2019 (8) TMI 1053 - AT - Income Tax

Appeal partly allowed with issues remitted for fresh review. Assessee favored on Educational Cess and royalty payments.

Atlas Copco (India) Limited. Versus The Deputy Commissioner of Income Tax, Circle-8, Pune.

Atlas Copco (India) Limited. Versus The Deputy Commissioner of Income Tax, Circle-8, Pune. - TMI Issues Involved:1. Validity of the order passed u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961.2. Non-disallowance of Educational Cess.3. Consequential claim of depreciation on capital expenditure.4. Sales to Associated Enterprises (AEs).5. Royalty payment to AEs.6. International transaction of receipt of indenting commission.7. Benefit of variation/reduction of 5% from the Arithmetic Mean.8. Software development expenses treated as capital.9. Expenditure on premises treated as capital.10. Ad-hoc disallowance of miscellaneous expenses.11. Allowance of commission expenses.12. Deduction of VRS expenditure u/s 35DDA.13. Deduction u/s 35DD for amalgamation expenses.14. Deduction towards provision for warranty.Detailed Analysis:1. Validity of the Order Passed u/s 143(3) r.w.s. 144C:The assessee challenged the validity of the order, arguing that the Assessing Officer (AO) issued a draft assessment order along with a notice u/s 274 r.w.s. 271(1)(c) without following the mandate of Section 144C. The Tribunal found that the draft assessment order was accompanied by the notice u/s 274 r.w.s. 271(1)(c), but no demand notice u/s 156 was sent. Thus, the character of the assessment order was deemed a draft assessment order, and there was no violation of Section 144C. The additional ground was dismissed.2. Non-disallowance of Educational Cess:The assessee argued that Education Cess should be allowed as a deduction, relying on the Hon’ble Rajasthan High Court's judgment in Chambal Fertilizers Ltd. The Tribunal followed the precedent and allowed the additional ground, stating that Education Cess is not disallowable u/s 40(a)(ii).3. Consequential Claim of Depreciation:The assessee sought depreciation on capital expenditure incurred on premises. The Tribunal, following its earlier decision, directed the AO to allow depreciation on such capitalized amounts, maintaining consistency with the previous assessment year.4. Sales to Associated Enterprises (AEs):The assessee contended that the disputed sales amounting to Rs. 7.28 Crores should be treated similarly to the previous year. The Tribunal remitted the issue back to the AO/TPO for fresh adjudication with similar directions as given in the earlier year.5. Royalty Payment to AEs:The Tribunal found that the royalty payments were made as per RBI-approved rates and that the TPO's determination of Nil ALP was based on extraneous reasons. Following the precedent, the Tribunal allowed the ground in favor of the assessee.6. International Transaction of Receipt of Indenting Commission:The Tribunal observed that the ALP of commission income was within the permissible range in the previous year. However, since no calculation was considered by the subordinate authorities, the issue was remitted back to the AO/TPO for fresh adjudication.7. Benefit of Variation/Reduction of 5% from the Arithmetic Mean:The assessee did not press this ground, and it was dismissed as 'not pressed.'8. Software Development Expenses Treated as Capital:The Tribunal noted the need for detailed verification to determine the nature and endurability of the software expenses. The issue was remitted back to the AO for adjudication, considering the documentation provided by the assessee.9. Expenditure on Premises Treated as Capital:The Tribunal upheld the capitalization of 40% of the expenses on premises, directing the AO to allow depreciation on the capitalized amount, consistent with the previous year.10. Ad-hoc Disallowance of Miscellaneous Expenses:The Tribunal followed its earlier decision, remitting the issue back to the AO with directions to restrict the disallowance to 10% of the remaining expenses instead of 15%.11. Allowance of Commission Expenses:The Tribunal allowed the ground in favor of the assessee, maintaining consistency with the previous years where similar issues were decided in favor of the assessee.12. Deduction of VRS Expenditure u/s 35DDA:The Tribunal directed the AO to allow the deduction towards the incurring of liability on accrual basis and not on payment basis, following the precedent set in the earlier year.13. Deduction u/s 35DD for Amalgamation Expenses:The Tribunal allowed the ground in favor of the assessee, following the earlier decision where similar issues were decided in favor of the assessee.14. Deduction Towards Provision for Warranty:The Tribunal restored the issue back to the AO to be decided as per the directions given in the earlier year.Conclusion:The appeal of the assessee was partly allowed for statistical purposes, with several issues remitted back to the AO for fresh adjudication and others decided in favor of the assessee, maintaining consistency with the previous years' decisions.