TaxTMI 
TaxTMI 
2016 (10) TMI 634
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....[A.Y 2007-08] 2. The fol lowing grounds have been raised by the Revenue in this appeal: "1. The ld. CIT(A) erred in treating the assessee company eligible for claiming depreciation at a higher rate on moulds, higher rate of depreciation on moulds is applicable only to rubber and plastics manufacturers, whereas the present assessee is a two wheeler manufacturer. 2. The ld. CIT(A) erred in deleting the addition made on account of non deduction of TDS on payments made to non residents. 3. The ld. CIT(A) erred in deleting the addition made on account of sales tools expenses, which could not be established a being expenses incurred wholly and exclusively for the purpose of business, and which the assessee was under no obligation to incur, as per its agreement with vendors." 3. The ld. counsel of the Revenue supporting the action of the A.O contended that the assessee company is not entitled to claim depreciation @ 30% as it is not manufacturer of rubber and plastic goods. The ld. counsel of the Revenue contended that CIT(A) erred in treating the assessee company eligible for claiming depreciation at a higher rate on moulds, higher rate of depreciation on moulds is applicable onl....
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....sed the relevant material placed on record before us. First of all we may point out that the A.O has not made any addition or disallowance in any of the earlier or subsequent A.Ys. Secondly, we observe that the A.O has allowed depreciation @ 15% whereas the assessee is claiming deprecation @ 30% by alleging that the assessee has made arrangement with vendors who, in turn, are engaged in manufacturing rubber and plastic goods as per specifications given by the assessee. The main contention of the A.O is that the assessee is not a manufacturer of plastic or rubber goods and the assessee is in the manufacture and sale of two wheelers and it cannot be deemed to be manufacturer of plastic/rubber parts. Accordingly, it is not entitled to depreciation at a higher rate. Thus, admittedly and undisputedly, the assessee is owner of plastic moulds, that is why the A.O allowed deprecation @ 15% and denied higher rate of depreciation as claimed by the assessee on the allegation that plastic moulds have not been used in its own factory premises and the same were given to vendors for use in their respective manufacturing units/factories. At this juncture, we find it appropriate to consider the pro....
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....requisite conditions have been fulfilled by the assessee in the present case and thus it is entitled to claim depreciation @ 30% which was rightly allowed by the ld. CIT(A). Hence ground No. 1 of the Revenue being devoid of merits is dismissed. Ground No. 1.1 7. Apropos this ground, we have heard the arguments of both the sides and careful ly perused the relevant material on record inter alia the relevant paper book and ratio of decision as rel ied upon by the ld. DR. 8. The ld. DR took us through para 6.2 at page 14 of the impugned first appellate order and contended that since the payments were made by the assessee outside India in the form of reimbursement of expenses which attracts TDS provisions and the assessee has not deducted any TDS at the time of payments and the impugned payments made by the assessee are squarely covered under the provisions of section 40(a)(ia) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' . Therefore, the same was rightly disallowed and added back to the income of the assessee. The ld. DR lastly submitted that the impugned order may be set aside by restoring that of the AO. 9. Replying to the above, the ld. AR submitted....
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....of expenses was allowed. We are unable to see any valid reason to interfere with the conclusion of the CIT(A) especially when the AO could not establish that the impugned payments made by the assessee to non residents outside India were chargeable to tax in India and in this situation, TDS provisions are not applicable to the payments made by the assessee and hence we are unable to see any ambiguity or perversity in the order of the CIT(A) and thus we uphold the same. Accordingly, Ground No. 2 of the Revenue being devoid of merits stands dismissed. Ground No. 3 of the Revenue 12. Apropos this ground, we have heard the arguments of both the sides and have perused the relevant material on record. The ld. DR drew out attention towards para 6 at page 3 of the assessment order and submitted that the assessee company has claimed sales tools expenses on account of auto spare parts traded amounting to Rs. 77,85,401/-. The ld. DR further pointed out that AO noticed that there was an agreement between the assessee company and its dealers under the head 'General Obligations of the Company at para 11.2 under the sub-head 'Advertising Support. The ld. DR submitted that as per clause 11.2, th....
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....f fact and issue of law. The ld. DR pointed out that in the case of Tupperware India [P] Ltd [supra], facts in para 10 are that since the assessee was not permitted to manufacture products in India and it had direct interest in the proper functioning/protection of business of contract manufacturers in as much as without them, the assessee could not run its business of trading in India. Therefore, law of additional excise duty levied upon the contract manufacturers was discharged by the assessee and in this situation it was held that it was for the purpose of business of the assessee. The ld. DR pointed out that the facts and circumstances of the present case are quite similar and distinct. Therefore, the ratio of the decision of Hon'ble Delhi High Court in the case of Tupperware India Ltd [supra] cannot be applied to the facts of the present case in favour of the assessee. The ld. DR also pointed out that it is trite law and for allowing claim of the assessee it has to be seen that the condition stipulated in section 37 has been complied or not. The ld. DR vehemently contended that the assessee is a company and it has to show that it has to show that expenses on sales tools exp....
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.... that such compensation was to be decided as per pol icy of the company in such matters. First of all, we may point out that the said clause (c) of clause (3) of the agreement stipulates the liability of the assessee company to compensate dealers suitably in consideration for cooperation/services/assistance in respect of direct sales and thus the sales tools expenses were not related to direct sales but it was for the purpose of standard sales tools, tools/features for standardization of Honda Exclusive Dealer outlets as such. However, there is no further policy decision or any other document before us which could show us that there was liability on the assessee to incur 50% subsidy on sales tools expenses to the dealers and in the absence of any such amendment or document, we decl ine to accept the contention of the assessee when it was under no obligation of agreement between dealers and thus the impugned claim of expenses could not be held as allowable to the assessee. At this juncture, we may point out that ratio of the decision in the case of Tupperware India Ltd [supra] is not available to the appellant in the present case as it was a case pertaining to liability of payment o....
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....incurred for introducing the new models of motorcycle as part of the existing business were allowable a revenue deduction. The ld. AR drew our attention towards para 7 at page 3 of the assessment order and contended that the AO by passing a cryptic order made disallowance without looking into the facts of the case. The ld. AR further contended that the CIT(A) in para 8.3 dismissed the ground of the assessee by incorrectly observing that the generalledger detai ls reveals that the expenses have been booked as trial run cost and trial parts purchased etc. Therefore, the AO rightly treated the same as capital expenditure and disallowed the same. The ld. AR placed reliance on the decision of the Hon'ble High Court of Bombay in the case of CIT Vs. Sonata Software Ltd reported at [2012] 21 TAxmann.com 23 [Bom] and submitted that the expenditure incurred on indigenisation of software has been rightly held to be allowable as revenue expenditure. The ld. AR also drew our attention towards the assessee's paper book page 131 and submitted that the trial run expenses neither related to setting up of a new plant and were not incurred on purchase of any capital asset, such expenses were not ....
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....operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched. The expenditure would be on revenue account, even though the advantage may endure for an indefinite future." 23. In the present case, we find that the expenses were essential expenses incurred on purchase of spare parts for their trial and indigenisation in India. The assessee has neither set up a new plant nor purchased any capital asset. Accordingly, in view of the above decision of the Hon'ble Supreme Court, we find no merit in the order of the AO nor in the impugned order of the CIT(A) holding the above expenses to be capital in nature. Consequently, ground No. 2 of the assessee is allowed. 24. In the result, the appeal stands allowed. Revenue Appeal ITA No. 3237/DEL/2011 [A.Y 2003-04] 25. Both the parties concurred that Ground Nos 1 and 2 in A.Y 2003-04 are similar to the facts and circumstances of Ground No. 3 of A.Y 2007-08. Since by the earl ier part of this order we have allowed ground No. 3 of the Revenue wherein the assessee got relief from the first appellate order on the issue of payme....