2015 (8) TMI 1205 - AT - Income Tax

Treatment of expenditure incurred on repairs and maintenance as capital expenditure - Held that - A perusal of the bills exhibited in the paper book show that the expenses have been incurred for the purchase of G.P. sheets, M. S. Angles, M. S. Channels and M. S. Beams. This clearly show that old hoardings were replaced by new hoarding with new structure. Our view is also fortified by the fact that the assessee has also incurred expenditure on fabrication of hoarding structures on the terrace. Obviously, the expenditures have been incurred for obtaining new advantages. The assessee has made new hoarding and supporting for the hoarding, the entire frame and foundations have been reconstructed which is evident from the bills on record. Thus we decline to interfere with the findings of the Ld. CIT(A) on treatment of expenditure incurred on repairs and maintenance as capital expenditure - Decided against assessee. Charge on income - payment was diversion of income by overriding title - Held that - The Undisputed fact is that in order to retire Shri Neville J. Mistry and to admit PTV and STV as partners with MS and KTV, it was agreed to pay ₹ 30 lakhs to Neville J. Mistry. Since the assessee was not having sufficient funds, the money was taken from TDV. It was agreed that on payment of said ₹ 30 lakhs Neville J. Mistry will retire from the firm. As per the agreement, Rs., 30 lakhs was given by TDV to MS, PTV, STV and KTV. A bare perusal of this would show that TDV had given loan to four persons. The loan was secured by a charge on the income of M/s. Fizza Publicity (assessee). ₹ 13.70 lakhs paid by the assessee is nothing but the repayment of loan for and on behalf of the 4 persons. In our understanding of the fact and the law, this is nothing but the application of income has rightly held by the Ld. CIT(A). - Decided against assessee. Disallowance u/s. 43B on account of Service tax payable - the amount has not been paid before the due date of filing the return. - Held that - The assessee has debited the entire sum of ₹ 18,44,091/- to its profit and loss account therefore the fact of the case are clearly distinguishable from the facts of the decision relied upon by theLd. Counsel. We also find that the Tribunal has considered the decision of the Co-ordinate Bench in the case of ACIT Vs Real Image Media Technologies (P) Ltd.(2007 (12) TMI 263 - ITAT MADRAS-C) which has been considered by the Ld. CIT(A) and rightly distinguished. Since the assessee has claimed the deduction in respect of the entire amount of service tax, the disallowance made by the AO and confirmed by the Ld. CIT(A) is upheld - Decided against assessee. Disallowance of electricity expenses - Held that - Revenue authorities have grossly failed in understanding the facts of the case. It is the say of the Ld. Counsel that the electricity expenses pertain to the electricity on hoarding sites and not to the company premises used by the assessee along with others. As the facts have not been properly appreciated by the lower authorities, in the interest of justice and fair play, we restore this issue to the file of the AO. The assessee is directed to furnish necessary details before the AO and the AO is directed to decide the issue afresh - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Treatment of expenditure on repairs and maintenance as capital expenditure.
2. Addition of charge on income.
3. Disallowance under section 43B for service tax payable.
4. Disallowance of electricity expenses.

Issue 1: Treatment of expenditure on repairs and maintenance as capital expenditure:
The Assessing Officer (AO) treated the expenses incurred on repairs and maintenance as capital expenditure due to the enduring benefit derived from the expenses. The AO relied on the decision of the Hon'ble Supreme Court in a specific case. The Commissioner of Income Tax (Appeals) [CIT(A)] directed the AO to recompute the depreciation allowable after finding a portion of the expenditure to be revenue in nature. The Tribunal declined to interfere with the CIT(A)'s findings, as it was evident from the bills that the expenses were for obtaining new advantages, leading to the dismissal of the appeal on this ground.

Issue 2: Addition of charge on income:
The addition of a specific amount in respect of a charge on income was made based on an agreement between the parties involved. The AO added the amount to the income of the assessee, as the necessary justifications were not provided. The CIT(A) held that the payment made was an application of income and not a diversion of income by overriding title, citing relevant legal precedents. The Tribunal upheld the CIT(A)'s decision, considering the payment as the repayment of a loan, leading to the dismissal of the appeal on this ground.

Issue 3: Disallowance under section 43B for service tax payable:
The disallowance under section 43B for service tax payable arose due to the non-payment of a specific amount during the year, despite being debited to the profit and loss account. The assessee's argument that the liability arises only on receipt of payment was not accepted by the authorities. The Tribunal upheld the disallowance, distinguishing it from a previous decision, as the entire amount of service tax was claimed as a deduction, resulting in the dismissal of the appeal on this ground.

Issue 4: Disallowance of electricity expenses:
The disallowance of a specific amount under the head of office electricity expenses was made by the AO, as detailed submissions were not provided by the assessee. The CIT(A) upheld the disallowance, leading to the matter being restored to the AO by the Tribunal for a fresh decision based on the proper appreciation of facts. The appeal on this ground was allowed for statistical purposes.

In summary, the Tribunal partly allowed the appeal for the assessment year 2007-08 and dismissed the appeal for the assessment year 2008-09 based on the detailed analysis and findings on the various issues raised in the case.