TMI Blog2014 (5) TMI 926X X X X Extracts X X X X X X X X Extracts X X X X ..... the character of capital and added to the cost - Relying upon Ciba Of India Limited Versus Commissioner Of Income-Tax [1993 (1) TMI 35 - BOMBAY High Court] the amount would form part of the cost of the assessment for the purpose of depreciation – thus, the additional depreciation, claimed by the assessee on Bilag machinery is to be allowed – thus, the order of the CIT(A) is set aside and the AO is directed to allow the depreciation on the machinery that had been acquired from Bilag, and also include incidental expenses incurred on acquisition of assets - This would also include legal and professional expenses as incidental expenses – Decided in favour of Assessee. Disallowance of professional fee reimbursed - Services provided by E&Y – TDS not deducted - Held that:- The expense is allowable, but the allowability of the expense is dependent on the deduction of TAS or exemption therefrom, is the onus, on the assessee to prove the correct reliance of legal provisions - there are invoices raised by the audit professionals and there upon, requests to the parent company, to make the payment to E&Y and BMR Associates - there is no evidence or agreement has been shown has to make the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 987/- reimbursed to SCCL, in relation to services provided by Ernst Young Private Limited ('E Y'), on account of non-deduction of taxes at source. The appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Honourable Income-tax Appellate Tribunal to decide this appeal according to the law. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the Appellant requests that the appeal be allowed as prayed . 2. Vide letter dated 15.07.2013, the assessee has raised the following additional ground: The learned Commissioner of Income-tax (Appeals) erred in not directing the Assessing Officer to capitalize the legal and professional fees of Rs. 53,88,637/- to Bilag unit and grant depreciation thereon after giving the finding that it was for acquisition of the said unit . 3. Vide letter dated 17.02.2013, the assessee has raised the following additional ground: The learned DCIT erred in not granting depreciation on goodwill and non compete fees under section 32 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-, being 1/5th of Rs. 53,88,637/-, as deferred expense, u/s 35D. It was further submitted before the CIT(A) that the AO, to disallow the expenditure, observed that since the assessee did not deduct TAS, hence the expense of Rs. 10,77,727/- (Rs. 53,88,637/-) was not allowed. 12. The assessee pointed out to the CIT(A) that the issue of TDS was neither called for nor discussed before the AO. Hence disallowance on that basis was not only incorrect (APB 18, 19), but against the principals of natural justice. The AR further pointed out that the CIT(A) rejected the contentions of the assessee, i.e. allowing Rs. 10,77,727/- (being 1/5th of Rs. 53,88,637/-) u/s 35D or under section 37(1). The CIT(A), held that the expense is in the nature of capital expenditure. Since he held that the expenditure was capital in nature, the CIT(A) refrained from giving any finding on the issue of TDS and 40(a)(ia). 13. The AR further pointed out that the assessee has filed an additional ground, wherein it has been agitated that when the CIT(A) held that the expenditure to be capital in nature, then, depreciation, as per law, should have been allowed. 14. The AR, therefore, submitted that the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase of the manufacturing facility from Bilag (i.e. including machinery furniture and patents), the assessee incurred incidental expenses like stamp duty, registration fees, sales tax and legal and professional fees. The assessee, therefore, capitalized the above expenses along with the cost of assets accordingly, claimed depreciation on the assets purchased. Because of certain commercial exigiencies, the assessee was unable to operate the manufacturing facility purchased from Bilag on its own, immediately. The assessee, therefore, entered into a Facility User agreement with Bilag, thereby granting them the right to use the facilities (building, plant and machinery and furniture) for manufacture of the products. 23. During the course of assessment proceedings the AO asked the assessee to explain the reasons as to why the depreciation claimed on capitalization of incidental expenses should not be disallowed. The assessee made detailed submissions. The AO, after considering the detailed reply from the assessee, disallowed the depreciation claimed on incidental expenses on the ground that since the assessee has purchased and leased back the assets. He, therefore, concluded that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilag and in that connection incurred certain expenses. He further observed that after the unit was acquired, the unit was leased back to Bilag. The CIT(A) came to the conclusion that the provisions of Explanation 4A to section 43(1) clearly applies to the issue and hence, the claim of depreciation by the assessee on Bilag assets had to be disallowed. 28. Aggrieved, the assessee is before the ITAT. 29. Before us, the AR reiterated the submissions and facts as made before the revenue authorities and submitted that incidental expenses had been apportioned thereon. The AR also informed that before the revenue authorities the assessee had not claimed depreciation on goodwill and non-compete fee, which the assessee wants to claim, by way of additional grounds of appeal, filed before us. 30. The DR supported the order of the revenue authorities. 31. We have heard the arguments and have perused the details as appended in the APB. The acquisition of the machinery from Bilag is not disputed, it is also not disputed that the machinery is a capital asset and whatever expense is incurred on such outlay, it shall bear the character of capital and added to the cost. Since this is a fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to E Y was not subject deduction of TAS consequently, the payment made to SCCL by the assessee being reimbursement of its share only, therefore, the assessee did not deduct TAS. 38. The CIT(A) did not accept the arguments of the assessee and held the same to be facade, because, the resident E Y conducted systems audit on the assessee, which would have had the assessee's approval and simply because the payment has been routed through the non-resident parent, would not absolve the liability of the assessee for non deduction of TAS and also the assessee cannot be allowed to take shelter of CBDT Circular no.726 dated 18.10.1995. 39. The assessee is now before the ITAT. 40. Before us, the AR reiterated the submissions made before the revenue authorities that the payment made to SCCL was simply in the nature of reimbursement without any profit element and also it is undisputed that the expense was for the purpose of business and placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT vs Aktiongesellschaft, reported in 310 ITR 320 (Bom). 41. The DR, however placed reliance on the order of the revenue authorities and also that the onus was o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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