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2024 (2) TMI 1192 - AT - Income TaxDisallowance of payments to related party u/s 40A(2)(b) - AO considered the payment of Royalty @0.5% of turnover as excessive and accordingly restricted the payment of Royalty to 0.3% of the turnover by disallowing 0.2% of Royalty payment - HELD THAT:- Tribunal in assessee’s own case in M/s Piramal Enterprises Ltd. [2018 (7) TMI 1887 - ITAT MUMBAI] deleted the disallowance made under section 40A(2)(b) of the Act in respect of payment of Royalty. From the working of corporate service charges for the financial year 2005-06, we find that in the present case, the assessee paid a Royalty of Rs. 84 lakh, which is 0.05% of the turnover of Rs. 1449.40 crore and is even less than 0.3% of the turnover considered reasonable by the AO. Therefore, we find no basis in the disallowance of Royalty payment made by the AO and accordingly, the same is directed to be deleted. Computation of book profit u/s 115 JB - AR submitted that in V.S. Dempo Pvt. Ltd. [2010 (10) TMI 711 - BOMBAY HIGH COURT] held that when the companies are in the same tax bracket and pay the same rate of tax, then there is no question of tax evasion. Accordingly, it was submitted that payment of consultancy and professional charges is neither in any manner device to circumvent the provisions of tax laws nor is a colourable device of diverting taxable income to the sister concern. During the hearing, reliance was also placed upon CBDT Circular No. 6P dated 07/06/1968. We find that the aforesaid aspect has not been examined by the lower authorities. Therefore, we deem it appropriate to restore this issue to the file of the AO limited to examination of the aforesaid submission of the assessee. If upon examination it is found that both the companies are in the same tax bracket, then the addition on account of payment of consultancy and professional charges be deleted in the light of the aforesaid decision. We further agree with the submissions of DR that setting aside the matter to the file of the AO does not come within the purview of powers of the learned CIT(A) u/s 251 of the Act. For examination of the aforesaid aspect, the issue of part disallowance of payment of consultancy and professional charges is restored to the file of the AO. With these directions, the impugned order is set aside, and ground No. 1 raised in assessee’s appeal is allowed for statistical purposes. Disallowance of legal and professional charges incurred for system development - HELD THAT:- The assessee has also placed on record the contract notes with Thundercloud Technologies alongwith certain invoices. However, we find that the nature of services rendered under these contract notes has not been examined by the lower authorities. We are of the view that the nature and scope of services rendered in respect of each invoice are required to be examined in order to come to the conclusion that the expenditure is for the maintenance of software. Therefore, we deem it appropriate to restore this issue to the file of the AO for de novo adjudication. The assessee is directed to furnish all the details in support of its claim, including the information regarding the nature and scope of services availed by it. If upon examination it is found that the expenditure was incurred by the assessee for the maintenance of software then the AO is directed to allow the expenditure to that extent. We further direct that to the extent the expenditure is found to be of enduring nature, the AO is directed to allow depreciation @60% to the assessee on the same. As a result, ground no. 2 raised in assessee’s appeal is allowed for statistical purposes. Disallowance of Advertising and Business Promotion expenses - Freebies to doctors - whether the expenditure incurred by the assessee is in violation of the guidelines issued by the MCI and consequently, whether the expenditure is not allowable under section 37(1), in view of the Circular No.5 of 2012? - HELD THAT:- The expenditure incurred by the assessee on providing freebies, i.e. various gifts, travel facilities, etc., to the doctors is allowable under section 37(1) of the Act as the amendment to MCI Regulations is effective from 14/12/2009. Accordingly, the disallowance is directed to be deleted. As a result, ground no. 3 raised in assessee’s appeal is allowed. Disallowance of weighted deduction u/s 35(2AB) in respect of the Chennai-Ennore Unit - approval by the prescribed authority in Form No.3CM is not available on the record - HELD THAT:- Since, in the present case, the assessee has also applied for approval before the DSIR, we deem it appropriate to restore this issue to the file of the AO to provide an opportunity to the assessee to furnish the approval of the prescribed authority in the prescribed manner for claiming deduction under section 35(2AB) of the Act. With the above directions, ground no. 4 raised in assessee’s appeal is allowed for statistical purposes. Disallowance of depreciation on computer software - AO has restricted the claim of depreciation on software to 25% as against 60% claimed by the assessee - HELD THAT:- We find that the coordinate bench of the Tribunal in assessee’s own case for the assessment year 2004-05 [2022 (6) TMI 1460 - ITAT MUMBAI] directed the AO to allow the depreciation at 60% and also directed the AO to consider computer and computer software as one block. Since the year under consideration is the third year of the claim of depreciation and the computation of depreciation in the current year is consequential to the preceding year, therefore we restore this issue to the file of the AO to compute the depreciation by considering the closing WDV of the preceding year as the opening WDV of the current year. Further, the AO is directed to allow depreciation on computer software at 60% in line with the directions of the coordinate bench in the preceding year. Grounds in assessee’s appeal are allowed for statistical purposes. Addition on account of increase in the value of closing stock in relation to net unutilised MODVAT credit - HELD THAT:- Since in the year under consideration the working of the assessee is required to be verified, therefore, respectfully following the judicial precedents in assessee’s own case, we deem it appropriate to restore this issue to the file of the AO to decide in the light of the directions as rendered by the Tribunal in the preceding year. Deduction u/s 80G - assessee made payments to various parties as donations - HELD THAT:- Since the rectification application filed by the assessee is already pending consideration before the AO and the assessee has also furnished the original donation receipts along with the exemption certificates of all the parties, we direct the AO to consider the plea of the assessee regarding the grant of deduction under section 80G of the Act as per law after necessary verification of all the details so furnished by the assessee. Accordingly, additional ground raised by the assessee is allowed for statistical purposes. Depreciation in respect of assets transferred pursuant to the merger - HELD THAT:- We find that the coordinate bench of the Tribunal in assessee’s own case in Piramal Enterprises Ltd [2020 (1) TMI 1200 - ITAT MUMBAI] decided issue in favour of the assessee as held DRP had directed the A.O to allow depreciation to the assessee on the basis of the outcome of the main appeal regarding slump sale vs. itemized sale. In the backdrop of the aforesaid fact situation, now when the matter as to whether the sale of the aforesaid two divisions by the assessee is to be treated as an itemized sale or a slump sale is pending in the case of the assessee for the preceding years, therefore, we find no infirmity in the order of the DRP who had rightly directed the A.O to allow depreciation to the assessee on the basis of the outcome of the main appeal. Allowance of deduction u/s 80 HHC for the purpose of section 115 JB of the Act - HELD THAT:- As in view of the retrospective amendment in section 115 JB of the Act, vide Finance Act 2011, with retrospective effect from 01/04/2005, this ground of the Revenue be allowed even though during the course of assessment proceedings the assessee made a claim on the basis of the decision of Sincome Formulations (India) Ltd. [2007 (3) TMI 288 - ITAT BOMBAY-H] which was subsequently affirmed by the Hon’ble Supreme Court in CIT v/s Bhari Information Technology Systems (P) Ltd. [2011 (10) TMI 19 - SUPREME COURT] Therefore, in view of the aforesaid amendment, whereby clause (iv) to Explanation-1 to section 115 JB of the Act was omitted, ground raised in Revenue’s appeal is allowed. Depreciation on technical know-how capitalised in the assessment year 2003-04 - HELD THAT:- Since the rectification application filed by the assessee is already pending consideration before the AO, we direct the AO to consider the plea of the assessee regarding the claim of depreciation on technical know-how capitalised as per law after necessary verification of all the details. Accordingly, additional ground raised by the assessee is allowed for statistical purposes, while groundsmraised in the present appeal is dismissed as infructuous. Disallowance u/s 14A while computing the book profit of the assessee u/s 115 JB - HELD THAT:- We find that in ACIT v/s Vireet Investment (P) Ltd. [2017 (6) TMI 1124 - ITAT DELHI] held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated under section 14A read with Rule 8D of the Income-tax Rules, 1962. Accordingly, we do not find any infirmity in the order passed by the learned CIT(A) on this issue. As a result, ground raised in Revenue’s appeal is dismissed.
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