2013 (11) TMI 1241 - AT - Income Tax

Expenditure incurred on rural development - Held that - AO directed to allow the expenditure of ₹ 5,85,508/- incurred on rural development. - Decided in favor of assessee. Expenses incurred on buy back of shares, claimed as revenue expense - Held that - The fact that the expenditure is of revenue nature has not been disputed by the CIT(A), who has disallowed the same because according to the CIT(A), there were no cogent reasons - AO directed to allow the expenses. - Decided in favor of assessee.

Issues Involved:
1. Disallowance of rural development expenditure.
2. Disallowance of depreciation on roll-over charges.
3. Disallowance of depreciation on goodwill.
4. Treatment of expenses incurred for buy-back of shares.
5. Treatment of debenture issue expenditure.
6. Deduction under section 36(1)(iii) for interest on loans.
7. Exclusion of sales tax exemption benefit from taxable profits.
8. Deletion of addition under section 40A(9).
9. Deletion of addition under section 14A.
10. Deletion of disallowance of premium on pre-redemption of debentures.
11. Treatment of expenditure on acquisition of marketing and technical know-how.
12. Deduction under section 80HHC from MAT income.
13. Charge of interest under section 234D.
14. Computation of deduction under section 80HHC for MAT provisions.

Issue-wise Detailed Analysis:

1. Disallowance of Rural Development Expenditure:
The assessee's appeal for the disallowance of Rs. 5,85,508/- incurred on rural development was allowed. The ITAT followed previous decisions in the assessee's own case, directing the AO to allow the expenditure.

2. Disallowance of Depreciation on Roll-Over Charges:
The issue was rejected as infructuous since the expenditure had already been allowed as revenue expenditure in previous years.

3. Disallowance of Depreciation on Goodwill:
The ITAT allowed the claim of depreciation on goodwill, relying on the Supreme Court decision in CIT vs. Smifs Securities Ltd., which held that depreciation on goodwill should be allowed.

4. Treatment of Expenses Incurred for Buy-Back of Shares:
The ITAT allowed the entire expenditure of Rs. 98,69,185/- incurred on the buy-back of shares as revenue expenditure, following the Bombay High Court decision in CIT vs. Hindalco Industries Ltd.

5. Treatment of Debenture Issue Expenditure:
The alternative grounds related to debenture issue expenditure were rejected as not pressed since the expenses had been allowed as revenue expenditure or under section 35D.

6. Deduction under Section 36(1)(iii) for Interest on Loans:
The alternative ground for depreciation on interest capitalization was rejected as infructuous since the expenses had been allowed under section 36(1)(iii).

7. Exclusion of Sales Tax Exemption Benefit from Taxable Profits:
The additional ground for excluding sales tax exemption benefit from taxable profits was admitted and restored to the AO for adjudication as per law.

8. Deletion of Addition under Section 40A(9):
The ITAT sustained the CIT(A)'s order allowing the expenditure of Rs. 16,66,132/- paid to a school, following previous decisions in the assessee's own case.

9. Deletion of Addition under Section 14A:
The ITAT allowed the disallowance made by the AO at 1% of exempt income, reversing the CIT(A)'s deletion.

10. Deletion of Disallowance of Premium on Pre-Redemption of Debentures:
The ITAT sustained the CIT(A)'s order allowing the entire premium expenditure on pre-redemption of debentures, following the decision in ACIT vs. Grind Well Norton Ltd.

11. Treatment of Expenditure on Acquisition of Marketing and Technical Know-How:
The ITAT sustained the CIT(A)'s order treating the expenditure on marketing and technical know-how as revenue expenditure.

12. Deduction under Section 80HHC from MAT Income:
The ITAT restored the issue of deduction under section 80HHC from MAT income to the AO for recomputation as per the Supreme Court decision in CIT vs. Bhari Information Tech. Sys. P. Ltd.

13. Charge of Interest under Section 234D:
The ITAT directed the AO to recompute the interest under section 234D as per law and the Bombay High Court decision in Indian Oil Corp.

14. Computation of Deduction under Section 80HHC for MAT Provisions:
The additional ground for computation of deduction under section 80HHC ignoring subsection (1B) was restored to the AO for adjudication, while another additional ground on the same issue was rejected as it did not emanate from the impugned order.

Summary of Results:
- Assessee's appeals in ITA 5421/Mum/2005 and ITA 5422/Mum/2005 were partly allowed.
- Revenue's appeals in ITA 5561/Mum/2005 and ITA 5530/Mum/2005 were partly allowed.

Order Pronounced:
The order was pronounced in the open court on 9th October 2013.

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