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2014 (9) TMI 350 - AT - Income TaxVarious expenses disallowed - Travelling expenses, Professional charges, Telephone expenses and other expenses Held that - Following the decision in M/s. Graham Firth Steel Products (I) Ltd. 2014 (9) TMI 294 - ITAT MUMBAI - The assessee company had made bonafide efforts to revive its business which is supported by the fact that the BIFR sanctioned the rehabilitation scheme - the assessee company commenced its activities in subsequent years and has achieved substantial turnover which go to prove that the assessee never intended to windup its activity - it can be said that there were only a temporary lull in the business the order of the CIT(A) is upheld Decided against revenue. Computation of book profits u/s 115JB Held that - For the determination of income u/s. 115JB, no adjustment can be carried out except those specifically required to in the section relying upon Apollo Tyres Ltd. VS CIT 2002 (5) TMI 5 - SUPREME Court - while determining the income u/s. 115JB, the computation has to start from the book profit as shown in the P&L account prepared in accordance with the provisions of Part-II and III of Schedule VI of the Companies Act, 1956 and as reduced by the adjustments as specified in the section - the AO is bound to make only such adjustments as has been specified in the said section to arrive at a MAT income the order of the CIT(A) is upheld Decided against revenue. Depreciation of goodwill disallowed Held that - As decided in assessee s own case for the for the earlier assessment year, it has been held that the claim of depreciation holding that the assets said to have been put to use as the claim of depreciation allowed in earlier years and there are no different facts during the year under consideration, the depreciation on assets is directed to be allowed following the decision in Commissioner of Income Tax, Kolkata Versus Smifs Securities Ltd. 2012 (8) TMI 713 - SUPREME COURT - goodwill is an asset eligible for depreciation - the AO is directed to allow the claim of depreciation on goodwill Decided in favour of assessee. Treatment of surplus on reorganization/demerger Held that - Following the decision in Commissioner of Income Tax. Central-I Versus M/s. Pruthvi Brokers & Shareholders Pvt. Ltd. 2012 (7) TMI 158 - BOMBAY HIGH COURT merely dealing with such waiver with the assessee in its books of account could not alter the effect of the order of BIFR - No remission or cessation of liability towards interest nor the assessee became entitled to waiver of interest therefore Sec. 41(1) could not be invoked to at a waived amount - under section 41(1) remission can be only by an act of creditor and cessation of liability can come by agreement or by law - the liability was reduced under the scheme of BIFR and the assessee has not enjoyed any actual benefit of remission of liability in the nature of trading - CIT(A) has erred in confirming the findings of the AO thus, the order of the CIT(A) is set aside and the AO is directed to allow the claim of deduction in respect of the waiver of loan Decided partly in favour of assessee.
Issues Involved:
1. Verification and allowance of various expenses (travelling, professional charges, telephone, and other expenses) incurred by the assessee. 2. Computation of book profit under Section 115JB of the Income Tax Act. 3. Disallowance of conveyance expenses. 4. Disallowance of depreciation, including depreciation on goodwill. 5. Treatment of surplus on reorganization/demerger as taxable income. Issue-wise Detailed Analysis: 1. Verification and Allowance of Various Expenses: The Revenue appealed against the CIT(A)'s decision to direct the Assessing Officer (AO) to verify and allow the assessee's claims for travelling expenses (Rs. 2,39,729), professional charges (Rs. 9,93,354), telephone expenses (Rs. 97,630), and other expenses (Rs. 26,74,830). The assessee, a company declared as a sick unit under BIFR, had incurred these expenses during a period when it was not conducting active business but was preparing for revival. The AO disallowed these expenses, arguing that the company was defunct and not carrying on any business activity. However, the CIT(A) found that these expenses were necessary for the survival and revival of the company and directed the AO to verify and allow the claims accordingly. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were incurred to sustain the company during a temporary lull in business and were thus allowable under Section 37(1) of the Income Tax Act. 2. Computation of Book Profit Under Section 115JB: The Revenue also contested the CIT(A)'s direction to the AO to make only specific adjustments in computing book profit under Section 115JB. The CIT(A) had accepted the assessee's contention that no adjustments other than those specified in Section 115JB should be made, in line with the Supreme Court's decision in Apollo Tyres Ltd. v. CIT. The Tribunal affirmed the CIT(A)'s decision, stating that the AO is bound to make only the adjustments specified in Section 115JB to arrive at the Minimum Alternate Tax (MAT) income. 3. Disallowance of Conveyance Expenses: The assessee appealed against the CIT(A)'s decision to uphold the disallowance of conveyance expenses amounting to Rs. 1,31,999. The Tribunal, following its earlier decisions for the assessment years 2004-05 and 2005-06, directed the AO to allow the claim for conveyance expenses, noting that similar expenses had been allowed in previous years under similar circumstances. 4. Disallowance of Depreciation, Including Depreciation on Goodwill: The assessee also challenged the disallowance of depreciation amounting to Rs. 74,04,808, which included depreciation on goodwill (Rs. 69,26,452). The AO had disallowed the depreciation, arguing that the assets were not used for business purposes during the year and that goodwill is not eligible for depreciation under Section 32(1)(ii). The CIT(A) upheld the AO's decision. However, the Tribunal, referring to its earlier decisions and the Supreme Court's ruling in CIT v. Smifs Securities Ltd., allowed the claim for depreciation, including on goodwill, stating that the assets were ready for use and goodwill is an asset eligible for depreciation. 5. Treatment of Surplus on Reorganization/Demerger as Taxable Income: The assessee contested the CIT(A)'s decision to treat the surplus on reorganization/demerger (Rs. 19,43,73,928) as taxable income. This surplus included Rs. 8,36,99,463 from the waiver of the principal amount of a loan and Rs. 11,07,74,465 from an increase in the value of land hived off. The AO had rejected the assessee's claim for additional deductions, arguing that such claims must be made through a revised return, as held by the Supreme Court in Goetz (India) Ltd. v. CIT. The CIT(A) upheld the AO's decision. The Tribunal, however, held that the appellate authorities are not restricted by the Goetz ruling and can entertain such claims. On merits, the Tribunal found that the waiver of the principal loan amount was a capital receipt and not taxable. The Tribunal directed the AO to allow the deduction for the waiver of the loan amount. The issue of the increase in the value of land was remanded to the CIT(A) for adjudication in light of Section 47(vi) of the Income Tax Act. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes, directing the AO and CIT(A) to verify and allow the claims as specified. The Tribunal upheld the CIT(A)'s directions regarding the computation of book profit under Section 115JB and allowed the claims for conveyance expenses, depreciation, and the waiver of the principal loan amount, while remanding the issue of the increase in the value of land to the CIT(A).
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