2015 (1) TMI 737 - AT - Income Tax

Addition/disallowance on account of pay channel expenses - Held that - The dispute arose when the AO noticed that the assessee had sold its business w.e.f. 1.8.2007 and the AO disallowed proportionate amount i.e. 1/5th of actual expenditure estimate related to August 2007 without bringing out any other adverse fact or material. In the present case undisputedly during FY 2007-08 the sale of business of the assessee was in process and there cannot be a cut off date of expenditure if expenditure has been incurred for the purpose of business and the same cannot be recovered from the purchaser of the business then the claim of the assessee cannot be disallowed on proportionate and estimate basis and the same is allowable u/s 37 of the Act. Hence we are of the view that the AO was not justified in making part disallowance in this regard and the CIT(A) was not justified in upholding the same. - Decided in favour of assessee. Interest on advance given - CIT(A) deleted the addition - Held that - AO made addition by taking a hypothetical approach and without any basis which was rightly deleted by the CIT(A) on the basis of conclusion arrived after logical analysis of the details evidence and submissions of the assessee. The probability or improbability of realisation has to be seen and considered in a realistic manner and no addition can be made in this regard without bringing out the fact that the interest really accrued to the assessee. - Decided against revenue. Channel placement income - CIT(A) deleted the addition - Held that - Income tax cannot be levied on hypothetical income. As per taxation jurisprudence income accrues when it becomes due but also be supported by a corresponding liability of the other party (s) to pay the amount only then for the purpose of taxability it can be said that income is not hypothetical and it has really accrued to the assessee. In the present case the revenue authorities below miserably failed to substantiate this fact that the assessee actually earned income from channel placement and the same was accrued to the assessee company during financial year under consideration. Accordingly we are inclined to hold that the AO made addition without any basis which was rightly deleted by the CIT(A).- Decided against revenue. Disallowance of provision for expenses - CIT(A) deleted the addition - Held that -AO misinterpreted the accounting details of payment of salary made by the assessee company to its staff. The assessee company made provision of 17 lakh which was utilized for making payment to the staff and the amount of payment made by the assessee from 30.06.2008 to 30.09.2008 was 17, 03, 030/- and the same fact has not been disputed by the DR. Accordingly the CIT(A) was right in deleting the disallowance and addition made on this issue and we are inclined to hold that there is no ambiguity or perversity in the impugned order and we uphold the same.- Decided against revenue.

Issues Involved:
1. Disallowance of pay channel expenses.
2. Addition on account of interest on advance to DLF Ltd.
3. Addition on account of channel placement income.
4. Disallowance of provision for expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Pay Channel Expenses:
The assessee contested the disallowance of Rs. 20,08,375/- on account of pay channel expenses. The CIT(A) upheld the disallowance, reasoning that since the business was sold w.e.f. 01.08.2007, the pay channel expenses for August could not be allowed in the hands of the appellant as the income for this period was shown in the hands of Regent Communications. The Tribunal observed that the assessee incurred Rs. 1,00,41,877/- during FY 2007-08 for business purposes and the expenditure could not be disallowed on a proportionate and estimate basis. The Tribunal directed the AO to delete the disallowance and addition, allowing the assessee's appeal.

2. Addition on Account of Interest on Advance to DLF Ltd.:
The revenue challenged the deletion of Rs. 25,76,282/- added by the AO as notional interest on advances given to DLF Ltd. The CIT(A) held that the assessee did not advance the amount out of interest-bearing funds but from services rendered to DLF Ltd. The Tribunal upheld the CIT(A)'s decision, noting that no adverse material was brought by the revenue to show a nexus between the unsecured loan and the amount due for services. The Tribunal cited the Supreme Court's decision in CIT vs Excel Industries Ltd., emphasizing that hypothetical income cannot be taxed, and dismissed the revenue's appeal.

3. Addition on Account of Channel Placement Income:
The revenue argued that the AO was justified in adding Rs. 24,68,372/- as channel placement income not disclosed by the assessee. The CIT(A) deleted the addition, noting that the assessee did not receive any income from channel placement during the year. The Tribunal found that the AO's addition was based on conjectures without any factual basis. It reiterated that income tax cannot be levied on hypothetical income and upheld the CIT(A)'s deletion of the addition, dismissing the revenue's appeal.

4. Disallowance of Provision for Expenses:
The revenue contested the deletion of Rs. 17,00,000/- disallowed by the AO as an unascertained liability. The CIT(A) found that the provision was made for staff salary, which was an ascertained liability and allowable as revenue expenditure. The Tribunal agreed with the CIT(A)'s observation that the provision was properly utilized for salary payments, and there was no ambiguity in the accounting entries. The Tribunal upheld the CIT(A)'s deletion of the disallowance, dismissing the revenue's appeal.

Conclusion:
The Tribunal allowed the assessee's appeal regarding the disallowance of pay channel expenses and dismissed the revenue's appeal on all grounds, upholding the CIT(A)'s decisions on the issues of interest on advance to DLF Ltd., channel placement income, and provision for expenses.

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