2015 (10) TMI 1769 - HC - Income Tax

Denial of expenditure incurred in computation of income of the appellant-assessee - Tribunal denied the expenditure solely on the ground that the business activities are closed in view of the transfer of cement factory, plant and machinery - Held that - As per the agreement, the assessee has to fulfill other obligations, for which they have to incur expenditure and these are the revenue expenditure. Hence, the assessee is entitled for deduction in respect of expenditure incurred in relation to transfer of plant and machinery to M/s. MCL. As stated earlier, the Assessing Officer has accepted the expenditure for the assessment year 2004-05 and 2006-07. - Decided in favour of assessee. Disallowance of deduction on royalty expenditure - Held that - The assessee has not produced any documents to show that they have paid royalty during the assessment year 2002-03. As per the agreement of sale entered into between the assessee and M/s. MCL, by executing the irrevocable power of attorney, mining lease was allowed to operate. In fact, the MCL themselves have admitted that the first payment of royalty for mining was made on 2-9-2000 itself. In the absence of any material with regard to expenditure on royalty, all the authorities concurrently held that the assessee has not incurred any expenditure in respect of royalty. Hence, the assessee is not entitled for the deduction towards royalty. - Decided in favour of the Revenue. Denial of setting off of unabsorbed depreciation against the income - Held that - The Hon ble Supreme Court in a judgment reported in (CIT v. Jaipuria Chaina Clay Mines (P) Limited 1965 (11) TMI 32 - SUPREME Court held that unabsorbed depreciation can be carried forward and would be set-off even against the profit under the head other than the business income . Hence, we are of the opinion that the assessee is entitled to carry forward the unabsorbed depreciation and set-off. - Decided in favour of the assessee. Expenditure on maintenance of corporate office - whether is not deductible from the income of written back - Held that - The Revenue has not challenged the deduction allowed by the Assessing Officer as well as the First Appellate Authority. However, the Tribunal disallowed the said allowance made by the authorities below which is contrary to law. The Hon ble Supreme Court in a judgment reported in Mcorp Global Pvt. Limited 2009 (2) TMI 5 - SUPREME COURT relying upon Hukumchand Mills v. CIT 1966 (9) TMI 38 - SUPREME Court held that the Tribunal is not authorized to take back the benefit granted to the assessee by the Assessing Officer. The Tribunal has no power to enhance the assessment. In view of the judgment of the Supreme Court, the Tribunal has no power to enhance the assessment, though the said deduction is challenged before the Tribunal. Hence, the assessee is entitled deduction towards the maintenance of the corporate office. - Decided in favour of the assessee.

Issues Involved:
1. Deduction of various expenditures incurred in the computation of income.
2. Allowance of expenditures incurred by the appellant-company for earning income.
3. Determination of whether the appellant is engaged in business activities.
4. Setting off unabsorbed depreciation against the current year's income.
5. Direction to allow brought forward loss and depreciation against the assessed income.
6. Allowance of expenditures in the computation of income from the sale of assets.

Detailed Analysis:

Issue 1 & 2: Deduction of Various Expenditures
The appellant, a Public Limited Company, filed a return declaring a business loss and claimed various expenditures for the assessment year 2002-03. The Assessing Officer (AO) denied most expenditures, allowing only those related to the maintenance of the corporate office. The First Appellate Authority (FAA) granted relief for some expenditures and remanded others for verification. The Tribunal denied these deductions, stating the business had ceased in 1995. However, the High Court found that the appellant had to incur expenditures to fulfill conditions of an agreement to sell assets, which were necessary to perfect the title of properties. These expenditures were deemed allowable deductions against the business income. The High Court cited precedents supporting the allowance of such expenditures even if the business was not operational, thus ruling in favor of the assessee.

Issue 3: Business Activity Status
The Tribunal held that the appellant was not engaged in business activities, thus disallowing the expenditures. The High Court disagreed, noting the appellant's obligations under an agreement to sell its assets, which required expenditures to maintain the business in a transferable condition. The Court concluded that these expenditures were necessary for the business and should be allowed, ruling in favor of the assessee.

Issue 4 & 5: Setting Off Unabsorbed Depreciation
The FAA directed the AO to examine and allow the carry forward of loss and depreciation. The Tribunal denied this, despite recognizing the income from written-back balances as business income. The High Court emphasized that once income is assessed as business income, related expenditures must be allowed as deductions. Citing Supreme Court judgments, the Court held that unabsorbed depreciation can be carried forward and set off against future business income, ruling in favor of the assessee.

Issue 6: Expenditures Related to Sale of Assets
Given the resolution of Issues 1 and 2 in favor of the assessee, the High Court found it unnecessary to address this issue separately.

Conclusion:
The High Court allowed the appeal in part, granting deductions for expenditures related to the transfer of assets, traveling, conveyance, repairs, and maintenance. It also allowed the carry forward and set-off of unabsorbed depreciation. However, it denied the deduction for royalty payments due to a lack of evidence. The Court ruled that the Tribunal had no authority to disallow expenditures already permitted by the AO and FAA. Thus, Issues 1, 2, 4, and 5 were resolved in favor of the assessee, while Issue 3 was resolved in favor of the Revenue. Issue 6 was deemed unnecessary to address.

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