2010 (2) TMI 741 - AT - Income Tax

Purchase of fresh flowers and plants on regular basis - Revenue or capital expenditure - AO has not doubted the genuineness of the expenditure - By incurring such an expenditure no asset of enduring nature is created by the assessee and therefore in view of the decision of Hon ble Supreme Court in the case of Empire Jute Co. Ltd. (1980 -TMI - 5837 - SUPREME Court) the said expenditure has rightly been treated as revenue expenditure by the learned CIT(A) Regarding leave encashment - Held that where the provision is made on the basis of scheme of leave encashment the deduction of provision is allowable although the liability is discharged at a future date - Section 43B(f) of the act was inserted with effect from 1.4.2002 applicable for the assessment year 2002-03 whereas the present issue is for the assessment year 2001-02. - Decided in favor of assessee. Current repairs - repair and maintenance expenses on account of refurnishing and partitioning of the office premises - held that - such expenditure on the repairs could fall under section 30(a)(i) which is an allowable expenditure. In the circumstances and facts of the case the learned CIT(A) has rightly accepted the explanation of the assessee Current repairs - repair and maintenance on account of expenditure incurred for installation on concrete interlocking blocks mud phaska tiles glazed doors and fixing charges - held that - by incurring such expenditure in the rented premises the assessee has not created any new capital asset and therefore the learned CIT(A) has rightly deleted the addition made by the AO relying upon the decision of Hon ble Delhi High Court in the case of Instalment Supply Pvt. Ltd. (1983 -TMI - 27896 - DELHI High Court). - Decided in favor of assessee. Expenditure on foreign travel - Held that - the visit of Ajay Muttreja is meant for the business purpose and nothing is on record to show that any expenditure for the personal purpose has been incurred - the observation of the learned CIT(A) that the assesse has not submitted various details for the visits of Shri Abhey Yograj and Neera Yograj cannot be accepted and moreover there is nothing on record to show that these visits of the said persons are personal visits and nothing can be concluded on surmises and conjectures specially when all the details have been submitted. In the circumstances and facts of the case the learned CIT(A) is not justified in sustaining the addition and the same is directed to be deleted. - Decided in favor of assessee.

Issues Involved:
1. Treatment of expenditure on purchase of flowers and plants.
2. Provision for leave encashment payable to employees.
3. Repair and maintenance expenses for office refurnishing and partitioning.
4. Expenditure on installation of concrete interlocking blocks, mud phaska tiles, glazed doors, and fixing charges.
5. Professional charges paid to various parties.
6. Foreign travel expenses.

Issue-wise Detailed Analysis:

1. Treatment of Expenditure on Purchase of Flowers and Plants:
The revenue contended that the expenditure of Rs.1,87,626/- on the purchase of fresh flowers and plants should be treated as capital expenditure. The Assessing Officer (AO) argued that this expenditure enhances the assessee's image and is of enduring nature. However, the Commissioner of Income-tax (Appeals) [CIT(A)] and the Tribunal held that the expenditure on fresh flowers and ornamental plants, which are perishable, is a revenue expenditure. The decision relied on the Supreme Court's ruling in Empire Jute Co. Ltd. vs. CIT, emphasizing that no asset of enduring nature was created by this expenditure.

2. Provision for Leave Encashment Payable to Employees:
The AO disallowed the provision of Rs.7,09,136/- for leave encashment, treating it as a contingent liability. The CIT(A) allowed the deduction, referencing the Supreme Court's decisions in Bharat Earth Movers vs. CIT and Metal Box Co. of India Ltd. vs. Their Workmen, which state that a business liability that has arisen in the accounting year should be allowed as a deduction, even if discharged in the future. The Tribunal upheld this view, noting that Section 43B(f) applied from the assessment year 2002-03, not the year under consideration (2001-02).

3. Repair and Maintenance Expenses for Office Refurnishing and Partitioning:
The AO treated the expenditure of Rs.2,27,168/- on office refurnishing and partitioning as capital expenditure. The CIT(A) allowed the claim as revenue expenditure, noting that the expenses were for temporary alterations to a rented premises, and no new capital asset was created. The Tribunal agreed, citing that such expenses fall under Section 30(a)(i) of the Income-tax Act, which allows for repairs.

4. Expenditure on Installation of Concrete Interlocking Blocks, Mud Phaska Tiles, Glazed Doors, and Fixing Charges:
The AO capitalized the expenditure of Rs.1,60,000/- on these installations, allowing depreciation. The CIT(A) reversed this, treating it as revenue expenditure, as the assessee did not acquire any new capital asset but incurred these costs for alterations to rented premises. The Tribunal upheld this decision, referencing the Delhi High Court's ruling in Installment Supply Pvt. Ltd.

5. Professional Charges Paid to Various Parties:
The AO added Rs.19,43,477/- to the income due to lack of confirmation letters for professional charges. The CIT(A) accepted the additional evidence (confirmation letters) provided by the assessee during the appeal and deleted the addition. The Tribunal found no infirmity in CIT(A)'s order, noting that similar professional payments were allowed in previous years.

6. Foreign Travel Expenses:
The AO disallowed Rs.24,84,054/- of foreign travel expenses, treating them as personal. The CIT(A) partially upheld the disallowance, allowing Rs.7,30,010/- for business-related travel by Shri Ajay Muttreja but disallowing Rs.17,50,044/- for lack of business purpose evidence for travels by Shri Abhey Yograj and Neera Yograj. The Tribunal, after reviewing the detailed schedules and correspondence provided by the assessee, concluded that the foreign travel expenses were for business purposes and deleted the disallowance.

Conclusion:
The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection, emphasizing the importance of factual evidence and adherence to legal precedents in determining the nature of expenditures.

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