2017 (4) TMI 605 - AT - Income Tax

Prior period expenditure disallowed - Held that - In Saurashtra Cement 1994 (10) TMI 30 - GUJARAT High Court it has been held by the Hon ble Gujarat High Court that though the expenditure relates to prior period, if the liability has accrued during the year, then the expenditure has to be allowed as deduction. Also in CIT vs. Exxon Mobil Lubricants P. Ltd 2010 (9) TMI 36 - DELHI HIGH COURT it has been held by the Hon ble Delhi High Court that when prior period income is taxed prior period expenditure cannot be disallowed. Claim of forex derivative loss - Held that - CIT(A) in her order dated 30.06.2014 has directed the AO to obtain from the assessee the details of swap arrangements and arrive at a finding after verification. The learned CIT(A) has not allowed the forex derivates loss of ₹ 2,89,00,000/- as made out in the 2nd ground of appeal filed by the revenue. As the learned CIT(A) has specifically set aside the above issue to the file of the AO, the 2nd ground of appeal is dismissed. Claim of depreciation @ 80% by the assessee on energy efficient devices - Held that - CIT(A) correctly having examined the Certificate dated 31st March, 2008 given by the Chartered Engineers held that the assessee rightly claimed depreciation @ 80% on these devices. Claim of depreciation on building given on rent - Held that - CIT(A) has given a specific direction to the AO to examine the accounts and arrive at a finding after verification. The learned CIT(A) has not allowed the claim of depreciation of ₹ 1,06,53,231/- as made out in the 4th ground of appeal of the revenue. Therefore, the 4th ground of appeal filed by the revenue is dismissed. Allowability of interest in respect of capital WIP - Held that - CIT(A) has not allowed the interest pertaining to capital WIP as made out in the 5th ground of appeal. Rather the learned CIT(A) has given a specific direction to the AO to examine the accounts and then arrive at a finding after verification. In view of the above, the 5th ground of appeal is dismissed. Deduction u/s 24 for repairs in respect of house property - Held that - There is a contradiction in the version of appellant as during assessment proceedings they themselves admitted that these repair expenses are incurred for leave and license basis premises where as now during the appellate proceeding submitted that these repair expenses do not pertain to the lease out premises. In absence of any supporting evidence for the same, the reply of appellant cannot be relied upon. The appellant have not negated the observation made by the AO in the assessment order that they did reply so during the assessment proceedings by their letter dated 8.12.2010. In view of this it is of the opinion that appellant has switched over from their earlier stand without negating the facts that they did admit so before AO. In absence of any contradiction made to the same, I am of the view that action of AO to disallow proportionate expenses, looking into the fact that appellant have already deducted by making a claim under section 24 also, the addition made is upheld. - Decided against assessee.

Summary

Issues:
1. Disallowance of prior period expenses
2. Disallowance of forex derivative loss
3. Claim of depreciation on energy efficient devices
4. Claim of depreciation on rented out buildings
5. Allowability of interest pertaining to capital WIP
6. Disallowance of repairs to building expenses

Issue 1: Disallowance of prior period expenses
The Assessing Officer (AO) disallowed prior period expenses, but the Commissioner (Appeals) allowed them based on the accrual principle. The ITAT upheld the decision citing relevant case laws, emphasizing that if the liability accrued during the year, the expenses should be allowed. The appeal filed by the revenue was dismissed.

Issue 2: Disallowance of forex derivative loss
The AO disallowed forex derivative loss as notional losses, following CBDT instructions. The CIT(A) directed the AO to obtain details from the assessee for verification. As the CIT(A) set aside the issue for further examination, the appeal by the revenue was dismissed.

Issue 3: Claim of depreciation on energy efficient devices
The AO disallowed a portion of the depreciation claimed by the assessee on energy efficient devices. However, the CIT(A) upheld the claim after examining relevant certificates. The ITAT affirmed the CIT(A)'s decision, dismissing the revenue's appeal.

Issue 4: Claim of depreciation on rented out buildings
The AO disallowed part of the depreciation claimed by the assessee on rented out buildings due to lack of details. The CIT(A) directed the AO to verify the accounts before disallowing the claim. The ITAT upheld the CIT(A)'s decision, dismissing the revenue's appeal.

Issue 5: Allowability of interest pertaining to capital WIP
The AO disallowed a portion of interest paid by the assessee related to capital WIP. The CIT(A) directed the AO to verify the capitalization of interest before disallowing it. The ITAT upheld the CIT(A)'s decision, dismissing the revenue's appeal.

Issue 6: Disallowance of repairs to building expenses
The AO disallowed a portion of the repair expenses claimed by the assessee for building repairs. The CIT(A) upheld the disallowance due to lack of evidence supporting the claim. The ITAT affirmed the CIT(A)'s decision, dismissing the assessee's appeal.

In conclusion, the ITAT dismissed the appeals filed by both the revenue and the assessee, upholding the decisions made by the CIT(A) on various issues related to prior period expenses, forex derivative loss, depreciation claims, interest on capital WIP, and building repair expenses.