2020 (4) TMI 459 - AT - Income Tax

Reopening of assessment - assessment reopened beyond four years - wrong claim u/s 10(B) - HELD THAT - There is not even whisper in the assessment order that there was any negligence on the part of the assessee in disclosing the particulars which is required for completing the assessment. It is also not in dispute that the assessment was reopened after four years therefore the provisions of s. 147 of the Act will come into operation. Unless the AO establishes that there was any negligence on the part of the assessee in disclosing all the material facts relevant to the assessment the assessment cannot be reopened. In this case it is not the case of the Revenue that there was any negligence on the part of the assessee in disclosing the material facts relevant to the assessment years therefore the CIT(A) has rightly allowed the appeals of the assessee and the same is confirmed. Expenditure incurred for registration of trade mark - Nature of expenditure - revenue or capital expenditure - HELD THAT - This Tribunal is of the considered opinion that the trade mark is nothing but a capital asset. Admittedly the assessee incurred the expenditure for registration of the trade mark in foreign countries therefore any expenditure incurred by the assessee in connection with creation/establish of capital asset has to be necessarily be treated as a capital expenditure and the assessee cannot claim the same as revenue expenditure. However as rightly submitted by the Ld. Counsel for the assessee the assessee is entitled for depreciation. Therefore the AO may allow depreciation at the applicable rate. Disallowance of expenditure u/s. 14A r.w.r. 8D - HELD THAT - Tribunal is of the considered opinion that in case the assessee has invested the borrowed funds it has an impact on the expenditure therefore it has to be ascertained before making any disallowance. Moreover as rightly submitted by the Ld. counsel for the assessee the investment which earned dividend income or exempt income alone has to be considered for limb 2 and limb 3 of Rule 8D(2) of the Rules. This aspect also needs to be re-examined. Both the authorities below has examined this aspect the orders of the authorities below are set aside and the entire issue with regard to the disallowance u/s. 14A of the Act is remitted back to the file of AO. AO shall re-examine the matter afresh in the light of the material that may be filed by the assessee and decide the issue in accordance with law after giving a reasonable opportunity to the assessee. Exemption claimed u/s. 10B - HELD THAT - In view of the judgment of Camiceria Apparels India (P.) Ltd. 2019 (3) TMI 73 - MADRAS HIGH COURT the matter needs to be re-examined. It is also necessary to compute the eligible deduction by applying the provisions of sub s. (4) to s. 10B of the Act. This aspect naming the judgment of the Madras High Court and the provisions of Section 10B (4) of the Act was not considered by the earlier Bench of this Tribunal when the issue was decided against the assessee. Therefore this Bench of the Tribunal is of the considered opinion that the decision in the assessee s own case for the earlier assessment years may not be applicable for the year under consideration. Accordingly the orders of the both the authorities below are set aside and the issue with regard to deduction u/s. 10B of the Act is remitted back to the file of AO.

Summary

Issues:
1. Maintainability of appeal by Revenue due to tax effect less than Rs. 50 lakhs.
2. Validity of reopening assessment beyond four years.
3. Treatment of expenditure for registration of trademark as revenue or capital expenditure.
4. Disallowance of expenditure under section 14A of the Act.
5. Exemption claimed under section 10B of the Act.

Issue 1:
The Tribunal found that due to the tax effect being less than Rs. 50 lakhs, as per a circular from the CBDT, the appeal filed by the Revenue was not maintainable. Consequently, the appeal of the Revenue in ITA No.1578/Chny/2018 for AY 2011-12 was dismissed.

Issue 2:
Regarding the reopening of assessment beyond four years, it was noted that unless negligence in disclosing material facts was proven by the assessee, the assessment could not be reopened. As there was no evidence of negligence, the CIT(A) rightly allowed the appeals of the assessee for AYs 2009-10 & 2010-11. Thus, the appeals of the Revenue in ITA No.1906 & 592/Chny/2018 for those years were dismissed.

Issue 3:
The Tribunal considered the expenditure for registration of a trademark as a capital asset, not a revenue expenditure. However, depreciation was allowed. The AO was directed to permit depreciation at the applicable rate for the expenditure incurred in creating the capital asset.

Issue 4:
On the disallowance of expenditure under section 14A of the Act, the Tribunal observed that the matter needed further examination. The issue was remitted back to the AO for fresh consideration in light of the arguments presented by both parties.

Issue 5:
Regarding the exemption claimed under section 10B of the Act, the Tribunal noted that the profit of the undertaking had to be considered for exemption. Citing a judgment of the Madras High Court, the Tribunal directed a re-examination of the matter by the AO, considering the provisions of section 10B(4) of the Act. The issue was remitted back to the AO for a fresh decision after considering the Madras High Court judgment.

In conclusion, the appeal filed by the Revenue for AYs 2009-10, 2010-11 & 2011-12 was dismissed, while the appeal by the assessee for AY 2011-12 was partly allowed for statistical purposes. The Tribunal set aside the orders of the lower authorities on various issues and remitted them back to the AO for fresh consideration in accordance with law.