2011 (1) TMI 1205 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of advertisement expenditure.
2. Disallowance of interest on advances to an associate company.
3. Disallowance of sundry balances written off.
4. Disallowance of bad debts.
5. Adjustment under section 92CA.
6. Non-grant of depreciation on intangible assets.
7. Levy of interest under sections 234B and 234D.

Issue-wise Detailed Analysis:

1. Disallowance of Advertisement Expenditure:
The first appellate authority treated the advertisement expenditure as business expenditure but disallowed the expenditure of the last quarter based on the date of release of advertisements. The Tribunal referenced its earlier decision for the assessment year 2002-2003, where the expenditure was allowed as revenue expenditure. The Tribunal followed this precedent and allowed the expenditure for the assessee.

2. Disallowance of Interest on Advances to an Associate Company:
The issue pertains to disallowance of interest on advances to M/s Ezeego, an associate company. The Tribunal, referencing its earlier decision for the assessment year 2002-2003, found that the issue needs reconsideration and remanded it to the Assessing Officer for fresh adjudication to examine the commercial expediency of the advances.

3. Disallowance of Sundry Balances Written Off:
The Tribunal allowed the write-off of sundry balances as business expenditure except for the TDS amount written off. The amounts written off included bills receivable for customers and advances given to suppliers, which were considered irrevocable and thus allowable as business losses under section 28.

4. Disallowance of Bad Debts:
The issue of bad debts was covered in favor of the assessee by the Supreme Court decision in the case of T.R.F. Ltd. v. CIT. Following this precedent, the Tribunal dismissed the Revenue's ground on this issue.

5. Adjustment under Section 92CA:
The Tribunal noted that a similar issue had been remanded to the Assessing Officer for fresh adjudication in the assessee's own case for the assessment year 2002-2003. The Tribunal followed the same approach and remanded the issue for fresh adjudication in accordance with the law.

6. Non-grant of Depreciation on Intangible Assets:
The Tribunal found that the factual issues regarding the depreciation on intangible assets, specifically the customer database, were not properly examined by the lower authorities. The matter was remanded to the Assessing Officer for fresh adjudication after considering all factual aspects and arguments.

7. Levy of Interest under Sections 234B and 234D:
The levy of interest under section 234B was deemed consequential. For section 234D, the Tribunal referenced the jurisdictional High Court's decision in the case of CIT v. Bajaj Hindustan Ltd., which held that the levy of interest under section 234D is applicable from the assessment year 2004-2005. Consequently, the Tribunal canceled the levy of interest under section 234D for the relevant assessment year.

Conclusion:
The assessee's appeal (ITA. No. 3751/Mum/2007) was allowed in part, with certain issues remanded for fresh adjudication. The Revenue's appeal (ITA. No. 4165/Mum/2007) was also allowed in part, with some issues dismissed and others remanded for further examination.