2012 (4) TMI 128 - HC - Income Tax

Premium paid on redemption of debentures capital expenditure vs revenue expenditure - NCD issued in F.Y. 1984-85, liable to be redeemed in F.Y. 1991-92 at a premium of ₹ 15 lakhs - AY 1992-93 Held that -Amount paid towards premium is the liability which the assessee incurred for the purpose of its business in order to obtain the use of the funds for the period covered by the issue of NCD. Therefore in view of decision in case of Madras Industrial Investment Corporation Ltd v CIT (1997 (4) TMI 5 - SUPREME Court) actual premium paid upon the redemption of the debentures would have to be classified as revenue expenditure Decided in favor of assessee. Set off of short term capital loss against short term capital gain arising on sale of debentures and units - deduction u/s 80M without adjusting the loss on sale of shares Held that - Same has been decided in favor of assessee in view of decision in case of CIT Vs. Walfort Share and Stock Brokers P. Ltd. (2010 (7) TMI 15 - SUPREME COURT) Deletion of addition by Tribunal in value of inventory and goods in process made by A.O Held that - Matter is restored back to Tribunal for deciding afresh on the finding that there was no independent application of mind by the Tribunal.

Summary

Issues:
1. Disallowance of foreign expenses incurred on the relatives of the Directors
2. Disallowance of pre-operative expenses for the establishment of textile and files division
3. Set off of short term capital loss against short term capital gain
4. Deduction under Section 80M without adjusting the loss on sale of shares
5. Allowance of actual premium paid on redemption of debentures as revenue expenditure
6. Deletion of addition in the value of inventory
7. Deletion of addition in the value of goods in process

Analysis:

1. The judgment addressed the disallowance of foreign expenses incurred on the relatives of the Directors. The ITAT's decision to delete this disallowance was reversed in favor of the Revenue based on a companion judgment related to AY 1991-92.

2. Regarding the disallowance of pre-operative expenses for the establishment of textile and files division, it was found that this question was covered by a previous judgment related to the Assessment Year 1990-91, and it did not raise any substantial question of law.

3. The issue of set off of short term capital loss against short term capital gain was discussed, and it was determined that this question was already settled by a Supreme Court judgment in favor of the assessee.

4. Similarly, the deduction under Section 80M without adjusting the loss on the sale of shares was also found to be covered by a Supreme Court judgment in favor of the assessee.

5. The judgment extensively analyzed the allowance of the actual premium paid on the redemption of debentures as revenue expenditure. It referred to previous cases and Supreme Court decisions to establish that the premium paid should be classified as revenue expenditure.

6. The deletion of addition in the value of inventory and goods in process was discussed. The Court directed a fresh decision by the Tribunal due to the lack of independent evaluation by the Tribunal in a companion case.

In conclusion, the judgment resolved various issues related to income tax appeals for the Assessment Year 1992-93, providing detailed reasoning and legal references for each issue raised by the Revenue and the assessee.