2012 (11) TMI 989 - AT - Income Tax

Tribunal directs fresh adjudication on specific issues, emphasizes consistency in accounting practices

Lintas India (P.) Ltd. Versus Assistant Commissioner of Income-tax - 3(2), Mumbai

Lintas India (P.) Ltd. Versus Assistant Commissioner of Income-tax - 3(2), Mumbai - TMI Issues Involved:1. Treatment of expenditure on repairs as capital or revenue expenditure.2. Disallowance of expenses on computer software.3. Disallowance under section 14A.4. Taxation of unclaimed liabilities.5. Addition under section 92CA(3) related to international transactions.Detailed Analysis:1. Treatment of Expenditure on Repairs as Capital or Revenue Expenditure:The assessee incurred Rs. 95,54,601/- on repairs and maintenance of various properties. The AO categorized Rs. 33,12,482/- as capital expenditure. The CIT (A) upheld this, except for Rs. 62,341/- treated as revenue expenditure. The Tribunal found most expenses were for maintenance of existing assets, except for new assets like sofa and electrical fittings, which were capital in nature. The Tribunal directed the AO to allow depreciation on capitalized amounts and treated the rest as revenue expenditure, citing past Tribunal decisions favoring the assessee.2. Disallowance of Expenses on Computer Software:The assessee's claim on software expenses was referred back to the AO for fresh adjudication in light of the Special Bench decision in Amway India Enterprises v. DCIT. The Tribunal restored this issue to the AO for re-evaluation according to the law and principles governing the issue.3. Disallowance under Section 14A:The assessee withdrew this ground, and it was treated as not pressed and withdrawn.4. Taxation of Unclaimed Liabilities:The AO added Rs. 7,81,80,823/- to the income, questioning the assessee's method of writing back unclaimed liabilities after two years. The CIT (A) upheld this addition. The Tribunal found that the opening balance of Rs. 7,83,32,994/- was more than the closing balance, indicating no new accrual or cessation of liability in the current year. The Tribunal noted the consistent accounting method followed by the assessee and directed the AO to delete the addition, emphasizing no postponement of tax liability.5. Addition under Section 92CA(3) Related to International Transactions:The AO referred transactions with associate enterprises to the TPO, who made adjustments for commission received from IM Hamburg and payments to Initiative Media Technologies, Paris.(I) Transactions with IM Hamburg:The TPO compared the commission rate with Indian clients and adjusted the income by Rs. 15,53,105/-. The Tribunal found the comparison with Eveready Industries, which had a fixed fee arrangement, inappropriate. It directed the AO/TPO to exclude Eveready Industries and re-calculate the mean commission rate. The Tribunal also rejected the addition of Rs. 13,22,632/- for excess credit period, noting the assessee's policy of not charging interest to any client.(II) Payments to Initiative Media Technologies, Paris:The TPO set the ALP at nil due to lack of evidence for services received. The Tribunal restored this issue to the TPO for fresh examination, emphasizing that ALP cannot be nil as per the Delhi High Court's decision in EKL Appliances Ltd.Conclusion:The appeal was partly allowed, with directions for fresh adjudication on specific issues and deletion of certain additions. The Tribunal emphasized the need for consistency in accounting practices and proper evaluation of international transactions.