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2020 (1) TMI 1290 - AT - Income TaxAllowing ESOP expenditure as revenue expenditure - HELD THAT - The issue in the present appeal is squarely covered in favour of the assessee in the case of Lemon Tree Hotel 2015 (11) TMI 404 - DELHI HIGH COURT and case of PVP Ventures Ltd. 2012 (7) TMI 696 - MADRAS HIGH COURT confirmed by SC 2014 (3) TMI 1127 - SC ORDER - CIT(A) has not erred to direct the AO to allow the ESOP expenses. Depreciation on technical know-how holding it to be intangible assets - HELD THAT - This issue was subject matter of appeal before appellate forum. It appears that the Co-ordinate Bench of the Tribunal in assessee s own case 2012 (9) TMI 1187 - ITAT CHENNAI had dismissed the appeal filed by the Revenue. Accordingly since the claim is only consequential in nature if the depreciation is allowed in the initial year the same should be allowed in the year under consideration and this issue is remitted back to the file of the Assessing Officer to follow the decisions of earlier years. Accordingly the ground of appeal No. 2.4 raised by the Revenue is partly allowed for statistical purpose. Addition on lease hold premises as revenue expenditure - contention of the assessee company is that they are temporary erection in the form of pipes floor tiles false ceiling and this expenditure was not brought into existence into new asset and therefore it should be allowed as revenue expenditure - HELD THAT - The issue in the present grounds of appeal is decided against the assessee company and in favour of the Revenue by the Jurisdictional High Court in the cases of CIT vs. ETA Travel Agency (P) Ltd. 2019 (8) TMI 932 - MADRAS HIGH COURT and CIT vs. Viswams 2019 (4) TMI 1127 - MADRAS HIGH COURT - addition to leasehold premises cannot be allowed as revenue expenditure. Thus the findings of the Ld. CIT(A) stands reversed. However we direct the Assessing Officer to allow depreciation at the rate applicable to buildings. Depreciation on electrical fittings at the rate applicable to plant and machinery - CIT(A) allowed depreciation on electrical installation at the rate applicable to electrical fittings - Contention of the assessee is that this electrical fitting form part of the plant and machinery and therefore depreciation should be allowed at the rate applicable to plant and machinery - HELD THAT - Submission of the assessee that electrical installation are part of plant and machinery are not disputed by the Assessing Officer. Therefore the Ld. CIT(A) had rightly allowed depreciation at the rate applicable to plant and machinery. Accordingly we do not find any reason to interfere with the order of the Ld. CIT(A) - Decided against revenue. Foreign exchange loss - claim was disallowed by AO for failure of the assessee to establish real nature of the expenditure - HELD THAT - CIT(A) after considering certain judicial precedents considered it to be mark to market loss and allowed the claim as revenue expenditure. From the perusal of the assessment order it is clear that Ld. CIT(A) had not considered any material on records suggesting that it is mark to market losses. He simply accepted the contention of the assessee that it represents mark to market loss and allowed the expenditure. The approach of the Ld. CIT(A) cannot be sustained and therefore we remit the issue back to the file of the Assessing Officer to decide the issue afresh after examining true nature of the claim. - Ground of Revenue is partly allowed for statistical purpose. Expenditure incurred on abandoned projects - As per assessee party could not complete the contract nor returned the money. Since the money could not recovered we have written off the amount - assessee claimed as bad debts before AO - AO disallowed the claim by holding that the amount written off do not represents the debts - HELD THAT - Admittedly advance was paid during the course of business of the assessee. Since the amount had become irrecoverable the same should be allowed as deduction as revenue loss if not as bad debts as held in the case of Devi Films Private Ltd. 1969 (4) TMI 12 - MADRAS HIGH COURT and CIT v. Abdul Razak Co 1981 (2) TMI 27 - GUJARAT HIGH COURT . Addition u/s. 14A - whether absences of exempt income no disallowance can be made? - HELD THAT - Admittedly no dividend income was earned by the assessee company during the previous year under consideration. Now the law is settled to the extent that in the absence of any exempt income resort to provisions of Section 14A of the Act cannot be made. Excess depreciation on building - AO held that the additions cannot be allowed as revenue expenditure but allowed depreciation at 10% - HELD THAT - Assessing Officer can allow depreciation at the rate applicable to buildings. From the perusal of the assessment order it is clear that Assessing Officer had disallowed 90% of the opening value of written down which is not correct as assessee had not claimed it. However the Ld. CIT(A) had rightly deleted the addition by holding it to be doubtful disallowance. The findings of the Ld. CIT(A) is based on proper appreciation of facts. We do not find any reason to interfere with the order of the Ld. CIT(A) on this issue Deduction as bad debts - allowance of claim of addition being amount paid to M/s. Vivro Financial Services Pvt. Ltd. and written off in the books of accounts as irrecoverable - HELD THAT - Admittedly this amount was paid during the course of carrying on the business of the assessee and the same should be allowed as deduction if not as bad debts in the light of decisions Devi Films Private Ltd. 1969 (4) TMI 12 - MADRAS HIGH COURT and CIT v. Abdul Razak Co 1981 (2) TMI 27 - GUJARAT HIGH COURT . - we direct the Assessing Officer to allow the deduction while computing the income under the head capital gains .
Issues Involved:
1. Allowability of ESOP expenses as revenue expenditure. 2. Depreciation on intangible assets. 3. Depreciation on additions to leased buildings. 4. Depreciation on electrical installations. 5. Disallowance of foreign exchange loss. 6. Disallowance under Section 14A. 7. Allowability of bad debts and business losses. Issue-wise Detailed Analysis: 1. Allowability of ESOP Expenses as Revenue Expenditure: - The Revenue challenged the CIT(A)'s decision to allow ESOP expenses as revenue expenditure, arguing it was notional and capital in nature. The CIT(A) relied on the Hon'ble Jurisdictional High Court in the case of PVP Ventures Ltd. and the Hon'ble Delhi High Court in the case of Lemon Tree Hotel, which held ESOP expenditure as revenue expenditure. The Tribunal upheld CIT(A)'s decision, noting the Hon'ble Supreme Court dismissed the SLP against the High Court's decision, making the law final. Thus, the ESOP expenses were allowed as revenue expenditure for all relevant assessment years. 2. Depreciation on Intangible Assets: - The CIT(A) directed the AO to allow depreciation on technical knowhow, which was disallowed by the AO in earlier years. The Tribunal noted the Co-ordinate Bench of the Tribunal had dismissed the Revenue's appeal on this issue for earlier years. Consequently, the Tribunal remitted the issue back to the AO to follow the decisions of earlier years, allowing the claim consequentially. 3. Depreciation on Additions to Leased Buildings: - The Revenue contended the expenditure on leased premises should be capitalized and not allowed as revenue expenditure. The Tribunal, following the Jurisdictional High Court's decisions in CIT vs. ETA Travel Agency (P) Ltd. and CIT vs. Viswams, held that such expenditures should be treated as capital and allowed depreciation at the rate applicable to buildings. The CIT(A)'s decision to allow the expenditure as revenue was reversed, and the AO was directed to allow depreciation accordingly. 4. Depreciation on Electrical Installations: - The CIT(A) allowed depreciation on electrical installations at the rate applicable to plant and machinery. The Tribunal upheld this decision, noting the AO did not dispute the claim that electrical installations were part of plant and machinery. Thus, the depreciation was allowed at the rate applicable to plant and machinery. 5. Disallowance of Foreign Exchange Loss: - The AO disallowed the foreign exchange loss claim for lack of evidence. The CIT(A) allowed it as a mark-to-market loss. The Tribunal found the CIT(A) did not consider material evidence and remitted the issue back to the AO for fresh examination. 6. Disallowance under Section 14A: - The AO made disallowances under Section 14A even when no exempt income was earned. The CIT(A) deleted these disallowances, and the Tribunal upheld this decision, referencing the Hon'ble Jurisdictional High Court's rulings in Redington (India) Ltd. vs. Addl. CIT and CIT vs. Chettinad Logistics P. Ltd., which held that in the absence of exempt income, no disallowance under Section 14A can be made. 7. Allowability of Bad Debts and Business Losses: - The CIT(A) allowed the claim of bad debts and business losses related to abandoned power projects and advances written off, considering them as revenue expenditure. The Tribunal upheld this decision, noting the advances were made during the course of business and should be allowed as revenue loss if not as bad debts, following precedents set by the Hon'ble Jurisdictional High Court and other High Courts. Summary of Results: - The appeals of the assessee for ITA Nos. 1604 & 1740/CHNY/2016 for assessment years 2011-12 and 2012-2013 were allowed. - The appeals of the Revenue for ITA Nos. 2011 & 2012/CHNY/2016 for assessment years 2009-10 and 2010-2011 were partly allowed for statistical purposes. - The appeals of the Revenue for ITA Nos. 2013 & 2014, 2744/CHNY/2016 for assessment years 2011-12, 2012-2013, and 2013-2014 were dismissed.
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