2011 (9) TMI 1175 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of adjustment made under Section 92CA(3) of the Income Tax Act.
2. Treatment of advertisement expenditure as revenue expenditure.
3. Allowability of bad debts and sundry debit balances written off.
4. Disallowance of interest on advances given to associate companies.
5. Disallowance under Section 14A of the Income Tax Act.
6. Depreciation on intangible assets.

Detailed Analysis:

1. Deletion of Adjustment Made Under Section 92CA(3) of the Income Tax Act:
The department disputed the deletion of an adjustment amounting to Rs. 29,16,954/- made under Section 92CA(3) based on the Transfer Pricing Officer's (TPO) order. The TPO noted that the assessee, part of Cox and Kings, had given an extra credit period to its associated enterprises compared to unrelated parties, leading to a blockage of funds and higher interest payments. The TPO calculated interest at 15% per annum for the excess credit period, resulting in the adjustment. The CIT (A) deleted the adjustment, considering the higher commission earned from associated enterprises and the overall profitability. The Tribunal, following its earlier orders for assessment years 2002-03 and 2003-04, remanded the issue back to the AO for fresh adjudication.

2. Treatment of Advertisement Expenditure as Revenue Expenditure:
The department challenged the CIT (A)'s direction to treat the entire advertisement expenditure of Rs. 2,22,84,651/- as revenue expenditure. The assessee also appealed against the confirmation of disallowance for the last quarter of the financial year 2003-04. The AO had treated the expenditure as capital, while the CIT (A) considered it revenue, allowing it in the subsequent year. The Tribunal upheld the CIT (A)'s decision, following its earlier orders, and directed that the expenditure be allowed in the assessment year under consideration.

3. Allowability of Bad Debts and Sundry Debit Balances Written Off:
The department appealed against the allowance of bad debts amounting to Rs. 82,64,594/-, while the assessee disputed the disallowance of Rs. 8,75,505/-. The AO had disallowed the entire claim due to insufficient details. The CIT (A) allowed the claim for business-related bad debts and advances but disallowed the sundry debit balances. The Tribunal confirmed the CIT (A)'s decision for business advances and bad debts but upheld the disallowance of sundry debit balances due to lack of specific details.

4. Disallowance of Interest on Advances Given to Associate Companies:
The assessee disputed the disallowance of interest amounting to Rs. 1,46,34,434/-. The AO disallowed interest on advances given to various parties, including Tulip Hotels Pvt. Ltd., due to the difference in interest rates charged and paid. The CIT (A) confirmed the disallowance, following earlier years' orders. The Tribunal restored the issue to the CIT (A) for fresh adjudication, considering the specific facts and details provided by the assessee.

5. Disallowance Under Section 14A of the Income Tax Act:
The assessee challenged the disallowance of Rs. 9,47,888/- under Section 14A, made by applying Rule 8D. The CIT (A) had applied Rule 8D, following the Special Bench decision in Daga Capital Management (P.) Ltd. The Tribunal, noting the Bombay High Court's decision in Godrej & Boyce Mfg. Co. Ltd., held that Rule 8D is prospective and not applicable for the assessment year 2004-05. The issue was remanded to the CIT (A) for fresh adjudication as per law.

6. Depreciation on Intangible Assets:
The assessee claimed depreciation of Rs. 95,36,727/- on intangible assets, which was not claimed before the AO. The CIT (A) disallowed the claim, following his order for the previous year. The Tribunal, following its earlier order for assessment year 2003-04, restored the issue to the AO for fresh adjudication in accordance with the law, considering relevant material and providing an opportunity for hearing.

Conclusion:
The appeals of both the department and the assessee were allowed in part. The Tribunal remanded several issues back to the AO or CIT (A) for fresh consideration, ensuring that the matters are adjudicated based on the specific facts and applicable legal principles.