2019 (9) TMI 300 - ITAT PUNE

Allowability of expenses on account of reimbursement of service charges - expenses related to earlier years - payment to related parties / concerns - AO disallowed 10% of expenses - CIT(A) enhanced the disallowance to the extent of 25% of service charges - HELD THAT:- the expenditure of ₹ 5.04 crores which admittedly, relates to assessment year 1997-98 is not allowable as expenditure in the hands of assessee, as it relates to the preceding year. However, in the present scenario, proceedings for assessment year 1997-98 have attained finality and the order of Tribunal has been passed, hence expenditure relating to assessment year 1997-98 to the extent of ₹ 5.04 crores is not allowable in the hands of assessee.

Expenses towards reimbursement of depreciation and service tax - amount pertains to earlier years - Held that:- Since service tax was liability of service provider, as per provisions of Service Tax Act, and where the assessee had not provided any services, the said claim was also not accepted. Vide para 5.10.2, the Assessing Officer notes that during scrutiny proceedings, assessee was asked several times to produce details of services rendered. The assessee was specifically asked to produce evidence of services rendered but the assessee was only emphasizing on the service agreement for allowability of expenditure. Further, it was held by Assessing Officer that where the assessee was engaged only in the manufacturing of beverage base used by bottlers, services rendered to the bottlers was not allowable. - Expenses not allowed.

Proof and genuineness of the expenses - Held that:- the onus was upon the assessee to justify expenditure, but same has not been fully discharged by assessee.

Undoubtedly, the payments were made to a related concern and onus upon the assessee was greater in such circumstances to prove and establish that the price paid by assessee for services availed were at market rates. One of the issues which were raised by authorities below in denying the claim was the benefit of services to the bottlers and hence, expenditure not relatable to the business of assessee, cannot be allowed as expenditure.

Allowability of travelling expenses - Merely on the ground the expense was ‘reimbursement’, can the assessee shy away from the onus cast upon him. The answer is ‘No’, where the payment was made to related party especially. The assessee could not shy away from filing the details on the ground that they were huge expenses. Even out of the details filed, the Assessing Officer had pointed out that from the breakup of expenses filed, that the same were not relatable to business of assessee. We thus, uphold the disallowance of expenses for which no details were filed i.e. ₹ 9.59 crores (-) ₹ 1.23 crores = ₹ 8.36 crores. Out of ₹ 1.23 crores, we confirm disallowance of 40% of expenses as in the case of service charges. Similarly, in the balance years, the assessee having failed to furnish breakup of travelling expenditure would not entitle it to the said claim of expenditure. Only to the extent the assessee had furnished breakup of travelling expenses, the disallowance is to be restricted to 40% of expenses but where the assessee has failed to give breakup of expenditure itself under the head ‘travelling expenses’, then the entire expenses needs to be disallowed. With this, we decide the first issue of allowability of service charges in the hands of assessee, reimbursement of expenses and its allowability and travelling expenses and its allowability.

Depreciation on coolers - HELD THAT:- Assessee had two lines of business in earlier years. In accordance with the needs of its business, it had made investments in coolers which were then placed at the premises of retailer outlets, who were selling the beverages. When the assessee was carrying on the business both as manufacturer of concentrate and as a bottler in its line of business and where the finished products which were sold by it were beverages which if sold as such, as against, after cooling if sold would bring more profits to the assessee

In such business arrangement, the investment in coolers made by assessee was accepted by the Revenue authorities and depreciation on coolers was allowed in the hands of assessee. The opening WDV of said coolers and other plant and machinery as on 01.04.1999 was ₹ 3.02 crores. The coolers and other plant and machinery were listed as others under the head ‘plant and machinery’ and hence, the plea of assessee that the coolers have entered the block of assets and depreciation on such block of assets cannot be denied to the assessee. We find merit in the plea of assessee in this regard and hold that the assessee is entitled to claim depreciation on opening WDV as on 01.04.1999 of ₹ 3.02 crores from year to year.

Merely because the assessee had purchased the assets and had shown the said purchases as addition in its block of assets, the assessee was not entitled to claim of depreciation on such assets. This is the basic non-discharge of onus cast upon it.

Plea of assessee that placing the coolers also serves as an advertising tool does not carry any weight. The assessee again reiterated that the assessee was the manufacturer of concentrate and in the absence of any business agreement to that extent either with CCI Inc or bottlers, there is no merit in the aforesaid claim of assessee and accordingly we hold that the assessee had failed to establish that the said coolers have been used in the business of assessee. In the absence of assessee fulfilling the conditions laid down in section 32 of the Act, the assessee was not entitled to any claim of depreciation on the additions made to the coolers from assessment year 2000-01 onwards. As held in the above paras, the assessee is entitled to claim depreciation on WDV of coolers at ₹ 3.02 crores as on 01.04.1999.

All the appeals of assessee and Revenue are partly allowed.