2013 (9) TMI 74 - AT - Income Tax

Expenditure incurred on renovation of showrooms on rented premises - Revenue or capital expenditure - Held that - ownership of assets would continue to remain with the assessee only. Hence, the view of the learned Commissioner of Income-tax (Appeals) is contrary to the facts - the assessee has installed equipments, which can be removed and also can be taken back and reused in some other place - assessee would continue to be the owner of these equipments, though they were installed in the premises of the dealer - Therefore equipments have to be considered as the capital assets of the assessee-company - Decided in favour of Revenue. Club Entrance fees and expenditure on services availed from the club - Expenditure incurred towards entrance fee/subscription can be termed as business expenditure. With regard to the cost of services, it is the responsibility of the assessee to show the commercial expediency in incurring the same. In the absence of the same, the Assessing Officer was justified in disallowing the sum of ₹ 1,48,212. Disallowance u/s 43B - Provision for payment of bonus - Assessing Officer had made similar disallowance in respect of claim of bonus payment in the assessment year 2002-03, i.e., provision created for the year ending March 31, 2001 was paid during the year relevant to the assessment year 2002-03 and was claimed in that year - Held that - Simply because the assessee has not claimed a particular deduction, it cannot be said to be a colourable device - The deduction relates to payment of bonus which has actually been paid in the present year and deduction has been claimed as per section 43B. Such deduction has been claimed on consistent basis in the year of payment and, therefore, no adverse inference should have been taken - Decided against Revenue. Bebts and advances written off - Held that - t the advances of ₹ 28,67,407 given for acquisition of capital assets is liable to be disallowed as capital loss and the advances of ₹ 2,32,93,575 given for acquisition of revenue items is allowable under section 37 of the Act as current expenses.

Issues Involved:
1. Claim of expenditure on showroom renovation as revenue expenditure.
2. Disallowance of interest and processing charges on a loan from International Finance Corporation.
3. Disallowance of payment to clubs as non-business expenditure.
4. Claim of deferred sales tax payment.
5. Claim of deduction of bonus amount.
6. Disallowance of depreciation and repair charges on let-out properties.
7. Reduction of proportionate head office expenses for computation of deduction under section 80-IA.
8. Claim of debts and advances written off.
9. Nature of provision for bonus and leave encashment for computation of book profit under section 115JB.
10. Eligibility of DG power generation units for deduction under section 80-IA.

Detailed Analysis:

1. Claim of Expenditure on Showroom Renovation as Revenue Expenditure:
The assessee claimed Rs. 56,35,059 as revenue expenditure for showroom renovation, which included purchasing equipment for dealers' branded showrooms. The Assessing Officer treated this as capital expenditure, disallowing the amount minus depreciation. The Commissioner of Income-tax (Appeals) deleted this disallowance, treating it as sales or publicity expenses. However, the Tribunal found that the ownership of the equipment remained with the assessee, thus treating it as capital assets and restoring the disallowance.

2. Disallowance of Interest and Processing Charges on Loan:
The assessee capitalized Rs. 3,53,95,231 in interest and processing charges on a loan for a new industrial unit but claimed it as revenue expenditure. The Assessing Officer treated it as capital expenditure. The Commissioner of Income-tax (Appeals) allowed the claim, following the Supreme Court's decisions in India Cements Ltd. and other cases. The Tribunal upheld this decision, aligning with the jurisdictional High Court's ruling favoring the assessee.

3. Disallowance of Payment to Clubs:
The assessee incurred Rs. 3,51,602 in club expenses, with Rs. 2,03,390 for membership fees and Rs. 1,48,212 for services. The Assessing Officer disallowed the service costs, which the Commissioner of Income-tax (Appeals) deleted. The Tribunal found merit in the Assessing Officer's action, allowing only membership fees as business expenditure and restoring the disallowance of service costs.

4. Claim of Deferred Sales Tax Payment:
The assessee claimed Rs. 3,85,29,891 as deferred sales tax payment under section 43B. The Assessing Officer and Commissioner of Income-tax (Appeals) disallowed this claim. The Tribunal noted the need for verification of earlier years' claims and restored the issue to the Assessing Officer for fresh examination.

5. Claim of Deduction of Bonus Amount:
The assessee claimed Rs. 3,75,44,731 in bonus payments on a "payment basis" under section 43B. The Assessing Officer disallowed it, suggesting it should have been claimed in the previous year. The Commissioner of Income-tax (Appeals) allowed the claim, and the Tribunal upheld this decision, following its earlier ruling in the assessee's favor.

6. Disallowance of Depreciation and Repair Charges on Let-out Properties:
The assessee's claim of Rs. 27,27,505 in depreciation and repair charges on let-out properties was disallowed by the Assessing Officer and confirmed by the Tribunal, following its earlier decision.

7. Reduction of Proportionate Head Office Expenses:
The Assessing Officer reduced Rs. 1,92,61,930 from the DG power generation unit's profit for head office expenses. The Commissioner of Income-tax (Appeals) set aside this reduction. The Tribunal modified this, allowing an ad hoc reduction of Rs. 12 lakhs and setting aside the interest expenditure determination to the Assessing Officer.

8. Claim of Debts and Advances Written Off:
The assessee claimed Rs. 8,74,73,974 in written-off debts and advances. The Assessing Officer disallowed Rs. 28,67,407 as capital loss and Rs. 2,32,93,575 as non-allowable under section 36(1)(vii). The Tribunal upheld the disallowance of capital loss but allowed the revenue advances under section 37, modifying the Commissioner of Income-tax (Appeals)'s order.

9. Nature of Provision for Bonus and Leave Encashment:
The Assessing Officer treated Rs. 38,22,370 for bonus and Rs. 27,74,176 for leave encashment as unascertained liabilities. The Commissioner of Income-tax (Appeals) reversed this. The Tribunal upheld the reversal for bonus and set aside the leave encashment issue to the Assessing Officer to verify actuarial valuation.

10. Eligibility of DG Power Generation Units for Deduction:
The Assessing Officer rejected the section 80-IA deduction for DG power generation units. The Commissioner of Income-tax (Appeals) allowed it, following his earlier order. The Tribunal upheld this, consistent with its previous decision favoring the assessee.

Conclusion:
The appeal I.T.A. 430/Coch/06 is partly allowed, and I.T.A. 378/Coch/09 is dismissed. The Tribunal's detailed analysis includes upholding, modifying, and restoring various decisions based on legal precedents and factual verifications.

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