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2015 (7) TMI 906 - AT - Income Tax


Issues Involved:
1. Provision for Bad Advances
2. Alleged Directors' Excess Remuneration
3. Depreciation on Expenditure Treated as Revenue Expenditure

Issue 1: Provision for Bad Advances:
The appellant challenged the order confirming the disallowance of a provision made for doubtful advance for software upgradation. The AO considered the expenditure as capital instead of revenue, leading to the addition of the amount to the income. The CIT(A) upheld this decision, stating the software was a capital asset. However, the ITAT disagreed, citing precedents where advance payments for revenue purposes were allowed as business losses. Following these judgments, the ITAT ruled in favor of the appellant, allowing the expenditure as revenue.

Issue 2: Alleged Directors' Excess Remuneration:
The AO disallowed excess remuneration paid to directors, citing non-compliance with the Companies Act limits. The CIT(A) affirmed this decision, stating the excess remuneration was not allowable under Section 37(1) of the Act. However, the ITAT found that the Central Government had approved the excess remuneration, complying with the Companies Act. Consequently, the ITAT reversed the CIT(A)'s decision, ruling in favor of the appellant regarding the excess remuneration.

Issue 3: Depreciation on Expenditure Treated as Revenue Expenditure:
The appellant disputed the AO's disallowance of depreciation on revenue expenses treated as capital in previous years. The FAA rejected the claim due to lack of evidence and appropriate submissions. The ITAT remitted the issue back to the AO for fresh adjudication, emphasizing the need to allow depreciation if capitalization and depreciation were previously permitted. The ITAT directed the AO to provide a fair hearing to the appellant. Thus, the ITAT partially favored the appellant on this issue.

In conclusion, the ITAT's judgment favored the appellant on the provision for bad advances and the alleged directors' excess remuneration issues. However, regarding the depreciation on expenditure treated as revenue expenditure, the ITAT remitted the issue back to the AO for further consideration.

 

 

 

 

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