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2014 (10) TMI 658 - AT - Income TaxClassification of expenses Capital or revenue expenses - expenses on conversion of WBM Road into Concrete Road Held that - The road is provided for enduring benefit to assessee Expenditure incurred on repair of roads by appellant is revenue expenditure and allowable u/s 37 following the decision in CIT vs. Pandian Chemicals Ltd. 1997 (4) TMI 38 - MADRAS High Court - the road within the factory premises should be treated as a part of the building and the assessee shall accordingly be eligible to depreciation. Expenditure though may be for enduring benefit if incurred for augmenting revenue generating apparatus of the assessee s business is to be allowed as a Revenue expenditure - the assessee s premises is involved with huge and heavy vehicle traffic movement and having the proper road and its maintenance will increase the efficiency of movement of raw materials as well as clearance of finished goods the order of the CIT(A) is upheld Decided against revenue. Enhanced depreciation on guest house Held that - The harmonious construction of these two sections makes it clear that for the purpose of depreciation, the WDV means actual cost of the asset as reduced by the depreciation actually allowed in the past - even though depreciation was claimed by the assessee during the AYs 1986-87 to AYs 1997-98, it was not allowed in view of provision of Section 37 (4) of the I.T. Act - Since no depreciation was actually allowed to the assessee, the WDV for this year has to be enhanced by an amount of depreciation, which was claimed by the assessee in the past but not allowed by the Department relying upon Smt. Laxmi vs. DCIT 2006 (2) TMI 60 - HIGH COURT, KERALA Decided against revenue. Non-inclusion of Excise Duty in the closing stock u/s 145A Held that - Statutory auditors have certified that even though provision for Excise Duty has not been made on closing stock, it has no impact on profit for year - assessee also explained before AO that in any case the entire amount of Excise Duty on closing stock was duly paid before due date of filing of return - assessee valued its closing stock as per consistently followed practice of excluding the Excise Duty element of valuation of closing stock, it has no effect on the profit and loss a/c - Besides closing outstanding Excise Duty amount as on 31-03-2000 has been duly paid before the due date of filing of return of income u/s 139(1) - Copy of the challan evidencing payment of Excise Duty was produced before AO - the corresponding debit of Excise Duty of an identical amount to the profit and loss account shall be deductible in view of the provisions of Section 43B of the Act read with first proviso thereto - the order of CIT(A) is upheld Decided against revenue.
Issues Involved:
1. Classification of expenditure for conversion of WBM Road into Concrete Road as revenue or capital expenditure. 2. Allowability of depreciation on Guest House. 3. Inclusion of Excise Duty in the closing stock valuation. 4. Computation of book profit under section 115JA concerning interest and other expenses. 5. Deletion of addition related to Long-term capital loss due to acceptance of additional evidence. 6. Restriction of disallowance on expenses incurred for gifts. Detailed Analysis: Issue 1: Classification of Expenditure for Conversion of WBM Road into Concrete Road The Revenue contested the allowance of Rs. 32,08,085/- as revenue expenditure for converting WBM Road into a Concrete Road, asserting it should be treated as capital expenditure. The Revenue cited CIT vs. Pandian Chemicals Ltd. and Dallmiya Jain (P) Ltd. vs. CIT to support their claim. The assessee argued that no new asset was created as the road already existed and the conversion was for operational efficiency, citing Empire Jute Co. Ltd. vs. CIT. The CIT(A) allowed the expenditure as revenue, emphasizing that the conversion facilitated trading operations without creating a new asset. The Tribunal upheld this view, agreeing that the expenditure was for improving the efficiency of existing operations and did not result in a new asset, thus qualifying as revenue expenditure. Issue 2: Allowability of Depreciation on Guest House The Revenue challenged the deletion of Rs. 1,20,522/- added by the AO for depreciation on the Guest House, referencing CIT vs. Ponni Sugar & Chemicals Ltd. and Britannia Industries Ltd. vs. CIT. The assessee had increased the WDV in the revised return due to disallowed depreciation in previous years. The CIT(A) allowed the claim, interpreting Sections 32 and 43(6)(c)(ii) to mean that WDV should be adjusted by the depreciation actually allowed in the past. The Tribunal upheld this interpretation, confirming that the depreciation should be based on the actual cost reduced by the depreciation allowed in past assessments. Issue 3: Inclusion of Excise Duty in Closing Stock Valuation The AO included Rs. 68,09,000/- of Excise Duty in the closing stock valuation, citing CIT vs. British Paints India Ltd.. The assessee argued that excluding Excise Duty was a consistent practice and had no impact on profits, and that the duty was paid before the return filing due date. The CIT(A) deleted the addition, noting that the statutory auditors certified no impact on profit and the duty was paid timely. The Tribunal upheld this decision, agreeing that the payment of Excise Duty before the due date made the addition unnecessary under Section 43B. Issue 4: Computation of Book Profit under Section 115JA The AO disallowed Rs. 1,37,45,680/- related to interest and expenses for earning exempt income, citing Section 14A and various judicial precedents. The assessee argued that investments were made from surplus funds and not borrowed, and expenses were for secretarial services, not investments. The CIT(A) deleted the disallowance, stating there was no evidence of borrowed funds being used for exempt income and that Section 14A applies only to actual expenses. The Tribunal upheld this view, noting the lack of evidence for the AO's claims and supporting the CIT(A)'s reliance on relevant case law. Issue 5: Deletion of Addition Related to Long-term Capital Loss The Revenue argued that the CIT(A) accepted additional evidence without giving the AO an opportunity to review it, violating Rule 46A. The Tribunal dismissed this ground, noting no reference to additional evidence in the appellate order, indicating no procedural violation. Issue 6: Restriction of Disallowance on Expenses Incurred for Gifts The AO disallowed Rs. 3,04,225/- for gifts, arguing they were not related to business. The CIT(A) reduced the disallowance to Rs. 1,00,000/-, referencing a prior ITAT order for the same assessee. The Tribunal upheld this decision, noting the consistency with the previous year's treatment and the lack of dispute over the nature of the gifts. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues, emphasizing the correct application of legal principles and consistency with judicial precedents. The order was pronounced on 17-10-2014.
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