2012 (7) TMI 492 - AT - Income Tax

Revenue versus Capital expenditure - AO made out in the assessment order that out of the total expenditure of Rs. 32,80,058, Rs. 1,18,225 was incurred by the assessee for new hardware of the computer to be in the nature of capital - Held that - Apart from the expenditure of Rs. 32,80,058/- the assessee has also purchased some computer, which were included in the fixed assets as clear from the Schedule C showing the fixed assets at the written down value. The parts like CD ROM Drive, Hard Disk Drive and RAM are only spares of the Central Processing Unit (CPU) of the computer and they cannot be considered as separate and independent machinery. Accordingly, replacement of the parts of the machinery is allowable expenditure. The expenditure incurred on Printer, Scanner and Web Camare cannot be said to be replacement of the spares /defective parts of the computer therefore, the expenditure of Rs. 31,250/- incurred on printer, scanner and Web Camera is capital in nature and accordingly, the addition to the extent of Rs. 31,250/- is confirmed - partly allowed in favour of assessee to the extent of the expenditure of Rs. 86,975/- as revenue expenditure u/s 37. Disallowing of repairs and maintenance expenses as capital in nature - out of the total expenditure of Rs. 50,35,444/- AO disallowed Rs. 1,66,423/- being capital in nature - Held that - As regards the expenditure of Rs. 1,35,613/-, pertains to office renovation charges, the same has been incurred by the assessee to make the office premises as fit for business use of the assessee and without bringing any new capital asset into existence; therefore, the same is allowable as revenue expenditure - As regards the expenditure on split AC of Rs. 30,850/-, it is apparent that the assessee has brought into existence a new asset therefore, the same is capital in nature and only depreciation is allowable. Accordingly, we confirm the disallowance to the extent of Rs. 30,850/ towards spilt air-conditioning expenditure - partly in fvaour of assessee. Disallowance of trading loss - DR has submitted that the assessee has not even claimed trading loss in the return of income but has made a claim only during the appellate proceedings by way of a note - assessee has claimed bad debts/trading loss being non recoverable deposit given to the subsidiary company - Held that - 0bjection raised by the ld DR that without filing the revised return the Assessing Officer has no jurisdiction to entertain a fresh claim it is to be noted that the jurisdiction of the appellate authorities is not barred as observed in the case of Goetze (India) Ltd 2006 (3) TMI 75 - SUPREME COURT - When the assessee is holding company and both the companies are controlled by the same management then there was no such need for any deposit. Therefore, the element of commercial expediency does not exist in the case in hand - it was not a case of insolvency of the subsidiary company; but the assessee voluntarily waive off the claim; therefore, when the advance was not given either in the ordinary course of business or in connection with the business, then the loss of the same is loss of capital and is not allowable - against assessee. Since interest u/s 220(2) is consequential in nature; therefore, no specific finding is required.

Issues Involved:
1. Disallowance of computer expenses as capital in nature.
2. Disallowance of repairs and maintenance expenses as capital in nature.
3. Disallowance of deduction for the amount receivable from a subsidiary company as bad debts, trading loss, or business expenditure.
4. Charging of interest under section 220(2).

Detailed Analysis:

1. Disallowance of Computer Expenses as Capital in Nature:
The Assessing Officer (AO) noted that the assessee had debited Rs. 32,80,058/- for computer expenses, of which Rs. 1,18,225/- was for hardware like CD Rom Drive, Hard disk drive, RAM, Printer, Scanner, and Web Camera. The AO categorized these as capital expenses and allowed proportionate depreciation. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this decision, referencing the Rajasthan High Court's decision in Arawali Construction Company and the Tribunal's decision in Maruti Udyong Ltd. The assessee argued that these were replacements of defective parts, not additions to the asset block. The Tribunal concluded that while CD Rom Drive, Hard disk drive, and RAM are spares and thus revenue expenditure, the Printer, Scanner, and Web Camera are independent devices and capital in nature. Thus, Rs. 86,975/- was allowed as revenue expenditure, and Rs. 31,250/- was confirmed as capital expenditure.

2. Disallowance of Repairs and Maintenance Expenses as Capital in Nature:
The AO disallowed Rs. 1,66,463/- out of Rs. 50,35,444/- claimed for repairs and maintenance, citing expenses for Kandla office renovation and split AC charges as capital in nature. The CIT(A) confirmed this, stating the expenses were for renovation/improvement immediately after leasing the premises. The assessee argued these were revenue expenses for leased premises. The Tribunal allowed Rs. 1,35,613/- for renovation as revenue expenditure but confirmed Rs. 30,850/- for split AC as capital expenditure, allowing only depreciation.

3. Disallowance of Deduction for Amount Receivable from Subsidiary Company:
The assessee claimed Rs. 2,80,31,905/- as bad debts or trading loss, representing deposits to its subsidiary for leased premises. The AO disallowed this, noting the amount was not shown as income. The CIT(A) upheld this, stating the amount was not debited to the P&L account and did not meet conditions under sec. 36(1)(iii). The Tribunal noted the absence of a business transaction or commercial expediency between the assessee and the subsidiary. The deposit was deemed a capital outgo, not business-related, and thus not allowable as a trading loss or business expenditure. The Tribunal referenced the Supreme Court's decision in Goetze (India) Ltd. to assert the jurisdiction of appellate authorities to consider fresh claims. The Tribunal concluded the loss was capital in nature and not allowable.

4. Charging of Interest under Section 220(2):
Interest under section 220(2) is consequential, and no specific finding was required.

Conclusion:
The Tribunal partly allowed the appeal, granting partial relief on computer expenses and repairs while upholding the disallowance of the trading loss and confirming the consequential nature of interest under section 220(2).

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