2015 (5) TMI 749 - AT - Income Tax

Promotion expenses - revenue v/s capital expenditure - Held that - Claim of expense as revenue has been rejected, but the AO and CIT(A) have held the acquisition of furniture and fixture as capital in nature. But at the same time, even if to be treated as capital asset, the proof of acquiring the same had to be brought on record, which the AR submitted that the assessee is unable to so. In such a case, when we do not find anything on record, as a proof of acquisition of the furniture and fixtures, we cannot even direct the AO to allow depreciation thereon, as we cannot make any observation with regard to the ownership of the asset, having been brought into existence and used for the purposes of business. Thus disallow the expense claimed by the assessee. - Decided against assessee. Amounts written off - held to be capital in nature and therefore disallowed and sustained by the CIT(A) - Held that - On going through the submissions, we appreciate that the AR accepted that no details could be placed before revenue authorities and no details can be placed now before us to justify its claim. In these circumstances, we are left with no alternative, but to sustain the orders of the revenue authorities & consequentially reject the ground as raised by the assessee.- Decided against assessee. Disallowance of holding expense - reimbursement made to its C & F agents at Delhi, Gujarat & Kolkat - Held that - The expense could not be held to be capital in nature, as no enduring benefit could be attained. We therefore, accept that the expense shall be revenue in nature. - Decided in favour of assessee. GP addition - Held that - As being produced now before us, pertaining to the disallowance, we are of the opinion that this issue of sale of scrap of ₹ 11,76,000/- be restored to the file of the AO. We therefore, set aside the order of the CIT(A) on this issue and restore this issue to the file of the AO for reconsideration - Decided in favour of assessee for statistical purposes

Issues Involved:
1. Treatment of payments as capital expenditure.
2. Disallowance of depreciation on assets.
3. Treatment of written-off unreconciled balances.
4. Classification of expenses on neon sign boards and hoardings as capital expenditure.
5. Depreciation on the capitalized portion of advertisement expenditure.
6. Addition to taxable income for out-of-book sales.
7. Write-off of stock due to discontinuance of the project.

Issue-wise Detailed Analysis:

1. Treatment of Payments as Capital Expenditure:
The appellant contested the CIT(A)'s decision to treat payments of Rs. 69,34,558/- as capital expenditure. However, the appellant's representative did not press this ground during the hearing, leading to its rejection.

2. Disallowance of Depreciation on Assets:
The appellant argued that the CIT(A) erred in disallowing depreciation of Rs. 13,20,213/-. The revenue authorities had treated the expenditure as capital in nature but disallowed the depreciation claim due to lack of evidence of asset acquisition. The appellant failed to provide proof of acquisition, leading to the sustenance of the revenue authorities' orders and disallowance of the expense.

3. Treatment of Written-off Unreconciled Balances:
The appellant claimed that the write-off of Rs. 1,44,298/- should be allowed as a deduction. However, no details were provided to support this claim. Consequently, the revenue authorities' decision to treat the amount as capital in nature and disallow the deduction was upheld.

4. Classification of Expenses on Neon Sign Boards and Hoardings as Capital Expenditure:
The CIT(A) classified Rs. 1,71,56,104/- incurred on neon sign boards and hoardings as capital expenditure. The appellant argued that these expenses were for business promotion and should be treated as revenue expenditure. The ITAT referred to precedents, including the decisions in ITO vs. Spice Communications Ltd. and CIT vs. Orient Ceramics & Industries Ltd., which held such expenses as revenue in nature due to their non-enduring benefit. Consequently, the ITAT accepted the appellant's claim, treating the expense as revenue in nature and directing the AO to delete the disallowance.

5. Depreciation on the Capitalized Portion of Advertisement Expenditure:
Given the acceptance of the expense as revenue in nature, the ground regarding depreciation on the capitalized portion of Rs. 1,71,56,104/- became academic and was not further addressed.

6. Addition to Taxable Income for Out-of-book Sales:
The CIT(A) confirmed the AO's addition of Rs. 18,34,560/- to the taxable income, considering the entire stock of Rs. 11,76,000/- as sold out of books. The appellant provided new evidence during the ITAT hearing, claiming the stock was sold as scrap. The ITAT restored the issue to the AO for reconsideration, allowing the appellant to present its case.

7. Write-off of Stock Due to Discontinuance of the Project:
The appellant argued that the stock worth Rs. 11,76,000/- was destroyed and shown as consumption in the books due to project discontinuance. The ITAT, considering the new evidence, restored the issue to the AO for reconsideration, directing that adequate opportunity be given to the appellant to present its case.

Conclusion:
The appeal was partly allowed, with specific grounds being accepted, others rejected, and some issues restored to the AO for reconsideration. The ITAT emphasized providing the appellant with a reasonable opportunity to present evidence where applicable.

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