2015 (11) TMI 483 - AT - Income Tax

Addition on account of compensation for re-acquiring the rights of plots of land - CIT(A) deleted the addition - Held that - FAA correctly held that, the compensation paid by the assessee is not to reacquire any rights. He recorded a fact that, when the advance is received for sale of a plot, it was not treated as sale of plot, in the books of the assessee. In the absence of receipt of full sale consideration, the assessee has not treated the sale transaction as complete. Thus, when no asset is sold by the assessee, the question of reacquiring the same does not arise. The Ld.CIT(A) records that the theory of purchasing something, which the assessee himself is the owner is in itself misconceived. - Decided in favour of assessee. Disallowance of foreign travel expenses, of the wife of the Director - CIT(A) allowed the claim - Held that - CIT(A) observed that the visit of Smt.Kanchan Bhalla, W/o Shri Anil Bhalla was pursuant to an invitation for attending a formal meeting and dinner in connection with promotion of the company. He held that the expenses incurred on the travel of the wife of the Director, was for the benefit of the company and promoting its good will. This factual finding of the First Appellate Authority could not be controverted by the Ld.Sr.D.R - Decided in favour of assessee. Allowability of depreciation - A.O. disallowed the depreciation on the ground that the vehicles were registered in the name of the employees of the company and hence the assessee company is not having ownership - CIT(A) allowed the claim - Held that - The vehicles were purchased in the name of Shri Gautam Bhalla, who was the Director of the company and the real and beneficial ownership as well as the use of the vehicles was with and for the purpose of the company. No infirmity in the order of the First Appellate Authority, as the assessee is the owner of these vehicles and the disallowance is made merely on the ground that the vehicles are not registered in the name of the company, but in the name of the Directors. Such disallowance cannot be made - Decided in favour of assessee. Addition claimed as agricultural income - CIT(A) deleted the addition - Held that -he First Appellate Authority gives the factual finding that the assessee has produced the evidences of agricultural income earned by it and the bills for incurring of the expenditure. Further he records that one company by name VTPL, which was earning agricultural income, merged with the assessee company during the A.Y. 2005-06. Statistics from the A.Y. 1992-93 to the A.Y. 2005-06 have been extracted by the Ld.CIT(A), to demonstrate that the assessee has been earning agricultural income for all the earlier A.Ys and that this has been accepted by the Revenue. These factual findings could not be controverted by the Ld.Sr.D.R. - Decided in favour of assessee. Penalty u/s 271 - Penalty charges paid by the appellant - Held that - The First Appellate Authority held that the fine/penalty in question, was incurred in relation to breach of a civil contract and not for violation of any provisions of law. He held that the expenditure is incidental to the business of the assessee and as the assessee is in the business of real estate and the compensation is related to its stock in trade, the expenditure is not capital in nature. He deleted the penalty. In our view the order of the First Appellate Authority on this issue does not call for any interference. The expenditure is claimed as incurred for breach of contractual obligation between two private parties. This expenditure is incidental to business. Be it as it may, the explanation given by the assessee is bonafide. Hence we uphold the order of the Ld.CIT(A) on this issue and dismiss this ground of the Revenue. Disallowance for depreciation - Held that - The claim of depreciation made by the assessee, is an inaccurate claim. The assessee is advised by professionals and depreciation on foreign cars admittedly is not allowable. The source from which an asset is purchased is not relevant. Hence we confirm the order of the Ld.CIT(A), wherein the penalty levied u/s 271(1)(c) levied by the A.O. as a claim of depreciation on foreign cars is confirmed. - Decided against assessee.

Summary

Issues Involved:
1. Appeal for the A.Y. 2006-07 regarding various additions and deletions made by the Ld. CIT(A).
2. Appeal for the A.Y. 1998-99 regarding the penalty imposed by the A.O. u/s 271(1)(c) of the Act.

A.Y. 2006-07 Appeal Analysis:

1. The appeal for the A.Y. 2006-07 involved multiple grounds challenging additions and deletions made by the Ld. CIT(A). The first ground related to the deletion of an addition of Rs. 1,35,000 on account of compensation for re-acquiring rights in plots. The Ld. CIT(A) found that the compensation was not for reacquiring any rights as the asset was not sold by the assessee. This finding was upheld, dismissing the Revenue's grounds 2 and 3.

2. Ground no. 4 concerned the disallowance of foreign travel expenses for the director's wife. The Ld. CIT(A) determined that the expenses were for the benefit of the company, promoting its goodwill. This factual finding was upheld, dismissing the Revenue's challenge.

3. Ground no. 5 focused on the disallowance of depreciation on vehicles not owned by the assessee. The Ld. CIT(A) confirmed that the vehicles were purchased for the company's use, and ownership was with the company, not the directors. This decision was upheld, dismissing the Revenue's claim.

4. Ground no. 6 contested the deletion of an addition claimed as agricultural income. The First Appellate Authority found evidence supporting the agricultural income earned by the assessee, including merger details with another company. This finding was upheld, dismissing the Revenue's grounds 6 and 7.

A.Y. 1998-99 Appeal Analysis:

1. The appeal for the A.Y. 1998-99 involved a penalty imposed by the A.O. u/s 271(1)(c) of the Act. The penalty was related to penalty charges paid by the assessee company. The First Appellate Authority deleted the penalty with respect to the disallowance of Rs. 20 lakhs, considering it a liability incurred for non-performance under a Memorandum of Understanding.

2. The penalty was also related to the disallowance of depreciation on foreign cars. The A.O. disallowed this penalty, questioning the genuineness and admissibility of the expenditure. The First Appellate Authority held that the penalty was incurred due to a breach of a civil contract, not a violation of law, and was incidental to the business. The penalty was deleted based on these findings.

3. The Cross Objection filed by the assessee regarding depreciation on second-hand cars was dismissed as the claim was inaccurate. The source of purchase was deemed irrelevant, and the penalty for the claim of depreciation on foreign cars was confirmed.

4. In conclusion, the appeals of the Revenue for the A.Y. 1998-99 were dismissed, and the Cross Objection of the assessee was also dismissed.

This detailed analysis covers the issues and outcomes of the legal judgment comprehensively, addressing each ground of appeal and the decisions made by the authorities involved.