2019 (9) TMI 300 - AT - Income Tax

Assessee's Service Charges Disallowed, Depreciation Limited to Opening WDV

Coca Cola India Pvt. Ltd. Versus The Dy. Commissioner of Income Tax, Circle 1 (1), Pune, The Addl. Commissioner of Income Tax, Range 1, Pune (Vice-Versa)

Coca Cola India Pvt. Ltd. Versus The Dy. Commissioner of Income Tax, Circle 1 (1), Pune, The Addl. Commissioner of Income Tax, Range 1, Pune (Vice-Versa) ... Issues Involved:1. Allowability of service charges paid by the assessee.2. Disallowance of depreciation on coolers.Issue-wise Detailed Analysis:1. Allowability of Service Charges Paid by the Assessee:Background:- The assessee had claimed service charges paid to Coca Cola India Inc. (CCI Inc.) for various services including technical know-how, marketing support, and accounting assistance.- The Assessing Officer (AO) disallowed a portion of these charges on various grounds, including lack of evidence of services rendered and the assertion that some services benefitted other group companies and bottlers.- The CIT(A) enhanced the disallowance percentage, citing similar reasons.Tribunal’s Findings:- The Tribunal noted that the assessee had not fully discharged the onus of proving that the service charges were incurred wholly and exclusively for its business.- The Tribunal emphasized that the existence of an agreement alone is insufficient to justify the expenditure under section 37(1) of the Income-tax Act, 1961.- The Tribunal referred to several legal precedents, including decisions from the Hon'ble Supreme Court and High Courts, which underscored the necessity for the assessee to provide detailed evidence of the nature and purpose of the expenses.- The Tribunal found that the assessee failed to provide a complete breakdown of expenses and supporting vouchers, particularly for significant items like travel expenses.- The Tribunal upheld the CIT(A)’s decision to disallow a percentage of the service charges but increased the disallowance to 40% for the relevant assessment years, considering the lack of detailed evidence and the overlapping services provided to other group companies and bottlers.Conclusion:- The Tribunal concluded that the assessee did not sufficiently justify the service charges as being incurred wholly and exclusively for its business. Therefore, a 40% disallowance of the claimed service charges was upheld.2. Disallowance of Depreciation on Coolers:Background:- The assessee claimed depreciation on coolers placed at retail outlets, arguing that these coolers were used to promote the sale of beverages, which in turn increased the sale of concentrate.- The AO and CIT(A) disallowed the depreciation on the grounds that the coolers were not used directly in the assessee’s business of manufacturing concentrate and that there was no contractual obligation to provide coolers to bottlers or retailers.Tribunal’s Findings:- The Tribunal examined whether the coolers were used for the assessee’s business and whether the conditions of section 32 of the Act were met.- It was noted that the assessee had failed to provide detailed evidence of the purchase and placement of coolers, including invoices and agreements with retailers.- The Tribunal acknowledged that the assessee was entitled to claim depreciation on the opening WDV of coolers as on 01.04.1999, but not on the additions made during the year, as the assessee did not provide sufficient evidence to prove the use of these coolers in its business.- The Tribunal referred to several judicial precedents, emphasizing that the onus was on the assessee to prove that the assets were used wholly and exclusively for its business.Conclusion:- The Tribunal allowed depreciation on the opening WDV of coolers but disallowed depreciation on the additions made during the year due to insufficient evidence of their use in the assessee’s business.Summary:The Tribunal upheld the disallowance of 40% of the service charges claimed by the assessee due to a lack of detailed evidence and the overlapping benefits to other group companies and bottlers. Additionally, the Tribunal allowed depreciation on the opening WDV of coolers but disallowed depreciation on the additions made during the year, as the assessee failed to provide sufficient evidence of their use in its business.