2016 (2) TMI 1353 - AT - Income Tax

Nature of expenses - addition of business development expenses - revenue or capital expenditure - HELD THAT - We find that the issue relating to business development expenses to be treated as business expenditure and not capital expenditure, has been dealt and decided by the Co-ordinate Bench 2010 (11) TMI 1128 - ITAT AHMEDABAD - Decided against revenue. Addition of depreciation claimed on plant and machinery given to Rajasthan State Electricity Board (in short RSEB) under sale and lease back transaction - HELD THAT - After considering the facts of the case and material on record, we find that the issue involved in this ground is that the assessee company bought certain assets from RSEB in previous years and the same were leased back to RSEB. The assessee has been showing income from lease from RSEB and also claiming depreciation on the assets leased to RSEB. This fact that depreciation has not been claimed by RSEB and only claimed by assessee is not controverted by the Revenue. Further on perusal of the records, we find that the co-ordinate bench in assessee s own case has decided similar issue 2010 (11) TMI 1128 - ITAT AHMEDABAD confirm the order of the CIT (A) in vacating the disallowance of depreciation on sale and lease back transactions and dismiss the grounds of appeal of the revenue for all the years under consideration. Disallowance u/s 14A r.w.r. 8D - proportionate disallowance of interest expenditure u/s 14A - HELD THAT - As per provisions of section 14A of the Act the duty is cast upon the Assessing Officer to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act. We find that average investments of the assessee are approximately 40% of the total share capital and reserve surplus, addition in the reserve and surplus is arising mainly due to the exempted income earned by the assessee in previous years as well as during Asst. Years 2005-06 to 2007-08 which gives a holistic view that the company s main business activities of sale of newspapers and printing material is not giving considerable profits to the company and its overall revenue from the main business activity is also going at the same pace without any major increase in revenue and the major contributory to the profits of the company is from profit from sale of investments and also from going through the assessment orders and details of capital gains we find that a considerable amount of purchase and sale activities of equity shares and mutual funds have been undertaken by the assessee. Also there has been a considerable movements of funds from bank account of the assessee and these funds are being used for the working capital as well as funds for the purpose of investments. There is no separate bank account maintained by the assessee to show that tax free funds have only been used for the purpose of investment and for this reason proportionate disallowance was made by the Assessing Officer which was corrected by by ld. CIT(A). Therefore, applying the ratio of the decision taken by the coordinate bench in assessee s own case upholding the decision of ld. CIT(A) and looking to the facts of the present case as discussed above we are of the opinion that there is no reason to interfere with the order of ld. CIT(A). Accordingly, these grounds of appeals of Revenue are dismissed.

Issues Involved:

1. Deletion of addition of business development expenses by CIT(A) and not holding them as capital expenses.
2. Deletion of addition of depreciation claimed on plant and machinery given to Rajasthan State Electricity Board (RSEB) under sale and leaseback transaction.
3. Relief given by CIT(A) regarding disallowance under Section 14A of the Income Tax Act.
4. Treatment of surplus derived from transaction of shares and mutual funds as business income or capital gains.
5. Deletion of disallowance under Section 41(1) of the Income Tax Act in respect of outstanding creditors.
6. Disallowance of foreign travel expenses.

Detailed Analysis:

1. Deletion of Addition of Business Development Expenses:

The Assessing Officer (AO) disallowed business development expenses treating them as capital expenditure for the assessment years 2005-06 to 2009-10. However, the Tribunal found that similar issues had been decided in favor of the assessee in previous years, where such expenses were held to be business expenses and not capital in nature. The Tribunal confirmed the order of the CIT(A), who had deleted the additions, by following the precedent set in the assessee's own case for earlier years.

2. Deletion of Addition of Depreciation Claimed on Plant and Machinery:

The AO disallowed the depreciation claimed on assets leased back to RSEB, treating the transaction as a financial lease. The Tribunal noted that similar issues had been decided in favor of the assessee in previous years, where it was held that the assessee was entitled to depreciation as the transaction was genuine and not merely a financial arrangement. The Tribunal confirmed the order of the CIT(A), who had deleted the disallowance.

3. Relief Given by CIT(A) Regarding Disallowance Under Section 14A:

The AO made proportionate disallowance of interest expenses under Section 14A, which was partly reduced by the CIT(A). The Tribunal upheld the CIT(A)'s approach, noting that the assessee had sufficient interest-free funds and that the disallowance should be based on the proportion of investments to total assets. The Tribunal also noted that the disallowance of administrative expenses should be reasonable and upheld the CIT(A)'s reduction of such expenses.

4. Treatment of Surplus Derived from Transaction of Shares and Mutual Funds:

The AO treated the surplus from the sale of shares and mutual funds as business income, citing frequent transactions and short holding periods. The CIT(A) partly accepted this view but held that transactions where shares were held for more than one month should be treated as capital gains. The Tribunal, however, found that the assessee had consistently shown such income as capital gains in past years, which had been accepted by the department. The Tribunal held that the entire surplus should be treated as capital gains and not business income.

5. Deletion of Disallowance Under Section 41(1) of the Income Tax Act:

The AO made a lump sum disallowance under Section 41(1) for cessation of liability without specifying the creditors or amounts. The CIT(A) deleted the disallowance, noting the lack of specific details and evidence of cessation of liability. The Tribunal upheld the CIT(A)'s order, citing the need for clear evidence of cessation of liability and referring to relevant case law.

6. Disallowance of Foreign Travel Expenses:

The AO disallowed foreign travel expenses for lack of evidence of business purpose. The CIT(A) confirmed the disallowance, noting the absence of supporting details. The Tribunal also upheld the disallowance, finding that the assessee had failed to provide sufficient evidence to justify the expenses as being for business purposes.

Conclusion:

The Tribunal dismissed the appeals of the Revenue and partly allowed the appeals of the assessee, confirming the CIT(A)'s decisions on various issues, including the treatment of business development expenses, depreciation claims, disallowance under Section 14A, and the treatment of surplus from share transactions as capital gains. The Tribunal also upheld the deletion of disallowance under Section 41(1) and the disallowance of foreign travel expenses.

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