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Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
Before: SHRI I.C.SUDHIR & SHRI PRASHANT MAHARISHI
Assessee by : Shri P Damvanunjna, Sr. DR Revenue by: Dr. Rakesh Gupta, Adv Shri Somil Aggarwal, Adv Date of Hearing 07/06/2016 Date of pronouncement 05/09/2016 O R D E R PER PRASHANT MAHARISHI, A. M. This is appeal filed by the revenue against the order of the ld CIT(A)-IX, New 1. Delhi dated 14.08.2013 for the Assessment Year 2010-11 raising following grounds of appeal:- “1. Whether in the facts and circumstances of the case, the Ld. CIT(A) erred in holding that the issue of not allowing deduction of Rs.3,46,32,282/- u/s 35 is a debatable issue whereas the above disallowance was made by the AO u/s 143(3) after issuing show-cause to the assessee vide letter dated 11.01.2013 and after discussing the above issue in the assessment order?
2. Whether in the facts and circumstances of the case, the Ld. CIT (A) erred in deleting the disallowance of Rs.1,35,03,868/- made on account of sales Commission without considering the fact that there was no date put by the Authorized Signatory on the agreement dated 08.09.2010 (w.e.f. 01.04.2009)?
3. Whether in the facts and circumstances of the case, the Ld. CIT (A) erred in deleting the disallowance of Rs.1,35,03,868/- without examining the issue of non-deduction of IDS u/s 40(a)(i) as mentioned in the assessment order?
4. Whether in the facts and circumstances of the case, the Ld. CIT (A) erred in deleting the disallowance of Rs.2,68,222/- made by the AO on account of Credit Card bills in respect of Shri S. N. Shivprasad on the ground that no inquiry was made by the AO completely ignoring the fact that the assessee was able to produce only the self certificate regarding the above expenditure and so inquiry was conducted by the CIT (A) either directly or through Remand Report to verify the claim of the assessee? DCIT V Minda Stoneridge instruments Limited Page 2 of 10 5. Whether in the facts and circumstances of the case, the Ld. CIT (A) erred in deleting disallowance of excess depreciation of Rs.2,62,756/- claimed on electrical fitting and in deleting the disallowance of excess depreciation of Rs.1,54,711/- claimed on Computer Peripherals.
6. Whether in the facts and circumstances of the case, the Ld. CIT (A) erred in deleting the disallowance of excess depreciation of Rs.2,62,756/- claimed on electrical fitting without assigning any reason and even after mentioning the fact the assessee has no objection if the normal depreciation is restricted to 7.5% instead of 5%? 7. Whether in the facts and circumstances of the case, the Ld. CIT (A) erred in deleting the disallowance of Rs.75,000/- made by the AO by treating the expenditure on market research study for evaluation of Customer Satisfaction Measurement as Capital expenditure by holding that the Hon'ble Supreme Court had held in the case of Empire Jute Ltd. vs. CIT (1980) 124 ITR 1 if there is benefit of enduring nature without creation of Capital Asset cannot be termed as Capital Expenditure as it is an incorrect interpretation of the above judgment? 8. The order of the learned CIT(APPEALS) is erroneous & contrary to facts & law.
That the grounds of appeal
are without prejudice to each other.”
2. The brief facts of the case are that the assessee is a company engaged in the business of manufacturing of photo panel instruments including speedometer temperature gauge etc. It filed its return of income on 06.10.2010 declaring total income of Rs. 41870013/-. The assessment u/s 143(3) was made on 25.02.2013 at an income of Rs. 90810430/- wherein several disallowances were made. Against this disallowance assessee preferred appeal before the ld CIT(A) who deleted certain disallowance against which the revenue is in appeal before us.
3. The first ground of appeal is against deletion of disallowance of Rs. 34632282/- u/s 35 of the Act. In its return of income assessee claimed deduction u/s 35 of the Act on account of capital expenditure incurred on scientific research of Rs. 34632280/- however, ld Assessing Officer disallowed the same holding that assessee has not claimed this deduction in its return of income. Ld Assessing Officer stated income from business of profession shown in return processed of the assessee is determined at Rs 76502320/- and hence such disallowance was made as per order u/s 143(1) dated 07.07.2011. Ld CIT (A) deleted this disallowance for the reason that assessee has made this claim in its return of income but the amount was adjusted u/s 143(1) of the Act by Central Processing Cell (CPC) of the Income Tax Department. The appellant has filed application u/s 154 on 11.03.2013 against this adjustment which is pending. The ld DCIT V Minda Stoneridge instruments Limited Page 3 of 10 CIT (A) deleted the above disallowance for the reason that such disallowance u/s 35 cannot be an issue to be examined u/s 143(1) as it is highly debatable.
4. The ld DR submitted that as the deduction was not claimed by the applicant in the original return of income, hence it cannot be allowed. He further referred to Page No. 101 of the Paper Book filed by the assessee stating that recognition was available with the assessee up to 31.03.2012 vide letter dated 17.09.2009, and date in this letter is written by hand whereas the letter is typed. He therefore submitted that deduction cannot be allowed.
5. Ld Authorized representative submitted that assessee has claimed the deduction in return of income filed and CPC has made this adjustment wrongly. He further referred to return filed by the assessee and also the intimation u/s 143(1) of the act. He further referred to approval granted to the assessee as well as claim of the assessee in computation of total income. He further submitted that similar claim is allowed to the assessee for past years.
6. We have carefully considered the rival contentions and also perused the material produced before us. The assessee has filed its return of income showing gross total income of Rs. 41870038/-, copy of acknowledgement of ROI is made available at page no. 178 of the Paper Book. To support the return of income the assessee has also given the computation of total income at page No. 176 to 177 of the paper book whereas at Item No. 7 capital expenditure on scientific research amounting to Rs. 34632280/- was claimed. This is further supported by the tax audit report wherein in para no. 15(b) the claim is also shown. In the ITR-6 downloaded from the website of Income Tax Dept also shows that in schedule BP total income shown as profit and gain from business is Rs. 41870038/-. The assessee has also submitted the intimation u/s 143(1) of the Income Tax Act dated 15.03.2011 shows business income as computed u/s 143(1) at Rs. 76502318/-. Therefore, the view of the Assessing Officer that assessee has not claimed in return of income is devoid of any merit. On the issue of the merit of the deduction the assessee is granted recognition for the relevant DCIT V Minda Stoneridge instruments Limited Page 4 of 10 year by the Ministry of Science and Technology vide letter dated 17.09.2009 for in house research and development unit at Pune. According to the provisions of section 35(1)(iv) the assessee is eligible for deduction of capital expenditure on research and development related to the business carried on by the assessee if it satisfies the condition laid down in sub-section 2 of section 35 of the Act. No argument is raised by revenue that assessee has not fulfilled those conditions. In the result we find no infirmity in the order of the ld CIT(A) in granting deduction of Rs. 34632282/- to the assessee on account of capital expenditure on research and development. In the result ground No. 1 of the appeal is dismissed.
7. Ground No. 2 and 3 of the appeal are against the deletion of disallowance of sales commission expenditure of Rs. 13503868/- stating that there is no date put by authorized signatory and alternatively tax has not been deducted at source on this payment and therefore disallowable u/s 40a(i) of the Act. During the year the assessee has incurred export commission expenditure of Rs. 13503868/-. The assessee has not deducted tax at source on this income. Before the ld Assessing Officer it was submitted that despite withdrawal of circular No. 786 dated 07.02.2002 by Circular No. 7 of 2009 dated 22.10.2009, the tax is not required to be deducted on payment made to commission agent as they operated out of India and no income has accrued to them in India hence, such income is not liable to tax in India and therefore, no tax is deductible on this payment. Ld Assessing Officer rejected the contention of the assessee and held that since the circular has been withdrawn, the tax is deductible on such payments. Further it has been held that original agreement between the parties dated 26.06.2006 expired on 31.03.2009 and the letter dated 08.09.2010 extending the terms of the agreement by the assessee to the commission agent though signed by commission agent but as he has not put the date. Therefore ld Assessing Officer rejected the agreement and disallowed the commission payment.
The ld DR relied on the same arguments which are raised by the ld Assessing Officer. The ld AR submitted that as no service has been rendered by the commission agent in India no tax is required to be DCIT V Minda Stoneridge instruments Limited Page 5 of 10 deducted on such payment. Further it was submitted that the agreement is duly signed by the commission agent though date may be put therein but the agreement is in force and parties acted on that.
9. We have carefully considered the rival contentions. The ld CIT(A) has dealt with this issue as under:- “The AO disallowed sales commission amounting to Rs.1,35,03,868/- paid by the appellant to a foreign agent. The AO observed that there was no agreement between the assessee and the foreign company during the relevant financial year and held that such commission is not allowable. During the assessment proceedings the appellant also pointed out to circular no. 786 dt. 07.02.2002 of the CBDT but the AO mentioned that the circular was withdrawn vide Board circular No, 7/2009 dt. 22.10.2009. The assessee also submitted before the AO that no technical service is rendered by the commission agent and in the instant case, since the commission agent operated in his own country, the agent is not liable to income tax in India and hence no tax is deducted at source. The AO held that since the commission payment is not substantiated by any agreement as it existed in the prior years it is not /allowable. Before me the appellant submitted that "In so far as non deduction of tax is concerned, that the agent was non- resident and did not have any PE in India. No technical fee was paid to the non- resident agent and thus, there was no income chargeable to tax in India which accrued to the non resident agent. That being so there was no requirement of TDS u/s 195 and that being so there could be no disallowance u/s 40(a)(i) as held in the following judicial decisions" The appellant relied on the judicial decisions in the following cases:- • CIT vs. Toshoku Limited 125 ITR 525 (SO • GE India Technology 327 ITR 456 (SO • EON TECHNOLOGY (P) LTD (2012) 343 ITR 366 (Delhi) In the case of one of the group company of the appellant, M/s Minda Corporation Ltd., for A.Y. 2009-10, similar disallowances was made u/s 40A(1) of the Act. Based on the judicial pronouncement and facts of the case my Ld. predecessor CIT(A)-IX held, "the expenses as allowable and provisions of the Section 40(a)(i) shall not be attracted". In the appellant case, the reference to the Section has been made in the assessment order without giving any finding. AO has not questioned the PE status of the payee that is linked to deducibility of the taxes. The agreement for the services rendered was expired on 31.03.2009 and there was no agreement that extended the payment of commission to Hongxing Holdings (HK) Ltd. In reply to this, the appellant submitted a copy of the agreement for renewal of commission payment dated 08.09.2010. The renewed agreement clearly indicates the extension of the agreement. In view of the above,' the addition of Rs.1,35,03,868/-is deleted.”
Furthermore the ld AR has placed reliance on decision of the Rajkot Bench of ITAT in case of ACIT Vs. Rentax Industries AY 2010-11 dated 08.10.2015 wherein, the impact of the withdrawal of the circular was considered and disallowance u/s 40a(i) on account of DCIT V Minda Stoneridge instruments Limited Page 6 of 10 commission expenditure to foreign agent was deleted relying upon the decision of Hon’ble Madras High Court in case of CIT Vs. Orient Express 230 Taxmann 602. The another decision cited before us of coordinate bench in AY 2010-11 dated 18.06.2015 is also on deletion of disallowance of commission expenditure for non deduction of tax at source to foreign agent after withdrawal of the above circular. We are also of the view that withdrawal of the circular cannot bring any change in the provision of section 5, 9 and 195 of the income tax act which determined the chargeability of any income in the hands of a non resident. No material has been brought on record by revenue to show that income of the nonresident has accrued, or deemed to have accrued in India and therefore that income is chargeable to tax in the hands of Nonresident as per the Income tax Act. In absence of this finding, provision of section 195 of the act are not triggered. Therefore, in view of the above decision of the coordinate benches, we do not find any infirmity in the order of the ld CIT(A) in deleting the disallowance made by ld AO u/s 40a (i) on foreign commission payments. Further regarding the agreement, merely because date has not been put by one of the parties on it while putting signature cannot debar the assessee from claiming deduction of expenditure when parties have acted on that agreement and services rendered have not been disputed. We confirm the decision of ld CIT (A) on that count also. In the result ground No. 2 and 3 of the appeal are dismissed.
Ground No. 4 of the appeal is against the deletion of disallowance of Rs. 268222/- on account of credit card bills in respect of S N Shiv Prasad. The above expenditure was disallowed on the basis of information received to AIR. Before the ld CIT(A) the assessee submitted that an expenditure of Rs. 67168/- has been paid by the company to the credit card of Mr. SN Shiv Prasad for attending the Board Meeting. The ld DR relied on the order of the Assessing Officer whereas the ld AR relied on the order of the ld CIT(A).
We have carefully considered the rival contentions. The ld CIT(A) has deleted above addition as same was made entirely on the basis of the information received from Annual Information Return and without making DCIT V Minda Stoneridge instruments Limited Page 7 of 10 further verification the AO. Further, no enquiry has been made with the Mr. SN Shiv Prasad. Therefore, there was nothing to prove that the assessee has incurred any such expenditure to the credit card of Mr. SN Shiv Prasad. Information received from AIR is first hand information and attitude of the AO that each and every information of AIR if not reflected in the books of the assessee must result in to an addition in the hands of assessee. In fact if the information is received from AIR the first responsibility lies on the assessee to show that how this expenditure has been reflected in his books of accounts. When the books of accounts and AIR information shows some mismatch then AO must verify about the correctness of AIR information first. After ascertaining such correctness and affording assessee an opportunity to explain his view point on such mismatch, then AO should verify that there is some income which is chargeable to tax in hands of assessee on this mismatch, then only it can result in to any addition. In the present case ld AO believed the AIR information as sacrosanct and made the addition which is correctly deleted by ld CIT (A). In view of this we do not find any infirmity in the order of the ld CIT (A) in deleting the above addition. Therefore ground No. 4 of the appeal of the revenue is dismissed.
Ground No. 5 and 6 of the appeal are against the disallowance of depreciation of Rs. 262756/- on account of electrical fittings and of Rs. 154711/- claim on account of computer peripherals.
The ld DR submitted that disallowance of depreciation is correctly made by the AO as assessee on electrical installation relating to furniture and fixture has claimed depreciation @ 15 % treating it as plant and machineries entitled to depreciation @ of 15 %. Ld AR relied on the order of the ld CIT (A).
We have carefully considered the rival contentions. The ld CIT(A) has dealt with above issue as under:- “7. Ground No. 4 This ground is against the action of A.O in restricting depreciation on Electrical Fitting at 10% as against claimed by the appellant at 15% on the ground that such electrical fittings are part of furniture and fixtures and appropriate rate of depreciation on furniture and fixture is 10%. Also, for this reason, AO has denied the benefit of Additional Depreciation. The AO restricted the rate of depreciation as per DCIT V Minda Stoneridge instruments Limited Page 8 of 10 Section 32 of the Act vide new appendix 1 u/s 5 of the IT. Rule. Thus AO treated electrical fittings as a tangible asset for furniture and fixtures. 7.1 AO has allowed depreciation on computer printers, UPS, Projectors & Batteries at 15% as against the depreciation claimed at 60% on the ground that these are plant and machineries and not computers. Thus, total disallowance was made of Rs.4,17,467/- ( 2,62,756+1,54,711). 7.2 With respect to the amount of Rs.17775/- on account of 'fans' being part of furniture and fitting used for less than 180 days, assessee has no objection if normal depreciation is restricted to 5% as against 7.5% claimed in return and additional depreciation being disallowed. The amount of disallowance thus would work out to Amount(Rs.) - Depreciation at the rate of 2.5 percent on Rs.17775/- 444 - Additional depreciation at the rate of 10 percent on Rs.17775/- 1778 2222 7.3 The appellant submitted "Facts of the case are that depreciation on the additions to the tune of Rs.4,03,830/- made in computers has been restricted to 15% instead of 60% on items mentioned on page 5 of the impugned order being printers, UPS, projectors, batteries, scanners, toners, etc (Addition of Rs.2,83,776/- used for more than 180 days and Rs.1,20,054/- used for less than 180 days) by treating the same as part of block of Plant and Machinery, resulting in addition of Rs. 1,54,711/-. The amount of addition to Computers relating to printers, toner, projector, UPS, scanner is as under:- Amount(Rs.) - Used for more than 180 days 283776 - Used for less than 180 days 120054 403830 It is respectfully submitted that Computer and its accessories i.e. UPS, scanner, printer, projectors, toner, batteries, etc are integral part of computer and eligible for deduction of depreciation allowance at the rate of 60 percent as held in the following judicial decisions:- 1. BSES Rajdhani Powers Ltd. in ITA 1266/2010 (DHC) "It is respectfully submitted that impugned Electrical Fittings are in fact electrical installations for plant and machinery. This was so explained in letter placed at PB 6, to Ld. AO submitting that the impugned installations are in the nature of control penal, diesel tank, DG set and cost of its fitting, light fitting, water and compressed air pipes, M. V. Switch board, L. T. cables and terminations, compressor, etc. used for Plant and Machinery. This explanation of the appellant has not been denied or rebutted by Ld. AO as can be seen from the plain reading of the assessment order. Thus, when the facts say that these are plant and machinery, the appropriate rate of depreciation is 15% and not 10%." In view of the judicial pronouncements relied by appellant the addition of Rs. 2, 62,7567- for electrical fittings and Rs.1,54,711/- for projectors, batteries, printers and UPS is deleted.” DCIT V Minda Stoneridge instruments Limited