Appeal partially allowed: trademark fee & travel expenses upheld, jurisdiction and depreciation affirmed.

The Tribunal partly allowed the appeal, reversing the disallowances related to the trademark fee and travel expenses, while upholding the Assessing Officer's decision on the jurisdictional issue and depreciation claim. The order was pronounced on August 24, 2020.

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Issues Involved:
1. Jurisdictional error by the Assessing Officer (AO) in expanding limited scrutiny to complete scrutiny.
2. Disallowance of trademark fee paid to M/s India Inc.
3. Disallowance of depreciation on a new office building.
4. Ad-hoc disallowance of travel expenses.

Issue-wise Detailed Analysis:

1. Jurisdictional Error in Expanding Limited Scrutiny:
The assessee contended that the AO exceeded his jurisdiction by making disallowances on issues not identified for limited scrutiny without obtaining prior approval from the Principal Commissioner of Income Tax, violating Board’s Instruction No. 5/2016. The Tribunal, after reviewing the assessment order, found that the limited scrutiny was conducted for specific reasons: depreciation claimed at higher rates and mismatch in amounts paid to related persons under Section 40A(2)(b). The Tribunal concluded that the AO's actions were within the scope of limited scrutiny, dismissing the additional ground and related grounds 1 and 1.1.

2. Disallowance of Trademark Fee:
The assessee argued that the trademark fee paid to Indian Inc., a proprietorship owned by a director, was legitimate and supported by a formal agreement. The AO disallowed the fee, reasoning that the trademark was unregistered and the agreement was formalized only to provide monetary benefit to the director. The Tribunal, however, noted that the trademark usage contributed significantly to the business growth and that the fee was duly taxed in the director's personal return. The Tribunal emphasized that the trademark's unregistered status did not invalidate the expense under Section 37 of the Income Tax Act, 1961. Therefore, the Tribunal allowed grounds 3, 3.1, 3.2, 3.3, 3.4, and 3.5, reversing the disallowance.

3. Disallowance of Depreciation on New Office Building:
The assessee claimed depreciation on a new office building, asserting that it was used for business purposes from June 2014. The AO disallowed the claim, stating that the property was not fit for business use until March 2015. The Tribunal upheld the AO's decision, noting the lack of evidence supporting the property's use before March 2015 and the misinterpretation of the property's readiness. The Tribunal dismissed grounds 4, 4.1, and 4.2.

4. Ad-hoc Disallowance of Travel Expenses:
The AO disallowed a portion of travel expenses on an ad-hoc basis, suspecting personal nature despite acknowledging the business necessity. The Tribunal found that the disallowance was made without substantive evidence, and the CIT(A) also acknowledged the business purpose of the expenses. The Tribunal concluded that the travel expenses were legitimate and incurred for business purposes, allowing grounds 5, 5.1, and 5.2.

Conclusion:
The appeal was partly allowed, with the Tribunal reversing the disallowances related to the trademark fee and travel expenses, while upholding the AO's decision on the jurisdictional issue and depreciation claim. The order was pronounced on August 24, 2020.

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