2013 (9) TMI 1258 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition made under "short term capital gains".
2. Treatment of E-Store Software expenditure and digitalization development charges.
3. Disallowance of business promotion expenses.

Summary:

Issue 1: Deletion of Addition under "Short Term Capital Gains"
The Revenue challenged the deletion of an addition of Rs. 6,68,95,536/- made by the Assessing Officer (A.O.) under the head "short term capital gains". The assessee had sold agricultural land and claimed that the gains were not taxable as the land did not fall within the definition of "capital asset" u/s 2(14) of the Income-tax Act, 1961. The A.O. treated the land as falling within Chennai Municipal Corporation limits and taxed the gains. The CIT(Appeals) found that the land was located more than 8 KMs from the nearest Municipality or Municipal Corporation and thus did not qualify as a capital asset. The Tribunal upheld the CIT(Appeals)' decision, noting that the land was agricultural and situated beyond the specified limits, thereby not taxable as capital gains.

Issue 2: Treatment of E-Store Software Expenditure and Digitalization Development Charges
The Revenue and the assessee both appealed regarding the treatment of E-Store Software expenditure of Rs. 62,22,250/- and digitalization development charges of Rs. 65,62,250/-. The A.O. disallowed these as revenue outgo, treating them as capital expenditure. The CIT(Appeals) upheld the disallowance but allowed depreciation at 60%. The Tribunal, however, found that the software and digitalization work were necessary for the assessee's business operations and did not provide an enduring benefit. Thus, it ruled in favor of the assessee, treating the expenditure as revenue outgo.

Issue 3: Disallowance of Business Promotion Expenses
The A.O. disallowed 20% of the business promotion expenses due to lack of proper evidence, while the CIT(Appeals) reduced the disallowance to 10%. The Tribunal found no reason to interfere with the CIT(Appeals)' decision, considering the nature and volume of the assessee's business. Both the Revenue's and the assessee's appeals on this issue were dismissed.

Conclusion:
The appeal of the Revenue was dismissed, and the appeal of the assessee was partly allowed. The Tribunal upheld the CIT(Appeals)' decisions on the non-taxability of the agricultural land sale and the scaling down of business promotion expenses disallowance, while it allowed the assessee's claim for treating software and digitalization expenses as revenue outgo.