2016 (4) TMI 1353 - AT - Income Tax

Assessee's appeal partly allowed, revenue's appeal dismissed. Tribunal orders fresh examination.

Star India Private Limited Versus Additional Commissioner of Income Tax – Range 11 (1) Mumbai

Star India Private Limited Versus Additional Commissioner of Income Tax – Range 11 (1) Mumbai - TMI Issues Involved:1. Disallowance of expenditure on leasehold improvements.2. Addition on account of advances written off.3. Disallowance under section 14A read with Rule 8D.4. Disallowance of reimbursement of property taxes.5. Allowance of expenditure incurred for advertisement and promotion.6. Accrual of commission income.7. Depreciation on computer peripherals.8. Disallowance under section 14A read with Rule 8D (Revenue’s Appeal).9. Determination of arm’s length compensation by Transfer Pricing Officer.Detailed Analysis:Issue No. 1 & 2:The assessee did not press these issues due to the small amounts involved. Therefore, these grounds were dismissed as not pressed.Issue No. 3:The assessee argued against the disallowance under section 14A read with Rule 8D, stating that the provisions were not applicable for the assessment year 2006-07. The Tribunal referred to the Bombay High Court's ruling in Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT, which clarified that Rule 8D is applicable from the assessment year 2008-09 onwards. The Tribunal restored the issue to the Assessing Officer for fresh examination, directing a reasonable basis for disallowance after providing the assessee an opportunity to present relevant material.Issue No. 4:The controversy involved the disallowance of Rs. 30,63,248/- for reimbursement of property taxes to Precision Component (P) Ltd. The Tribunal noted that while the agreement placed the liability on the licensor, the assessee reimbursed the property tax contrary to the agreement terms. The Tribunal found the reimbursement disproportionate to the rent and required fresh examination by the Assessing Officer to justify the payment. The issue was restored to the Assessing Officer for further scrutiny.Issue No. 5:The revenue contested the allowance of Rs. 57,78,45,583/- for advertisement and promotion expenses. The Tribunal upheld the CIT(A)'s decision, referencing previous Tribunal and Bombay High Court rulings in the assessee’s favor, treating such expenses as revenue expenditure. The Tribunal found no reason to interfere with the CIT(A)'s order.Issue No. 6:The revenue challenged the timing of commission income accrual. The Tribunal upheld the CIT(A)'s decision that commission income should be taxed on receipt basis, aligning with the Tribunal's earlier decision and the Bombay High Court's dismissal of the revenue's appeal. The issue was decided in favor of the assessee.Issue No. 7:The revenue objected to the allowance of 60% depreciation on computer peripherals. The Tribunal referenced previous Tribunal and Delhi High Court decisions allowing such depreciation rates. The Tribunal found no reason to interfere with the CIT(A)'s order and rejected the revenue's plea.Issue No. 8:The revenue raised an issue regarding disallowance under section 14A read with Rule 8D. The Tribunal noted that this matter had already been addressed in the assessee's appeal, with directions given to the Assessing Officer for implementation. The issue was resolved in favor of the assessee.Issue No. 9:The revenue raised additional grounds regarding arm’s length compensation as determined by the Transfer Pricing Officer (TPO). The TPO's report found no adjustment to the declared arm’s length price, and no addition was made to the taxable income. The Tribunal upheld the findings of the Assessing Officer and CIT(A), deciding the issue in favor of the assessee.Conclusion:The assessee's appeal was partly allowed, and the revenue's appeal was dismissed. The Tribunal provided detailed directions for fresh examination by the Assessing Officer on certain issues, while upholding the CIT(A)'s decisions on others. The order was pronounced in open court on 1st April 2016.