M/s. Microsoft Research Lab India Private Limited, Bengaluru V. Assistant Commissioner Of Income Tax, Circle- 4(1)(2), Bengaluru

ITA 2079/BANG/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4174 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 24-02-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 27-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R PREMI
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Depreciation; Additional depreciation; Set aside
• Section: 143(3); 142(1); 250; 143(2); 13; 92CA; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES C BENCH: BANGALORE BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO. 2731/BANG/2017 (ASSESSMENT YEAR: 20 12 - 13 ) M/S. YUKEN INDIA LIMITED, P.B. NO.5, KOPPATHIMMANAHALLI, VILL. H. HOSKOTE GRAM PANCHAYAT, KAKKUR HOBLI, MALUR TALUK, KOLAR DIST. .APPELLANT VS. DEPUTY COMMISSIONER OF INCOME TAX, LTU, CIRCLE 1, BANGALORE. RESPONDENT. ASSESSEE BY: SHRI K.R. VASUDEVAN, ADVOCATE. REVENUE BY: S MT. R. PREMI, JCIT (D.R) DATE OF HEARING : 06.02. 20 20. DATE OF PRONOUNCEMENT : 26 .02 .20 20. O R D E R PER SHRI PAVAN KUMAR GADALE, JM : THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 14, BANGALORE PASSED UNDER SECTION 143(3) R.W.S. 92CA AND 250 OF THE INCOME TAX ACT, 1961 ('THE ACT'). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 2 ITA NO.2731/BANG/2017 3 ITA NO.2731/BANG/2017 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE OF HYDRAULIC EQUIPMENT AND FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012 - 13 ON 27.0 8.2012 DECLARING TOTAL INCOME OF RS.2,03, 504 AND FILED THE REVISED R ETURN OF INCOME ADMITTING INCOME OF RS.11,89,45,510. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) AND 142(1) OF THE ACT WERE ISSUED. IN COMPLIANCE , T HE LEARNED AUTHORIZED REPRESENTATIVE APPEARED FROM TIME TO T IME AND FURNISHED THE DETAILS. SINCE THE ASSESSEE HAS INTERNATIONAL T RANSACTIONS, IT WAS REFERRED TO TPO FOR DETERMINATION OF ALP, AND THE TPO HAS PASSED THE ORDER ON 20.01.2016 WITH NO ADJUSTMENTS IN RESPECT OF DETERMINING THE ARM S LENGTH PRICE (ALP), AND THE DRAFT ASSESSMENT 4 ITA NO.2731/BANG/2017 ORDER WAS PASSED. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED ADDITIONAL DEPR ECIATION ON USED ASSETS, AND NO ADDITIONAL DEPRECIATION IS ALLOWED UNDER SECTION 32( I )(IIA) OF THE ACT IN RESPECT OF USED ASSE TS AND MADE ADDITION OF RS.1,64,72,846/ - BY DISALLOWING THE ADDITIONAL DEPRECIATION. SIMILARLY AO DISALLOWED COMMISSION PAYMENTS OF RS25,28,973/ - ON THE REASONING THAT SAME WAS INCURRED TO TAKE CARE O F INTEREST OF OFFICIALS, WHICH IS CONTRARY TO PROVISO TO U/SEC 37(1)OF THE ACT. FURTHER THE AO COMPARED THE PROVISION FOR EXPENSES PROVIDED AS ON 31.03.2012 WITH ACTUAL UTILIZATION MADE IN THE SUCCEEDING YEAR AND NOTICED THAT PROVISION IS IN EXCESS BY RS1 1,97,199,ACCORDINGLY DISALLOWED THE SAME AND A SSESSED THE TOTAL INCOME OF RS.13,93,76,940/ - . AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED AN APPEAL WITH THE CIT(APPEALS). WHEREAS THE CIT(APPEALS) CONSIDERED THE GROUNDS OF APPEAL, FINDINGS OF THE ASSESSI NG OFFICER AND SUBMISSIONS OF THE ASSESSEE AND DEALT ON THE DISPUTED ISSUE OF CLAIM OF ADDITIONAL DEPRECIATION , BY HOLDING THAT ADDITIONAL DEPRECIATION IS NOT ALLOWED O N USED ASSETS. ACCORDINGLY, THE LEARNED CIT (APPEALS) ALLOWED ADDITIONAL DEPRECIATION ON NEW ASSETS, BUT CONFIRMED DISALLOWANCE OF ADDITIONAL DEPRECIATION ON REFURBISHMENT EXPENSES. THE LD . AR RAISED CONTENTIONS IN RESPECT OF REFURBISHMENT OF USED MACHINERY. BUT T HE CI T(APPEALS) HAS GRANTED PARTIAL RELIEF ON ADDITIONAL DEPRECIATION AND CONF IRMED DISALLOWANCE OF RS.21,40,137 / - AND IN RESPECT OF OTHER D ISPUTED ISSUES OF COMMISSION PAYMENTS AND EXCESS PROVISION FOR EXPENSES, THE 5 ITA NO.2731/BANG/2017 APPELLATE AUTHORITY CONCURRED WITH THE ASS ESSING OFFICERS ACTION AND PARTLY ALLOWED THE APPEAL. AGGRIEVED BY THE CIT(APPEALS) ORDER, THE ASSESSEE HAS FILED AN APPEAL WITH THE TRIBUNAL. 4. AT THE TIME OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE REFERRED TO THE OBSERVATIONS OF THE ASSESSING OFFICER AND CIT(APPEALS) IN RESPECT OF ADDITIONAL DEPRECIATION AND EMPHASIZED THAT THE ASSESSEE HAS NOT CLAIMED DEPRECIATION ON USED MACHINERY AND REFERRED TO THE PAPER BOOK ON SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES . IN RESPECT O F DISPUTED ISSUE OF DISALLOWAN CE COMMISSION PAYMENTS, THE LD . AR SUBMITTED THAT THE CLAIM HAS TO BE ALLOWED UNDER SECTION 37( 1 ) OF THE ACT AND REFERRED TO THE AGREEMENT ENTERED FOR LIAISON WORK S OF BUSINESS OPERATIONS. THE THIRD DISPUTED ISSUE BEING ADDITI ON OF EXCESS PROVISION OF EXPENSES. THE ASSESSEE HAS MADE PROVISION AS PER ACCOUNTING PRINCIPLES ON THE YEAR END DATE, AS IT IS NOT POSSIBLE TO QUANTIFY THE EXPENDITURE , AND SUCH EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND PRAYED FOR ALLOWING TH E APPEAL. CONTRA , THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HEARD THE RIVAL CONTENTION S AND PERUSED THE MATERIAL ON RECORD. ON THE FIRST DISPUTED ISSUE CONTESTED BY THE LEARNED AUTHORIZED R EPRESENTATIVE IN RESPECT OF CLAIM OF ADDITIONAL DEPRECIATION, WE FOUND THA T THE CIT(APPEALS) HAS DEALT ON THE ISSUE AND OBSERVED THAT THE ASSESSEE HAS N OT CLAIMED DEPRECIATION ON THE USED 6 ITA NO.2731/BANG/2017 ASSETS AND RESTRICTED THE DISALLOWANCE TO THE EXTENT OF RS. 21,41,137 / - . THE ADDITIONAL DEPRECIATION CLAIM PERTAINS TO REFURBISHING COST S OF USED ASSETS. ON PERUSAL OF THE ASSESSMENT ORDER, WE FI ND TH A T , THERE ARE NO FINDING S OR OBSERVATION S OF THE ASSESSING OFFICER ON THE REFURBISHING COST INCURRED BY THE ASSE SSEE . THEREFORE , WE ARE OF T HE OPINION, THAT REFURBISHING COST HAS TO BE EXAMINED BY THE ASSESSING OFFICER. ACCORDINGLY, WE RESTORE THIS DISPUTED ISSUE FOR LIMITED PURPOSE TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION AND EXAMINATION AS PER LAW . 6. ON THE SECOND DISPUTED ISSUE OF COMM ISSION PAYMENTS MADE TO ENTERPRISE, WAS DISALLOWED UNDER SECTION 37 OF THE ACT. THE ASSESSING OFFICER OBSERVES TH AT SUCH PAYM ENTS ARE NOT ALLOWED UNDE R SECTION 37 OF THE ACT. THE LDAR DEMONSTRATED COPY OF LEASE AGREEMENT AT PAGE 121 OF PAPER BOOK, AND EMPHASIZED THAT THE COMPANY HAS ENTERED INTO AGREEMENT OF LIAISON WO RK WITH M/S NEWAPEXE NTERPRISES ON TERMS AND SCOPE OF WORK/RESPONSIBILITIES. WHEREAS THE A O OUT OF 10 AREAS OF SCOPE OF WORK, WAS SATISFIED WITH 9 AREAS OF WORK AND IN RESPECT OF ONE AREA , BEING TAKING CARE OF INTEREST OF OFFICIALS TO ENSURE ORDERS AND PAYMENTS, HAS WRONGLY PRESUMED THAT IT IS NOT ALLOWABLE U/SEC37 (1) OF THE ACT AND DISALLOWED ENTIRE COMMISSION PAYMENTS. T HE LIAISON WORK S HAS HELPED THE ASSESSEE COMPANY TO GET MOR E BUSINESS. THE COMMISSION IS PAID ON SALES FOR LIAISONING WORK, FOR UNDER TAKING VARIOUS ROLES AND RESPONSIBILITIES , A ND ONE OF THE AREA BEING TAKING CARE OF I NTEREST OF OFFICIALS IN ASSISTING AND PROCURING ORDERS AND 7 ITA NO.2731/BANG/2017 PAYMENTS. THE LEARNE D AUTHORIZED REPRESENTATIVE C ONTENDED THAT SIMILAR CLAIM WAS MADE IN THE EARLIER ASSESSMENT YEARS AND WAS ACCEPTED BY THE REVENUE . FURTHER THE CLAIM IS GENUINE AND INCURRED WHOLLY AND EXCLUSIVELY FOR PROMOTING THE BUSINESS OF THE ASS ESSEE. WE FOUND STRENGTH IN THE SUBMISSIONS OF LEARNED AUTHORIZED REPRESENTATIVE THAT THE LIAISON WOR K AGREEMENT IS ENTERED WITH COVERAGE AREAS, BEING INC IDENTAL FOR THE ACHIEVEMENT OF BUSINESS TARGETS . ACCORDINGLY , WE SET ASIDE THE ORDER OF THE CIT(APPEALS) ON THIS GROUND OF APPEAL AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION AND ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 7. THE LAST DISPU TE D ISSUE IN RESPECT TO THE YEAR E ND PROVISION DISALLOWED BY THE ASSESSING OFFICER, WE FI ND THAT THE ASSESSEE HAS FURNISHED THE DETAILS AS ON 31.3.2012 ON ACTUAL UTI LIZATION. THE ASSESSIN G OFFICER HAS MADE DISALLOWANCE AS THE ASSESSEE HAS MAD E EXCESS PROVIS ION OF EXPENSES AND ACCORDINGLY DISALLOWED UNDER SECTION 37 OF THE ACT. T HE LDAR SUBMITTED THAT, THE PROV ISION MADE AS ON 31.3.2012 WAS REVERSED AND INCORPORATED IN THE BOOKS OF ACCOUNTS . THE FACT REMAINS THAT NEITHER THE ASSESSEE NOR THE REVENUE COULD BROUGHT ON RECORD THAT THE EXCESS PROVISION HAS BEEN O FFERED IN SUBSEQUENT ASSESSMENT YEAR WITH ANY MATERIAL EVIDENCE AND WAS SUBJECT TO TAXATION AND FURTHER THERE ARE NO FINDINGS OF ASSESSING OFFICER.. ACCORDINGLY , WE DIRECT THE ASSESSI NG OFFICER TO VE RIFY WHETHER PROVISION AS ON 31.3.2012 IS REVERSED IN THE SUBSEQUENT ASSESSMENT YEAR AND OFFERED TO TAX 8 ITA NO.2731/BANG/2017 AND IF SO, NO AD DITION CAN BE SUSTAINED, SINCE PROVISION IS GENERALLY MADE ON ESTIMATED BASIS AND THERE IS BOUND TO BE DIFFERENCE BETWEEN ESTIMATE AND A CTUAL EXPENSES. ACCORDINGLY, WE RESTORE THIS DISPUTED ISSUE FOR LIMITED PURPOSE T O THE FILE OF ASSESSING OFFICER AND ALLOW T HE GROUND OF APPEAL FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE ASSESSEE'S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. S D / - S D / - ( B.R. B ASKARAN ) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 6 .02. 20 20 . *REDDY GP COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE