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2014 (5) TMI 35 - AT - Income TaxDisallowance of depreciation on goodwill Held that - The decision in CIT vs Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT followed - Explanation 3 states that the expression asset shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature - A reading the words any other business or commercial rights of similar nature in clause (b) of Explanation 3 indicates that goodwill would fall under the expression any other business or commercial right of a similar nature Decided in favour of Assessee. Disallowance of gratuity payment Held that - The issue is now approved by the CIT as per the letter of approval appended in the APB thus, the assessee s prayer for allowance of the gratuity payment is allowed the order of the CIT(A) set aside Decided in favour of Assessee. Disallowance u/s 14A of the Act Held that - The decision in M/s Just Dial Private Limited Versus Dy. CIT 9(2), Mumbai 2013 (12) TMI 770 - ITAT MUMBAI followed - the application of Rule 8D is w.e.f. assessment year 2008-09 as per the decision of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT, 2010 (8) TMI 77 - BOMBAY HIGH COURT - the matter has been remitted back to the AO for fresh adjudication in the subsequent assessment year Decided in favour of Assessee. Taxability of income - Income from publication in yellow pages Held that - The revenue is to be booked when the work is completed - the work undertaken gets spilled over in the next year, wherein, the assessee books its revenue & declares it - if the orders of the revenue authorities are to be sustained, the department will have a revenue gain, because, the AO has not made any adjustment to the income pertaining to the preceding year and has been booked in the current year - In effect, the assessee is being taxed for the preceding year, and as per the orders, for the current year as well - to keep the consistent approach and most importantly there being no revenue loss, the view of the revenue cannot be accepted thus, the order of the CIT(A) set aside and the AO is directed to delete the addition Decided in favour of Assessee. Disallowance of renovation and civil expenses Held that - The premises renovated did not belong to the assessee and the assessee incurred expenses, to design the premises to a condition for its use - Since the premises are leased, the lessee always have an option to remove the alternations done by him/it, because he has to return the premises, at the end of tenor in the same condition, as it was taken - the licensee is authorized to remove all its renovations at the time of vacation or it can ask the licensor to take the same - the repairs and renovations are done only for the period of stay/tenor, which may be short or long, it cannot be said to giving an enduring benefit to the assessee - the expenditure incurred by the assessee on repairs and renovations are allowable expenses the order of the CIT(A) set aside and the AO is directed to delete the addition Decided in favour of Assessee. Disallowance of franchise termination compensation Held that - There is an agreement for termination, but the amount as claimed is at variance, because as per the orders, the amount paid aggregates to ₹ 19,50,000/- and not ₹ 18,50,000 thus, the matter is remitted back to the AO for fresh for the issue of payment of termination compensation of ₹ 18,50,000 Decided in favour of Assessee.
Issues Involved:
1. Opportunity of being heard 2. Consideration of written submissions and evidence 3. Income determination from publication in yellow pages 4. Depreciation on goodwill 5. Disallowance of gratuity payment 6. Disallowance under Section 14A of the IT Act 7. Disallowance of renovation and civil expenses 8. Disallowance of fees paid to Registrar of Companies 9. Disallowance of franchise termination compensation 10. Interest charged under Section 234B of the IT Act 11. Interest charged under Section 234C of the IT Act Detailed Analysis: 1. Opportunity of being heard The assessee claimed that the CIT(A) erred in disposing of the appeal without giving a full and proper opportunity of being heard. However, this ground was not pressed during the hearing and was subsequently rejected. 2. Consideration of written submissions and evidence Similar to the first issue, the assessee argued that the CIT(A) did not fully and properly consider the written submissions and evidence. This ground was also not pressed and was rejected. 3. Income determination from publication in yellow pages The assessee contended that the CIT(A) erred in determining the income from publication in yellow pages at Rs. 9,13,635/- for the year under consideration. The ITAT found that the assessee's method of deferring revenue recognition to the subsequent year was consistent and had been accepted by the department in previous years. The ITAT set aside the CIT(A)'s order and directed the AO to delete the addition, accepting the assessee's method of accounting. 4. Depreciation on goodwill The AR submitted that the issue of depreciation on goodwill was covered by the Supreme Court's decision in CIT vs Smifs Securities Ltd (348 ITR 302). The ITAT agreed and allowed the claim of depreciation on goodwill, setting aside the CIT(A)'s order. 5. Disallowance of gratuity payment The AR argued that the disallowance of gratuity payment of Rs. 13,08,005/- was incorrect as the approval for the same had been accorded by the concerned CIT after the impugned order was passed. The ITAT accepted this and directed the AO to allow the expense, setting aside the CIT(A)'s order. 6. Disallowance under Section 14A of the IT Act The ITAT noted that the issue of disallowance under Section 14A was restored to the AO in a subsequent assessment year. To maintain consistency, the ITAT restored the issue to the AO to compute a reasonable disallowance without invoking Rule 8D, allowing the ground for statistical purposes. 7. Disallowance of renovation and civil expenses The assessee argued that the renovation expenses of Rs. 38,56,361/- on leased premises should be treated as revenue expenditure. The ITAT agreed, citing various case laws that supported the claim that such expenses on leased premises are allowable as revenue expenditure. The ITAT set aside the CIT(A)'s order and directed the AO to delete the addition. 8. Disallowance of fees paid to Registrar of Companies This ground was not pressed during the hearing and was subsequently rejected. 9. Disallowance of franchise termination compensation The assessee contended that the disallowance of Rs. 18,50,000/- paid as franchise termination compensation was incorrect. The ITAT found discrepancies in the amounts and directed the AO to re-examine the issue afresh, considering the evidence and agreements provided. The ground was allowed for statistical purposes. 10. Interest charged under Section 234B of the IT Act This ground was not pressed during the hearing and was subsequently rejected. 11. Interest charged under Section 234C of the IT Act This ground was also not pressed during the hearing and was subsequently rejected. Conclusion: The appeal filed by the assessee was partly allowed. The ITAT provided relief on several grounds, including depreciation on goodwill, gratuity payment, renovation expenses, and income determination from publication in yellow pages. Other grounds were either not pressed or restored to the AO for further examination. The judgment emphasized consistency in accounting methods and adherence to legal precedents.
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