2012 (8) TMI 952 - AT - Income Tax

Claim of expenditure incurred on renovation of showrooms - nature of expenditure - revenue or capital - Held that - We are of the view that they have to be considered as the capital assets of the assessee-company. Accordingly we set aside the order of the learned Commissioner of Income-tax (Appeals) on this issue and restore the disallowance made by the Assessing Officer. Disallowance of interest and processing charges on availing loan from International Finance Corporation Washington for the purpose of setting up of a new industrial undertaking for manufacture of truck tyres - Claim allowed in favour of assessee Disallowance of payment to clubs by treating the same as non-business expenditure - Held that - The expenditure incurred towards entrance fee/subscription can be termed as business expenditure. With regard to the cost of services it is the responsibility of the assessee to show the commercial expediency in incurring the same. In the absence of the same the Assessing Officer was justified in disallowing the sum of 1, 48, 212 referred supra. Accordingly we set aside the order of the learned Commissioner of Income-tax (Appeals) on this issue and restore the addition made by the Assessing Officer. Claim of deferred sales tax payment - Held that - The facts surrounding this claim were not clearly brought out on record. In any case the claim for deduction made by the assessee would depend upon the outcome of the decision taken in the earlier years. Accordingly this aspect requires verification. If the claim of deemed payment had been disallowed in the earlier years then the assessee is entitled for deduction of the amount referred supra. Accordingly we restore this issue to the file of the Assessing Officer with the direction to examine the claim of the assessee afresh Claim of deduction of Bonus - Held that - Simply because the assessee has not claimed a particular deduction it cannot be said to be a colourable device as envisaged by the decision of McDowell s case 1985 (4) TMI 64 - SUPREME Court . The deduction relates to payment of bonus which has actually been paid in the present year and deduction has been claimed as per section 43B. Such deduction has been claimed on consistent basis in the year of payment and therefore no adverse inference should have been taken. Disallowance of depreciation and repair charges confirmed Reduction of proportionate head office expenses from the profit of DG power generation unit for the purpose of computation of deduction under section 80-IA - Held that - An ad hoc reduction of 12 lakhs towards head office expenses and also the interest expenditure attributable to the DG power generation unit would meet the ends of justice. Accordingly we set aside the issue of determination of interest expenditure to the file of the Assessing Officer. The order of the learned Commissioner of Income-tax (Appeals) stands modified accordingly Claim of debts and advances written off - Held that - The advances given for the purposes of acquisition of capital assets or towards revenue purposes cannot be claimed as bad debt under section 36(1)(vii) of the Act. Accordingly in our view the Assessing Officer was not correct in drawing support from the said section. With regard to the advance given for acquisition of revenue items amounting to 2, 32, 93, 575 the assessee gets support from the decision of the hon ble Delhi High Court in the case of Mohan Meakin Ltd. v. CIT 2011 (5) TMI 243 - DELHI HIGH COURT wherein the High Court by following the decisions held that the trade advances written off can be allowed as deduction under section 37 of the Act. Assessee-company is entitled to deduction under section 80-IA of the Act in respect of the new DG power generation units.

Issues Involved:
1. Claim of expenditure on renovation of showrooms as revenue expenditure.
2. Disallowance of interest and processing charges incurred on availing loan.
3. Disallowance of payment to clubs as non-business expenditure.
4. Claim of deferred sales tax payment.
5. Claim of deduction of bonus payment.
6. Disallowance of depreciation and repair charges on let-out properties.
7. Reduction of proportionate head office expenses for DG power generation unit.
8. Claim of debts and advances written off.
9. Nature of provision for bonus and leave encashment for computation of book profit.
10. Eligibility of DG power generation units for deduction under section 80-IA.

Detailed Analysis:

1. Claim of Expenditure on Renovation of Showrooms as Revenue Expenditure:
The assessee claimed Rs. 64,40,068 spent on equipment for its branded showrooms as revenue expenditure. The Assessing Officer treated it as capital expenditure, disallowing Rs. 56,35,059 after depreciation. The Commissioner of Income-tax (Appeals) treated it as sales or publicity expenses, but the Tribunal found that ownership of the assets remained with the assessee, thus classifying them as capital assets and restoring the disallowance.

2. Disallowance of Interest and Processing Charges Incurred on Availing Loan:
The assessee claimed Rs. 3,53,95,231 as revenue expenditure for interest and processing charges on a loan for a new industrial undertaking. The Assessing Officer disallowed this, treating it as capital expenditure. The Commissioner of Income-tax (Appeals) allowed the claim based on precedents from the Supreme Court and jurisdictional High Court, which the Tribunal upheld.

3. Disallowance of Payment to Clubs as Non-Business Expenditure:
The assessee incurred Rs. 3,51,602 in club expenses, with Rs. 1,48,212 disallowed by the Assessing Officer as non-business expenditure. The Commissioner of Income-tax (Appeals) deleted this disallowance, but the Tribunal restored it, emphasizing the need for the assessee to show commercial expediency for the cost of services.

4. Claim of Deferred Sales Tax Payment:
The assessee claimed Rs. 3,85,29,891 as deferred sales tax payment. The Tribunal noted that if the claim of deemed payment was allowed in earlier years, the actual payment could not be claimed again. The issue was remanded to the Assessing Officer for verification based on earlier years' decisions.

5. Claim of Deduction of Bonus Payment:
The assessee claimed Rs. 3,75,44,731 for bonus payments made during the financial year. The Assessing Officer disallowed it, suggesting it should have been claimed in the previous year. The Commissioner of Income-tax (Appeals) allowed the claim, and the Tribunal upheld this decision, noting the consistent practice of claiming deductions in the year of payment.

6. Disallowance of Depreciation and Repair Charges on Let-Out Properties:
The Tribunal followed its earlier decision, confirming the disallowance of Rs. 27,27,505 for depreciation and repair charges on let-out properties.

7. Reduction of Proportionate Head Office Expenses for DG Power Generation Unit:
The Assessing Officer reduced Rs. 1,92,61,930 from the profit of the DG power generation unit for head office expenses. The Tribunal, following its earlier decision, allowed an ad hoc reduction of Rs. 12 lakhs and remanded the issue of interest expenditure to the Assessing Officer.

8. Claim of Debts and Advances Written Off:
The assessee claimed Rs. 8,74,73,974 in written-off debts and advances. The Tribunal disallowed Rs. 28,67,407 as capital loss but allowed Rs. 2,32,93,575 under section 37 of the Act, following the Supreme Court's principles on revenue and capital losses.

9. Nature of Provision for Bonus and Leave Encashment for Computation of Book Profit:
The Tribunal held that provisions for bonus and leave encashment are ascertained liabilities. The issue of leave encashment was remanded to the Assessing Officer to verify if it was based on actuarial valuation.

10. Eligibility of DG Power Generation Units for Deduction Under Section 80-IA:
The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision that the DG power generation units constituted an "undertaking" eligible for deduction under section 80-IA, following its earlier decision in the assessee's case.

Conclusion:
The appeal numbered I.T.A. 430/Coch/06 was partly allowed, and the appeal numbered I.T.A. 378/Coch/09 was dismissed. The Tribunal's decisions were based on consistent application of legal principles and precedents, ensuring a thorough examination of each issue.

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