2013 (7) TMI 221 - AT - Income Tax

Slum Rehabilitation Authority charges - revenue v/s capital - Held that - CIT(A) after proper application of mind has bifurcated the SRA expenses into two categories i.e. one which are in the nature of capital expenses and the other which are in the nature of revenue expenses treating the deposits i.e. Maintenance deposit of Rs. 7,36,700/- and Maintenance Deposit of Rs. 1,12,000/- as capital expenses, however rest of the expenses have been treated as revenue expenses being incurred on account of development charges, interest on development charges and infrastructure charges being incurred by the assesee for getting the income of Rs. 77,50,080/- towards the sale of TDR. No infirmity relating to the finding of the CIT(A) which has been made after proper application of mind. Disallowance of expenses on building materials - CIT(A) deleted disallowance of Rs. 3,50,370/- out of total disallowance of Rs. 6,38,756/- - Held that - CIT(A) separately dealt with each type of expenses in view of the evidence and explanation furnished before him by the appellant and also taking into consideration the remand report of the Assessing Officer. There were certain expenses incurred by the Assessee, even after completion of the project which were claimed by the Assessee. The disallowance pertaining to the expenses which were supported with bills etc. has rightly been deleted by the CIT(A) whereas the disallowance of expenses which were not supported with proper bills have rightly been sustained by the CIT(A). The finding of the CIT(A) on this issue is hereby upheld. Disallowance of maintenance, telephone, vehicle etc. - CIT(A) sustained part disallowance - Held that - CIT(A) has held that the disallowance of 20% made by A.O. was right and also sustained the said addition made by the A.O. towards Vehicle expenses as well as telephone expenses, however he has deleting the disallowance made by the A.O. under the head Repair and Maintenance . The revenue has not contested the deletion of the disallowance under the head Repair & Maintenance rather revenue has appealed against the deletion of 20% depreciation on motor car expenses which in fact has not been deleted by the CIT(A), rather has been sustained. Appeal of revenue dismissed.

Summary

Issues Involved:

1. Nature of SRA charges: Capital vs. Revenue Expenditure.
2. Deletion of disallowance on building material expenses.
3. Disallowance of maintenance, telephone, vehicle expenses, and depreciation.

Detailed Analysis:

1. Nature of SRA Charges: Capital vs. Revenue Expenditure

The primary issue was whether the SRA charges amounting to Rs. 56,42,066/- should be classified as capital or revenue expenditure. The Assessing Officer (A.O.) disallowed the expenditure, considering it as capital in nature, primarily because these payments were seen as deposits and development charges. The CIT(A) partially allowed the appeal, bifurcating the expenses into capital and revenue categories. The CIT(A) confirmed the disallowance of Rs. 18,56,700/- as capital expenditure but allowed Rs. 37,85,366/- as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, affirming that the bifurcation was done after proper application of mind, distinguishing between deposits (capital) and development charges, interest, and infrastructure charges (revenue).

2. Deletion of Disallowance on Building Material Expenses

The second issue pertained to the deletion of Rs. 3,50,370/- out of a total disallowance of Rs. 6,38,750/- on building material expenses. The CIT(A) deleted the disallowance after considering the remand report and additional evidence provided by the assessee. The remand report verified certain purchases as genuine, while others could not be verified due to lack of supporting bills. The CIT(A) sustained the disallowance of Rs. 2,28,117/- for expenses without proper verification and allowed the rest. The Tribunal upheld this decision, noting that the CIT(A) had correctly differentiated between verified and unverified expenses.

3. Disallowance of Maintenance, Telephone, Vehicle Expenses, and Depreciation

The third issue involved the disallowance of Rs. 1,25,840/- on maintenance, telephone, vehicle expenses, and depreciation. The CIT(A) sustained a disallowance of Rs. 46,088/- after examining the bifurcation of expenses paid in cash and by cheque. The CIT(A) upheld the A.O.'s 20% disallowance on vehicle and telephone expenses due to the possibility of personal use but deleted the disallowance under 'Repair and Maintenance'. The Tribunal noted that the revenue did not contest the deletion of the disallowance under 'Repair and Maintenance' and clarified that the CIT(A) had sustained the disallowance on motor car expenses, making Ground No. 4 of the revenue's appeal redundant.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order after a thorough examination of the evidence and proper application of legal principles. The bifurcation of SRA charges, verification of building material expenses, and partial disallowance of maintenance, telephone, and vehicle expenses were all upheld as reasonable and justified. The order was pronounced in the open court on April 30, 2013.