2016 (6) TMI 1433 - AT - Income Tax

Allowability of expenditure on project abandoned - expenditure claimed to be representing cost of labour and other revenue expenditure on putting up structure for installation of spinning machines - project was stated to be abandoned due to its non-viability and the expenditure had been written off to the P L Account and added back in the computation of total income - HELD THAT - As decided in PRIYA VILLAGE ROADSHOWS LTD. 2009 (8) TMI 765 - DELHI HIGH COURT any expense incurred for a project which has been abandoned due to its non-viability expense is an allowable revenue expense especially when all the items of expenditure are of revenue in nature. In this case certain expenses on salaries etc. were incurred on a Hotel project which was later on abandoned due to its non-viability. ITAT following the Delhi High Court decision in the case of Modi Industries held that there was unity of control / command / management and also the expenses of the revenue nature and as such the expense; written off and claimed as deduction is property allowable Accordingly setting aside the finding the issue is restored back to the Ld.CIT(A) to decide the same in accordance with law after giving the assessee a reasonable opportunity of being heard. Disallowance u/s 14A - AR submitted assessee has made investment of share out of its fund in Mid 1990 and no dividend has been earned in the year - HELD THAT - On a perusal of the assessment order it is seen that the assessee has consistently made a claim that the investments have been from its own funds. Before the CIT(A) it has also been stated that these investment in shares were made in early 1990s out of its own funds. It has been argued that in the year under consideration no dividend has been earned thereon which is established from page 19-20 which is an extract of the P L Account of the assessee - AR considering the request of the Revenue stated that he had no objection if the issue is verified. Accordingly in the light of the submissions of the parties and considering the material available on record and the judicial precedent cited we set aside the issue back to the file to the CIT(A) with the direction to verify the claim of the assessee and allow necessary relief if so warranted on facts considering the judicial precedent cited.

Summary

Issues:
1. Disallowance of deduction for expenditure claimed as capital in nature.
2. Disallowance under Rule 8D(2)(iii) of the Income Tax Rules read with Section 14A of the Income tax Act.
3. Investment in shares without earning dividends.

Issue 1: The appellant challenged the disallowance of deduction for an expenditure of ?48,56,088 claimed as capital in nature. The expenditure was related to the installation of spinning machines, which the appellant argued was a revenue expense. The AO rejected the claim stating the expenditure was of capital nature, as previously debited to capital work in progress. The CIT(A) upheld the disallowance. The appellant cited relevant judgments but the CIT(A) failed to consider them. The ITAT set aside the decision and remanded the issue back to the CIT(A) for a fresh decision after considering the appellant's arguments.

Issue 2: The dispute involved the disallowance under Rule 8D(2)(iii) of the Income Tax Rules read with Section 14A of the Income tax Act. The appellant contended that no dividend was earned on investments made in the early 1990s. The Ld. AR relied on precedents to support the claim. The Ld. Sr.DR requested verification of the dividend earnings. The ITAT, considering the submissions and evidence, remanded the issue to the CIT(A) for verification and necessary relief based on the facts presented and judicial precedents.

Issue 3: The appellant's appeal was allowed by the ITAT, directing the CIT(A) to re-examine the issues related to the disallowance of deduction for expenditure claimed as capital in nature and the investment in shares without earning dividends. The ITAT emphasized the need for a thorough review based on the arguments presented and the evidence available. The appellant's contentions were deemed worthy of reconsideration, leading to the decision in favor of the appellant.