DEPUTY COMMISSIONER OF INCOME-TAX,, PUNE vs. M/S. ATLAS COPCO (INDIA) LTD.,, PUNE

आदेश / ORDER

PER INTURI RAMA RAO, AM:

This is an appeal filed by the Revenue directed against the order of the learned Commissioner of Income Tax (Appeals) – 13, Pune dated 27.07.2015 for the Assessment Year 2010-11.

“1. Whether on the facts and circumstances of the case, the CIT(A) was justified in holding that only a completely uncontrolled transaction can be used for benchmarking when there are no limits identified in the I.T.Act, 1961 for such . a categorization of the International Transaction and further the OECD

guidelines in para 1.70 clearly suggests that 'an attempt should be made to reach a reasonable accommodation keeping in mind the imprecision of the various methods and the preference for higher degrees of comparability anda more direct and closer relationship to the transaction?

ground No.1.

“1. The CIT(A) erred in holding that the comparison of two controlled transactions cannot be made for benchmarking of the royalty paid by the assessee to its Associated Enterprise by comparing it with the rate of royalty agreed between two Associated Enterprises when no such limits of categorization of international transactions are specified in the I.T.Act, 1961.

Limited Company and a part of Swedish Multinational Group of Companies

i.e., Atlas Copco AB. It is engaged in the business of manufacturing and sale

of Air & Gas Compressors, Construction and Mining Equipment & Industrial

Tools. The return of income for A.Y. 2010-11 was filed on 01.10.2010

disclosing total return of income of Rs.159,80,27,928/-. The said return of

income was selected for scrutiny assessment. On noticing that the

respondent / assessee has reported the international transactions in Form

No.3CB, the Dy. Commissioner of Income Tax, Circle - 8, Pune (hereinafter

referred as the “Assessing Officer”) made a reference to the

Addl.Commissioner of Income Tax, Pune, (hereinafter referred as the

“Transfer Pricing Officer (TPO)”) u/s 92CA(3) of the Act for the purpose of

determination of Arms Length Price (hereinafter referred as “ALP”) in relation

to the following international transactions :

Sl.No. Description Amount (Rs) Method 1 Import of raw material and 1,86,70,42,829 TNMM components 2 Import of finished goods 1,74,70,85,852 TNMM 1,13,75,17,625 TNMM 3 Export of finished goods 4 Import of Capital goods 87,61,495 5 Payment of Royalty 6,41,38,716 TNMM 6 Receipt of sales commission 34,30,50,057 TNMM 7 Payment of commission 1,33,97,434 TNMM 8 Payment of consultancy fees 20,45,414 TNMM 9 Payment of management fees 1,89,14,290 TNMM 10 Provision of administrative 4,91,75,419 TNMM support services 11 Provision of IT enabled design 32,58,75,250 TNMM engineering services 12 Recovery of warranty 3,00,54,240 TNMM expenses

13 Amounts written back 3,09,485 TNMM Sub Total A 5,60,73,68,106

Allocation of common costs 14 Certification Fees paid 8,67,511 TNMM 15 Communication Expenses 4,50,13,073 TNMM 16 Information Technology 2,66,07,182 TNMM Related Expenses Sub Total B 7,24,87,766 Reimbursement of expenses 2,31,966 TNMM 17 Medical Insurance of Expats 18 Membership and Subscription 3,09,983 TNMM 19 Miscellaneous Expenses 25,56,618 TNMM 5,26,484 TNMM 20 Printing & Stationery 21 Travelling & Hotel expenses 52,90,553 TNMM 22 Warranty charges 1,01,46,330 TNMM 23 Staff welfare 26,59,894 TNMM 24 Sales promotion 28,37,280 TNMM Sub Total C 2,45,59,108 T Total A+B+C 570,44,14,980

The TPO vide order dt.10.01.2014 passed u/s 92CA(3) of the Act

suggested the T.P. adjustments of Rs.11,32,00,000/- in respect of following

international transactions :

a) Payment of royalty at Rs.3,62,00,000/-.

b) Commission towards the provision of marketing support services at

Rs.7.23 crores.

c) Sale of products to A.E. at Rs.47,00,000/-

Finally, the assessment was completed by the Assessing Officer at a

total income of Rs.171,64,57,875/- u/s 143(3) r.w.s. 144C(3) of the Act on

26.05.2014 after making following disallowances :

(a) Software development expenses at Rs.1,26,000/- (b) Expenses on repairs and maintenance at Rs.96,776/- (c) Other miscellaneous expenses at Rs.2,59,407/- (d) Commission payment at Rs.39,60,335/- (e) Disallowance u/s 14A of the Act at Rs.7,87,426/- (f) T.P. Adjustment.

the respondent / assessee before the ld.CIT(A), who vide impugned order

deleted the T.P. Adjustment on account of payment of royalty at

Rs.3,62,00,000/- following his order in respondent / assessee’s own case for

the earlier assessment years i.e., A.Y. 2008-09 and 2009-10. Similarly, as

regards to the T.P. adjustment on account of receipt of commission payment

of Rs.7.23 crores, the ld.CIT(A) following his order in respondent / assessee’s

own case for the earlier assessment years for A.Y. 2008-09 and 2009-10

deleted the T.P. adjustment. As regards to the disallowance of Rs.47 lakhs

i.e., difference in prices of the products sold in AE and non-AE, ld.CIT(A)

remitted the issue back to the file of Assessing Officer. As regards to the

addition on account of Software Development Expenses of Rs.1.26 lakhs,

ld.CIT(A) had directed the Assessing Officer to allow the same as Revenue

expenditure by following decisions :

i. CIT Vs. Southern Roadway Ltd (2008) 304 ITR 84 (Mad). ii. CIT Vs. Asashi India Safety Glass Ltd (2011) 203 Taxman 277.

iii. CIT Vs. Renuga Textiles Mills Ltd (2012) 254 CTR (Mad) 423.

Rs.1,01,869/-, the ld.CIT(A) following his order in assessee’s own case for

earlier years i.e., A.Ys. 2009-10 had directed the Assessing Officer for the

deletion of the same. As regards to the disallowance of Miscellaneous

Expenditure of Rs.2,59,407/-, ld.CIT(A) out of the disallowance of

Rs.2,59,407/-, confirmed the disallowance only to the extent of

Rs.1,00,000/-. Regarding to the disallowance of commission expenditure of

Rs.39,60,335, ld.CIT(A) following his own order in respondent / assessee’s

own case for the earlier assessment year 2008-09 had deleted the addition.

deleting the Arms Length Price adjustment on account of payment of

Royalty.

The brief factual matrix of the issue in ground No.1 as under :

During the previous year relevant to the assessment year under

consideration, the respondent / assessee made a payment of royalty to it’s

Associated Enterprise (hereinafter referred as “A.E.”) i.e., Atlas Copco Air

Power NV in consideration of receipt of technology in the form of know-how,

technical training and technical assistance. In terms of the agreement with

Atlas Copco Power NV Belgium, royalty is payable at 5% of domestic sales

and 8% on export sales. In the T.P. Study, the respondent / assessee sought

to justify the transaction of payment of royalty in ALP by adopting

Transactional Net Margin Method (hereinafter referred as “TNMM”) by

aggregating with the other international transactions. However, the TPO did

not accept the aggregation of transactions and considered the transaction of

payment of royalty separately under CUP method. The respondent / assessee

company also accepted this.

royalty by adopting royalty paid by other group company i.e., Wuxi-Atlas

Copco Compressor Co. Ltd., which paid the royalty at 3% on the net sales

price. The TPO considered it as a comparable transaction and held that ALP

of the royalty is determined at 3% of the domestic sales and 8% of the export

sales and the balance of which is determined at Rs.2.97 crores. Consequently

the difference between the actual payment of Rs.6.41 crores and ALP of

Rs.2.79 lac being Rs.3.62 lac was suggested as TP adjustment on account of

royalty payment.

holding that the methodology adopted by the TPO in comparing the controlled

transaction with another controlled transaction is flawed by placing reliance

on his order in assessee’s own case for the earlier A.Ys. 2008-09 and

2009-10.

ought not have granted relief to respondent / assessee on the ground that

comparison of two controlled transactions cannot be made when no such

method is barred by law.

contended that the transaction of payment of royalty is at ALP. It is in

accordance with the policy of the Government of India on payment of royalty

under Foreign Technology Collaboration Agreement. He also filed a copy of

the Press Note No.8 dt. l6.12.2009 in terms of which payment of royalty @ 5%

domestic sales and 8% of exports is permitted under automatic approval. He

also relied on the decision of Hon’ble jurisdictional High Court in the case of

CIT Vs. SGS India Pvt Ltd., reported in (2015) 94 CCH 0338 (Bombay High

Court) wherein it is held that the royalty paid at 3% of the sales to arrive at

the ALP is much below the royalty for trade mark and which is allowed to be

paid. He also placed reliance on the orders of the Tribunal in assessee’s own

case for earlier assessment years wherein the Tribunal had deleted the

similar addition by holding that comparison of one controlled transaction

cannot be made with another controlled transaction.

The issue in the present ground of appeal relates to the determination of ALP

of the transaction of payment of royalty. Admittedly, the royalty was paid

@ 5% of domestic sales and 8% of the export sales in consideration of receipt

of technology in the form of know-how, technical training and technical

assistance for the purpose of manufacturing the compressors. The TPO

determined the ALP of the royalty payment at 3% of the sales by taking it as

appropriate benchmark. The TPO adopted this benchmark considering the

transaction of payment of royalty by it’s A.E. i.e., Wuxi Atlas Copco

Compressor Co Ltd., which is undisputedly controlled transactions, and the

difference between two and the actual price was suggested as TP adjustment

u/s 92CA of the Act without even going into the issue whether the approval of

payment of RBI will constitute a CUP method or not. The present issue can

be decided in favour of the assessee by holding that comparison in order to

determine if the ALP cannot be done by comparing the prices charged to by

A.E., which is controlled transaction, as the provisions of I.T. Act, mandates

that the determination of ALP has to be done by comparison between

controlled and un-controlled transactions. An identical issue has been dealt

by the Hon’ble Bombay High Court in the case of PCIT Vs. Audco India

Limited reported in (2019) 104 taxmann.com 386 (Bom) wherein the Hon'ble

High Court on identical facts had confirmed the decision of Tribunal by

dismissing the appeal filed by the Revenue by holding that TPO has to arrive

at ALP of the transaction only comparing it with uncontrolled transactions

and the Hon'ble High Court had found fault with the approach of the TPO by

holding that it is contrary to the clear provisions of the Act as per Rule 10A(d)

of the Rules.

Hon’ble Bombay High Court dismissed the appeal of Revenue on the

following question of law by holding as under :

“(d) We note that Chapter X of the Act is a special provision relating to avoidance of tax. Section 92 deals with computation of income from international transaction having regard to ALP. It provides any income arising from the international transaction shall be computed having regard to the ALP. The ALP is defined under Section 92F(ii) of the Act to mean a price which is applied or proposed to be applied in transactions between persons other than AE's in uncontrolled transactions. This is further supported by Rule 10A(d) where uncontrolled transaction has been defined as a transaction between enterprises other than with A.E's. whether resident or non-resident. In view of the above clear position in law, the TPO ought to have arrived at the ALP of the respondent's sale to its A.E.viz. Flow Serve by only comparing it with uncontrolled transaction of sale to in USA. Thus the approach of the TPO is contrary to the clear provisions of law. Besides as held by the Tribunal the comparison has to be region/country specific, which in this case, the TPO has completely ignored.

(e) Therefore, the view taken by the Tribunal does not call for any interference as it is in accordance with the self-evident provisions of law. Thus, this question as proposed does not give rise to any substantial question of law. Thus not entertained.”

Tribunal in assessee’s own case for earlier assessment years i.e., 2005-06,

2007-08 and 2008-09 are in consonance with the above principle of law and

therefore, the ld.CIT(A) merely followed the order of Tribunal in earlier orders.

In these circumstances, we do not see any reason to interfere with the order

of ld.CIT(A). Accordingly, the ground No.1 of appeal filed by the Revenue

stands dismissed.

ld.CIT(A) deleting the addition on ALP adjustment on account of receipt

of commission for Marketing Services at Rs.7.23 crores.

The brief factual matrix of the issue in ground No.2 is as under :

During the previous year relevant to the assessment year under

consideration, the appellant received indenting commission for the services

rendered to it’s A.E. The functions performed by the appellant are described

in the T.P. Study Report at Para 8 reads as under :

“8. The sales team of ACIL in the course of marketing the goods manufactured by ACIL may come across a prospective/existing customer having requirement for a product which is not being manufactured by ACIL. bur which is manufactured by its AEs, In such a situation, the sales team informs the prospective/existing customer about the availability of the, requisite product with their AEs, obtains from the customer the technical specifications of the products desired, and communicates the same to the concerned AE It should be noted that ACIL 's involvement is restricted to providing the AEs with the lead and in providing routine administrative support whenever required ACIL does not conclude contracts on behalf of the AEs, nor does it hold

any inventory of products on behalf of the AEs, The consideration due to ACIL is mutually agreed between ACIL and the transacting AE, and generally depends on the size of the order procured as well as the price which the AE is able to negotiate with the customer, The consideration due to ACIL is mutually agreed between ACIL and the transacting AE, and generally depends on the size of the order procured as well as the price which the AE is able [Q negotiate with the customer.”

The appellant received commission of Rs.34.52 crores for rendering the

indenting / marketing services to its A.E. The respondent / assessee applied

the TNMM method in respect of this international transactions and sought to

justify the transaction of receipt of commission is at ALP by applying the

TNMM separately. There is no dispute as to the computation of the total

profit arrived at Rs.143.54 crores attributed to both the manufacturing

functions and marketing functions. However for the purpose of allocation of

profits so arrived at Rs.143.54 cores between two segments i.e.,

manufacturing and marketing function, the depreciation and cost of material

consumed were excluded from total cost and the cost has been taken as key

for allocation of net profit earned by the entity.

depreciation does not contribute to the profits, the same should not be

included as a part of total cost incurred by the entity. On this basis, the TPO

was of the opinion that for the purpose of calculating the percentage of

marketing cost to the total cost, the cost of material and depreciation should

be excluded as result of which percentage of marketing cost to total cost was

arrived at 41.36%. Then TPO proceeded to allocate the total profits earned

by the respondent / assessee in terms of percentage of cost between two

segments. Accordingly, the TPO attributed profits to marketing functions in

the proportion of percentage cost at 59.36 crores. When the profit is

converted into percentage of sales, it worked out to 4.58%. Then the TPO

calculated the profit attributable to marketing functions on sales of 354.56

crores @ 16.24 crores. Then after including the cost incurred on marketing

A.E. products of Rs.26.11 crores, the TPO arrived at 42.35 crores as the

amount ought to have been received on marketing services from A.E. as

against the actual receipt of Rs.34.52 crores and the difference was proposed

as T.P. Adjustment.

assessee’s own case in earlier years deleted the adjustments.

us in the present appeal.

have deleted the ALP adjustment made by the TPO on account of receipt of

sales commission by rejecting the approach of the TPO using the internal

segment results.

submitted that the methodology adopted by the assessee has been upheld in

the earlier year i.e., A.Y. 2005-06 by this Tribunal vide ITA No.736/PUN/2011

dated 05.08.2019.

record. The issue in this ground of appeal relates to the determination of ALP

in respect of the transaction of receipt of commission. The main contention of

the appellant is that the functions undertaken by the assessee for selling the

product is significantly different from what is undertaken for the purpose of

earning the commission income from A.E. The profit earned from

independent activity of marketing function cannot be compared with the

integrated marketing function of a fully integrated manufacturer. But the

TPO had aggregated both the functions, however proceeded to benchmark the

marketing function separately. We need not examine propriety of

aggregating both the functions as the respondent / assessee is not objecting

the same. The only bone of contention between the Department and the

assessee is exclusion of the cost of material consumed and the depreciation of

the total cost for the purpose of determining the percentage of marketing cost

to the total cost. The reasoning given by the TPO that these two segments of

the cost does not contribute to profit and does not stand to any reason, in as

much as the depreciation and the material actually contributes to the profits

in the manufacturing segment. The identical issue was examined by the Co-

ordinate Bench of the Tribunal in assessee’s own case (ITA

No.736/PUN/2011 dt.05.08.2019) for A.Y. 2005-06 wherein it was held as

under :

“14…….As the transaction is that of earning commission, ideally, the benchmarking should also have been done with reference to an uncontrolled transaction of earning commission only. Notwithstanding the fact that the TPO was required to take the comparable uncontrolled transaction as that of rendering of marketing services alone, he started with the entity level figures of the assessee which also include sale of self goods ostensibly involving altogether different functions, assets and risks vis-à-vis earning commission on sale for AEs. Thereafter again, he went off the mark by excluding the amount of raw material costs etc. and depreciation from the base of total costs by overlooking the fact that the figure of profit taken up by him also included profit from sale of manufactured goods. The ld. DR was fair enough to accept that the amount of depreciation ought to have been included. Even if we presume the initial step of adoption of the entity level profit of the assessee, including that from sale of self goods as correct, with which we do not otherwise agree, then

also the total costs contributing to the manufacturing profit should have been considered, which obviously include raw material cost and depreciation, as has been held in the first appeal. On considering the position in this manner, the ld. CIT(A), on pages 27 and 28 of the impugned order, has found the ALP of commission income at Rs.13.79 crore as against the transacted value of commission income at Rs.13.38 core, which is within plus minus 5% range, not calling for any transfer pricing addition. We, therefore, accord our imprimatur to the view taken by the ld. CIT(A) on this score. This ground is not allowed. 15. Ground no.1 of the assessee’s appeal is against the confirmation of disallowance u/s.35DD of the Act at Rs.2,10,000/-, being, 1/5th of the fees paid to Registrar of Companies for increasing the authorized capital on amalgamation.”

Thus, we are of the considered opinion that the TPO was not justified in

excluding the depreciation and cost of the material consumed in denominator

of total costs. Further, we find that the methodology adopted by the TPO

does not fall into any of the appropriate methods prescribed under Rule 10(b)

of the I.T. Rules, 1962. We must also mention that clause (f) of clause (1) of

Rule 10(b) prescribing any other method was inserted with retrospective effect

from 01.04.2013 is not applicable for the year under consideration.

Therefore, the ratio of the jurisdictional Bombay High Court in the case of

CIT Vs. Kodak India (P) Ltd., reported in (2017) 79 taxmann.com 362

(Bombay) is applicable in the present set of facts. In the case of CIT Vs.

Kodak India (P) Ltd. (supra), the Hon’ble Bombay High Court has held as

under :

“10. We must also record the fact that the ALP was arrived at by the Transfer Pricing Officer (TPO) by not adopting any of the methods prescribed under Section 92C of the Act. The method to determine the ALP adopted was not one of the prescribed methods for computing the ALP. It was not even any method prescribed by the Board. At the relevant time, i.e. for A.Y. 2008-09 Section 92C of the Act did not provide for other method as provided in Section 92C(1)(f) of the Act. The impugned order of the Tribunal holds that the method adopted by the Revenue to determine the ALP was alien to the methods prescribed under Section 92C of the Act. In the above circumstances, the Tribunal declined to restore the issue to the Assessing Officer for re-determining the ALP by adopting one of the methods as listed out in Section 92C of the Act. This finding of the Tribunal has also not been challenged by the Revenue. 11. In view of the fact that the Revenue has accepted the order of the Tribunal on its finding on facts on the two issues as pointed out hereinabove as well as

the refusal of the Tribunal to restore the issue of determination of ALP to the TPO by following one of the methods prescribed under Section 92C of the Act. Thus, the questions as formulated for our consideration even if answered in favour of the Revenue would become academic in the present facts. Thus, we see no reason to entertain this appeal. However, we make it clear that the issues of law which has been raised in the present appeal are left open for consideration in an appropriate case.”

The ratio that can be culled out from the above decision is that when

the TPO had not adopted any of methods prescribed u/s 92CA of the I.T. Act,

no adjustment on account of ALP can be made by TPO. Therefore, the order

of the ld.CIT(A) though does not contain independent reasoning, keeping in

view of the order of the Tribunal for earlier years on identical issue in

assessee’s own case on the principle of consistency and ratio of decision of

Hon’ble Bombay High Court in the case of CIT Vs. Kodak India (P) Ltd.

(supra), we uphold the order of ld.CIT(A). Thus, the ground No.2 of the

appeal filed by the Revenue is dismissed.

deleting addition on account of Software Development Expenses at

Rs.1,26,000/-.

The brief factual matrix of the issue in ground No.3 is as under :

found that the assessee had incurred an expenditure of Rs.1,80,000/- for

development on Software. It is submitted that the expenditure was incurred

for better development of the up-gradation of application software in order to

achieve higher efficiency of the software. However, the Assessing Officer was

of the opinion that the expenditure had resulted in enduring benefit to the

assessee and therefore held to be capital in nature and allowed the

depreciation thereon and the balance of Rs.1,26,000/- was disallowed by the

Assessing Officer.

no customized software. Mere up-gradation of the software does not result in

any enduring benefit when the life of software is less than two years and

placing reliance on the decisions of CIT Vs. Southern Roadway Ltd. (2008)

304 ITR 84 (Mad), CIT Vs. Asashi India Safety Glass Ltd (2011) 203 Taxman

277 and CIT Vs. Renuga Textiles Mills Ltd (2012) 254 CTR (Mad) 423, had

deleted the addition.

before us.

Officer.

submitted that the expenditure was incurred only as up-gradation of software

and in view of the fast changes in technology, it cannot be said that there is

enduring benefit accrued to the assessee. He also placed reliance on the

decisions of this Tribunal in assessee’s own case for A.Y. 2001-02 and the

jurisdictional Bombay High Court in the case of CIT Vs. Geoffrey Manners &

Co., Ltd., reported in 49 Taxmann.com 320.

record. The issue in the present ground of appeal relates to the allowability of

the expenditure incurred for up-gradation of the software. The details of

expenditure was placed at Page Nos.532 to 537 of the Paper Book. From

details on record, it is evident that the expenditure was paid to M/s Radix

Business Models Pvt. Ltd., in order to upgrade the application software on

contract basis for Lotus Notes Developer. The Hon'ble High Court in the case

of CIT Vs. Geoffrey Manners & Co., Ltd., reported in 49 Taxmann.com 320

held vide para 12 that in view of the rapid advancement in the recent

technology, it cannot be said that there is any enduring benefit to the

assessee. Since the decision of the ld.CIT(A) is in line with the decision of

jurisdictional High Court, we do not find any reason to interfere with the

decision of ld.CIT(A). Accordingly, ground No.3 of the Revenue stands

dismissed.

holding that the expenditure incurred on the renovation of lease

premises of Rs.1,01,869/- is revenue in nature.

The brief factual matrix of the issue in ground No.4 is as under :

During the previous year relevant to the assessment year under

consideration, the respondent / assessee incurred an expenditure of

Rs.1,01,869/- on renovating the lease premises which are used for the

business purpose of the respondent / assessee at Bangalore. From details of

expenditure, it is evident that the expenditure is incurred on interior work,

electrical work and painting etc. The Assessing Officer capitalized this

expenditure and allowed the depreciation at 5% and the balance amount of

Rs.96,776/- was disallowed.

that no new asset was brought into existence and no enduring benefit was

accrued to the assessee as a result of this expenditure.

before us.

ld.CIT(A) holding the expenditure incurred on rented premises as revenue in

nature is contrary to the Explanation 1 of Sec.32 of the I.T. Act and

submitted that in view of the plain provisions of the Act, the expenditure

cannot held to be revenue in nature.

that no new asset came into existence as a result of this expenditure and the

expenditure incurred is only revenue in nature and Explanation 1 to

Sec.32(1) was inserted by the Finance Act has no application to the

expenditure as it was incurred only on revenue items like painting, flooring

etc.

record. The issue in the present ground of appeal relates to the allowability of

expenditure incurred on items like painting and flooring etc on the rented

premises which are used for the business purpose of the assessee. The

provisions of Explanation 1 to Sec.32(1) of the Act reads as under :

"Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee."

in the cases of CIT Vs. ETA Travel Agency Pvt. Ltd., reported in (2019) 109

taxmann.com 66 (Madras) and CIT Vs. Viswams reported in (2019) 105

taxmann.com 289 (Madras). In the case of CIT Vs. Viswams (supra) the

Hon’ble Madras High Court held as under :

“14. We have carefully considered the rival arguments advanced.

cinema house to bring it in line with the modern show business. The replacement was an improvement of an enduring nature and not mere replacement. Capital expense with regard to a short-term venture, such as a lease for a period, had to be viewed in the context of that lease, namely, its purpose coupled with its duration. Expenditure incurred by the assessee is an expenditure of a capital nature and it brought into being an advantage of an enduring nature and thus it had been rightly treated as such by the Tribunal, except to the extent of the amount found by the Tribunal being on account of repairs." 20. In view of the above propositions, we are of the considered view that the expenditure incurred by the Assessee in the present case are Capital in nature and come within the mischief of Explanation 1 to Section 32(1) of the Act. The alternate submission advanced by Mr. M.P. Senthil Kumar that the repairs to the premises cannot be capitalised in view of Section 30(a)(i) of the Act is rejected since the renovations made are Capital in nature in the first Assessment Year and only further repairs may attract the provisions under Section 30(a)(i) of the Act. Section 30(a)(i) of the Act is as follows:— "30. In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed- (a) Where the premises are occupied by the assessee— (i) as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs." 21. In the present case, the Assesses had incurred substantial expenditure towards renovation leading to enduring benefit. They are not merely repairs. The Assessees had also incurred expenditures towards improvement and construction of the building. These cannot be termed as 'repairs'. Consequently, this alternate submission is rejected by us. The second alternate submission advanced by Mr. M.P. Senthil Kumar that the case should be remitted back to the Assessing Officer is also rejected since the fact have been addressed and settled by the Authorities below and it had been concurrently found that the expenditure were capital in nature. The issue of bifurcating the said expenses as capital and revenue would therefore not arise. 22. In view of the above reasons, we hold that the substantial questions of law have to be answered in favour of the Revenue and against the Assessee and the Appeals filed by the Revenue have to be allowed. Accordingly, the Appeals are allowed. No costs.”

rented premises cannot be treated as revenue in view of the plain provisions

of Explanation 1 to Sec.32 of the Act. The ld.CIT(A) is in total ignorance of the

provisions of Explanation 1 of Sec.32 of the Act held it to be revenue in

nature. The decision relied upon by the learned counsel has no application

after insertion of Explanation 1 of Sec.32 of the Act. In the above

circumstances, we reverse the order of ld.CIT(A) and restore the issue in this

ground to the file of Assessing Officer. Thus, this ground of the Revenue is

allowed for statistical purposes.

restricting the disallowance of the minimum expenditure from

Rs.2,59,407/- to Rs.1,00,000/-.

The brief factual matrix of the issue in ground No.5 is as under :

During the course of assessment proceedings, the Assessing Officer

found that out of the miscellaneous expenses, the assessee could not

produce supporting documents, details, vouchers to the extent of

Rs.2,59,407/-, therefore disallowed the same.

own case in the earlier years in A.Ys. 2008-09 and 2009-10, restricted the

disallowance to Rs.1,00,000/-.

before us.

basis to restrict the disallowance to Rs.1,00,000/-.

contested that no disallowance can be made on adhoc basis without rejecting

the books of accounts.

During the course of assessment proceedings, the respondent / assessee

company could not furnish the evidence, bills, vouchers etc to the extent of

Rs.2,59,407/- out of the total Miscellaneous Expenditure. On appeal before

ld.CIT(A), ld.CIT(A) restricted the disallowance to Rs.1,00,000/- which is in

accordance with the decision of his order in assessee’s own case for the

earlier assessment years. On the principle of consistency, we uphold the

order of ld.CIT(A). Accordingly, this ground of appeal stands dismissed.

deleting the addition of commission expenditure of Rs.39,60,335/-.

The brief factual matrix of the issue in ground No.6 is as under :

During the course of assessment proceedings, the Assessing Officer had

called for details of total commission expenditure of Rs.17,65,74,867/-. Out

of which, the assessee could not furnish the confirmations from the parties to

the extent of Rs.39,60,335/-. Therefore, the Assessing Officer dismissed the

same.

the assessment year 2008-09 deleted the same on the ground that the

ld.CIT(A) had not conducted any fresh verification to prove the genuineness of

the transaction or otherwise of the case.

remitted back for further enquiry.

submitted that the similar disallowance was deleted by this Tribunal in

assessee’s own case for A.Ys. 2002-03 to 2007-08 and similarly, the Hon’ble

Bombay High Court also confirmed the order of the Tribunal deleting the

addition on account of commission expenditure in assessee’s own case.

The issue in the present appeal relates to the allowance of commission

expenditure of Rs.39,60,335/-. Admittedly, the appellant had filed the

primary details such as name, address, invoice, payment made etc. However,

the assessee could not furnish the confirmations from payees and for want of

the confirmations, Assessing Officer made disallowance. The ld.CIT(A)

following the decision of his order in assessee’s own case in earlier years has

deleted the addition. From the material on record, it is clear that the

respondent / assessee had discharged the onus cast upon it by filing the

primary details. Mere inability to furnish the confirmation letters from the

recipients cannot be the reason to disallow the commission expenditure

without causing any further enquiries by the Assessing Officer as to the

genuineness or otherwise of the expenditure. Admittedly, there is no material

on record exhibiting the non-genuineness of the expenditure. Hence,

respectfully following the decisions of this Tribunal and Hon’ble Bombay High

Court in respondent / assessee’s own case, we hold that ld.CIT(A) is justified

in deleting the commission expenditure and accordingly, this ground of appeal is dismissed.

Order pronounced on 2nd day of September, 2021.

Sd/- Sd/- (S. S. VISWANETHRA RAVI) (INTURI RAMA RAO) �याियक सद�य �याियक सद�य/JUDICIAL MEMBER लेखा सद�य �याियक सद�य �याियक सद�य लेखा सद�य लेखा सद�य/ACCOUNTANT MEMBER लेखा सद�य पुणे / Pune; �दनांक / Dated : 2nd September, 2021. Yamini आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : आदेश क� �ितिलिप अ�ेिषत आदेश क� �ितिलिप अ�ेिषत अपीलाथ� / The Appellant. 1. 2. ��यथ� / The Respondent. 3. The CIT(A)-13, Pune. 4. The Pr.CIT-5, Pune. 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “सी” ब�च, पुणे / DR, ITAT, “C” Bench, Pune. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy //

Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.