2012 (5) TMI 435 - AT - Income Tax

Deleting the addition by CIT (A) on account of treatment of dead stock expenses as capital expenses Held that - Examining the details of dead stock expenses , the expenses incurred for purchase of TV, Refrigerator, Battery and Office table etc. are to be capitalized and the same is not allowable as revenue expenditure - the disallowance was rightly made by the AO and the order of ld. CIT(A) is not sustainable in favour of revenue. Deleting the addition by CIT (A) on account of treatment of land restoration expenses as capital expenses - Held that - No finding of ld. CIT(A) that the receipts on this account are not declared as income in the present year then even if it is accepted that these expenses are in connection with laying of pipe lines, the same has to be added to the value of closing stock and it will not be allowable as expenditure in the present year remand back matter to the file of ld. CIT(A) for fresh adjudication whether the receipt on account of laying of pipe lines in respect of which it is claimed that the land leveling expenses were incurred have been shown as income in the present year or not - order of ld. CIT(A) is not sustainable in favour of revenue. Deleting the addition by CIT(A) on account of treatment of stamp duty expenses as capital expenses Held that - Merely making contention that stamp duty expenses were incurred for obtaining loan cannot be accepted unless the same is supported by some evidence - since there is no mention in the order of ld. CIT(A) or in the submission made about evidence and no reply or evidence was produced before the AO, the disallowance made by the AO is justified and the order of ld. CIT(A) for deleting the addition is not sustainable in favour of revenue. Deleting the addition by CIT (A) on account of disallowance of depreciation Held that - Simply because the payment is made by cheque and some entries are made in the inward register, it cannot be accepted that the assets were procured and were put to use and hence depreciation is allowable - No such bill has been produced by the assessee before ld. CIT(A) regarding the purchase of assets or evidence in respect of putting into use of the assets- in favour of revenue.

Issues:
1. Treatment of dead stock expenses as capital expenses.
2. Treatment of land restoration expenses as capital expenses.
3. Treatment of stamp duty expenses as capital expenses.
4. Disallowance of depreciation.

Analysis:

1. Treatment of Dead Stock Expenses as Capital Expenses:
The AO disallowed Rs.7,05,525/- as capital expenditure, considering furniture items as fixed assets. The assessee failed to provide explanations, leading to the disallowance. However, the CIT(A) deleted the disallowance, stating that the expenses pertained to spares consumed such as chairs, tables, utensils, etc., used on various sites. The ITAT reversed the CIT(A)'s decision, noting specific expenses like TV, refrigerator, battery, and office table, which are to be capitalized, not treated as revenue expenditure. Therefore, the ITAT allowed ground No.1.

2. Treatment of Land Restoration Expenses as Capital Expenses:
The AO disallowed Rs.79,41,759/- as capital expenses for land restoration without receiving any explanation from the assessee. The CIT(A) accepted the argument without examining details or obtaining a remand report. The ITAT found discrepancies in the treatment of these expenses, especially regarding income declaration from laying pipelines, and remanded the issue back to the CIT(A) for fresh adjudication. Ground No.2 was allowed for statistical purposes.

3. Treatment of Stamp Duty Expenses as Capital Expenses:
The AO disallowed Rs.9,02,150/- as capital expenses for stamp duty, as no explanation was provided by the assessee. The CIT(A) deleted the disallowance based on the submission that the expenses were for obtaining loans. However, the ITAT found insufficient evidence supporting this claim and reversed the CIT(A)'s decision, restoring the AO's order. Ground No.3 was allowed.

4. Disallowance of Depreciation:
The AO disallowed Rs.9,60,081/- depreciation due to the lack of evidence regarding asset purchase and usage. The CIT(A) reversed this disallowance, citing missing bills due to office shifting, supported by cheque payments and gate inward entries. The ITAT found the CIT(A)'s decision lacking basis and evidence, reversing it to restore the AO's order. Ground No.4 was allowed.

In conclusion, the ITAT allowed the revenue's appeal on all grounds, emphasizing the need for proper evidence and justification for expenses to be treated as capital or revenue expenditure.

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