2013 (6) TMI 22 - AT - Income Tax

Addition on account of payment related to OTS (one Time Settlement) for intention paid to District Coop Banks under Interest subvention scheme - Held that - It is settled principle of law that an item of expenditure or income has to be dealt in accordance with principle of law and not with the accounting treatment given by the assessee in the books of account. See Kedarnath Jute Manufacturing Co. Ltd. V CIT 1971 (8) TMI 10 - SUPREME Court & Sutlej Cotton Mills Limited Versus CIT 1978 (9) TMI 1 - SUPREME Court . As at the same time it is also a fact that scheme as well as calculation of interest etc. was not available before the Assessing Officer - set aside the order of the ld. CIT(A) and restore the matter to the file of AO to decide then issue after going through the documents filed by way of additional evidence. In favour of assessee for statistical purposes. Disallowance of general charges - Held that - This expenditure cannot be treated as revenue expenditure. Money was paid towards extension charges to HUDA for non construction of the building. At best it can be called improvement of asset i.e. the appreciation in the value of land because Bank seems to retain the land without committing the funds towards building to realize appreciation in the land. Nothing wrong with the order of the CIT(A) in confirming additions - against assessee.

Summary

Issues:
1. Addition of Rs. 100,000,000 on account of payment related to OTS under Interest subvention scheme.
2. Disallowance of Rs. 3,000,000 on account of capital expenditure.

Analysis:

Issue 1: Addition related to OTS Scheme
The appellant contested the addition of Rs. 100,000,000 for OTS payment, arguing that it was interest liability on loans to PACS, written off under the Haryana Govt. scheme. The AO noted a discrepancy in the accounting year for this liability based on a bank note. The CIT(A) upheld the AO's decision. The appellant claimed the entire amount as a deduction in the current year due to the scheme's conditions. Citing the Kedarnath Jute case, the appellant argued that accounting treatment is irrelevant if legally allowable. The Tribunal agreed, emphasizing legal provisions over accounting entries. However, as scheme details were not initially provided, the case was remanded to the AO for reevaluation based on the new evidence.

Issue 2: Disallowance of Capital Expenditure
Regarding the disallowance of Rs. 3,000,000 as capital expenditure for non-construction charges, the AO treated it as capital expenditure paid to HUDA. The appellant argued it should be revenue expenditure since it didn't increase capacity. The CIT(A) upheld the capital treatment, considering the payment as an asset improvement for retaining land value. The Tribunal concurred, affirming the capital nature of the expenditure. Consequently, the appeal was partially allowed for statistical purposes.

In conclusion, the Tribunal addressed the issues of OTS scheme payment and capital expenditure, emphasizing legal principles over accounting entries and confirming the capital nature of the disputed expenditure.