2015 (10) TMI 2500 - AT - Income Tax

Disallowance of earnest money given for acquisition of land - Held that - If any asset is acquired and if it is a benefit of enduring nature then of course assessee cannot get deduction of the amount for acquisition of land as Revenue expenditure. When land was not acquired no capital asset has been acquired and therefore the payment of Rs. 7, 46, 088/- is to be allowed as business loss. In our view the CIT(A) has correctly held that the claim of the assessee as business loss and deserves to be allowed. - Decided against revenue Disallowance treating the expenditure claimed as deferred revenue expenditure in P&L and incurred on employee restructuring and re-engineering of business as capital expenditure - CIT(A) allowed the claim - Held that - The expenditure was essentially of Revenue nature as it was incurred for improvement of business practices linked with marketing and human resource utilization. It is claimed that the scope of the study relates to the promotion of products of company in order to sustain market pressure and to maintain its market position. It is also explained that the scope further included employee restructuring also so as to save the manpower cost and to achieve best utilization of human effort. Thus it is clear that there was no creation of capital asset in the case of assessee company. In view of the above we do not find any merit in the ground raised by the Revenue - Decided against revenue Additional depreciation claim - Held that - Considering the entire facts and circumstances of the present case we uphold the order of CIT(A). In our opinion the Ld. CIT(A) has correctly directed the Assessing officer to examine the claim of the assessee pertaining to additional depreciation on merits and if found to be entitled the same may be allowed to the assessee. There is no merit in this ground of appeal and accordingly the same is dismissed. - Decided against revenue

Summary

Issues:
1. Disallowance of earnest money for land acquisition
2. Treatment of expenditure on employee restructuring as capital expenditure
3. Claim of additional depreciation and rejection based on Goetze (India) Ltd. judgment

Issue 1: Disallowance of earnest money for land acquisition
The appeal involved the disallowance of Rs. 7,46,088 as earnest money given for land acquisition. The Assessing Officer treated the amount as capital expenditure, but the CIT(A) deleted the addition, considering it as an allowable business loss. The ITAT upheld the CIT(A)'s decision, stating that since no enduring benefit resulted to the assessee, the expenditure could not be treated as of capital nature. As no capital asset was acquired, the amount was allowed as a business loss.

Issue 2: Treatment of expenditure on employee restructuring as capital expenditure
The second issue revolved around the disallowance of Rs. 1,41,500 for expenditure on employee restructuring and business re-engineering. The Assessing Officer considered it as capital expenditure, but the CIT(A) deleted the addition, relying on the judgment in Empire Jute case. The ITAT agreed with the CIT(A), emphasizing that the expenditure aimed at facilitating business operations and enhancing efficiency, making it revenue expenditure and not capital in nature.

Issue 3: Claim of additional depreciation
The final issue pertained to the claim of additional depreciation on new machinery worth Rs. 17,28,295. The Assessing Officer rejected the claim, citing the Goetze (India) Ltd. judgment. However, the CIT(A) directed a re-examination of the claim, emphasizing the right of the assessee to raise additional grounds during assessment proceedings. The ITAT upheld the CIT(A)'s decision, stating that the Goetze judgment was limited to the power of the Assessing Officer to entertain claims, and the assessee could make claims during assessment or appellate proceedings without a revised return.

In conclusion, the ITAT dismissed the appeal, upholding the decisions of the CIT(A) on all three issues, emphasizing the distinction between revenue and capital expenditures and the rights of the assessee to raise claims during proceedings as per legal precedents.