2022 (8) TMI 1021 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decisions on Depreciation, Expenses, CSR - Revenue Appeals Dismissed

The Tribunal upheld the decisions of the Ld. CIT(A) on all issues, allowing depreciation on goodwill, treating certain expenses as revenue expenditure, ... Depreciation on goodwill - Scheme of amalgamation sanctioned - CIT-A allowed depreciation claim - HELD THAT:- AO has made remarks on this issue merely on assumption and without considering the detail written submission made by assessee on the scheme of amalgamation approved by the Hon'ble jurisdictional High Court and the effect of the same was given in the books of account of the assessee in accordance with the direction of Hon'ble jurisdictional High Court. We also find that Hon'ble jurisdictional High Court in para-9(vii) of its order approving the scheme made observation; “Upon sanction of the scheme, the shares held by the transferee company in the transferor company shall get cancelled and no new shares shall be issued by the transferee company against such shares. The issue of depreciation on goodwill no more res integra after the decision of Hon'ble Supreme Court in the case of Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] wherein it has been held that goodwill is an asset within the meaning of Section 32 of the Act and depreciation on goodwill is allowable. We find that Hon'ble Delhi High Court in the case of Triune Energy Services (P.) Ltd. [2015 (11) TMI 1218 - DELHI HIGH COURT] wherein it was held that goodwill is an intangible asset providing a competitive advantage to an entity, this includes a strong brand, reputation, a cohesive human resources, dealer network, customer base etc. So far as objection of ld CIT-DR for the revenue that due to the amendment in section 32, the goodwill is no more depreciable asset, we are of the view that the amendment brought in the Act by way of Finance Act 2021 will be applicable prospectively and not in the year under consideration. In view of the aforesaid factual and legal discussion, we do not find any legality in finding of Ld. CIT(A), which we affirm. In the result, the grounds of appeal raised by the revenue are rejected. - Decided in favour of assessee. Nature of expenditure - expenditure on account of replacement of certain parts of the machineries - AO held that on replacement of such parts the assessee will get long term benefit which is enduring in nature and the expenses are not in the nature of current repairs - HELD THAT:- CIT(A) after considering the submissions of the assessee held that the assessee has replaced the exiting part of machine or replaced the parts which have become obsolete and the replacement was essential. It was held that the replacement has not increased the existing capacity, so entire expenditure was treated as revenue expenditure. We find that on similar disallowance the assessee was allowed relief by Tribunal and granted relief to the assessee in earlier AYs. AO himself allowed similar relief to the assessee from AY 2017-18 onwards. Hence, we find that ground of appeal is squarely covered in favour of assessee and against the Revenue. Thus, following the principal of consistency we affirm the order of Ld. CIT(A). In the result, this ground of appeal is dismissed. TDS u/s 194H - Addition 40(a)(ia) - non-deduction of tax at source on the discount given to dealers - HELD THAT:- We find that before CIT(A) the assessee filed detailed written submissions and relied on various case laws. The ld CIT(A) after considering the submissions of the assessee held that the issue is covered by the decision of his predecessor for AY 2009-10, 2010-11 & 2011-12 and following the same the assessee was allowed relief. We find that order of ld CIT(A) in earlier years has been affirmed by Tribunal and further appeal before High Court has already been dismissed. Hence, we do not find any infirmity in the order of ld CIT(A), which we affirm. In view of the aforesaid legal position, we do not find any merit in the ground raised by the revenue. Disallowance of corporate social responsibility claimed as business expenses - AO disallowed the claim of such deduction u/s 37(1) of the Act and added back to the total income of the assessee in the computation of total income - HELD THAT:- CSR is no longer charity or philanthropy instead it should be imbibed in the corporate culture that leads to responsible business. The assessee stated that the CSR contribution has helped in building brand image of the company and publicity among the agrarian community. The activities implemented in the rural areas are publicized on account of large scale so message reaches to the masses. To ensure that the assessee-company gets better publicity, representatives from its team participates in every event like designing the programme, discussion with sarpanch & gram Sabha, Bhoomi Pooja, concurrent monitoring & evaluation, inauguration event, etc., for the said project. To get wider acceptability, the assessee also installs inaugural stone, boards, banners, etc. wherever and whenever applicable and said project implemented by assessee helps to build a good rapport among the villagers and the agrarian masses. The assessee relied on the judgment of Hon'ble jurisdictional High Court in assessees own case for assessment years 1996-97 to 1997-98 [2013 (5) TMI 759 - GUJARAT HIGH COURT], wherein the Hon'ble jurisdictional High Court relied on the judgment of Hon'ble Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT [1996 (10) TMI 2 - SUPREME COURT] and allowed the contribution given to NGO as deduction. CIT(A) after considering the submissions of the assessee accepted the claim and held that Explanation-2 inserted to section 37 (1) is prospective in nature as the same has been brought in the Act with reference to section 135 of Companies Act. We find that similar disallowance was made in AY 2009-10 and on appeal before Tribunal the disallowance was deleted and on further appeal by revenue before High Court, the order of the Tribunal was upheld in [2019 (8) TMI 1288 - GUJARAT HIGH COURT] Thus, respectfully following the order of High Court, we affirm the order of ld CIT(A) with additional observation. In the result, this ground of appeal is also dismissed. Issues Involved:1. Disallowance of depreciation on goodwill.2. Treatment of certain expenses as revenue or capital expenditure.3. Disallowance under section 40(a)(ia) for non-deduction of tax at source on discounts given to dealers.4. Disallowance of corporate social responsibility (CSR) expenses as business expenditure.Detailed Analysis:1. Disallowance of Depreciation on Goodwill:- Facts & Background: The assessee, a company engaged in manufacturing and trading of chemical fertilizers and industrial products, claimed depreciation on goodwill arising from the merger of Narmada Chematur Petrochemicals Limited (NCPL). The Assessing Officer disallowed this claim, stating no goodwill was created from the merger.- Tribunal's Decision: The Tribunal upheld the Ld. CIT(A)'s decision allowing depreciation on goodwill. It relied on the Supreme Court's decision in CIT vs. Smifs Securities Ltd., which recognized goodwill as an asset eligible for depreciation under Section 32 of the Income Tax Act. The Tribunal dismissed the Revenue's appeal, noting that similar claims had been allowed in previous years and that the Finance Act 2021 amendments (disallowing depreciation on goodwill) applied prospectively from AY 2021-22.2. Treatment of Certain Expenses as Revenue or Capital Expenditure:- Facts & Background: The assessee incurred expenses on replacing parts of plant and machinery, which the Assessing Officer treated as capital expenditure, allowing only depreciation. The assessee argued these were current repairs.- Tribunal's Decision: The Tribunal upheld the Ld. CIT(A)'s decision treating these expenses as revenue expenditure. It noted that similar expenses had been allowed as revenue expenditure in previous years by the Tribunal and High Court, and the Assessing Officer had allowed similar claims from AY 2017-18 onwards.3. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax at Source on Discounts Given to Dealers:- Facts & Background: The Assessing Officer disallowed expenses for discounts given to dealers, treating them as commission liable for TDS under Section 194H. The assessee argued these were trade discounts, not commission.- Tribunal's Decision: The Tribunal upheld the Ld. CIT(A)'s decision deleting the disallowance. It noted that similar disallowances had been deleted in previous years by the Tribunal and affirmed by the High Court. The Tribunal found no merit in the Revenue's appeal, affirming that the discounts were not commission.4. Disallowance of Corporate Social Responsibility (CSR) Expenses as Business Expenditure:- Facts & Background: The Assessing Officer disallowed CSR expenses claimed under Section 37(1), arguing they were not incurred wholly and exclusively for business purposes. The assessee contended these expenses were for social upliftment and building brand image.- Tribunal's Decision: The Tribunal upheld the Ld. CIT(A)'s decision allowing the CSR expenses as business expenditure. It referenced the High Court's decision in the assessee's favor for similar claims in previous years and noted that the Explanation-2 to Section 37(1) (disallowing CSR expenses) was prospective from AY 2015-16.Conclusion:The Tribunal dismissed the Revenue's appeals for both assessment years, affirming the Ld. CIT(A)'s decisions on all issues. The assessee's cross-objection for AY 2012-13 was dismissed as not pressed due to recent legislative amendments. The Tribunal's decisions were based on consistency with previous rulings and established legal principles regarding depreciation on goodwill, treatment of repairs as revenue expenditure, non-deduction of TDS on trade discounts, and allowability of CSR expenses.