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28-11-2019, I.P. Rings, Section 35(2AB), 115JB, Tribunal Chennai
These are cross appeals filed by the assessee as well as Revenue directed against the order of the learned Commissioner of Income Tax (Appeals)-6, Chennai (hereinafter called as ‘CIT(A)’) dated 28.09.2018 for the assessment years (AY) 2012-13.
2. The brief facts of the case are as under:
The assessee namely M/s. .P. Ring Ltd is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing of internal combustion engines and piston rings. The return of income for the AY 2012-13 was filed on 27.11.2012 disclosing total loss of Rs. 6,77,66,213/- and book profit of C24,59,492/- u/s. 115JB of the Income Tax Act, 1961 (in short ‘’the Act’’). Against the said return of income, the assessment was completed by the Deputy Commissioner of Income Tax, Corporate Circle 2(2), Chennai vide order dated 30.03.2015 passed u/s.143(3) of the Act at total loss of C2,29,48,020/-. While doing so, the Assessing Officer made the following additions/ disallowances.
01. Disallowance on Royalty C71,43,082/-
02 Disallowance of service fees C2,14,11,991/
03 Belated remittance of PF/ESI C5,01,200/-
04 Additional Depreciation C12,98,174/-
05 Excess claim of deduction u/s.35(2AB) C11,31,458/-
06 Disallowance of pre-operative expenses C1,12,69,187/-
07 Disallowance on depreciation C20,63,101/-
3. Being aggrieved by the above additions, the assessee-company preferred an appeal before ld. CIT(A) who vide impugned order granted relief in respect of addition on belated remittance of PF/ESI following the decision of Hon’ble Jurisdictional High Court in the case of M/s. Industrial Security and Intelligence India Pvt. Ltd, in Tax Case (Appeal) Nos.585 and 586 and M.P.No.1 of 2015 dated 24.07.2015. As regards, to the royalty expenditure, the ld. CIT(A) held that 25% of Royalty payment should be treated as capital expenditure and balance of 75% was held to be revenue expenditure following the decision of Hon'ble Supreme Court in the case of Southern Switch Gear vs. CIT, 232 ITR 359. As regards to the disallowance of service fees paid to India Pistons Ltd, the issue was remitted back to the file of the Assessing Officer to examine the evidences of services rendered on technical services. Regarding additional depreciation, ld. CIT(A) directed the Assessing Officer to allow additional depreciation, following the decision of Jurisdictional High Court in the cases of Brakes India Ltd vs. DCIT in T.C.A No.551/2013, dated 14.03.2017 and CIT vs. T.P. Textiles P. Ltd in T.C.A. No.157/2017, dated 06.03.2017. The ld. CIT(A) however confirmed the additions made in respect of weighed deduction u/s.35(2AB) and pre-operative expenses. As regards to the issue of disallowance of depreciation, the ld. CIT(A) confirmed the addition as no bills were produced in support of acquisition of assets.
4. Aggrieved by that part of the ld. CIT(A) order, which is against assessee-company, the assessee company is in appeal before us in ITA No.3500/CHNY/2018, whereas the Revenue is in appeal in ITA No.3538/CHNY/2018 on the grounds which are decided in favour of the assessee company.
5. First we take up appeal of the assessee in ITA No.3500/CHNY/2018 for adjudication.
6. The Assessee raised the following grounds of appeal:
‘’1. The order of The Commissioner of Income tax (Appeals) iscontrary to law, facts and circumstances of the case.
2. The Commissioner of Income tax (Appeals) erred in confirming 25% of the royalty expenditure as capital expenditure and the remaining 75% as revenue expenditure.
2.1. The Commissioner of Income tax (Appeals) ought to have appreciated that the payment of royalty was towards only use of technical information provided by the foreign company and has not resulted in acquisition of any assets of enduring and exclusive advantage to the appellant’s business.