2018 (11) TMI 1607 - AT - Income Tax

Addition on account of alleged excess depreciation claimed - Admission of additional evidence - HELD THAT - The Hon ble Delhi High Court in the case of CIT vs. Text Hundred India Pvt. Ltd. 2013 (6) TMI 72 - DELHI HIGH COURT had held that Rule 29 permitting the Tribunal to admit additional evidence is made to enable the Tribunal to admit any additional evidence which would be necessary for substantial justice in the matter and further held that it was well settled that procedure should not be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence at the appropriate stage. Accordingly, we deem it fit to admit the additional evidence which has been placed in the form of paper book before us. In view of this Bench admitting the additional evidences filed by the assessee, the issue in dispute must necessarily be set aside to the file of the Assessing Officer so as to enable him to examine and verify the same. Accordingly, we restore this issue to the file of the Assessing Officer with the direction to examine the documents and the submissions of the assessee, keeping in mind the directions of the ITAT in the first round of proceedings and, thereafter, adjudicate the issue as per law after giving due opportunity to the assessee. Disallowance of 4/5th of the Agronomy Management fee, Production Facility Management Fee and Technology Enhancement fee by treating the same as deferred revenue expenditure - HELD THAT - We find that the instant case is squarely covered by the judgment of the Hon ble Apex Court in the case of Taparia Tools Ltd. vs JCIT 2015 (3) TMI 853 - SUPREME COURT wherein it has been laid down by the Hon ble Apex Court that normally the revenue expenditure incurred in a particular year has to be allowed in the year the assessee claims that expenditure and the department cannot deny the same. The Hon ble Apex Court went on to hold that even the fact that the assessee had deferred the expenditure in the books of account would be irrelevant. We are unable to concur with the findings of the CIT(A) in this regard and while setting aside the order of the Ld. CIT (A) on this issue, we direct the Assessing Officer to allow the entire expenditure in the assessment year in which it is claimed. Expenditure with respect to loose tools as being capital in nature and allowing depreciation @25% thereon - HELD THAT - Commissioner of Income Tax (A), while upholding the disallowance, has noted that the assessee had submitted before the Assessing Officer that the depreciated value of loose tools was arrived at on the basis of amortisation of cost over a period of three years as per the regular accounting policy being followed by the assessee company. CIT (A) went on to hold that since the assessee company itself had admitted that they were amortising the cost of the loose tools over a period of three years as per the regular accounting policy, the Assessing Officer was justified in treating the same as being capital in nature and allowing 25% depreciation thereon. Thus, apparently, the assessee has taken contradictory stands before the lower authorities and, therefore, it is our considered opinion that it will be in the fitness of things if the issue is re-examined by the Assessing Officer. Accordingly, we restore the issue of expenditure on loose tools having been treated as capital expenditure by the AO/Ld. CIT (A) to the file of the AO with the direction to re-examine the issue and, thereafter, adjudicate the issue as per law after giving due opportunity to the assessee to present its case. Dis-allowing the upfront fee paid to ICICI Bank Ltd. for reducing the rate of interest payable on pro rata basis and spreading the same over the entire period of the loan - HELD THAT - As relying on TAPARIA TOOLS LIMITED VERSUS JOINT COMMISSIONER OF INCOME TAX 2015 (3) TMI 853 - SUPREME COURT the entire upfront fee was allowable as a deduction in assessment year 2004-05 itself and accordingly, we set aside the order of the Ld. Commissioner of Income Tax (A) on the issue and direct the Assessing Officer to allow the entire amount in the year under consideration.

Summary

Issues Involved:
1. Disallowance of depreciation on preoperative expenses capitalized to fixed assets.
2. Treatment of various fees (Agronomy Management Fee, Production Facility Management Fee, Technology Enhancement Fee) as deferred revenue expenditure.
3. Treatment of upfront fee paid to ICICI Bank as deferred revenue expenditure.
4. Treatment of expenditure on loose tools as capital expenditure.

Detailed Analysis:

1. Disallowance of Depreciation on Preoperative Expenses Capitalized to Fixed Assets:
The assessee claimed depreciation on preoperative expenses capitalized to fixed assets, which was initially disallowed by the Assessing Officer (AO) on the grounds that these expenses were not linked to business assets. The ITAT had earlier directed the AO to capitalize expenses having a nexus with fixed assets and allow depreciation. However, during the reassessment, the AO again disallowed the claim citing lack of documentary evidence. The ITAT admitted additional evidence and set aside the issue back to the AO for verification, directing the AO to examine the documents and submissions of the assessee and adjudicate the issue as per law. (Grounds allowed for statistical purposes in ITA No. 5847/Del/2010, ITA No. 3111/Del/2013, ITA No. 3112/Del/2013, ITA No. 3113/Del/2013, and ITA No. 3114/Del/2013).

2. Treatment of Various Fees as Deferred Revenue Expenditure:
The AO had treated the Agronomy Management Fee, Production Facility Management Fee, and Technology Enhancement Fee as deferred revenue expenditure, allowing only 1/5th of the expenditure in the assessment year 2003-04. The ITAT, following the judgment of the Hon'ble Apex Court in the case of Taparia Tools Ltd. vs. JCIT, held that the entire expenditure should be allowed in the year it was claimed. The ITAT found that the fees were paid for services rendered in connection with operations and production facilities, and therefore, were revenue in nature. The ITAT directed the AO to allow the entire expenditure in the assessment year it was claimed. (Grounds allowed in ITA No. 3111/Del/2013, ITA No. 3112/Del/2013, ITA No. 3113/Del/2013, and ITA No. 3114/Del/2013).

3. Treatment of Upfront Fee Paid to ICICI Bank as Deferred Revenue Expenditure:
The assessee had claimed the entire upfront fee paid to ICICI Bank for reducing the interest rate as a business deduction in the year it was paid. The AO had disallowed the claim, spreading the fee over the tenure of the loan. The ITAT, following the judgment of the Hon'ble Apex Court in Taparia Tools Ltd. vs. JCIT, held that the entire upfront fee was allowable as a deduction in the year it was paid. The ITAT directed the AO to allow the entire amount in the assessment year 2004-05. (Ground allowed in ITA No. 3112/Del/2013).

4. Treatment of Expenditure on Loose Tools as Capital Expenditure:
The AO had treated the expenditure on loose tools as capital in nature and allowed depreciation thereon. The ITAT noted that the assessee had taken contradictory stands before the lower authorities and restored the issue to the AO for re-examination. The ITAT directed the AO to re-examine the issue and adjudicate as per law after giving due opportunity to the assessee. (Grounds allowed for statistical purposes in ITA No. 3111/Del/2013, ITA No. 3112/Del/2013, and ITA No. 3113/Del/2013).

General Grounds:
The general grounds raised in the appeals were found to be general in nature and did not require any adjudication. (Grounds dismissed in ITA No. 5847/Del/2010, ITA No. 3111/Del/2013, ITA No. 3112/Del/2013, ITA No. 3113/Del/2013, and ITA No. 3114/Del/2013).

Conclusion:
The ITAT partly allowed the appeals, directing the AO to re-examine and verify the additional evidence for depreciation on preoperative expenses, and to allow the entire expenditure on various fees and upfront fee in the year they were claimed. The issue of loose tools expenditure was also remanded back to the AO for re-examination.