2012 (4) TMI 567 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of storage charges receivable.
2. Deletion of disallowance of prior period expenses.
3. Deletion of disallowance of prior period income.
4. Deletion of disallowance of depreciation.
5. Direction not to tax the subsidy.
6. Direction to reduce income by excess depreciation.
7. Confirmation of disallowance of employer's contribution to P.F.
8. Confirmation of disallowance of professional fees.

Summary:

1. Deletion of Addition on Account of Storage Charges Receivable:
The AO added Rs. 3,16,584/- to the income of the assessee on account of storage charges receivable. The CIT(A) deleted the addition, observing that the increased rent was disputed and not received by the appellant, thus, there was no accrual of additional rental income. The Tribunal upheld CIT(A)'s decision, noting the issue was covered by a previous Tribunal order for AY 2003-04, stating that income accrues only when the right to receive it is established.

2. Deletion of Disallowance of Prior Period Expenses:
The AO disallowed Rs. 2,17,489/- as prior period expenses. The CIT(A) allowed the expenses, stating they were sanctioned by the Managing Director during the current year, thus crystallizing the liability. The Tribunal remitted the issue back to CIT(A) for reconsideration, emphasizing that expenses should be allowed only when they crystallize and are not subject to internal procedural approvals.

3. Deletion of Disallowance of Prior Period Income:
The AO disallowed Rs. 1,34,119/- being bad debts related to a period when the income was exempt. The CIT(A) allowed the bad debt, noting it was taken into account in computing income of earlier years. The Tribunal upheld CIT(A)'s decision, stating bad debts are allowable as per Section 36(1)(vii) of the Act.

4. Deletion of Disallowance of Depreciation:
The AO disallowed Rs. 70,635/- in depreciation related to subsidy received for godowns. The CIT(A) deleted the disallowance, noting the subsidy was received in earlier years and the godowns were sold prior to the current year. The Tribunal upheld CIT(A)'s decision, agreeing that the subsidy was a capital receipt and not taxable as revenue.

5. Direction Not to Tax the Subsidy:
The AO added Rs. 7,06,350/- to the income, considering it as a subsidy. The CIT(A) directed not to tax the subsidy, stating it was a capital receipt for construction of godowns and not received in the current year. The Tribunal upheld CIT(A)'s decision.

6. Direction to Reduce Income by Excess Depreciation:
The AO did not accept the assessee's claim to reduce income by Rs. 33,90,270/- being excess depreciation. The CIT(A) directed the AO to reduce the income, noting the excess depreciation written back cannot be income. The Tribunal upheld CIT(A)'s decision, stating the excess depreciation cannot be taxed as profit of the current year.

7. Confirmation of Disallowance of Employer's Contribution to P.F.:
The CIT(A) confirmed the disallowance of Rs. 60,752/- for employer's contribution to P.F. not paid before filing the return. The Tribunal disagreed, allowing the amount as it was paid within the relevant assessment year, thus allowable u/s 43B of the Act.

8. Confirmation of Disallowance of Professional Fees:
The CIT(A) confirmed the disallowance of Rs. 16,700/- being professional fees for valuation of godowns, treating it as capital expenditure. The Tribunal disagreed, stating the expenses were revenue in nature and did not bring any enduring benefit, thus allowable as revenue expenditure.

Conclusion:
The appeal of the Revenue is partly allowed for statistical purposes, and the Cross Objection of the assessee is allowed.