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2013 (11) TMI 1279 - AT - Income TaxComputation of Depreciation on Machinery - Non-deduction of Non-Refundable Deposits - Held that - it cannot be said that the dealers have contributed money for purchase of these machineries - the question of adjustment of security deposit against the cost of assets for the purpose of computation of depreciation does not arise - With regard to the amount of security deposit collected from the customers, we notice from the agreement that it remains the liability of the assessee till the agreement is cancelled - So long as the agreement remains in force, the security deposit will remain as the liability of the assessee - it is clearly provided in the agreement that the dealer shall hold the machineries in trust - The question of refund/adjustment of deposit arises only on the event of the dealer choosing to give up/discontinue the Car Radial Business - It cannot be said that the dealers have contributed money for purchase of the machineries thus, the question of adjustment of security deposit against the cost of assets for the purpose of computation of depreciation does not arise Depreciation on machinery Expenses incurred on clubs Depreciation on Let Out Property - Deduction u/s 80IA - Held that - The expenditure incurred towards entrance fee/subscription can be termed as business expenditure and the cost of services can be allowed only if the commercial expediency in incurring the same was proved - the details furnished by the assessee required verification at the end of the AO - the depreciation claimed on let out properties - the order of Ld CIT(A) on this issue and restore the addition made by the AO - deduction u/s 80IA of the Act on the D.G. power generation units I & II by considering the same as an undertaking for the purposes of sec. 80IA of the Act - Both the parties agreed that this issue has been decided in favour of the assessee. Claim of Amount Written as Irrecoverable - Write off of irrecoverable advance paid for purchase of machineries Held that - The advance written off is a loss of capital, hence not allowable as deduction Following Swadeshi Cottom Mills Co. Ltd. Vs. CIT 1966 (9) TMI 32 - SUPREME Court - compensation payable for breach of contract to purchase capital asset is a capital expenditure and CIT vs. Mysore Sugar Co. Ltd. 1962 (5) TMI 3 - SUPREME Court - loss of capital nature is not deductible while calculating business income - The advances given for acquisition of Capital assets was liable to disallowed as Capital loss and the advances given for acquisition of revenue items was allowable u/s 37 of the Act as current expenses. Setting off of Long Term Capital Loss - Loss on sale of equity shares and Mutual fund units against long term capital gain earned on sale of land Held that - In order to claim exemption u/s. 10(38) of the Income Tax Act, the assessee had to prove that they have complied with the conditions stated therein - Since the compliance had not been proved the exemption u/s. 10(38) of the Income Tax Act cannot be granted to the assessee - once income which included loss was exempt, the same cannot be taken for computation - exemption u/s. 10 was granted not as per claim of the assessee but as per fulfilment of conditions stipulated - Sec. 70 provided for set off of loss from one source against income from another source under the same head of income - The very scheme of such set off implied that the source in respect of which a loss had occurred, was such that, had there been profit instead of loss they would have been chargeable to tax - In the assessee s case Long Term Capital Gain on sale of land was taxable whereas Long Term Capital gain on sale of share on which SIT had been paid was exempt. Addition of Deferred Tax Liability Computation of book profit u/s 115JB of the Act - Held that - Both the parties agreed that the provisions of sec. 115JB have been amended by Finance Act, 2008 with retrospective effect from 1.4.2001, as per which the amount of deferred tax and the provision thereof was liable to added to the net profit for the purpose of computation of book profit. Weighted Deduction on scientific research expenditure - Weighted deduction @ one and one half times of the expenditure - Held that - The issue was not examined by the assessing officer Accordingly the instant claim made by the assessee was required to be examined by the assessing officer issur remanded back with the direction to examine the claim of the assessee and take appropriate decision in accordance with the law. Deduction of Quality Loss Claim from Export Market - Held that - The assessee was not entitled to claim deduction relating to Quality claims - Following M/s MIL Controls limited Vs. CIT 2011 (6) TMI 495 - Kerala High Court - The assessee was putting forth claim for deduction of expenditure relating to Quality Claim only for the reason that the said claim was disallowed in the hands of M/s PTL Enterprises Ltd, even though the said company had accepted the liability for the same - the disallowance was made in the hands of M/s PTL Enterprises Ltd for the reason that the said assessee failed to furnish any proof.
Issues Involved:
1. Depreciation on machinery installed in the showrooms of dealers. 2. Non-deduction of non-refundable deposits collected from the dealers for the purpose of computation of depreciation. 3. Expenditure incurred in the clubs. 4. Depreciation on the portion of the building, which has been let out. 5. Granting of deduction u/s 80IA on the "D.G. Power Units I & II. 6. Write off of irrecoverable advance paid for the purchase of machineries. 7. Setting off of long-term capital loss incurred on the sale of equity shares/units against long-term capital gain earned on the sale of land. 8. Addition of "deferred tax liability" while computing book profit u/s 115JB of the Act. 9. Weighted deduction on the expenditure incurred on scientific research. 10. Deduction for loss incurred on quality claims raised in the export market. Detailed Analysis: 1. Depreciation on Machinery Installed in the Showrooms of Dealers: The assessee installed machinery at dealers' premises and claimed the cost as revenue expenditure. The AO disallowed the claim, classifying it as capital expenditure and denying depreciation since the machinery was not used by the assessee. The Ld CIT(A) agreed it was capital expenditure but allowed depreciation, reasoning that the machinery was used for business purposes to provide better after-sales service. The Tribunal upheld this view, stating the machinery was part of a business strategy and the security deposit collected from dealers remained a liability, not reducing the cost of the asset for depreciation purposes. 2. Non-Deduction of Non-Refundable Deposits: The AO suggested depreciation should only be allowed on 50% of the machinery cost since the assessee collected security deposits from dealers. The Tribunal upheld Ld CIT(A)'s view that the security deposit remained a liability and did not contribute to the purchase of machinery, thus not affecting the depreciation calculation. 3. Expenditure Incurred in the Clubs: The assessee claimed club expenditure as business expenditure. The AO disallowed this claim but Ld CIT(A) reversed the decision. The Tribunal referred to a previous decision, allowing entrance fees/subscription as business expenditure if commercial expediency is proved. The Tribunal directed the AO to verify the details and take an appropriate decision. 4. Depreciation on the Portion of the Building Let Out: Both parties agreed that the issue was previously decided against the assessee by the Tribunal. Following prior decisions, the Tribunal restored the AO's addition, disallowing depreciation on the let-out property. 5. Deduction u/s 80IA on the "D.G. Power Units I & II": The Tribunal had previously ruled in favor of the assessee, considering the power units as an "undertaking" for sec. 80IA. The Tribunal upheld Ld CIT(A)'s order granting the deduction. 6. Write Off of Irrecoverable Advance Paid for Purchase of Machineries: The assessee wrote off an advance given for machinery purchase as the deal did not materialize. The AO disallowed the claim, stating it was not allowable under sec. 36(1)(vii). Ld CIT(A) classified it as a capital loss, not deductible as business expenditure. The Tribunal upheld this view, referencing prior decisions that such advances for capital assets, when irrecoverable, are capital losses. 7. Setting Off of Long-Term Capital Loss Against Long-Term Capital Gain: The assessee set off long-term capital loss on shares against long-term capital gain on land. The AO disallowed this, stating sec. 10(38) exempts gains from shares, thus losses cannot be set off. The Tribunal agreed, affirming that exempt income (or loss) cannot be included in the computation under sec. 70. 8. Addition of "Deferred Tax Liability" While Computing Book Profit u/s 115JB: The Tribunal noted the retrospective amendment by Finance Act, 2008, which mandates adding deferred tax to net profit for book profit computation. Ld CIT(A)'s decision to follow this amendment was upheld. 9. Weighted Deduction on Scientific Research Expenditure: The assessee's claim for weighted deduction was admitted as a legal issue. The Tribunal directed the AO to examine the claim, noting the approval for the research program was granted from 1.4.2007. 10. Deduction for Loss Incurred on Quality Claims: The assessee claimed quality loss passed on to a group company. The Tribunal noted the disallowance in the group company's assessment due to lack of proof. Referring to a High Court decision on related party transactions, the Tribunal rejected the assessee's claim, emphasizing the need for detailed justification of such expenses. Conclusion: Both the revenue's and the assessee's appeals were treated as partly allowed for statistical purposes. The Tribunal's decisions were based on prior rulings, legal provisions, and the necessity for detailed verification of claims.
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