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2017 (1) TMI 1608 - AT - Income TaxTaxability of amount received from Insurance Companies against damages - Additions u/s 41 or 45(1A) - CIT(A) was convinced with the assessee that taxability of the Insurance Claim as capital gains is not permissible as the amendment to Section 45(1A) is with effect from 1.04.2000 and is applicable from assessment year 2000-01 and therefore not relevant for the year under consideration. However the ld. CIT(A) kept silent on the issue of taxability of the same u/s. 41 of the Act as observed by the A.O. - Held that - A perusal of the order of the authorities below do not show whether the damages have been charged to the Profit and Loss account or not. There is no reference to that effect in the orders of the authorities below. If the assessee has claimed the damages due to wind storm and charged the same to its profit and loss account then any claim received from the Insurance claim shall be deemed to be profit and gains of business or profession and accordingly chargeable to Income Tax as the income of that previous year. - Matter remanded back. Disallowance of Lease Rent - sale and lease back transaction - AO observed that sale and lease back transaction with Arvind Mills Ltd. was nothing but a financial transaction and accordingly lease rentals constituted capital payment and hence not allowable. - Held that - following the earlier decision of tribunal deduction allowed - Decided in favor of assessee. Enhancement of the income out of Lease Rent expenses payable to ICICI - Method of accounting - Claiming of expenditure of Rs. 7, 84, 86, 179/- in the Income Tax Return - The assessee strongly contended that the company had incurred expenditure on lease rental legal and consultancy fees and retrenchment compensation which is enduring benefit and therefore it has been treated as deferred revenue expenditure to be written off in subsequent years and an amount of Rs. 1, 87, 03, 288 has been debited to the Profit and Loss account of the year under consideration. - Held that - Considering the aforementioned ratios laid down by the Hon ble Supreme Court and the Hon ble Jurisdictional High Court in our considered opinion whatever expenditure has been accrued during the year under consideration has to be allowed to be written off. We therefore direct the A.O. to examine the accrual of expenditure for the year under consideration and allow the same in the light of the aforementioned rulings. - Decided partly in favor of assesseee. Disallowance for power expenses of earlier years - crystallization of liabiltiy - Held that - It is only the payment schedule was to start from May next but this does not mean that the power expenses have to be disallowed for the year under consideration. Since the liability has crystallized during this year itself expenditure to be allowed - Decided in favor of assessee.
Issues Involved:
1. Disallowance of Lease Rent paid to Arvind Mills. 2. Enhancement of income out of Lease Rent expenses payable to ICICI. 3. Disallowance of Lease Rent payable to ICICI. 4. Disallowance under Rule 6D of the Income Tax Rules. 5. Disallowance of proportionate common expenses. 6. Deletion of disallowance made in respect of opening stock. 7. Deletion of disallowance in respect of deferred revenue expenditure. 8. Deletion of addition made in respect of capitalized interest. 9. Deletion of disallowance of accrued liability for premium payable on redemption of non-convertible debentures. 10. Deletion of disallowance of interest on funds utilized for giving interest-free loans to sister concerns. 11. Deletion of disallowance of expenditure on issue of non-convertible and fully convertible debentures. 12. Deletion of addition of capitalized loan processing charges. 13. Disallowance of provision for bad debts. 14. Denial of exemption for Insurance Claim received for damages. 15. Claim of deduction u/s. 80HHC and u/s. 80G. 16. Adjustment of Insurance Compensation against Written Down Value (WDV) of block. 17. Deletion of addition on account of cost of capital job abandoned but later used as components of existing machinery. 18. Recalculation of book profit u/s. 115JA. Detailed Analysis: 1. Disallowance of Lease Rent paid to Arvind Mills: - The Tribunal restored the issue to the file of the CIT(A) to decide afresh in accordance with law, following the decision in the case of Indus Bank Ltd. and Arvind Mills Ltd. The AO was directed to follow the findings of the Co-ordinate Bench. 2. Enhancement of income out of Lease Rent expenses payable to ICICI: - The Tribunal directed the AO to examine the accrual of expenditure for the year under consideration and allow the same in light of the Supreme Court's decision in Taparia Tools Ltd. and Gujarat State Fertilizers & Chemicals Ltd. The CIT(A)'s enhancement was set aside. 3. Disallowance of Lease Rent payable to ICICI: - This issue was merged with the issue raised in ground no. 2 and did not require separate adjudication. 4. Disallowance under Rule 6D of the Income Tax Rules: - The Tribunal followed its earlier decision in the assessee's own case, directing the AO to work out the disallowance under Rule 6D as per the Calcutta High Court's judgment in General Electric Co. of India Ltd. 5. Disallowance of proportionate common expenses: - The assessee conceded to the CIT(A)'s directions, and the ground was dismissed. 6. Deletion of disallowance made in respect of opening stock: - The Tribunal upheld the CIT(A)'s decision, which was in line with the Bombay High Court's decision in Melmould Corporation, allowing the deduction for revaluing opening stock. 7. Deletion of disallowance in respect of deferred revenue expenditure: - Following the Supreme Court's and Gujarat High Court's decisions, the Tribunal directed the AO to allow the expenditure accrued during the year under consideration. 8. Deletion of addition made in respect of capitalized interest: - The Tribunal upheld the CIT(A)'s decision, allowing the deduction of interest under Section 36(1)(iii) of the Act, with a direction to verify if depreciation on this amount was allowed in succeeding years. 9. Deletion of disallowance of accrued liability for premium payable on redemption of non-convertible debentures: - The Tribunal followed its earlier decision, directing the AO to compute the deduction in accordance with the Supreme Court's decision in Madras Industrial Investment Corporation Ltd. 10. Deletion of disallowance of interest on funds utilized for giving interest-free loans to sister concerns: - The Tribunal upheld the CIT(A)'s decision, finding no nexus between interest-bearing loans and advances made, and confirming the disallowance deletion. 11. Deletion of disallowance of expenditure on issue of non-convertible and fully convertible debentures: - The Tribunal upheld the CIT(A)'s decision, allowing the expenditure as revenue expenditure, following the Supreme Court's decision in India Cements. 12. Deletion of addition of capitalized loan processing charges: - The Tribunal found that accounting entries cannot determine the deductibility of an expenditure and upheld the CIT(A)'s decision, allowing the deduction under Section 37 of the Act. 13. Disallowance of provision for bad debts: - The Tribunal restored the issue to the AO to verify if the provision is reflected on the liabilities side of the balance sheet or if the assets side has been reduced by the same, and decide afresh as per Section 36(2) of the Act. 14. Denial of exemption for Insurance Claim received for damages: - The Tribunal held that the insurance claim cannot be taxed as capital gains due to the retrospective effect of Section 45(1A) and directed the AO to verify if the damages were charged to the profit and loss account to decide on taxability under Section 41. 15. Claim of deduction u/s. 80HHC and u/s. 80G: - The Tribunal upheld the CIT(A)'s decision, denying the deductions due to the absence of business income, supported by the Supreme Court's decision in Jeyar Consultant and Investment Pvt. Ltd. 16. Adjustment of Insurance Compensation against WDV of block: - The Tribunal upheld the AO's decision to reduce the WDV of the block by the insurance claim amount, following Section 43(6) of the Act. 17. Deletion of addition on account of cost of capital job abandoned but later used as components of existing machinery: - The Tribunal upheld the CIT(A)'s decision, allowing the claim as revenue expenditure, following the Supreme Court's decision in Tuticorin Alkali Chemicals & Fertilizers Ltd. 18. Recalculation of book profit u/s. 115JA: - The Tribunal upheld the CIT(A)'s decision, directing the AO to recompute the income u/s. 115JA based on the profit and loss account prepared for the purposes of Section 115JA, following the Tribunal's decisions in similar cases. Conclusion: The appeals were partly allowed, with directions to the AO to follow the Tribunal's and higher courts' decisions on various issues, ensuring compliance with the provisions of the Income Tax Act.
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