TaxTMI 
TaxTMI 
2016 (4) TMI 82
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....es for making disallowance u/s 14A of the IT Act will apply only from A.Y. 2008-09 onwards 3 The ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 1,08,735/- on account of extra depreciation claimed on computer peripherals. 4 The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 4. Briefly stated the facts are that assessee company is engaged in the business of real estate, consultancy services, site management services, professional advisory and project management services. It filed a return of income on 31.10.2007 declaring an income of Rs. 29,58,90,498/-. The return was processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter 'the Act') on 30.03.2009. The AO completed the assessment u/s 143(3) of the Act dated 10.12.2010 at an income of Rs. 32,47,12,801/- after making following disallowances; i) Rs. 2,85,55,000/- on account of disallowance u/s 36(1)(ii) of the Act; ii) Rs. 1,58,568/- on account of disallowance u/s 14A of the Act; and iii) Rs. 1,08,735 on account of disallowance of depreciation....
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.... the claim of deduction by holding that, had the company declared dividend, Sh. Anshuman Magazine would have got the majority share of the dividend and the company would also have to pay dividend distribution tax on the same which has not been done by the company. He held that, the assessee's argument that the entire arrangement is tax neutral is not correct because maximum marginal rate in the case of companies is more than the maximum marginal rate in the case of individuals. The CIT(A) deleted the disallowance made of Rs. 2,85,55,000/- u/s 36(1)(ii) of the Act. 9. We have considered the rival submission of both the parties and carefully gone through the material placed on the record. The CIT(A) has deleted the disallowance for the following reasons stated in the order:- "i) That learned Officer has disallowed the claim of deduction essentially on the assumption that appellant company has not declared dividend and paid dividend distribution tax and as such the claim of the appellant that the arrangement is tax neutral is not tenable. It was submitted that, in holding so, the learned officer overlooked that in the year under consideration appellant company had declared....
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....xt it was submitted that, Shri Anshuman Magazine w.e.f. 1.06.2003 relevant to Assessment year 2004-05 became managing director of the appellant company, as would be evident from resolution of the Board dated 7.05.2003 (pages 43 to 44 of Paper book). It is submitted that, as per the resolution, he was entitled to commission at 30% of the net profits for each year after adding back depreciation. It was submitted that, the incentive so paid to Shri Anshuman Magazine from Assessment year 2004-05 has been assessed as "salary" as would be evident from the tabular chart hereunder: A.Y. Incentive (Rs) Total salary Declared and assessed as salary by Anshuman Magazine in his return of income (Pages of Paper Book) Assessment u/s (Pages of paper book) 2004-05 1,19,48,350/- 1,82,95,160/- (74) 72 143(3) (90-92) 2005-06 1,91,75,160/- 2,69,01,560/- (94) 93 143(1) 2006-07 3,81,76,000/- 4,72,10,880/- (104) 102 143(3) (113) 2007-08 2,89,55,000/- 4,07,24,000/- (115) 113 143(1) iv) That similar incentive has been paid to various other senior employees of appellant company, as would be evid....
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....dend viii) Reliance was also placed on the following judicial pronouncements: a) ITA No. 1900/2011Mis Creative Travel (P) Ltd. vs. ALIT for Assessment Year 2006-07 dated 13.05.2011 b) ITA No. 4746/De1/2010 DCIT vs Celsius Refrigeration (P) Ltd. for Assessment Year 2007-2008 c) 139 TTJ 48 (Del) ACIT vs Career Launcher India Ltd. d) 36 SOT 456 (Del) ACIT vs. Bony Polymers (P) Ltd. ix) That, the revenue cannot adopt inconsistent positions since the sum of Rs. 2,85,55,000/- has been assessed on "salary" in the hands of Shri Anshurnan Magazine and therefore, the same cannot be now regarded as dividend. Intact, the Assessing Officer since Assessment Year 2004-05, even in the hands of the appellant company, has held such sum to be eligible deduction u/s 36(1)(ii) of the Act in all the preceding and succeeding years. x) That, even otherwise, the entire disallowance is revenue neutral as there is no variation in tax rates. It has been held that, if the disallowance made is revenue neutral that no such disallowance is warranted. Reliance is placed on following judicial pronouncements: a) 33 ITR 681 (Born) CFI vs. Nagri M....
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.... Rs. 31.53 lacs in the preceding year has been paid. The challans for distribution tax paid were also called for in the course of appellate proceedings and placed on record. It is thus not a case where the appellant has not proposed or distributed any dividend either in the instant year or preceding year. The assessing Officer essentially has adopted the figure of profit at Rs. 28.40 crores which was the income declared under the head profit and gain from business or profession in computation of income and thus, overlooked the figure of profit of Rs. 24.46 crores in the profit and loss account. Therefore, the basis adopted to deny the claim of deduction overlooks the factual position. Even otherwise, it is seen that commission alongwith salary has been paid to Sh. Anshuman Magazine year after year based on the improved financial position of the company, as is evident from the chart hereunder: A.Y. Sales (Rs) Profit (Rs) Salary Commission Total salary 2004-05 54,35,88,969/- 10,40,92,862/- 63,46,810 1,19,48,350 1,82,95,160 2005-06 72,17,39,964/- 10,69,57,576/- 77,26,400 1,91,75,160 2,69,01,560 2006-07 1,02,42,92,452/- 18,....
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....tors has been allowed in the past, no disallowance is warranted Ws 36(1)( ) of the Act. The same is squarely applicable to the facts and as such, no disallowance other warranted. Section 36(1)(ii) of the Act, reads as under: "36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 - (i) --------- (ia) --------- (ib) ------- ii) Any sum paid to an employee as bonus or commission for services rendered. (where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission;)" 5.8 The aforesaid provision provides that deduction shall be allowed in respect of any sum paid to an employee as bonus or commission for services rendered unless such sum would have been payable to him or dividend or profit. In the instant case, there is enough material on record to establish that sum of Rs. 2,85,55,000/- has been paid as commission for services rendered by Sh. Anshuman Magazine and therefore the same is allowable as deduction. There is no material brought on record to suggest ....
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....on paid to the employee would otherwise be payable to him as profits or dividends, in the event the same had not been paid as commission. It is clear that the exception would be applicable only where an employee would be entitled to receive the amount paid as commission, as profits or dividends. In the present case, the Directors would not be entitled to receive the amount paid to them as commission, as dividends because even if it is assumed that non-payment of commission would add to the kitty of distributable profits the same would have to be distributed prorata to all the shareholders and not selectively to the said Directors. Dividend is paid by a company as distribution of profits to its shareholders in the ratio of their shareholding in the company. In the present case, the Directors were not the only shareholders of the company and, therefore, in the event the Commission had not been paid by the assessee it could not have been distributed to them as dividends. 9. This Court in the case of AMD Metplast (P.) Ltd. (supra) also pointed out this distinction between distribution of dividends and payment for services in the following words:- "....Payment of divid....
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....d the AO to compute the disallowance in accordance in the manner held in para 42 of Hon'ble jurisdictional High Court in the case of Maxopp Investment Ltd. - 347 ITR 272 (Del). The relevant portion of the judgment reads as under :- "42. Thus, the fact that we have held that sub-sections (2) & (3) of section 14A and Rule 8D would operate prospectively (and, not retrospectively) does not mean that the assessing officer is not to satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. If he is satisfied that the assessee has correctly reflected the amount of such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective analysis and for cogent reasons that the amount of such expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. It would be appropriate to recall the words of the Supreme Court in Walfort Share & Stock Brokers (P.) Ltd. (supra) to the following effect:- "The theory of apportionment of expenditure between taxable and nontaxable has, in principle, ....
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....IT b) 118 TTJ 652 (Del) Expeditors Inter. India (P) Ltd. vs. Addl. CIT c) ITA No. 1266/2010 (Del) CIT v. BSES Rajdhani Powers Ltd. d) 11 Taxmann.com 417 (Del) CIT vs. Orient Ceramics & Inds. Ltd. e) 118 TTJ 652 (Del) Expeditors International (India) (P) Ltd. vs. ld. CIT f) 136 TTJ 505 (Del) Birlasoft India Ltd. vs DCIT ITAT 18. We have considered the rival submission of both the parties and carefully gone through the material placed on the record. In our opinion, since computer accessories in the aforesaid decisions have been held to be part of computer, therefore they are also entitled to higher rate of deprecation. Hence, the finding of ld. CIT(A) deleting the disallowance is upheld and ground raised by the revenue is dismissed. 19. Now we will deal with the appeal in ITA No. 775/Del/2012 for the assessment year 2008-09. 20. The grounds raised by the revenue are as under :- "1. Whether the Ld. CIT (A) has erred on facts and in law in deleting the addition made u/s 36(1)(ii) amounting to Rs. 6,47,27,888/- ignoring the fact that - (a) The assessee company has paid bonus/ex-gratia allowance of Shri Anshuman Maga....
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.... reasons, the ground raised by the revenue is rejected. 25. Ground No.3 is regarding disallowance of Rs. 27,22,514/- out of recruitment and training expenses 26. We have considered the rival submission of both the parties and carefully gone through the material placed on the record. The CIT(A) has deleted the disallowance for the following reasons stated in the order: "7.6 I have carefully considered the submission made by the ld. AR and have gone through the assessment order. The AO has held that expenditure on recruitment and training of employees is deferred revenue expenditure on the basis that, out of 752 employees recruited in the year under consideration 650 employees remained in service in the succeeding years. He however has not disputed either genuineness of the expenditure or that such expenditure was not incurred for the purpose of the business of the appellant company. The basis adopted is contrary to judgment of Hon'ble Delhi High Court in the case of CIT v Industrial Finance Corporation of India Ltd. reported in 228 CTR132. The facts of the said case were that, assessee was engaged in the business of granting loans and advance to various industrial con....
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....R 802. It was held as under: 20. When we apply the aforesaid principle to the facts of this case, the irresistible conclusion would be that the ITAT rightly held that the assessee was entitled to claim deduction of Rs. 67.06 crores incurred in connection with swapping of foreign currency funds in the year under consideration, i.e., the assessment year 1995-96. It is clear from the nature of the transaction, that the assessee had raised foreign currency borrowings and swapped such foreign currency into Indian rupees in order to augment its rupee resources for meeting its lending requirements. The foreign currencies borrowed were repayable to the foreign lenders on later dates falling within the current previous year ending on 31-3-1995 and in some cases falling in the next previous year relevant to subsequent assessment year. In order to ensure that it is able to repay the foreign lenders in the foreign currency on their respective due dates of repayments, the assessee had entered into forward contracts as a safeguard against foreign currency fluctuations. It is the difference between the forward contract rate and the exchange rate on the date of transaction which was claim....
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....as much as the expenditure is on revenue account and has been incurred in the year under consideration and hence is an eligible expenditure. It is not the case of the assessee that such expenditure be spread over and hence the disallowance is contrary to above judgment. I may here also make a gainful reference to another judgment of jurisdictional High Court in the case of CIT vs. Citi Financial Consumer Finance Ltd. reported in 335 ITR 29 wherein it was held as under: The Commissioner of Income-tax (Appeals) was unimpressed with this argument and found that the assessee was spreading over the income during the number of years that the financing is spread over and, therefore, expenditure on the aforesaid counts was required to be spread over. The Income-tax Appellate Tribunal, however, denounced this reasoning of the Commissioner of Income-tax (Appeals) and accepted the plea that the expenditure incurred had nothing to do with the period of length of time and had no linkage, whatsoever, to any period, the entire expenditure was allowable in the year in which it was incurred. The Tribunal has further held that the expenditure is incurred once and for all in the form of stam....
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.... the learned counsel for the assessee. The expenditure disallowed of Rs. 35,60,431/- comprises of Rs. 30,00,000/- being repair charges of the office at Bangalore and Rs. 5,60,431/- being repair charges of the office at Pune. Both the above expenditure are undisputedly for leased premises and as such allowability of expenditure has to be examined in terms of section 30(a)(i) which provides as under: "30 In respect of rent, rates, taxes, repairs and insurance for premises, used for the purpose of the business or profession, the following deductions shall be allowed a) where the premises are occupied by the assessee- i) as a tenant the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises the amount paid on account of such repairs. 8.5 The Hon'ble Delhi High Court has interpreted the above provision and held in the case of CIT vs. Hi Line Pens (P) Ltd. 306 ITR 182 as under: "After having considered the arguments advanced by learned counsel for the parties and examined the decisions cited by them, we are of the view that the assessee's claim for deduction under section 30(a)(i) has been rig....
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....mited 322 ITR 590, it was held as under: "We find that the Tribunal has adequately and in great detail dealt with the entire issue. The assessee has a press building which is used for the purposes of its business which includes the printing and publication of magazines. The said press building was constructed in the year 1975 and has a built up area of 130680 sq. feet. Repairs have been carried out in the said building from time to time. The assessee incurred a sum of Rs. 35,51,245 in the year in question on the following works: "(i) Water proofing of roofs with stones. (ii) Reinforcement of old beams in which steel bars and plasters were corroded. (iii) Relaying of worn out flooring of print shop/process rooms, etc. (iv) Repairing and relaying/carpeting of roads running inside the press compound. (v) Repairing and replacement of workers wash rooms, hand wash areas, damaged glass, wood work. (vi) Repairing and relaying boundary walls and gates. (vii) Repairing and reconstructions of cooling towers area. (viii) Repairing of cement sheets and laying of fiber coated sheets to prevent seepage, water and ai....