2018 (10) TMI 1714 - AT - Income Tax

ITAT Decision: Commission Disallowance Upheld, Sales Suppression Rejected, Depreciation Allowed

Ferromatic Milacron India Pvt. Ltd. Versus The DCIT/ACIT, Circle-2 (1) (1), Ahmedabad

Ferromatic Milacron India Pvt. Ltd. Versus The DCIT/ACIT, Circle-2 (1) (1), Ahmedabad - TMI Issues Involved:1. Disallowance of commission paid to non-resident agents under Section 40(a)(ia) of the Income Tax Act.2. Alleged suppression of sales in transit.3. Disallowance of depreciation on non-compete fees.Issue-Wise Detailed Analysis:1. Disallowance of Commission Paid to Non-Resident Agents:The assessee challenged the disallowance of Rs. 18,98,539 out of the commission paid to non-resident agents for services rendered outside India. The Assessing Officer (AO) disallowed the commission payments under Section 40(a)(ia) due to non-deduction of TDS, despite the assessee arguing that the services were rendered outside India and thus not taxable in India. The assessee relied on Supreme Court judgments in GE India Technology Centre P. Ltd. vs. CIT and CIT vs. Toshoku Ltd., which held that commission earned by non-residents for services rendered outside India is not deemed to accrue or arise in India. The CIT(A) had partly allowed the appeal, disallowing only Rs. 18,98,539 due to lack of details/evidence for certain agents. The ITAT upheld the CIT(A)'s decision, noting that similar issues had been decided in favor of the assessee in previous years. However, for agents where details were not provided, the matter was remanded to the AO for verification.2. Alleged Suppression of Sales in Transit:The assessee contested the addition of Rs. 67,83,650 towards alleged suppression of sales in transit. The AO added this amount to the total income, asserting that the assessee had not accounted for the profit on these sales. The CIT(A) confirmed this addition. The ITAT, however, followed its previous decisions in the assessee's own cases for earlier years, where it was held that sales under FOB contracts are recognized when the bill of lading is issued. Since the goods were in transit and not shipped before the end of the financial year, the ITAT deleted the addition, concluding that the sales should be recognized in the subsequent financial year.3. Disallowance of Depreciation on Non-Compete Fees:The AO disallowed the depreciation claim on non-compete fees of Rs. 2,24,64,750, arguing that non-compete fees do not qualify as intangible assets under Section 32(1)(ii). The CIT(A) allowed the claim, citing various judicial precedents that treated non-compete fees as intangible assets eligible for depreciation. The ITAT upheld the CIT(A)'s decision, referencing its earlier ruling in the assessee's case for the previous year, where it was established that non-compete fees confer a commercial right similar to other intangible assets listed in Section 32(1)(ii). The ITAT confirmed that the non-compete fee paid by the assessee was a capital expenditure, thus eligible for depreciation.Separate Judgments Delivered:The judgment was delivered collectively by the Vice President and the Judicial Member of the ITAT Ahmedabad Bench, with no separate judgments by individual judges. The ITAT's decisions were consistent with previous rulings in the assessee's own cases for earlier assessment years.