2011 (10) TMI 674 - AT - Income Tax

Summary

Issues Involved:
1. Classification of interest and dividend income.
2. Classification of business center income.
3. Disallowance of co-sponsorship fees.
4. Disallowance of VRS expenses.
5. Disallowance of rates and taxes.
6. Allowability of bad debts written off.
7. Disallowance of loss on assignment of debts.
8. Disallowance of professional fees, employee costs, administrative expenses, and depreciation.
9. Set off of income assessed under "income from other sources" against unabsorbed depreciation.
10. Allowability of sales tax payment.
11. Allowability of professional expenses under section 57(iii).
12. Allowability of employee cost.
13. Allowability of depreciation on plant and machinery.
14. Allowability of administrative expenses.

Detailed Analysis:

1. Classification of Interest and Dividend Income:
The Tribunal held that the interest income of Rs. 82,97,000 and dividend income of Rs. 9,47,000 should be classified as "income from other sources" as per section 56(1). The Tribunal referenced its decision from AY 2003-04, confirming that these incomes were not incidental to any business activity. Therefore, the assessee's appeal on this ground was dismissed.

2. Classification of Business Center Income:
The Tribunal ruled in favor of the assessee, classifying the business center income of Rs. 34,38,935 as "business income." This decision was based on the Tribunal's previous ruling for AY 2003-04, where it was determined that the rental income was derived from commercially exploiting the property with various facilities and amenities, thus qualifying as business income.

3. Disallowance of Co-Sponsorship Fees:
The Tribunal upheld the disallowance of co-sponsorship fees of Rs. 5,00,000 paid to RPG Academy of Art and Music, referencing its decision for AY 2003-04. The Tribunal found no evidence that the payment was for business publicity, as the business center was fully occupied on a long-term basis, and thus the payment was considered a donation.

4. Disallowance of VRS Expenses:
The Tribunal allowed the appeal regarding VRS expenses of Rs. 1,53,517, following its decision for AY 2003-04. The Tribunal directed the AO to allow the expenditure under section 35DDA, which mandates the allowance of VRS expenditure in five equal installments.

5. Disallowance of Rates and Taxes:
The Tribunal dismissed the appeal concerning the disallowance of Rs. 6,46,833 on account of rates and taxes, referencing its decision for AY 2003-04. The expenditure was related to land not used for business purposes and thus not allowable as a business expense.

6. Allowability of Bad Debts Written Off:
The Tribunal upheld the disallowance of bad debts amounting to Rs. 8,76,000, as the assessee failed to provide evidence that the conditions of section 36(2) were satisfied. The burden of proof lies on the assessee, which was not discharged.

7. Disallowance of Loss on Assignment of Debts:
The Tribunal dismissed the appeal regarding the disallowance of Rs. 5,88,77,000 as a loss on the assignment of debts. The Tribunal found the transactions to be non-genuine and structured to generate a loss. The advances were not demonstrated to be for business purposes and were considered in the capital field.

8. Disallowance of Professional Fees, Employee Costs, Administrative Expenses, and Depreciation:
Since the Tribunal allowed the classification of business center income as business income, the related expenses for professional fees (Rs. 30,10,227), employee costs (Rs. 9,85,447), administrative expenses (Rs. 13,33,167), and depreciation (Rs. 2,70,414) were consequently allowed.

9. Set Off of Income Assessed Under "Income from Other Sources" Against Unabsorbed Depreciation:
The Tribunal admitted the additional ground raised by the assessee and set aside the issue to the AO for fresh adjudication in accordance with law.

10. Allowability of Sales Tax Payment:
The Tribunal dismissed the revenue's appeal against the allowance of Rs. 11,960 as sales tax payment, following its decision for AY 2003-04, where it was held that the business had not closed, and thus the claim was allowable.

11. Allowability of Professional Expenses Under Section 57(iii):
The Tribunal dismissed the revenue's appeal against the allowance of professional expenses as revenue nature under section 57(iii), following its decision for AY 2003-04.

12. Allowability of Employee Cost:
The Tribunal dismissed the revenue's appeal against the allowance of employee costs, following its decision for AY 2003-04, where it was held that the business had not closed.

13. Allowability of Depreciation on Plant and Machinery:
The Tribunal dismissed the revenue's appeal against the allowance of depreciation on plant and machinery, following its decision for AY 2003-04, where it was held that the business center income should be assessed as business income.

14. Allowability of Administrative Expenses:
The Tribunal dismissed the revenue's appeal against the allowance of administrative expenses, following its decision for AY 2003-04, where it was held that the expenses related to the business center should be allowed as business expenses.

Conclusion:
The assessee's appeal was allowed in part, and the revenue's appeal was dismissed. The Tribunal's decisions were largely based on precedents set in the assessee's own case for AY 2003-04.