2013 (1) TMI 922 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for deduction u/s 36(1)(viia) for rural branches.
2. Depreciation on wooden partitions.
3. Depreciation on UPS and batteries.
4. Disallowance u/s 14A.
5. Classification of swift charges as revenue or capital expenditure.
6. Allowability of scholarship/education aid as business expenditure.
7. Allowability of prior period expenses.

Summary:

1. Eligibility for Deduction u/s 36(1)(viia) for Rural Branches:
The Revenue's appeal against the CIT(A)'s decision to treat eight rural branches as eligible for deduction u/s 36(1)(viia) was dismissed. The ITAT upheld the CIT(A)'s decision, which was based on previous ITAT orders in the assessee's own case, confirming that the branches qualified as rural branches despite the population exceeding ten thousand.

2. Depreciation on Wooden Partitions:
The AO's decision to allow only 10% depreciation on wooden partitions, instead of the 100% claimed by the assessee, was overturned. The CIT(A) allowed the claim based on the fact that the partitions were on leased/rented accommodation, following the precedent set in the assessee's own case for the assessment year 2002-03. The ITAT found no infirmity in this decision and dismissed the Revenue's appeal.

3. Depreciation on UPS and Batteries:
The AO had allowed depreciation at 25% on UPS and batteries, whereas the assessee claimed 60%. The CIT(A) allowed 60% depreciation, following the ITAT's decision in the assessee's own case for earlier years. The ITAT upheld this decision, dismissing the Revenue's appeal.

4. Disallowance u/s 14A:
The AO disallowed a substantial amount u/s 14A for expenses incurred in earning tax-free income. The CIT(A) restricted the disallowance to Rs. 10,45,220/-, applying a pro-rata basis based on the cost inflation index. The ITAT found that the issue was covered by its own decision in the assessee's case for the assessment year 2002-03 and dismissed the Revenue's appeal while allowing the assessee's cross-objection.

5. Classification of Swift Charges as Revenue or Capital Expenditure:
The AO treated swift charges as capital expenditure, allowing depreciation at 30%. The CIT(A) classified these as revenue expenditure, considering them recurring expenses for treasury operations. The ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

6. Allowability of Scholarship/Education Aid as Business Expenditure:
The AO disallowed the expenditure on scholarship/education aid, treating it as charity. The CIT(A) allowed the claim, recognizing the expenses as part of the assessee's social responsibility and beneficial for business goodwill, under section 37(1). The ITAT upheld this view, dismissing the Revenue's appeal.

7. Allowability of Prior Period Expenses:
The AO disallowed prior period expenses due to lack of supporting bills/vouchers. The CIT(A) allowed these expenses, noting that they were crystallized during the year and related to arrears of rent/enhanced rent. The ITAT agreed with the CIT(A), dismissing the Revenue's appeal.

Conclusion:
All the appeals of the Revenue in ITA Nos. 43, 53, 85, 86 & 418(Asr)2012 were dismissed, and the Cross Objections Nos. 04, 05, 06 & 33(Asr)/2012 of the assessee were allowed.