2019 (2) TMI 1511 - AT - Income Tax

Assessee's Appeal Partly Allowed: Fees, Depreciation, Disallowance, and Government Fees Upheld

Caparo Maruti Ltd. Versus DCIT LTU New Delhi

Caparo Maruti Ltd. Versus DCIT LTU New Delhi - TMI Issues Involved:1. Addition of Rs. 56,45,833/- on account of legal and professional fees.2. Addition of Rs. 34,36,000/- on account of disallowance of government fee.3. Addition of Rs. 10,25,304/- on account of disallowance of government fees paid towards sub-leasing.4. Depreciation rate on UPS.5. Disallowance under Section 14A of the Income Tax Act.Detailed Analysis:1. Addition of Rs. 56,45,833/- on Account of Legal and Professional Fees:The assessee company, engaged in manufacturing and supplying sheet metal stampings, paid Rs. 56,45,833/- to Accenture Services Pvt. Ltd. for consultancy on cost reduction and efficiency improvement. The Assessing Officer (AO) treated this expenditure as capital in nature, leading to its addition to the total income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this decision, reasoning that the consultancy project was for restructuring the entire business organization, providing an enduring benefit, and thus capital in nature. However, the Tribunal found merit in the assessee's argument that the expenditure was for the expansion of the existing business, not for creating a new line of business. Citing the Delhi High Court's decision in CIT Vs. Priya Village Road Shows Ltd., the Tribunal held that such expenditure, even if for expansion, should be treated as revenue expenditure if it pertains to the same business. Consequently, the addition of Rs. 56,45,833/- was deleted.2. Addition of Rs. 34,36,000/- on Account of Disallowance of Government Fee:The assessee conceded that this ground was decided against them. Therefore, the Tribunal dismissed the ground related to the addition of Rs. 34,36,000/- on account of disallowance of government fee, sustaining the CIT(A)'s decision that the expenditure was capital in nature.3. Addition of Rs. 10,25,304/- on Account of Disallowance of Government Fees Paid Towards Sub-Leasing:The AO disallowed Rs. 10,25,304/- paid to HSIDC as sub-leasing fees, treating it as penal in nature. The CIT(A) upheld the disallowance but on the ground that it was capital in nature. The Tribunal, however, found that since the assessee had offered the income from sub-leasing to tax, the corresponding expenditure should be allowed as a deduction under Section 57. Thus, the Tribunal allowed the ground, treating the expenditure as revenue in nature.4. Depreciation Rate on UPS:The AO restricted the depreciation on UPS to 15% instead of 60%, treating it as machinery. The CIT(A) confirmed this decision. However, the Tribunal referred to its own decision in the case of the assessee's sister concern, where it was held that UPS is part of the computer system and eligible for 60% depreciation. Following this precedent, the Tribunal allowed the assessee's claim for 60% depreciation on UPS.5. Disallowance under Section 14A of the Income Tax Act:The AO disallowed Rs. 3,08,449/- under Section 14A read with Rule 8D, over and above the assessee's suo-moto disallowance of Rs. 2,37,547/-. The CIT(A) upheld this disallowance. The Tribunal, however, noted that the disallowance under Section 14A cannot exceed the actual exempt income received, which was Rs. 1,45,616/-. Since the assessee had already disallowed an amount exceeding the exempt income, the Tribunal held that no further disallowance was warranted and allowed the additional ground raised by the assessee.Conclusion:The appeal filed by the assessee was partly allowed. The Tribunal deleted the additions related to legal and professional fees and sub-leasing fees, allowed the higher depreciation rate on UPS, and restricted the disallowance under Section 14A to the amount already disallowed by the assessee. The addition of Rs. 34,36,000/- on account of government fees was sustained as conceded by the assessee.