowable as business expenditure. The disallowance of Rs.31,72,877/- is not sustainable and is directed to be deleted. These grounds of appeal are ruled in favour of the appellant.”
6.4 We find that according to the Assessing Officer, expenses in dispute are related to appointment of agents/dealers for carrying out operation of outlets. According to the Assessing Officer, benefit of appointment of agents spill overs to future years and, therefore, expenses are of capital nature. However, he consider the expenses under section 35 D(1)(ii) of the Act for incurring market survey in relation to extension of the undertaking and allowed 10% of the expenses and disallowed balance expenses of ₹ 31,72,877/-. The Ld. CIT(A) has observed that expenses are neither incurred for appointment of the agents or dealers, nor on market survey as mentioned by the Assessing Officer, but was incurred toward professional services rendered by consulting firms, M/s Price Waterhouse Cooper ( Rs.16,74,693/-) and M/s Wadia Ghandy & Co. ( Rs.18,50,725/-) for issuance of report on due diligence and valuation. The Learned DR has not controverted this factual finding by the Learned CIT(A). As the Learned Assessing Officer has failed to establish that expenses incurred are before commencement of the business or in
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connection with extension of or setting up of new unit after commencement of the business, and, therefore disallowance under section 35 D(1)(ii) of the Act by the Assessing Officer is not justified. The order of the Ld. CIT(A) on the issue in dispute is well reasoned and we do not find any error in the same. Accordingly, we uphold the finding of the Learned CIT(A) on the issue in dispute. The ground No. 3 (three) of the appeal of the Revenue is accordingly dismissed. 7. The ground No. 4 (four) of the appeal relates to disallowance of ₹ 20,10,200/- on account of employees recruitment expenses. 7.1 The Learned DR relied on the finding of the Learned Assessing Officer, whereas learned Counsel of the assessee relied on the finding of the Learned CIT(A) on the issue in dispute. 7.2 We have heard rival submission of the parties and perused the relevant material on record. The Assessing Officer disallowed a sum of ₹ 20,10,202/- being the payment incurred for employee’s recruitments, holding that the assessee fetch benefit of such expenses for longer time. The Ld. CIT(A) relying on the order of the Tribunal in the case of DCIT Vs Sapient Corp. Private Limited (supra) deleted the disallowance holding that payment made to recruitment agencies was revenue in nature. The finding of the Ld. CIT(A) is reproduced as under: “13.3 Adverting to the facts of the case, the impugned expenditure is incurred for recruitment of suitable candidates for the purpose of appellant’s business by way of service charges by recruitment agencies as well as outsourcing of salary payments for services. Such expenditure are routine business expenditure incurred wholly and exclusively for the purpose of business and have a revenue character. They cannot be treated to be capital in nature as no real enduring benefit is derived nor any capital asset is created. In view of these facts, it is held that expenditure on employees recruitment of Rs.24,10,202/- is allowable as revenue expenditure wholly and
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exclusively incurred for the purpose of business. Consequently, the disallowance made by the AO is deleted.”
7.3 We find that assessee has claimed service charges paid to recruitment agencies and charges paid for outsourcing services as revenue expenditure. The Learned Assessing Officer has alleged that these expenses have provided long-term benefit to the assessee, but he has not given any reasoning as how the said expenses give long-term benefit to the assessee. The Learned DR also could not explain as how the said expenses give long-term or enduring benefit to the assessee. In view of the failure on the part of the Revenue to establish that expenses incurred are capital in nature, we do not find any error in the finding of the Learned CIT(A). Accordingly, we uphold the same and dismiss the ground No. 4 of the appeal of Revenue. The ground No. 5 (five) relates to addition of ₹ 1,12,82,802/- 8. on account of expenses recovered from ‘Oxygen Infovision Private Limited’ (OIPL). 8.1 Facts in brief qua the issue in dispute that the Assessing Officer observed from related party disclosure made in schedule to account that assessee recovered some of ₹ 1,12,82,802/- from OIPL but same was not credited in the profit and loss account. The Assessing Officer made addition on the ground that neither details of said amount were filed, nor said amount is credited to profit and loss account. The Ld. CIT(A) deleted the disallowance on the ground that the amount recovered from OIPL represented 1/3rd remuneration paid to Mr. Pramod Saxena (i.e. Managing Director ) for running affairs of OIPL.
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8.2 Before us, the Learned DR relied on the order of the Assessing Officer. 8.3 On the contrary, the Learned Counsel of the assessee submitted that amount recovered from OIPL was credited to salary account of Sri Pramod Saxena and deduction of only net salary was claimed by the assessee. 8.4 We have heard rival submission of the parties and perused the relevant material on record. The Ld. CIT(A) has deleted the addition of observing as under: “14.2 The AO added Rs.1,12,82,802/- as he noticed from the Schedule to accounts in related party disclosure that this amount is shown as expenses recovered from Oxigen Infovision (P) Ltd. (OIV) but was not credited as a separate item in the P & L A/c of the appellant company. The Ld. AR has stated that the said amount was recovered from OIV remuneration will be paid by OIV to the Managing Director. The said remuneration was on account of the cost of time spent by the Managing Director of the appellant company, Shri Pramod Saxena in running the affairs of OIV. It is further stated that the appellant paid total remuneration due to the Managing Director and recovered 1/3rd of the amount (paid to the MD). Further, the appellant company debited its books of account initially with the total remuneration of the Managing Director and subsequently after passing of the Board Resolution, the salary account is credited with the 1/3rd amount to be recovered from OIV. The Ld. AR has also filed copies of the Board Resolution as well as the ledger extracts evidencing the credit to the salary account by the impugned amount of Rs.1,12,82,802/-.
14.3. In view of the above, since the amount recovered has been duly credited to the salary account of the P & L A/c rather than separately being accounted for in the P & L A/c as amount recovered from OIV, there is no reason for adding back the amount to the total income of the appellant company. In effect, the appellant company has claimed the net expenditure on managerial remuneration and the amount recovered from OIV stands accounted for. The addition of Rs.1,12,82,802/- made by the AO, is not in order and is ordered to be deleted. This ground of appeal is ruled in favour of the appellant.”
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8.5 We find that before the ld. CIT(A), the assessee has duly explained as why the said recovery of expenses has not been credited to profit and loss account. The assessee has claimed net salary (salary due minus(-) payment recovered from OIPL) paid to Mr Pramod Saxena only. The Learned DR did not find any mistake in the accounting entry carried out by the assessee. In the circumstances, we uphold the order of Ld. CIT(A) on the issue in dispute and dismiss the ground No. 5 (five) of the appeal of the Revenue. 9. Grounds no. 6 of the appeal relates to disallowance on account of the depreciation claimed on POS terminals. 9.1 The assessee claimed the depreciation at the rate of 60% claiming the POS terminals as part of the computer, whereas the Learned Assessing Officer allowed the depreciation at the rate of 15% treating the POS terminals as part of plant and machinery. The Ld. CIT(A) allowed the claim of the depreciation at the rate the 60% observing as under: “15.3 The Ld. CIT(Appeals) followed the decision of the Hon’ble ITAT, Delhi in the case of ACIT Vs. M/s. Connaught Plaza Restaurants (P) Ltd. Relief was also allowed to the appellant for the A.Y. 2011-12 on the same ground. Since the facts of the case are similar, respectfully following the decision of the Hon’ble ITAT, Delhi, depreciation on POS terminals is allowed @ 60% as claimed by the appellant. Consequently, disallowance of depreciation computed by the AO at Rs.5,19,41,056/- is deleted. This ground of appeal is ruled in favour of the appellant.”
9.2 We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. We find that this issue is covered in favour of the assessee by the order of the Tribunal in the case of the assessee for assessment year
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2009-10 (ITA No. 3812/Del/2015 dated 07/01/2019). The relevant finding of the Tribunal is reproduced as under: “8. We have considered the rival arguments made by both the sides and perused the orders of the authorities below. We find the Hon’ble Delhi High Court in the case of Pr. CIT Vs. Connaught Plaza Restaurant has considered the issue i.e. Higher rate of depreciation on POS TERMINALS and has upheld the decision of the Tribunal where it has been held that assessee is entitled to depreciation @ 60% on POS TERMINALS. The relevant observation of the Hon'ble High Court reads as under:-
“The revenue’s appeal urges that a substantial question of law arises i.e. whether P.O.S. terminal, is a computer or alternatively falls within the classification of computer peripherals and accessories for the purpose of depreciation. This court notices that for the relevant assessment year i.e. A. Y.2008-09 even.though the Assessing Officer held that the equipment was neither computer not it could be computer accessories, the CIT(A) overturned that decision and held that the assessee was entitled to 60% depreciation. The CIT(A) was of the opinion that the equipment was akin to a computer. That determination has been concurred to the ITAT. Given these circumstances, this court is of the opinion that no question of law, much less a substantial one arises for determination under section 260A. The appeal is therefore dismissed.” 9. Since the issue has been decided in favour of the assessee by the decision of the jurisdictional High Court cited (supra), therefore, the order of the CIT(A) on this issue is upheld and the ground raised by the revenue is dismissed.”
9.3 In assessment year 2008-09 and 2010-11 (ITA No. 3765 and 3766/Del/2015, dated 15/02/2019) also, the Tribunal has allowed the depreciation at the rate of 60% on POS terminals. Relevant finding of the Tribunal is reproduced as under: “21. On a careful reading of the order dated 7/1/2019 in ITA No. 3812/Del/2015 in assessee's own case for the assessment year 2009-10, we find that the Tribunal followed the decision of the Hon'ble Delhi High Court in the case of Connaught Plaza restaurants (supra) wherein the issue of higher rate of depreciation on POS terminals was considered and the decision of the Tribunal granting 60% depreciation thereon was upheld. In the said decision Hon'ble jurisdictional High Court noticing that the Ld. CIT(A) in assessee's
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own case for the assessment year 2008-09 held that the assessee was entitled to the depreciation at 60% on the ground that the equipment was akin to a computer and such a finding was concurred by the ITAT. After that the Hon'ble High Court held that as against such findings no question of law, much less a substantial one arises for a determination and, accordingly, dismissed the appeal of the revenue.
It is, therefore, clear that the issue is no longer res Integra and is squarely covered by the decision of the Hon'ble High Court in the case of Connaught Plaza restaurants (supra) which the coordinate Bench of this Tribunal followed in assessee's own case for assessment year 2009-10. Since the facts are identical and are covered by the decision of the Hon'bl.e jurisdictional High Court, we find it difficult to countenance the arguments advanced on behalf of the Revenue. While respectfully following the same we hold that this ground of Revenue is devoid of any merits and is liable to be dismissed. We, accordingly, uphold the findings of the Ld. CIT(A) and dismiss ground no. 3.”
9.4 Respectfully following the finding of the Tribunal (supra), we uphold the finding of the Learned CIT(A) on the issue in dispute and dismiss the ground No.6 (six) of the appeal of the Revenue. 10. The ground No. 7 (seven) of the appeal relates to the depreciation claimed by the assessee at the rate of 60% percent on UPS. 10.1 The Assessing Officer treated the UPS as not part of the computer and only part of plant and machinery and allowed the depreciation at the rate of 15% only. The Ld. CIT(A) allowed the claim of the assessee observing as under: “16.2. I have carefully considered the assessment order and written submissions furnished by the Ld. AR. The AO restricted the claim of depreciation @ 15% as against the claim of 60% on UPS on the ground that UPS was not an integral part of the computer system and therefore was eligible for depreciation @ 15%. The Hon'ble jurisdictional ITAT in the case of Steel Authority of India Ltd. vs. Addl. CIT in ITA No.2167/Del/2008 held as under:
“37. We have heard the rival submissions of the parties and have gone through the material available on record. We hold
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that the computer peripherals such as UPS system/inverter are essentially part of computer system and computer in the modern age cannot work independently without these basic peripherals. Therefore, following various judgments of Hon'ble Courts we hold that UPS/Inverters/Printers are eligible for depreciation (P 60% Therefore, grounds No. 3 of assessee's appeals is allowed. "
16.3. In view of the above, depreciation on UPS is admissible @ 60% and the disallowance of Rs.47,288/- is directed to be deleted. This ground of appeal is ruled in favour of the appellant.”
10.2 We have heard rival submission of the parties on the issue in dispute. Before us, the Learned Counsel of the assessee submitted that issue in dispute is covered in favour of the assessee by the order of the Tribunal in assessment year 2008-09 and 2010-11(ITA No. 3765 & 3766/Del/2015 dated 15/02/2019). The relevant finding of the Tribunal (supra) is reproduced as under: “23. Next ground that arises for our consideration is the disallowance of depreciation on UPS. The question is whether the depreciation could be allowed at 60% as claimed by the assessee treating it as the computer periphery or at 15% as restricted by the learned assessing officer by treating it as falling within Plant and Machinery block. 24. Ld. DR placed reliance on the decision in the case of Nestle India Limited Vs. DCIT, 111 TTJ 498 (Del) wherein the Tribunal held that the depreciation on UPS is not to be allowed at 60%. However, subsequently there are many decisions on this aspect and more particularly the Hon’ble Delhi High Court in the case of CIT Vs. BSES Yamuna Power Ltd. (2013) 358 ITR 47 held that UPS forms part of the computer periphery and depreciation at a 60% is allowable. In view of this settled position by the said judgment, we do not find any merits in the contention of the revenue and ground no. 4 is accordingly dismissed.”
10.3 Respectfully following the finding of the Tribunal (supra), the finding of the Ld. CIT(A) on the issue in dispute is upheld. The
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Ground No. 7 of the appeal of the Revenue is accordingly dismissed. 11. The ground No. 8 (eight) of the appeal relates to disallowance under section 14A of the Act. 11.1 Brief facts qua the issue in dispute are that the Assessing Officer observed investment in shares and mutual funds by the assessee and thus invoking Rule 8D of the Rules made disallowance of ₹ 4,86,094/-. The Ld. CIT(A) deleted the disallowance in view of the binding precedent of the Hon’ble jurisdictional High Court. 11.2 We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The finding of the Learned CIT(A) on the issue in dispute is reproduced as under: “l7.3 In the recent past in a number of decisions pronounced by the Hon’ble Courts and Tribunals, it has been ruled that provisions of section 14A cannot be invoked where no exempt income has been earned in the previous year. Hon’ble Delhi High Court in the case of Chemnivest Vs. CIT –VI (ITA 749/2014) decided on 02.09.2014 has ruled that section 14A will not apply if no exempt income is received during the relevant previous year. The Hon’ble Court ruled as under: “23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression ‘does not form part of the total income’ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”
11.3 Since the Learned CIT(A) has followed binding precedents of Hon’ble jurisdictional High Court and, therefore, we do not find any error in the findings of the Ld. CIT(A). Accordingly, we uphold
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the same and dismiss the Ground No. 8 of the appeal of the Revenue. 12. The Ground No. 9 of the appeal relates to disallowance of ₹ 53,627/- on account of late payment of Provident Fund (PF) and Employees State Insurance (ESI). 12.1 Brief facts related to the issue in dispute are that the Assessing Officer made the addition of ₹ 53,627/-under section 36(1)(va) read with section 2(24)(x) of the Act for the reason that the assessee did not deposit the provision toward PF and ESI within the limitation stipulated in respective enactments. The Ld. CIT(A) deleted the addition following the decision of the Hon’ble Delhi High Court observing as under:
“18.2 I have carefully considered the assessment order and written submission furnished by the Ld. AR. The AO has invoked the provision of Section 36(1)(va) read with section 2(24)(x) of the Act and treated the delayed payment of Rs.53,627/- employee’s contribution to Provident Fund as appellant’s income. The Hon’ble Delhi High Court in the case of CIT Vs. AIMIL Ltd. (2010 321 ITR 508 has held that the assessee can get the benefit of deduction if the payment is made before the return is filed, as per the principle laid down by the Hon’ble Supreme Court in the case of CIT Vs. M/s. Vinay Cement Ltd., 2013 ITR 268. I find that the appellant has paid the Empoyee’s contribution to Provident Fund before the due date of furnishing the return u/s 139(1) of the I.T. Act, 1961. In view of the above legal position on the issue, I hold that the AO was not justified in making the disallowance of Rs.53,627/- which is ordered to be deleted. These grounds are ruled in favour of the appellant.”
12.2 Before us, the Learned DR submitted that the issue in dispute is covered against the assessee in view of the decision of the Hon’ble Delhi High Court in the case of CIT Vs. M/s. Bharat Hotels Ltd. (2019), 410 ITR 417 (Del. HC).
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12.3 On the contrary, the Learned Counsel of the assessee submitted that in subsequent decision, in the case of Principal Commissioner of Income Tax Vs. Pro Interactive Service (India) Pvt. Ltd. (ITA No.983/2018, dated 10th September, 2018), the Hon’ble Delhi High Court has reversed the decision in the case of Bharat hotels Ltd (supra). 12.4 We have heard rival submission of the parties on the issue dispute. We find that Hon’ble Delhi High Court in the case of Bharat Hotels Ltd (supra) has held as under:
“Question No.2 7. The issue here concerns the interplay of Section 2(24)(x) of the Act read with Section 36(1)(va) of the Act alongside provisions of the Employees‟ Provident Funds and Miscellaneous Provisions Act, 1952 (especially Regulation 38 of the Employees‟ Provident Funds Scheme, 1952) and the provisions of the Employees‟ State Insurance Act, 1948. The AO had brought to tax amounts which were deducted by the employer/assessee from the salaries and wages payable to its employees, as part of their contributions. It is not in dispute that the employer’s right to claim deductions under the main part of Section 43-B of the Act is not an issue. The question the AO had to then decide was whether the amounts deducted from the salaries of the employees which had to be deposited within the stipulated time (in terms of notification/circular dated 19.03.1964 which was modified on 24.10.1973), as far as the EPF contribution went and the period of three weeks as far as the ESI contributions went. The AO made a tabular analysis with respect to the contributions deducted and actually deposited. The cumulative effect of notifications under the Employees‟ Provident Funds Act, 1952 and the Employees State Insurance Act, 1948 was that in respect of the EPF Scheme contributions the deductions were to be deposited within 15 days of the succeeding wage period with a grace period of 5 days; for ESI contributions the deposit with the concerned statutory authority had to be made within three weeks of the succeeding wage month/period. The CIT in this case confirmed the additions - made by the AO based on the entire amounts that were disallowed. The ITAT however granted complete relief. 8. Having regard to the specific provisions of the Employees‟ Provident Funds Act and ESI Act as well as the
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concerned notifications which granted a grace period of 5 days (which appears to have been late withdrawn recently on 08.01.2016), we are of the opinion that the ITAT‟s decision in this case was not correct. The assessee undoubtedly was entitled to claim the benefit and properly treat such amounts as having been duly deposited, which were in fact deposited within the period prescribed (i.e. 15 + 5 days in the case of EPF and 21 days + any other grace period in terms of the extent notification). As far as the amounts constituting deductions from employees‟ salaries towards their contributions, which were made beyond such stipulated period, obviously the assessee was not entitled to claim the deduction from its returns. 9. In view of this discussion, the Revenue‟s appeal is partly allowed. The AO is directed to examine the contributions made with reference to the dates when they were actually made and grant relief to such of them which qualified for such relief in terms of the prevailing provisions and notifications. We also clarify that the assessee would be entitled to deduction in terms of Section 36(1)(va) of the Act.”
12.5 However, in the subsequent decision Pro Interactive Services (India) Pvt. Ltd. (supra). The Hon’ble Delhi High Court has held as under: “In view of the judgment of the Division Bench of Delhi High Court in Commissioner of Income-Tax Vs. Aimil Ltd, (2010) 321 ITR 508 (Del) the issue is covered against the Revenue and, therefore, no substantial question of law arises for consideration in this appeal. The legislative intent was/is to ensure that the amount paid is allowed as an expenditure only when payment is actually made. We do not think that the legislative intent and objective is to treat belated payment of Employee’s Provident Fund (EPD) and Employee’s State Insurance Scheme (ESI) as deemed income of the employer under section 2(24)(x) of the Act. Appeals is dismissed.”
12.6 In view of the above, we restore this issue to the file of the Learned Assessing Officer for deciding afresh in accordance with law.
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In the result, the appeal of the Revenue is allowed partly for statistical purpose. Order pronounced in the open court on 30th September, 2021
Sd/- Sd/- (K.N. CHARY) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 30th September, 2021. RK/-(DTDC) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi