ATLAS COPCO (INDIA) LTD.,PUNE vs. ASST. COMM. OF INCOME-TAX, PUNE

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ITA 1677/PUN/2011Status: DisposedITAT Pune27 August 2019AY 2007-089 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal dismissed grounds challenging the assessment order's validity. It allowed the claim for education cess and depreciation on premises, and deleted transfer pricing additions for royalty and indenting commission. The disallowance of miscellaneous expenses was upheld.

What were the facts?

The assessee challenged the validity of the assessment order and sought allowance for education cess and depreciation on premises. The appeal also contested transfer pricing additions for royalty and indenting commission, and disallowance of miscellaneous expenses.

What were the issues?

Whether the assessment order is valid, and the allowability of education cess, depreciation, and transfer pricing adjustments.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C,Section 271(1)(c),Section 40(a)(ii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE BENCH “C”, PUNE

Before: SHRI R.S. SYAL & SHRI PARTHA SARATHI CHAUDHURY

For Appellant: Shri R. Murlidhar, Advocate
For Respondent: Shri M.K. Gautam, CIT-DR

PER R.S.SYAL, VP :

This appeal by the assessee is directed against the final assessment order dated 30-09-2011 passed by the Assessing Officer (AO) u/s.143(3) r.w.s.144C(13) of the Income-tax Act, 1961 (hereinafter called ‘the Act’) in relation to the assessment year 2007-08. 2. The assessee has raised the following five additional grounds:

“Validity of the Order passed u/s. 143(3) r.w.s 144C of the Income- tax Act, 1961:

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1.

On the facts and in the circumstances of the case and in law, the learned Assessing Officer (Ld. AO) erred in passing the draft assessment order dated September 30, 2011 without following the mandate as laid down under section 144C of the Income-tax Act, 1961 (the Act). The Appellant prays that the said draft assessment order be held as void-ab-initio, bad in law and illegal and consequently the entire assessment ought to be quashed. 2. On the facts and in the circumstances of the case and in law, the Ld. AO erred in issuing a notice under section 274 read with section 271(1)(c) of the Act along with the said draft assessment order, thereby not following the mandate as laid down under section 144C of the Act. The Appellant prays that the said draft assessment order be held as void-ab-initio, bad in law and illegal and consequently the entire assessment ought to be quashed." Claim of Education Cess 3. The Appellant prays that the liability for education cess on income tax paid for the year ought to be allowed as tax deductible expenses while computing the taxable income. Consequential claim of Depreciation on the Expenditure of Premises 4. Consequent to the decision of Hon'ble ITAT in the AY 2004-05, in relation to disallowance of expenditure of premises amounting to Rs.14,18,525, being 40% of the total expenditure incurred during the year, which are held to be capital in nature for such year under consideration, i.e. AY 2004-05, the Appellant prays for allowance of the depreciation on the same, in the subsequent years, including AY 2007-08. 5. The Appellant craves leave to add, alter, mend, substitute and/or modify in any manner whatsoever all or any of the foregoing additional grounds of appeal at or before the hearing of the appeal.”

3.

The first set of two additional grounds are challenging the

validity of order passed u/s.143(3) r.w.s. 144C of the Income-tax

Act, 1961 on the ground that the draft assessment order passed by

3 ITA No.1677/PUN/2011 Atlas Copco (India) Limited

the AO referred to the initiation of penalty u/s.271(1)(c). It is

observed that similar additional grounds were taken up by the

assessee for the A.Y. 2006-07 also. Vide order dated 21-08-2019,

the Tribunal in ITA No.1470/PUN/2010 has dismissed such

additional grounds by noting that no demand notice was directed to

be issued by the AO pursuant to the draft order passed u/s.143(3)

r.w.s.144C of the Act and hence the same could not treated as a

final assessment order. Following the precedent, we dismiss these

additional grounds of appeal.

4.

The next additional ground is against the claim of Education

Cess. Both the sides are in agreement that similar issue has been

decided by the Tribunal in the assessee’s own case in its favour for

the earlier years including the aforesaid assessment year 2006-07.

Following the same, we decide this issue in the assessee’s favour by

holding that Education Cess on Income-tax paid should not be

disallowed u/s.40(a)(ii) of the Act.

5.

The next set of additional grounds is on claim of depreciation

towards expenditure on Premises. Similar issue came up to be

considered by the Tribunal in the assessee’s own case for the A.Y.

2006-07 by holding that the amount of expenditure on Premises,

4 ITA No.1677/PUN/2011 Atlas Copco (India) Limited

held to be capital in nature, should be subjected to depreciation as

per law. We, therefore, direct to grant depreciation to the assessee

in respect of expenditure on premises capitalized by virtue of the

orders passed by the Tribunal for earlier assessment years 2004-05

to 2006-07.

6.

The first effective issue raised by the assessee in its

Memorandum of appeal is against the confirmation of transfer

pricing addition in respect of the international transaction of

payment of Royalty.

7.

This issue is also recurring in nature. The Tribunal vide its

order dated 22-07-2019 in ITA No.1303/PUN/2010 etc. for the A.Y.

2004-05 has decided it in assessee’s favour by deleting the transfer

pricing addition on account of Royalty. Similar view has been

followed in all the subsequent years up to the year under

consideration. The ld. DR could not point out any distinguishing feature in the facts for this year vis-à-vis the preceding years.

Following the precedent, we direct to delete the transfer pricing

addition in respect of Royalty.

5 ITA No.1677/PUN/2011 Atlas Copco (India) Limited

8.

The next addition assailed in this appeal is against the transfer

pricing addition in the international transaction of Indenting

Commission.

9.

Here again, it is found that the Transfer Pricing Officer (TPO)

proposed the transfer pricing addition on the similar pattern as was

done for the earlier years. The Tribunal in ITA No.736/PUN/2011

vide its order dated 05-08-2019 for the A.Y. 2005-06 considered

such issue and deleted the addition by observing that Material cost

and Depreciation cost etc. were required to be included in the base

of total costs for the purpose of computing the arm’s length price.

This order was based on a categorical finding rendered by the ld.

CIT(A) on pages 27 and 28 of his order to the effect that if Material

cost and Depreciation etc. are considered in the cost base, then the

price charged by the assessee falls within +/-5% range. It is further

observed that similar issue came up for consideration again before

the Tribunal in its order for A.Y. 2006-07. Since this appeal came

up through the route of the Dispute Resolution Panel in which there

was no such categorical finding about the transaction being at arm’s

length price or not as was there for the A.Y. 2005-06, the Tribunal

restored this matter to the file of AO/TPO for a fresh adjudication.

However, for the year under consideration, it is observed from

6 ITA No.1677/PUN/2011 Atlas Copco (India) Limited

pages 13 and 20 of the TPO’s order that the assessee submitted a

detailed calculation to the TPO by considering the Material cost and

Depreciation cost in the base of costs and demonstrated that the

transaction was at the ALP. The TPO did not controvert such a

position but went with his earlier view that these costs were not

required to be considered, which view has been overturned by the

Tribunal for earlier years. Thus, it is evident that the facts and

circumstances of the instant year are similar to those of the A.Y.

2005-06. Following the precedent, we order to delete the addition.

10.

The next ground about capitalization of software expenses was

not pressed by the ld. AR by conceding that such expenditure

should be treated as capital expenditure on which depreciation

should be allowed. It is seen that the AO has done the same,

namely, capitalized the expenditure and then allowed depreciation.

In view of these facts, this ground is not allowed.

11.

The next ground is against capitalization of expenditure on the

Premises. Here again, it is found that the facts and circumstances of this ground are mutatis mutandis similar to those of preceding years.

The Tribunal for the A.Y. 2006-07 and earlier years has upheld

7 ITA No.1677/PUN/2011 Atlas Copco (India) Limited

capitalization of expenses in relation to the Premises at 40%.

Following the precedent, we direct accordingly.

12.

The next issue is about confirmation of disallowance at 10%

of Miscellaneous expenses. The AO observed that the assessee

claimed deduction of Rs.14.31 crore which included Software

development expenses and Expenses on premises. Those two items

were separately dealt with by him which, we have also separately

adjudicated in earlier paras. The remaining amount of expenditure

to the tune of Rs.13.18 crore under the head Miscellaneous expenses

was not properly backed by vouchers and bills. The AO, therefore,

made addition @10% at Rs.1,31,85,119/-.

13.

Having heard both the sides and gone through the relevant

material on record, it is observed that the AO has recorded a

categorical finding that “though the entire bills have not been

produced for verification and the reasons for non production was

given that the bills are in huge volume.” He, therefore, proceeded to

make disallowance at 10%. It is observed that similar issue came

up for consideration before the Tribunal in the assessee’s own case

for the preceding year as well. In the immediately preceding year,

the Tribunal upheld the disallowance at 10% of such expenses.

8 ITA No.1677/PUN/2011 Atlas Copco (India) Limited

Since the extent of disallowance made by the AO accords with that

upheld by the Tribunal in the assessee’s own case for the

immediately preceding year, following the same, we uphold the

addition, more specifically because of the uncontroverted finding

returned by the AO that the entire bills were not produced for

verification. This ground, therefore, fails.

14.

The last ground of the appeal is against the addition of

Rs.81,54,289/- towards Commission at 7.5%.

15.

Here again, it is found that similar issue came up for

consideration before the Tribunal in the assessee’s own case for

earlier years. In its order for the A.Y. 2006-07, the Tribunal has

deleted such disallowance. Following the precedent, we order to

delete the addition.

16.

In the result, the appeal is partly allowed.

Order pronounced in the Open Court on 27th August, 2019.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 27th August, 2019 सतीश

9 ITA No.1677/PUN/2011 Atlas Copco (India) Limited

आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�े �ितिलिप अ�े अ�ेिषत अ�े आदेश आदेश आदेश िषत िषत/Copy of the Order is forwarded to: िषत अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-13, Pune 4. The Pr.CIT-V, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “सी” / DR ‘C’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune Date 1. Draft dictated on 26-08-2019 Sr.PS 2. Draft placed before author 26-08-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *

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