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2023 (12) TMI 135 - AT - Income TaxNature of expenses - foreign travel expenses - whether the expenses are personal in nature and have no relation to assessee s business? - HELD THAT - AO has made general observation of personal/non-business expenditure which is not at all supported by the details/data analysed by Ld. AR. Further, the CIT(A) has merely approved the AO s notings. Ld. DR is true in arguing that that the CIT(A) has stepped further to initiate penalty proceeding u/s 271(1)(c) but on perusal of his order, it is very much apparent that he has merely upheld AO s observations and not given his independent finding even for the disallowance. From the details of expenditure placed in Paper-Book, we find that the assessee has done significant business at least with Spain and Turkey for which the major expenditure is incurred. That apart, the quantum of expenditure is also very reasonable considering the volume of imports and exports done by assessee. Therefore, we do not find any justification in the disallowance made by lower-authorities, consequently we delete the same. Depreciation on plant and machinery - Determination of WDV - Cost of Acquisition - waiver or write of loan taken for purchase of asset - AO disallowed fully and the CIT(A) upheld disallowance partly - assessee took loan from bank for purchase of plant and machinery, but subsequently, was declared as a sick company by Board for Industrial and Financial Reconstruction (BIFR) and assessee entered into One Time Settlement (OTS) with its lending Bank whereunder the assessee got waiver of the principal amount of loan and once waiver was granted, then assessing authority adopted Nil value of the opening W.D.V. of fixed assets and thereby disallowed the depreciation claimed - HELD THAT - As various decisions relied upon by assessee it can be concluded that waiver or write of loan taken for purchase of asset cannot reduce the WDV of asset. Regarding the decision of Hon ble Supreme Court in Tata Iron Steels 1997 (12) TMI 5 - SUPREME COURT we find that the said decision dealt with a situation of exchange gain which arose to assessee from fluctuation in exchange-rate at the time of repayment of loan (the loan was originally taken for acquisition of assets) and the department wanted to reduce the cost of asset by amount of gain and thereafter allow depreciation on reduced cost - As this decision was not on the issue of waiver of bank loan. But while deciding the same, as clearly observed that the manner of repayment of loan cannot affect the cost of asset. The actual cost must depend on the amount paid by the assessee to acquire the cost. The amount may have been borrowed by the assessee but even if the assessee did not repay the loan, it will not alter the cost of asset. This observation-cuminterpretation given by Hon ble Supreme Court has also been used by ITAT, Bangalore in Akzo Nobel Coatings 2013 (1) TMI 311 - ITAT BANGALORE Thus we too hold that the AO is not justified to reduce WDV of assets to Rs. Nil and thereby disallow any part of depreciation. Consequently, we direct the AO to allow depreciation fully as claimed by assessee. Assessee s ground is allowed. Delayed payment of employees contribution to Provident Fund (PF) - Addition deleted by CIT(A) - HELD THAT - the employees contribution to PF falls, nature-wise and specifically, u/s 36(1)(va) and the same goes out of scope of section 37(1). Being so, we not inclined to remand this issue back to AO for any re-adjudication as prayed for by Ld. AR. As held by Hon ble Supreme Court in Checkmate Service 2022 (10) TMI 617 - SUPREME COURT we approve the disallowance made by AO. Revenue s ground is allowed. Disallowance of prior period expenses - expenses did not relate to the year under consideration - HELD THAT - When the Ld. AR claimed that the impugned expenditure has crystallised during the year, we asked Ld. AR to show the details of expenditure. In reply, the Ld. AR submitted his inability to submit details for the reason that the assessee-company has already closed functioning much earlier, it has become a sick company and no details are forthcoming from assessee. Since it is an undisputed fact that the expenditure are prior-period and no assistance is coming from assessee on the details of expenditure, much less having crystallised in current year, we have no reason to interfere with the orders of lower-authorities. Therefore, we uphold the disallowance made by AO. Revenue s ground is allowed. Cessation of liability - addition u/s 41(1) - amounts payable to 11 creditors (list is made by AO in assessment-order) were due for last three years - HELD THAT - We find that the AO has simply invoked section 41(1) because the amounts were outstanding for three years but there is no evidence brought by him that the liability has really ceased to exist. It is now a settled judicial view that the time-factor is not relevant for the purpose of section 41(1), the revenue has to either demonstrate that the liability has really ceased to exist or the assessee has written off liability in books of account. But, in present case, there is none. Therefore, Ld. CIT(A) is very much correct in deleting the addition. We subscribe to the order of CIT(A). Revenue s ground is dismissed.
Issues Involved:
1. Disallowance of foreign travel expenses. 2. Disallowance of depreciation on plant and machinery. 3. Disallowance of delayed payment of employees' contribution to Provident Fund (PF). 4. Disallowance of prior period expenses. 5. Addition under section 41(1) for cessation of liability. Summary: 1. Disallowance of Foreign Travel Expenses: The assessee's appeal for AY 2012-13 included a ground regarding the disallowance of Rs. 2,70,708/- out of foreign travel expenses. The Assessing Officer (AO) disallowed these expenses, deeming them personal in nature. The CIT(A) upheld the AO's decision without independent findings. The Tribunal found that the expenses were business-related and deleted the disallowance, allowing the assessee's ground. 2. Disallowance of Depreciation on Plant and Machinery: For AY 2012-13, the AO disallowed the entire depreciation claimed by the assessee amounting to Rs. 3,89,37,375/-, citing a waiver of the principal loan amount under an OTS. The CIT(A) partially upheld the disallowance to the extent of Rs. 1,82,66,673/-. The Tribunal, relying on judicial precedents, held that the waiver of loan does not reduce the WDV of assets and directed the AO to allow full depreciation as claimed by the assessee. Similar grounds for AYs 2013-14, 2014-15, and 2015-16 were also allowed in favor of the assessee. 3. Disallowance of Delayed Payment of Employees' Contribution to Provident Fund (PF): For AY 2012-13, the AO disallowed Rs. 7,48,230/- due to delayed payment of employees' PF contributions, which was deleted by the CIT(A). The Tribunal, following the Supreme Court's decision in Checkmate Services (P) Ltd., upheld the AO's disallowance, reversing the CIT(A)'s decision. Similar grounds for AYs 2014-15 and 2015-16 were also allowed in favor of the Revenue. 4. Disallowance of Prior Period Expenses: For AY 2012-13, the AO disallowed Rs. 4,50,271/- claimed as prior period expenses, which the CIT(A) deleted. The Tribunal upheld the AO's disallowance, noting the CIT(A)'s contradictory findings. For AY 2013-14, the Tribunal upheld the disallowance of Rs. 1,50,946/- due to the assessee's inability to substantiate the expenditure. 5. Addition under Section 41(1) for Cessation of Liability: For AY 2013-14, the AO added Rs. 8,41,705/- under section 41(1), presuming cessation of liability due to long-standing dues. The CIT(A) deleted the addition, citing judicial precedents that mere passage of time does not indicate cessation of liability. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground. Final Result: - Assessee's appeals for AYs 2012-13, 2014-15, and 2015-16 were allowed. - Assessee's appeal for AY 2013-14 was partly allowed. - Revenue's appeals for AYs 2012-13, 2014-15, and 2015-16 were partly allowed. - Revenue's appeal for AY 2013-14 was dismissed. Order Pronounced: The order was pronounced in the open court on 24.08.2023.
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