2009 (1) TMI 880 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of restructuring costs of Ambalapuzha and Narendrapur Plant.
2. Allowability of depreciation on capitalized expenditure.
3. Disallowance u/s 14A of the I.T. Act related to dividend income.
4. Disallowance of payments for corporate club membership.

Summary:

1. Disallowance of restructuring costs of Ambalapuzha and Narendrapur Plant:
The assessee challenged the disallowance of restructuring costs for Ambalapuzha and Narendrapur Plant, arguing that the costs were necessary for business viability and should be deductible u/s 37(1) of the I.T. Act. The Tribunal noted that the assessee provided additional evidence proving the continuation of business at Narendrapur unit even after the closure of the Sandesh Kali Centre unit. The Tribunal directed the Assessing Officer to verify the additional evidence and determine the allowability of restructuring expenses afresh.

2. Allowability of depreciation on capitalized expenditure:
The assessee sought depreciation on expenditures capitalized for relocating assets of the Ambalapuzha unit. The Tribunal agreed that depreciation should be allowed on such capitalized expenditures if the assets were used for business purposes. The matter was remitted back to the Assessing Officer to verify and allow depreciation accordingly.

3. Disallowance u/s 14A of the I.T. Act related to dividend income:
The assessee and Revenue both contested the disallowance of expenses related to earning dividend income. The Tribunal referred to the Special Bench decision in Daga Capital Management Pvt. Ltd. vs. ITO, directing the Assessing Officer to recalculate the disallowance under Rule 8D, ensuring it does not exceed the original disallowance made by the Assessing Officer. The Tribunal emphasized that the assessee should not be put in a worse position than originally.

4. Disallowance of payments for corporate club membership:
The Revenue challenged the deletion of disallowance for payments made for acquiring corporate club membership. The Tribunal found the issue covered by its earlier decision in the assessee's favor, supported by the Hon'ble Bombay High Court judgment in Otis Elevators (195 ITR 682). The Tribunal upheld the CIT (A)'s order allowing the claim for corporate membership fees.

Conclusion:
The appeal filed by the assessee (ITA No.2200/Mum/2004) and the appeal filed by the Revenue (ITA No.1941/Mum/2004) were allowed for statistical purposes. The Tribunal directed the Assessing Officer to re-examine the issues with proper verification and provide a fair opportunity for hearing to the assessee.