2015 (1) TMI 739 - AT - Income Tax

Depreciation on assets of the Vegetable Oil Division - Held that - Once an asset forms a part of block of assets and the business having been carried on the depreciation is allowable on the written down value (WDV) comprising of block of assets sole on as the business is being carried on by the Assessee then the condition of user of a particular asset is not applicable under the concept of allowing depreciation on block of assets as once the asset forms a part of block of assets it loses its individual WDV or identity. Accordingly we hold that the CIT(A) rightly allowed relief for the Assessee and orders of the ITAT have not been set aside or modified by any high forum. - Decided against revenue. Prior period expense disallowed - CIT(A) deleted the addition - Held that - It has been accepted that as per regular system of accounting followed by the Assessee the disputed expenses are always claimed in the year in which the same are quantified in view of above we inclined to hold that since the liability in respect of entire expenditure arose during the year under consideration. Therefore the same cannot be disallowed by holding them to be prior period expenditure. Hence the CIT(A) rightly granted relief for the Assessee and we decline to interfere with the impugned order in this regard. - Decided against revenue. Processing fees paid to banks and financial institutions - Revenue v/s capital expenditure - Held that - When the processing fee was paid for obtaining a loan for the purpose of business then it is a revenue expenditure and the same could not be disallowed hence the CIT (A) rightly deleted the addition in this regard. - Decided against revenue. Commission paid for processing loans from banks/financial institutions disallowed - CIT(A) deleted the addition - Held that - Assessee has submitted details of brokerage as well as amount of loan received and the name of the bank of financial institution from where the loans were obtained. Thus CIT(A) right hold that the respective progress rendered services to the Assessee for obtaining huge amounts of loans from banks and financial institutions. Therefore the brokerage expenses incurred in this regard has to be allowed as revenue expenditure and the CIT(A) rightly allow the same by deleting the impugned addition.- Decided against revenue. Exchange rate fluctuation - whether CIT(A) erred in not remanding the addition back to the AO and in giving directions to the AO in violation of Section 251 - Held that - Income for Assessment Year 2002-03 clearly observe that the Assessee has added back a sum of 64 lakhs in the computation of income for the Assessment Year 2002-03. Further we observe that deduction of 64 lakhs has been claimed on payment basis during the A.Y 2003-04. Thus the action of the CIT(A) on this issue is justified which is based on proper analysis of facts. Under theses circumstances the CIT(A) directed the AO to allow the relief subject to some verification of certain facts and the we are unable to see any perversity ambiguity or any other valid reason to interfere with the same. - Decided against revenue. Disallowance of brought forward losses and depreciation - Held that - Assessing Officer has not raised or disputed the issue of brought forward loses and unabsorbed depreciation and the Revenue is not allowed to create or re-open the issue which was not an issue of dispute before the authorities below. - Decided against revenue. Routine expenses dis allowance - Held that - The issue is restored to the file of Assessing Officer for proper examination and verification in the light of earlier and subsequent assessments of the Assessee. Needless to say that the AO shall provide due to opportunity of hearing for the Assessee during the fresh adjudication of the issue. The Assessing Officer is further directed to consider the explanation evidence and documents of the Assessee in the light of earlier and subsequent assessment orders of the assessee company in this regard. Decided in favour of assessee for the statistical purpose.

Issues Involved:
1. Depreciation on assets of the Vegetable Oil Division.
2. Deletion of prior period expenses.
3. Treatment of processing fees paid to banks and financial institutions as revenue expenditure.
4. Addition on account of commission paid for processing loans.
5. Remanding the addition on account of exchange rate fluctuation.
6. Disallowance of brought forward losses and depreciation.
7. General grounds raised by the Revenue.
8. Addition on account of provisions made towards various routine expenses at the end of the year.

Detailed Analysis:

Issue 1: Depreciation on Assets of the Vegetable Oil Division
The Revenue contended that the CIT(A) erred in allowing depreciation on the assets of the Vegetable Oil Division as the business was not conducted during the year, thus not satisfying the basic condition of Section 32 of the Income Tax Act, 1961. The Assessee's Representative argued that this issue had been examined and allowed in previous ITAT orders for earlier assessment years. The Tribunal held that once an asset forms part of a block of assets and the business is carried on, depreciation is allowable on the written down value (WDV) of the block of assets, regardless of the use of a particular asset. The CIT(A) rightly allowed the relief, and the Tribunal found no reason to interfere with this finding. Therefore, Ground No.1 of the Revenue was dismissed.

Issue 2: Deletion of Prior Period Expenses
The Revenue argued that the CIT(A) erred in deleting the addition of prior period expenses amounting to Rs. 1,36,51,602/-, claiming these should be charged in the year incurred as per the mercantile system of accounting. The Assessee's Representative pointed out that similar issues had been decided in favor of the Assessee in earlier ITAT orders, and the expenses were crystallized in the year under consideration. The Tribunal found no infirmity in the CIT(A)'s order deleting the addition and dismissed Ground No.2 of the Revenue.

Issue 3: Treatment of Processing Fees as Revenue Expenditure
The Revenue contended that the CIT(A) erred in treating the expenditure of Rs. 92.50 lakhs incurred on processing fees paid to banks and financial institutions as revenue expenditure. The Tribunal observed that the CIT(A) had rightly treated the fees as revenue expenditure based on precedents, including decisions from the Hon'ble Madras High Court and Delhi High Court. The Tribunal found no ambiguity in the CIT(A)'s order and dismissed Ground No.3 of the Revenue.

Issue 4: Addition on Account of Commission Paid for Processing Loans
The Revenue argued that the CIT(A) erred in deleting the addition of Rs. 1,02,75,000/- on account of commission paid for processing loans, claiming no evidence of services rendered by the recipients. The Assessee's Representative demonstrated that the brokers rendered services, payments were made through account payee cheques, and TDS was deducted. The Tribunal found that the CIT(A) rightfully allowed the brokerage expenses as revenue expenditure and dismissed Ground No.4 of the Revenue.

Issue 5: Remanding Addition on Account of Exchange Rate Fluctuation
The Revenue contended that the CIT(A) erred in remanding the addition on account of exchange rate fluctuation back to the AO, violating Section 251 of the Act. The Tribunal observed that the CIT(A) directed the AO to allow the relief after verifying certain facts. The Tribunal found no perversity or ambiguity in this direction and dismissed Ground No.5 of the Revenue.

Issue 6: Disallowance of Brought Forward Losses and Depreciation
The Revenue argued that the CIT(A) erred in not considering the applicability of Sections 79 and 80 of the Act regarding the belated loss return. The Tribunal noted that the AO had not raised this issue during the assessment proceedings. Therefore, the Revenue could not raise this ground in the appeal. The Tribunal dismissed Grounds No.6(a) and 6(b) of the Revenue.

Issue 7: General Grounds Raised by the Revenue
The Tribunal found these grounds to be general in nature and dismissed them without the need for adjudication.

Issue 8: Addition on Account of Provisions Made Towards Various Routine Expenses
The Assessee appealed against the addition of Rs. 1,56,85,383/- on account of provisions made towards various routine expenses. The Tribunal observed that the CIT(A) had not ascertained whether the provisions were for crystallized or contingent liabilities. The Tribunal restored the issue to the AO for proper examination and verification in light of earlier and subsequent assessments, directing the AO to consider the Assessee's explanation and evidence. The Tribunal allowed this ground for statistical purposes.

Conclusion:
The appeal of the Revenue was dismissed, and the appeal of the Assessee was allowed for statistical purposes by restoring the issue to the AO for further examination. The order was pronounced in the open court on 31st January 2014.

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