2011 (9) TMI 1037 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of balance depreciation/amortization.
2. Deduction in respect of delayed payment of employees' monthly contribution to PF and ESI.
3. Disallowance of amortization of building expenses.

Summary:

Issue 1: Deduction of Balance Depreciation/Amortization
- The department's appeal questioned whether the CIT(A) was justified in allowing the deduction of balance depreciation/amortization of Rs. 2,82,64,428/- for the assessment year 2006-07.
- The assessee had claimed amortization of leasehold amounting to Rs. 1,41,32,214/- for each of the assessment years 2005-06 and 2006-07. The lease was terminated during the assessment year 2006-07, and the assessee apportioned the remaining WDV equally between the two years.
- The AO disallowed the amortization for the assessment year 2005-06 but allowed depreciation at 10%. For the assessment year 2006-07, the AO disallowed both depreciation and amortization, treating the remaining WDV as a capital loss.
- The CIT(A) allowed the entire WDV as a deduction for the assessment year 2006-07, treating it as revenue expenditure.
- The Tribunal upheld the CIT(A)'s decision, referencing the judgments in CIT v. Madras Auto Service (P) Ltd (233 ITR 468) and CIT v. TVS Lean Logistic Ltd (293 ITR 432), which supported treating such expenditure as revenue expenditure.

Issue 2: Deduction in Respect of Delayed Payment of Employees' Monthly Contribution to PF and ESI
- The AO disallowed the contributions to PF and ESI for certain months due to delayed payment.
- The CIT(A) allowed the deduction, referencing the decisions in Sabari Enterprises (213 CTR 12) and Vinay Cements (213 CTR 268), which permit deductions if payments are made before the due date of filing the return u/s 139(1).
- The Tribunal remitted the issue back to the AO to verify if the payments were made before the due date of filing the return.

Issue 3: Disallowance of Amortization of Building Expenses
- The assessee's appeal questioned the disallowance of amortization of building expenses amounting to Rs. 1,41,32,214/- for the assessment year 2005-06.
- The Tribunal upheld the disallowance, noting that the lease termination took effect in the assessment year 2006-07, and thus the amortization claim for the assessment year 2005-06 was not justified.

Conclusion:
- The assessee's appeal for the assessment year 2005-06 was dismissed.
- The Revenue's appeal for the assessment year 2006-07 was partly allowed for statistical purposes, with the issue of delayed payment of PF and ESI contributions remitted back to the AO for verification.