9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2005 (11) TMI 482 - AT - Income TaxDisallowance of expenses to leasehold improvements - HELD THAT - We find that the authorities below erred in treating the above expenditure claimed as revenue expenditure by the appellant as capital in nature and it brought enduring benefit to the appellant. We agree with the arguments of Sri K.R. Pradeep, that the expenditure incurred on redesigning and restructuring the leasehold premises by providing better fittings, electrical work, civil work, wood work, etc., to make the premises suitable for business needs and for carrying on the business more profitably and efficiently are all in the nature of repairs and revenue expenditure and it does not bring any benefit of enduring nature to the appellant. The advantage obtained by the appellant is advantage in commercial sense, i.e., for the purpose of business and not for the acquisition of capital assets . The issue is covered by the decision in Instalment Supply (P) Ltd. vs. CIT 1983 (9) TMI 67 - DELHI HIGH COURT mentioned supra. Accordingly, we hold the above expenditure as revenue in nature and reverse the orders of the authorities below on this issue and direct the AO to allow the entire expenditure as revenue as claimed by the appellant. The appellant succeeds on this issue. Addition made on account of reduction of the exemption u/s 10A - profits earned from SEEPZ unit at Bombay and STP unit at Bangalore - It is a case of joint venture listed Indian company, where all arrangements are open for scrutiny and acceptance not only by digital group worldwide but also from joint venture partners and shareholders. Digital group overseas will not pay undue sum, which it cannot recoup entirely to exclusion of others. Hence nothing can be arranged to the exclusive benefit of overseas partner. One cannot presume the existence of close connection or possibility of an arrangement for earning more than ordinary profits. In this case the profits earned is comparable with the profits earned by other companies in the same industry. Hence there is no case for further verification. The AO has compared the profit of software unit with that of hardware unit. Thus the foundation itself is on wrong premise. There cannot be comparison between an orange and an apple. It is known fact that profitability of software units is always higher than hardware unit. The test whether the appellant has earned more than ordinary profits, in this case, the answer is obvious NO, even as found by the AO. When the profits earned are reasonable and not excessive, there is no reason to sustain the addition. Further there is no evidence of existence of any arrangement as contemplated u/s 80-I(9). If the unit books are combined with other activities, the appellant should make efforts to cull out or separate the entries pertaining to the unit and maintain and produce records or statement separating the results. Such an effort would be sufficient to comply with the condition. In fact 80-I(9) nowhere mentions maintenance of separate books. We find that the addition made by AO in invoking 10A(6) r/w 80-I(9) is not well founded. For these reasons we uphold the order of the CIT(A) deleting the additions made by AO for asst. yr. 1995-96. Since the facts and circumstances are similar for asst. yrs. 1996-97, 1997-98 and 1998-99, the same findings and directions would hold good for these years also. Accordingly the grounds of the Department on the above issue are dismissed. Addition made on ad hoc basis - We find from the records that the AO has disallowed the sum on an ad hoc basis without any cogent reasons nor has brought any evidence on record for making such disallowance. We are in agreement with the findings given by the GIT(A) in deleting the additions made by the AO on ad hoc basis. The assessee's accounts are audited by a qualified auditor and they have not pointed any inadmissible expenses. In absence of any adverse material or evidence, no disallowance of any genuine expenditure on ad hoc or notional basis can be made. Thus, we do not find any infirmity in the orders of the CIT(A) in deleting the disallowance made on ad hoc basis. Accordingly, the ground of the Department is dismissed. In the result the appeals of assessee are partly allowed. The appeal of Revenue for asst. yr. 1992-93 is partly allowed and for other years are dismissed.
Issues Involved:
1. Disallowance of depreciation on technical know-how. 2. Disallowance of travelling expenses under Rule 6D. 3. Disallowance of guest house expenses. 4. Disallowance of entertainment expenditure. 5. Disallowance of payments made to clubs. 6. Disallowance of expenses on leasehold improvements. 7. Deletion of disallowance of travelling expenses under Rule 6D. 8. Deletion of addition of Modvat Credit to closing stock. 9. Deletion of addition of write-off of obsolete and slow-moving items and buyback. 10. Deletion of disallowance of subscription to clubs. 11. Deletion of reduction of exemption under Section 10A. 12. Deletion of addition of bad debts. 13. Deletion of disallowance of miscellaneous expenses. Detailed Analysis: 1. Disallowance of Depreciation on Technical Know-How: - The appellant claimed depreciation on technical know-how for assessment years 1992-93, 1995-96, and 1996-97. - The AO disallowed the claim based on Section 35AB, and the CIT(A) upheld this decision. - The Tribunal found that a similar issue for the assessment year 1989-90 was decided in favor of the appellant. - Following the precedent, the Tribunal reversed the orders of the lower authorities and directed the AO to allow the depreciation as claimed by the appellant. 2. Disallowance of Travelling Expenses Under Rule 6D: - The appellant calculated disallowance on a total trip basis, whereas the AO disallowed on an individual trip basis. - The CIT(A) confirmed the AO's method. - The Tribunal upheld the lower authorities' decision, dismissing the appellant's grounds. 3. Disallowance of Guest House Expenses: - The appellant incurred expenses on rent, repairs, and depreciation for a guest house, claiming them under Sections 30 to 36. - The AO disallowed these expenses under Section 37(4), and the CIT(A) confirmed the disallowance. - The Tribunal, following a precedent and the Supreme Court decision in Britannia Industries Ltd. vs. CIT, upheld the CIT(A)'s decision. 4. Disallowance of Entertainment Expenditure: - The appellant incurred expenses on digital day celebrations and conferences, claiming them as revenue expenditure. - The AO classified these as entertainment expenditure and disallowed them. - The CIT(A) restricted the disallowance to 50%. - The Tribunal agreed with the appellant that the expenses were for employee benefit and should not be classified as entertainment expenditure, directing the AO to allow the entire expenditure. 5. Disallowance of Payments Made to Clubs: - The appellant's payments to clubs were disallowed by the AO as entertainment expenditure. - The CIT(A) allowed these payments as revenue expenditure, relying on a precedent. - The Tribunal upheld the CIT(A)'s decision, directing the AO to delete the addition. 6. Disallowance of Expenses on Leasehold Improvements: - The appellant incurred expenses on leasehold properties, claiming them as revenue expenditure. - The AO treated these as capital expenditure, and the CIT(A) confirmed the disallowance. - The Tribunal found the expenses to be revenue in nature, following a precedent, and directed the AO to allow the entire expenditure. 7. Deletion of Disallowance of Travelling Expenses Under Rule 6D: - The AO disallowed travelling expenses on a total trip basis. - The CIT(A) restricted the disallowance. - The Tribunal reversed the CIT(A)'s decision, upholding the AO's method. 8. Deletion of Addition of Modvat Credit to Closing Stock: - The AO added Modvat credit to the closing stock, rejecting the appellant's method of accounting. - The CIT(A) deleted the addition, following precedents. - The Tribunal upheld the CIT(A)'s decision, dismissing the Department's grounds. 9. Deletion of Addition of Write-Off of Obsolete and Slow-Moving Items and Buyback: - The AO partially disallowed the write-off of obsolete and slow-moving items. - The CIT(A) deleted the disallowance. - The Tribunal found no evidence to support the AO's partial disallowance and upheld the CIT(A)'s decision. 10. Deletion of Disallowance of Subscription to Clubs: - The AO disallowed club subscriptions as entertainment expenses. - The CIT(A) deleted the disallowance. - The Tribunal upheld the CIT(A)'s decision, dismissing the Department's grounds. 11. Deletion of Reduction of Exemption Under Section 10A: - The AO reduced the exemption claim under Section 10A, suspecting unreasonably high profits due to a close connection with the buyer of services. - The CIT(A) reversed the AO's decision, finding no evidence of an arrangement for high profits. - The Tribunal upheld the CIT(A)'s decision, dismissing the Department's grounds. 12. Deletion of Addition of Bad Debts: - The AO disallowed the write-off of bad debts related to Hinditron Group. - The CIT(A) deleted the disallowance. - The Tribunal upheld the CIT(A)'s decision, agreeing that the amount was not recoverable. 13. Deletion of Disallowance of Miscellaneous Expenses: - The AO disallowed 5% of miscellaneous expenses on an ad hoc basis. - The CIT(A) deleted the disallowance. - The Tribunal found the disallowance unjustified and upheld the CIT(A)'s decision. Conclusion: - The appeals of the assessee were partly allowed. - The appeal of Revenue for the assessment year 1992-93 was partly allowed, while appeals for other years were dismissed.
|
