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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI A.K. GARODIA & SHRI LALIET KUMAR
Per Shri A.K. Garodia, Accountant Member
These are cross appeals filed by the revenue and the assessee and these are directed against a combined order of CIT (A) – II, Bangalore dated 14.10.2014 for A Assessment Years 2009 – 10 & 2011 – 12.All these appeals were heard together and are being disposed of by this common order for the sake of convenience.
In A. Y. 2009 – 10, three issues are involved in the appeal of the revenue. First issue is regarding deletion of disallowance of Rs. 34,47,508/- made by the A.O. in respect of the amount paid to JCI on this basis that it is capital in nature because it would give benefit to the assessee for at least 3 years and hence, cannot be treated as revenue expenditure. The second grievance of the revenue in this year is regarding restricting the disallowance to Rs. 33,55,268/- as against disallowance made by the AO of Rs. 83,88,171/- being 25% of total expenses claimed by the assessee of Rs. 332,54,684/- in respect of OMA Fees paid to Apollo Hospital by invoking the provisions of section 40A (2) of I T Act. In the appeal of the assessee for this year, the assessee is disputing the confirming of the part disallowance to the extent of Rs. 33,55,268/-. The third grievance of the revenue in this year is about deletion of the disallowance made by the A. O. of Rs. 871,369/- in respect of the assessee’s claim u/s 35D of the I T Act.
In A. Y. 2011 – 12, the revenue has only two grievances. The first grievance is regarding restricting the disallowance to Rs. 5,57,481/- as against disallowance made by the AO of Rs. 13,93,704/- out of total expenses claimed by the assessee of Rs. 69,68,523/- in respect of OMA Fees paid to Apollo Hospital by invoking the provisions of section 40A (2) of I T Act. In the appeal of the assessee for this year, the assessee is disputing the confirming of the part disallowance to the extent of Rs. 5,57,481/-. The second grievance of the revenue in this year is about deletion of the disallowance made by the A. O. of Rs. 18,86,295/- in respect of the assessee’s claim u/s 35D of the I T Act.
In both years, this is also a grievance of the revenue that the learned CIT (A0 has admitted additional evidences in violation of Rule 46A and no remand report is obtained by him.
Learned DR of the revenue supported the assessment order. Learned AR of the assessee supported the order of CIT (A) in respect of the appeals of the revenue. Regarding the appeals of the assessee, he submitted that the learned CIT (A) should have deleted the entire disallowance made by the AO in respect of OMA Fees paid to Apollo Hospital instead of allowing part relief.
We have considered the rival submissions. Regarding Ground No. 1 & 2 of the appeal of revenue in A. Y. 2009 – 10, we find that as per Para 3.3 of his order, learned CIT (A) has deleted the disallowance by following the judgment of Hon’ble apex court rendered in the case of CIT vs. Infosys Technologies Ltd. as reported in 349 ITR 606 by observing that in this case, it is ruled by Hon’ble apex court that “the expenses incurred towards obtaining corporate membership, the amount spent towards ISO certificate and the expenses incurred towards repair and maintenance of leased premises have been held to be revenue expenditure and not as capital expenditure.” It is seen that there is no discussion about similarity of facts in the present case and in that case. Details of expenditure are not available in the paper book and hence, we cannot examine and decide about the nature of expenses. Hence, we set aside the order of CIT (A) on this issue and restore the matter back to CIT (A) for a fresh decision by way of a speaking and reasoned order in the light of above discussion after allowing adequate opportunity of being heard to both sides.
In respect of the second grievance of the revenue in A. Y. 2009 – 10 and first grievance in A. Y. 2011 – 12 and interconnected grievance of the assessee in both year i.e. in respect of disallowance by the AO out of OMA Fees paid to Apollo Hospital (AHEL) by invoking the provisions of section 40A (2) of I T Act which is partly confirmed by CIT (A), we find that on this issue, the objection of the AO is this that in addition to disbursing of 4% of the gross revenue, the assessee is paying for the service of all managerial staff provided by AHEL as deputation charges which amounted to Rs. 1.08 Crores in AY 2009 – 10. The AO has also noted in the assessment order for AY 2011 – 12 that this payment to AHEL up to 31.12.2009 was @ 4% but it has been @ 1% from 01.01.2010. In AY 2009 – 10, the AO held that payment of 1.5% on usage of brand name can be treated as eligible and out of remaining 2.5% in that year, he allowed only 1.5% and remaining 1% being 25% of total payment @ 4% was held by him as excessive and was disallowed. In A. Y. 2011 – 12, the AO
says on page 4 of the assessment order that 1% paid by the assessee is allowable but in respect of payment of 4% till 31.12.2009, part amount is to be disallowed. In this regard, we are of the opinion that in AY 2011 – 12, no disallowance can be made on this account if the claim of the assessee is only @1% but if in that year, part claim is 2 4%, then part disallowance is to be made in line with ultimate disallowance in AY 2009 – 10. On this aspect, the position is not clear because the AO says that up to 31.12.2009, the payment is @ 4% but from 01.01.2010, it is @ 1%. If this observation is correct than no disallowance can be made in the present year because the period up to 31.12.2009 does not fall in this year since the previous year relevant to AY 2011 – 12 is from 01.04.2010 to 31.03.2011. But if the date mentioned by the AO are on account of typographical mistake and up to 31.12.2010, the payment made is @ 4% and only from 01.01.2011, it is reduced to 1%, then the part disallowance is to be made in line with ultimate disallowance in AY 2009 – 10. Hence, in both years, we restore the matter back to CIT (A). In AY 2009 – 10, the details of the amount paid by the assessee of Rs. 1.08 Crores in addition to 4% OMA has to be examined for deciding this aspect as to whether the payment of OMA in this year is excessive or not. Such details are not available in the paper book and there is no comment of the AO or CIT (A) regarding those details. Hence, we set aside the order of CIT (A) in AY 2009 – 10 on this issue and restore the matter back to his file in that year for a fresh decision on this basis that whether the payment of Rs. 1.08 crores in this year is for same services for which $5 is being paid and what is the market rate for such services excluding 1.5% in respect of brand usage. Similarly, in AY 2011 – 12, he should find out as to whether similar extra payment as in AY 2009 – 10 of Rs. 1.08 Crores is paid in AY 2011 – 12 also and what is the amount of such payment in that year and how the amount paid @ 2.5 % excluding 1.5% for brand usage along with such extra payment, if any, stands when compared with market rate for similar services. He should pass necessary order as per law in the light of above discussion after providing adequate opportunity of being heard to both sides. This issue is restored back to CIT (A) in both years and the relevant grounds of both sides on this issue stand allowed for statistical services.
,107,413 & 414/Bang/2015 Page 5 of 6 8. In respect of the third issue as per these two appeals of the revenue in respect of deletion of disallowance of the assessee’s claim u/s 35D, we find that as per the assessment order, the assessee has amortized such expenditure which should not have been amortized u/s 35D as preliminary expenditure. It means that as per the AO, the expenses claimed by the assessee are not eligible for amortization u/s 35D. In spite of this categorical finding of the AO, learned CIT (A) has deleted this disallowance on the basis of this submission of the assessee before him that if these expenses are not eligible for amortization u/s 35D, the deduction is allowable in full in the first year when the expenses are incurred without any discussion in respect of the nature of these expenses. Before us, the detail of the expenses is not made available. Hence, we feel it proper to restore this matter also back to CIT (A) for a fresh decision by way of a speaking and reasoned order after providing adequate opportunity of being heard to both sides.
In the result, both the appeals filed by the assessee and both the appeals filed by the revenue are allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.