2013 (3) TMI 146 - AT - Income Tax

Monetary limit for filing an appeal before ITAT - revenue appeal - tax effect - nstruction No. 3/2011 issued on 09.02.2011 - held that - At the time of hearing, ld. D.R. could not point out any exceptions mentioned in abovenoted circular in which the assessee s case falls. Therefore, the Departmental appeal cannot be admitted. - Revenue s appeal dismissed. Bad Debts - Money lending business - held that - the assessee s contention of money lending has consistently been accepted by the Department and, therefore, in the absence of new facts being brought on record, on principle and consistency assessee s claim was rightly accepted by ld. CIT(Appeals). Nursery expenses - revenue or capital expenses - held that - the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted, has to be allowed provided such an area was not previously abandoned. - Decided in favor of assessee. Additional Depreciation - The assessee had advanced its claim on the ground that since assessee s income was to be computed as per Rule 8 of the Income Tax Rules and 40% of the income was to be treated as income from business or profession, therefore, depreciation only to the extent of 40% was to be treated as actually allowed and to the extent the income was treated as agricultural income by virtue of the same being exempt, depreciation could not be deemed to have been actually allowed to the assessee for earning the agricultural income. - held that - The Explanation has been inserted by Finance (No.2) Act w.e.f. 2009. It creates a deeming fiction affecting substantive computation provision determining actual tax liability. Therefore, ld. CIT(Appeals) has rightly treated it to be prospective. - Decided in favor of assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Tax effect below the prescribed monetary limits.
3. Income from money lending and share trading business.
4. Disallowance of nursery expenses.
5. Additional depreciation claim.
6. Bad debt disallowance.
7. Treatment of bad debts recovered.
8. Disallowance under section 14A.
9. Interest charged under section 234A.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
The appeals filed by the Revenue were time-barred by 138 days. The delay was attributed to administrative exigencies, as detailed in the affidavits submitted by Shri P.B. Pramanik, DCIT. The Tribunal condoned the delay considering the reasons provided and proceeded to decide the appeals on merit.

2. Tax Effect Below Prescribed Monetary Limits:
The tax effect in the appeal was Rs. 2,00,593.94, which is below the prescribed monetary limits for filing appeals before ITAT as per CBDT Instruction No. 3/2011. Consequently, the Departmental appeal was dismissed as it did not meet the monetary threshold.

3. Income from Money Lending and Share Trading Business:
The Assessing Officer (AO) had rejected the assessee's claim of carrying on money lending business, treating the interest income as income from other sources. The CIT(A) observed that the assessee had consistently been treated as engaged in money lending and share trading business in previous years. The Tribunal upheld the CIT(A)'s decision, noting that the Department had accepted the assessee's position in prior assessments and no new facts were brought on record to deviate from this stance.

4. Disallowance of Nursery Expenses:
The AO disallowed Rs. 2,37,926/- incurred towards the maintenance of nurseries, treating it as capital expenditure. The CIT(A) deleted the addition, following the ITAT decision in a similar case. The Tribunal upheld the CIT(A)'s decision, citing precedents where such expenses were treated as revenue expenditure.

5. Additional Depreciation Claim:
The assessee claimed additional depreciation by adjusting the opening WDV of block assets, arguing that only 40% of depreciation was allowed in each year due to the agricultural income exemption. The AO rejected this claim, relying on Explanation 7 to section 43(6) inserted by the Finance Act, 2009, which was deemed prospective. The CIT(A) allowed the assessee's claim, and the Tribunal upheld this decision, agreeing that the explanation should not be applied retrospectively.

6. Bad Debt Disallowance:
The AO disallowed Rs. 21,13,824/- written off as bad debts, considering it a provision rather than an actual write-off. The CIT(A) allowed the claim, noting that post-amendment of section 36(1)(vii), any bad debt written off in the accounts must be allowed. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in TRF Limited that a write-off in the books suffices for deduction.

7. Treatment of Bad Debts Recovered:
The AO included Rs. 10,67,500/- of bad debts recovered as part of composite income from tea business. The CIT(A) directed that this amount be treated as income from money lending business. The Tribunal confirmed this, noting that the recovery was unrelated to the tea business and should not form part of composite income.

8. Disallowance under Section 14A:
The AO applied Rule 8D to disallow Rs. 3,30,080/- for expenses related to exempt income. The CIT(A) restricted the disallowance to Rs. 1,39,927/-. The Tribunal upheld this decision, noting that Rule 8D was not applicable for the assessment year 2007-08, as per the Bombay High Court's decision in Godrej Boycee Mfg. Co. Ltd.

9. Interest Charged under Section 234A:
The CIT(A) deleted the interest charged under section 234A, observing that the return was filed within the due date. The Tribunal upheld this finding, as the Revenue did not provide evidence to the contrary.

Conclusion:
Both appeals filed by the Revenue were dismissed, with the Tribunal upholding the CIT(A)'s decisions on all issues.