2015 (7) TMI 76 - AT - Income Tax

Tribunal Upholds CIT(A) Decision on Expenses, Emphasizes Need for Factual Evidence

The Tribunal upheld the CIT(A)'s decision to delete disallowances and additions challenged by the Revenue. The Tribunal found that the payments for ... Disallowance of trade mark fee - revenue v/s capital - CIT(A) allowed claim - Held that:- As relying on CIT vs. G4S Securities System (India) Pvt. Ltd. [2011 (7) TMI 65 - DELHI HIGH COURT] wherein exactly the similar to the issue involved in the present appeal to hold the ownership rights of the trade mark and knowhow throughout vested with G4F and on the expiration or termination of the agreement the assessee was to return all G4F knowhow obtained by it under the agreement. The payment of royalty was also to be on year to year basis on the net sales of the assessee and at no point of time the assessee was entitled to become the exclusive owner of the technical knowhow and the trade mark. Hence, the expenditure incurred by the assessee as royalty is revenue expenditure and is therefore, relatable under Section 37(1) of the Act. - Decided in favour of assessee. Proportionate rights to use the software - revenue v/s capital - Held that:- The treatment of a particular expense or, a provision in the books of accounts can never be conclusively determinative of the nature of the expense. An assessee cannot be denied a claim for deduction which is otherwise tenable in law on the ground that the assessee had treated it differently in its books. The observation of the Supreme court in the case of Kedar Nath Jute Manufacturing Co. Ltd. vs CIT (1971 (8) TMI 10 - SUPREME Court) puts this beyond doubt and hold whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of accounts be decisive or conclusive in the matter - Decided in favour of assessee. Addition u/s 14A - CIT(A)deleted the addition - Held that:- No expenditure in the form of interest on other expenditure for earning of exempt income was pointed out by A.O. It is an established law that for making disallowance u/s 14A finding of fact with respect to incurring of expenditure is a pre-requisite which has not been done in this case. We find that Ld. CIT(A)'s finding are exhaustive and detailed and we do not find any infirmity in the same.- Decided in favour of assessee. Repair and maintenance expenditure disallowed - CIT(A) allowed claim - Held that:- The assessee had filed necessary details regarding repair & maintenance and had submitted complete break-up of spare parts and labour charges. The non furnishing of information in 1-2 columns out of 26 columns cannot be aground for disallowance of the claim especially in view of the fact that such information was not statutory information. The items which required capitalization were already capitalized by assessee and, therefore, Ld. CIT(A) has rightly deleted the same and we do not find any infirmity in the order of Ld. CIT(A). - Decided in favour of assessee. Issues Involved:1. Deletion of disallowance on account of trademark fee.2. Deletion of disallowance of license fees.3. Deletion of addition made under Section 14A read with Rule 8D.4. Deletion of disallowance on account of current repairs.Issue-wise Detailed Analysis:1. Deletion of Disallowance on Account of Trademark Fee:The Revenue contested the deletion of Rs. 1,07,45,433/- disallowed by the Assessing Officer (AO) on account of trademark fee, arguing it was a capital expenditure. The Tribunal found that the payment was necessary for the use of the trademark under an agreement with the parent company, similar to a previous case (I.T.A. No. 5536/Del/2013) where such payment was deemed a revenue expenditure. The Tribunal relied on the jurisdictional High Court's decision in CIT vs G4S Security System India Pvt. Ltd., which held that the payment of royalty based on net sales for the use of a trademark and knowhow did not confer enduring benefits and was thus revenue in nature. Consequently, the Tribunal dismissed the Revenue's ground, affirming that the expenditure was rightly treated as revenue by the CIT(A).2. Deletion of Disallowance of License Fees:The Revenue challenged the deletion of Rs. 6,15,262/- disallowed by the AO for license fees, arguing it was an intangible asset under Section 32 of the IT Act. The Tribunal referred to its earlier decision and the High Court's ruling in CIT vs. Asahi India Safety Glass Ltd., which clarified that software-related expenses enabling efficient business operations without creating new assets were revenue expenditures. The Tribunal found that the payment for software license fees in the current year was similar to the previous year and upheld the CIT(A)'s decision, dismissing the Revenue's ground.3. Deletion of Addition Made Under Section 14A Read with Rule 8D:The AO made an addition of Rs. 5,070/- under Section 14A, which the CIT(A) deleted. The CIT(A) noted that the assessee neither incurred any expenditure to earn exempt income nor received any exempt income during the year. The Tribunal emphasized that the AO failed to record any cogent reasons or find any specific expenditure related to exempt income. The Tribunal upheld the CIT(A)'s detailed findings and dismissed the Revenue's ground, reiterating that a factual finding of incurred expenditure is a prerequisite for disallowance under Section 14A.4. Deletion of Disallowance on Account of Current Repairs:The AO disallowed Rs. 90,92,093/- for current repairs due to incomplete information provided by the assessee. The CIT(A) found that the assessee had already capitalized Rs. 11.87 crores and provided necessary details except for minor columns. The Tribunal agreed with the CIT(A) that the expenses were for maintaining existing machinery and did not create new assets, thus qualifying as current repairs under Section 31(i). The Tribunal dismissed the Revenue's ground, affirming that the non-furnishing of non-statutory information in 1-2 columns could not justify disallowance.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s deletion of disallowances and additions, and pronounced the order in the open court on 27.5.2015.