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2013 (8) TMI 440 - AT - Income TaxDisallowance u/s 14A - Expenses incurred for earning exempt income - CIT granted partial relief - Held that - The appellant had sufficient own funds and internal accruals to meet its investments. The share capital was 2, 55, 04, 750/- and the set apart as prepaid costs and could not be allowed as expenditure for the year. He arrived the value of such prepaid cost at 4, 93, 170/- and disallowance the same as it was not incurred wholly and exclusively in respect of the business carried on during the year. He also stated that the addition was agreed to by the authorized representative of the assessee - Decided against assessee. Disallowance of repairs and replacements - CIT allowed deduction u/s 37(1) - Held that - repairing and replacing the existing components of portion of the buildings furniture and buildings cannot at all be stated to be of enduring nature but such expenditure would fall in the category of revenue expenditure allowable as deduction under sec.37 of the I.T. Act - Following decision of CIT v. Ooty Dasaprakash 1998 (2) TMI 77 - MADRAS High Court - Decided in favour of assessee. Disallowance of annual maintenance charges - Revenue or capital expenditure - Held that - Disallowed the expenses which pertained to the subsequent period. The rule of taxation rests on the matching principle in which cost incurred to earn revenue is recognized as expense in the period when related revenue is recognized as earned. The A.O. has rightly applied the matching principle and the portion of AMC expenses which does not relate to the maintenance costs for the year was rightly disallowed - Decided against assessee. Deduction under sec. 80IA - CIT granted deduction - Held that - whether initial assessment year in section 80-IA(5) would only mean the year of commencement and not the year of claim ? - Unabsorbed depreciation - Held that - Assessee has been setting off the loss against the income of the company for the earlier years. During the assessment year the assessee exercised the option claim of deduction under section 80-IA of the Act. But the Assessing Officer denied the exemption on the finding that loss or depreciation already allowed and set off against other sources of the income of the assessee has to be notionally carried forward and set off against the current year s income from the units for which the assessee is claiming deduction under section 80-IA. There is no dispute that during the year there is a profit. Therefore the assessee claimed deduction under section 80-IA and the Revenue has no authority to notionally bring forward the unabsorbed depreciation and loss of the earlier year which has been already set off as against the current year profit from the unit - Following decision of Velayudhasamy Spinning Mills P. Ltd v. ACIT 2010 (3) TMI 860 - Madras High Court - Decided in favour of assessee.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules. 2. Disallowance of expenses incurred under the head "repairs and replacements." 3. Disallowance of annual maintenance charges. 4. Disallowance under Explanation to Section 37(1) of the Income Tax Act. 5. Deduction under Section 80IA of the Income Tax Act for the wind energy generator. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules: The Assessing Officer disallowed Rs. 4,37,363/- towards expenses incurred for earning exempt income by applying the provisions of Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules. The Commissioner of Income Tax (Appeals) reduced this disallowance to Rs. 3,58,035/-. The assessee argued that the entire disallowance under Section 14A should be deleted, while the Department supported the order of the Commissioner of Income Tax (Appeals). The Tribunal found no infirmity in the Commissioner's order and confirmed the disallowance of Rs. 3,58,035/-. 2. Disallowance of expenses incurred under the head "repairs and replacements": The Assessing Officer treated the expenditure of Rs. 41,71,198/- on replacement of kitchen utensils, furniture, repairs to buildings, etc., as capital expenditure and allowed depreciation instead of treating it as a revenue expenditure under Section 37(1) of the Income Tax Act. The Commissioner of Income Tax (Appeals) confirmed this treatment. The assessee contended that these expenses were necessary for the day-to-day running of the hospitality business and should be treated as revenue expenditure. The Tribunal referred to the decision of the Hon'ble Madras High Court in CIT v. Ooty Dasaprakash (237 ITR 902), which held that such expenses are revenue in nature. Consequently, the Tribunal allowed the assessee's appeal on this issue, treating the expenditure as revenue expenditure. 3. Disallowance of annual maintenance charges: The Assessing Officer disallowed Rs. 4,93,170/- of annual maintenance charges, stating that the expenses were not incurred wholly and exclusively for the business of the assessee for the year. The Commissioner of Income Tax (Appeals) confirmed this disallowance, applying the matching principle. The Tribunal found no reason to interfere with the Commissioner's findings, especially since the Authorised Representative of the assessee had agreed to the disallowance during the assessment proceedings. Hence, the Tribunal dismissed the grounds raised by the assessee on this issue. 4. Disallowance under Explanation to Section 37(1) of the Income Tax Act: The assessee did not press this ground during the hearing, and accordingly, the Tribunal dismissed this ground as not pressed. 5. Deduction under Section 80IA of the Income Tax Act for the wind energy generator: The Assessing Officer denied the deduction under Section 80IA for the wind energy generator at Udumalpet. The Commissioner of Income Tax (Appeals) allowed the deduction following the decision of the Hon'ble Jurisdictional High Court in Velayudaswamy Spinning Mills Pvt. Ltd. v. ACIT (340 ITR 477), but with certain directions regarding unabsorbed depreciation and loss. The Department appealed against the allowance of the deduction, and the assessee appealed against the directions given. The Tribunal upheld the Commissioner's decision, finding no infirmity in the directions given. Thus, the Tribunal rejected the grounds raised by both the assessee and the Department on this issue. Conclusion: The assessee's appeal was partly allowed, and the Department's appeal was dismissed. The Tribunal confirmed the disallowance under Section 14A, allowed the expenses on repairs and replacements as revenue expenditure, upheld the disallowance of annual maintenance charges, and confirmed the deduction under Section 80IA with the directions given by the Commissioner of Income Tax (Appeals).
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