In a ruling that grants relief to Renault Nisan Automotive, the Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that bonuses paid as CTC of employees cannot be disallowed under section 43B of the Income Tax Act,1961. The Tribunal contested four different issues and ordered partial allowance of appeal based on the contention made by disallowed expenses and depreciation.
The assessee, Renault Nissan Automotive India Private Limited, a resident corporate had been engaged in the manufacturing of the powertrains. The company was incorporated on 25-09-2007 and during the same year, the activity of powertrain plant set-up was completed. The infrastructure services were provided from 01-04-2009 to its group companies. The commercial production commenced on 05-02-2010 and Rs.32.09 Crores of service income was earned from its group entity.
The assessee claimed a deduction of Rs.871.14 Lacs for “Powertrain expenses before capitalization.” These expenses were incurred during trial runs conducted in September 2009, before commercial production began on 05-02-2010. The Assessing Officer ( AO ) contended that the business only starts when the commercial production begins and the expenses before the commercial production need to be considered as capital expenses and not revenue expenses.
The assessee claimed that the set-up date for the manufacturing segment was taken as 01-10-2009, even though the commercial production was carried out later on. The trial run was started in September 2009 and the first engine was produced on 14-09-2009. Based on judicial precedents, the assessee claimed these as tax-deductible expenses and claimed for depreciation on the reduced amount.
The assessee filed an appeal upon being dissatisfied with the decision made by CIT(A) as most of the contentions put forward by the assessee were rejected except that depreciation should be allowed on such expenditure.
The Tribunal after considering the facts of the case found that the business setup date of 01-10-2009 chosen by the assessee is reasonable and opined that the setup completion is what matters; actual income generation isn’t necessary to allow business expenses.
The tribunal also concluded that the expenses claimed after 01-1-2009 should be allowed provided the assessee hasn’t claimed it as revenue expenditure or depreciation in subsequent years. The assessee must provide the necessary details and the AO will verify this accordingly.
The Tribunal agreed that the business setup date was 01-10-2009, depreciation needed to be allowed based on the assets put to use and the additional depreciation issue back to the AO for reconsideration. The Tax Auditor had reported that a bonus of Rs.277.83 Lakhs was unpaid as of 31-03-2010. The assessee had claimed that this was variable pay and part of the CTC of employees. The AO disallowed it under Section 43B of the Act.
While partly allowing the appeal the two-member bench of Mahavir Singh ( Vice- President ) and Manoj Kumar Aggarwal ( Accountant Member ) agreed to the contention made by the assessee and stated that the bonus is payable to employees who have rendered services to the assessee and the same form part of CTC of employees, therefore the disallowance is not valid and is deleted.
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