Tax appeal dismissed on service tax & depreciation, partially allowed on advertisement expenses under Income Tax Act.

Assistant Commissioner of Income Tax, Versus Uppal Motor Pvt. Ltd.,

Assistant Commissioner of Income Tax, Versus Uppal Motor Pvt. Ltd., - TMI Issues Involved:
1. Deletion of disallowance of service tax payment.
2. Depreciation on UPS as part of the computer.
3. Disallowance under section 40A(9) of the Income Tax Act.
4. Disallowance of advertisement and business promotion expenses under section 40(a)(ia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Service Tax Payment:
The revenue contested the deletion of a disallowance of Rs. 2,36,547/- by the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that the payment was in the nature of a penalty and thus not an allowable expenditure. The Assessing Officer (AO) had initially disallowed this amount, claiming it was revenue neutral and lacked satisfactory explanation from the assessee. However, the CIT(A) found that the service tax was a liability incurred by the assessee on payments received from banks and financial companies, which was duly discharged during the accounting period. The tribunal upheld the CIT(A)'s decision, noting that the AO failed to provide evidence that the payment was penal in nature. Consequently, the tribunal dismissed this ground of appeal.

2. Depreciation on UPS as Part of the Computer:
The revenue challenged the CIT(A)'s decision to allow 60% depreciation on the Uninterruptible Power Supply (UPS) system, arguing that the AO correctly applied a 15% depreciation rate, treating UPS as not a computer peripheral. The CIT(A) and the tribunal, however, held that the UPS is an inseparable peripheral to the computer and thus eligible for 60% depreciation. The tribunal found no reason to interfere with the CIT(A)'s findings and dismissed this ground of appeal.

3. Disallowance under Section 40A(9) of the Income Tax Act:
The AO had disallowed Rs. 1,23,654/- under section 40A(9), claiming the assessee failed to provide proof of a separate pension fund. The CIT(A) overturned this disallowance, noting that the payment was a statutory liability consistently allowed in previous years. The tribunal agreed, observing that the assessee had been depositing employees' share to the Provident Fund continuously and that this payment had not been disputed in earlier years. The tribunal dismissed this ground of appeal, supporting the CIT(A)'s decision.

4. Disallowance of Advertisement and Business Promotion Expenses under Section 40(a)(ia):
The AO disallowed Rs. 9,82,037/- spent on the Hero Honda Manufacturer (HHM) scheme, arguing that the expenses were incurred by the principal manufacturer and not the dealer, and that the assessee failed to deduct tax at source. The CIT(A) found that the expenses were for promotional schemes benefiting both the principal and the dealer, and that the amount was reimbursed through discounts on motorcycle purchases. The tribunal, however, noted that the CIT(A) did not adequately address the AO's observations regarding the correlation between discounts and promotional expenses. Consequently, the tribunal restored this issue to the CIT(A) for further adjudication, partially allowing the appeal for statistical purposes.

Conclusion:
The appeal was dismissed for grounds 1, 2, and 3, and partly allowed for ground 4, with the issue remanded to the CIT(A) for further consideration. The tribunal's decision was pronounced in the open court on 19.10.2012.