2011 (1) TMI 1242 - AT - Income Tax

Disallowance of expenses Expenses incurred on interior decoration, extension and renovation of various buildings on lease Held that - The expenditures are on the interior decorations and creation of the office atmosphere - The expenditure has not resulted in any building coming into existence nor has the existing building been modified or the structure altered - As the existing building has not been altered and there is no change to its structure as a result of the expenditure incurred by the assessee, it cannot be said that the expenditure incurred by the assessee is in the capital field - the expenditure on the repairs and maintenance in the form of electrical fittings, electrification, cabinet, work station, partition, cupboard, stand etc. are liable to be treated as a revenue expenditure Order of the CIT(A) reversed also the depreciation as allowed by the Assessing Officer on the said expenditure which has been capitalized would stand reversed Decided in favour of Assessee. Enhancement of disallowance made u/s 14A of the Act r.w Rule 8D of the Rule Held that - The decision in GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER 2010 (8) TMI 77 - BOMBAY HIGH COURT followed - no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such income which does not form part of the total income under the Act, by virtue of the provisions of Section 14A(1) - the issue of enhancement has not been challenged by the assessee - the issue of disallowance by application of sec. 14A is restored to the file of the Assessing Officer for re-adjudication. Deletion made for prior paid expenses Computation of book profits u/s 115JB of the Act Held that - The decision in CIT v. Khaitan Chemicals And Fertilizers Ltd 2008 (9) TMI 89 - DELHI HIGH COURT followed - the net profit (as referred to in Section 115 JA) of the assessee company is to be computed only after deducting the expenses on prior period / extraordinary items which are business expenditure the expenses which have been disclosed as for prior period items/extra-ordinary items are part of the profit & loss account and properly deductible in computing the book profits the order of the CIT(A) upheld Decided against Revenue. LTA treated as benefit granted to employees Liability to pay Fringe benefit tax Held that - The LTA is treated as a perquisite and part of the salary and TDS has also been deducted therefrom, in view of the circular issued by the CBDT the same is not liable for the Fringe Benefit Tax order of the CIT(A) set aside Decided in favour of Assessee.

Summary

Issues involved:
1. Disallowance of expenses incurred on interior decoration, extension, and renovation of buildings.
2. Disallowance under section 14A of the Income Tax Act.
3. Inclusion of prior period expenses for computing book profit under section 115JB.
4. Treatment of LTA benefit as liable to Fringe Benefit Tax.

Issue 1: Disallowance of expenses on interior decoration, extension, and renovation:
In ITA No. 518/Mds/2010, the issue revolved around disallowance of expenses incurred on interior decoration, extension, and renovation of buildings. The assessee challenged the CIT(A)'s decision confirming the disallowance of expenses amounting to Rs. 19,61,421. The authorized representative argued that the expenses were for making leased premises suitable for office use and were revenue expenditures, not capital. The Tribunal analyzed the nature of expenses, determining that they did not result in the creation or modification of a building structure. Consequently, the Tribunal held the expenses to be revenue in nature, reversing the CIT(A) and Assessing Officer's orders, directing the grant of revenue expenditure treatment.

Issue 2: Disallowance under section 14A of the Income Tax Act:
Regarding grounds No. 6 to 8 in ITA No. 518/Mds/2010, the authorized representative contested the CIT(A)'s enhancement of disallowance under section 14A without prior notice. Both parties agreed to restore the issue to the Assessing Officer for re-adjudication considering relevant case law. The Tribunal acknowledged the lack of challenge to the enhancement and restored the disallowance issue to the Assessing Officer for proper re-evaluation, emphasizing adherence to legal provisions and the decision of the Bombay High Court.

Issue 3: Inclusion of prior period expenses for computing book profit under section 115JB:
In ITA No. 710/Mds/2010, the Revenue challenged the CIT(A)'s deletion of prior period expenses worth Rs. 1,52,00,000 for computing book profit under section 115JB. The Tribunal noted the Revenue's reliance on a previous ITAT decision, which was deemed outdated post the Supreme Court's ruling in another case. Considering the decision of the Delhi High Court, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Issue 4: Treatment of LTA benefit as liable to Fringe Benefit Tax:
In ITA No. 519/Mds/2010, the issue centered on treating the LTA benefit granted to employees as subject to Fringe Benefit Tax. The authorized representative argued that as per CBDT circular and relevant documents, the LTA was part of the salary and not subject to Fringe Benefit Tax. The Tribunal agreed, reversing the CIT(A) and Assessing Officer's decisions and allowing the assessee's appeal.

In conclusion, the Tribunal partially allowed the assessee's appeal in ITA No. 518/Mds/2010 for statistical purposes, dismissed the Revenue's appeal in ITA No. 710/Mds/2010, and allowed the assessee's appeal in ITA No. 519/Mds/2010. The judgments were pronounced on 07/1/2011.