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2016 (7) TMI 392 - AT - Income TaxCompensation received for surrender of tenancy rights - taxed u/s 45 as capital gain or Income from other sources. - Held that - The assessee has received the said payment from a third party. The terms of the agreement clearly shows that the assessee has given up its right of tenancy in favor of the third party by accepting a certain sum of money. The possession of the premises has been parted away and the transaction is being recognized by the landlord. Hence, the assessee has surrendered the tenancy rights against certain sum of money, no matter whether the payment is directly paid by the landlord or paid by a third party on behalf of the landlord. Such tenancy rights in the building are capital asset as per the definition of Capital asset u/s 2(14) and hence rightly found taxable under the head Capital Gains by the learned CIT(A). The cost of acquisition of the same has been correctly taken as Nil as per Section 55(2)(a)(ii). We, therefore, do not find any infirmity in the order of the Ld. CIT(A) on this issue. - Decided against revenue Disallowance in respect of VRS expenditure - CIT(A) allowed the claim - Held that - Though, the assessee had debited only a portion of the said expenditure in the books of account yet, claimed the same in full in computation sheet. As held by the Hon ble Supreme Court in the case of Taparia Tools 2015 (3) TMI 853 - SUPREME COURT that such course of action is permissible under law as the assessee has claimed the expenditure in the year in which these were incurred, hence, respectfully following the above judicial pronouncements, we affirm the view of the CIT(A) in this regard. - Decided against revenue Claim of depreciation allowance - Held that - Issue is already settled in favor of the assessee Disallowance of expenses on account of amortized lease hold land premium - Held that - The deduction of these expenses has been allowed to assessee is earlier years. The assessee has not become owner of the property in question. - Decided in favor of the assessee Disallowance of travelling expenses - Held that - The inadmissible expenditure was quantified by the tax auditor and complete details of these expenses were already available with the AO. The details of expenses formed part of Audit Report. The action of the AO in disallowing the said expenditure on assumptions and estimate basis is not justifiable. Hence, we are of the opinion that CIT(A) has rightly deleted the same. - Decided in favor of the assessee Claim of prior period expenses - Held that - Similar issue has arisen in the case of the assessee for Assessment Year 1988-89 and the same has been decided in favor of assessee on the ground that although the expenses related with prior period but they became crystallized and ascertained only during the relevant assessment years and hence allowable.- Decided in favor of the assessee Deduction of Technical fees paid by the assessee u/s 35AB - Held that - The expenses incurred by the assessee are in the nature of payments made to avail technology support for production, planning, quality control and related products. These expenses are incurred only with a view to enlarge the profit making apparatus of the business and therefore, revenue in nature. Hence, the aforesaid expenditure being revenue in nature are allowed in full as per various judicial pronouncements as cited above. The same are allowable in full being revenue in nature and hence, the appeal is decided in favour of the assessee. Disallowance u/s 43B in respect of Sales Tax - Held that - An amount was claimed by the assessee which remain unpaid by the stipulated date and accordingly, added to the income of the assessee by AO by invoking Section 43B which was affirmed by the CIT(A). During submissions, AR, in the alternative, prayed before us, to issue directions to AO to allow the same in the year of payment. The DR had no objection against the same. Accordingly, AO is directed to allow the same in the year of payment as per the request of the assessee. Disallowance of Guest House Expenditure - Held that - AR submitted that the identical issue has been restored to the file of AO for fresh adjudication in assessee s own case for different assessment year ie. AY 1989- 90 to 1994-95 vide different decisions of the Tribunal. The assessee has placed on the file the copies of the orders of the Tribunal in this respect. He, therefore has requested that on the same lines, the issue may be resorted back to the file of AO for fresh adjudication. The DR had no objection to the same. Disallowance of entertainment expenditure - Held that - Following the rule of consistency, 25% of the expenditure is allowed as deduction in computation of Income as allowed in earlier years. Disallowance of loss on damaged uninstalled machinery - Held that - The AO s order clearly spells out the fact that insurance claim has been received against the said damage and the machinery was awaiting installation. In such a scenario, the assessee s right in the assets has been extinguishment in the favour of the insurance company and since the machinery is uninstalled, the same has not entered the block of assets eligible for claiming depreciation. It is nothing but asset of the assessee awaiting to be entered in the block of assets. Hence, the loss arising there form has been rightly claimed under the head capital gains. Disallowance of expenditure in respect of gifts - Held that - As AR contended that that this amount has already been disallowed suo-moto by the assessee while computing taxable income for the relevant assessment year. Separate disallowance by AO would amount to double disallowance. Hence, the matter is restored back to the file of AO for verification of the claim of assessee in this regard and if found correct, the AO to give relief to the assessee accordingly.
Issues Involved:
1. Taxation of compensation received for surrender of tenancy rights. 2. Disallowance of VRS expenditure. 3. Depreciation allowance. 4. Disallowance of amortized leasehold land premium. 5. Disallowance of travel expenses. 6. Disallowance of prior period expenses. 7. Deduction of technical fees under Section 35AB. 8. Disallowance under Section 43B in respect of sales tax. 9. Disallowance of guest house expenditure. 10. Disallowance of entertainment expenditure. 11. Exclusion of income from property development activity. 12. Disallowance of loss on damaged uninstalled machinery. 13. Disallowance of expenditure in respect of gifts. Detailed Analysis: 1. Taxation of Compensation for Surrender of Tenancy Rights: The tribunal upheld the CIT(A)'s direction to tax the compensation received for surrender of tenancy rights as capital gains under Section 45, not as "Income from other sources." The CIT(A) relied on the amendment to Section 55 and the Bombay High Court's judgment in 'Cadell Weaving and Spinning Mills Ltd.' to conclude that such receipts are not taxable as casual and non-recurring receipts under Section 10(3). 2. Disallowance of VRS Expenditure: The tribunal affirmed the CIT(A)'s decision that the VRS expenditure is revenue in nature and allowable in the year of payment. The tribunal cited the Supreme Court's ruling in 'Taparia Tools Ltd' and the Bombay High Court's decision in 'CIT v Bhor Industries Ltd.' which state that revenue expenditure incurred wholly and exclusively for business purposes must be allowed in the year it is incurred. 3. Depreciation Allowance: The tribunal noted that the issue of depreciation allowance had already been decided in favor of the assessee by the ITAT Mumbai in ITA No. 286/Mum/2003. Therefore, no interference was called for. 4. Disallowance of Amortized Leasehold Land Premium: The tribunal upheld the CIT(A)'s deletion of the disallowance, relying on the Gujarat High Court's decision in 'DCIT v Sun Pharmaceuticals India Ltd.' and noting that the deduction of these expenses had been allowed to the assessee in earlier years. 5. Disallowance of Travel Expenses: The tribunal upheld the CIT(A)'s deletion of the disallowance of travel expenses, noting that the details of expenses were already available in the tax audit report and the AO made an ad hoc deduction without examining the details. 6. Disallowance of Prior Period Expenses: The tribunal dismissed the Revenue's appeal on this issue, noting that similar issues had been decided in favor of the assessee in earlier years on the ground that the expenses, although related to prior periods, became crystallized and ascertained only during the relevant assessment years. 7. Deduction of Technical Fees Under Section 35AB: The tribunal allowed the assessee's appeal, stating that the technical fees paid were revenue in nature and should be allowed in full. The tribunal cited various judicial pronouncements, including 'Deputy Commissioner of Income Tax v Metalman Auto (P) Ltd.' and 'Commissioner of Income Tax vs. Swaraj Engines Ltd.' 8. Disallowance Under Section 43B in Respect of Sales Tax: The tribunal directed the AO to allow the disallowed amount in the year of payment, as requested by the assessee and not objected to by the DR. 9. Disallowance of Guest House Expenditure: The tribunal remanded the issue back to the AO for fresh adjudication in terms of the decision of the Tribunal in ITA No.8896/M/95 for A.Y. 1992-93. 10. Disallowance of Entertainment Expenditure: The tribunal followed the rule of consistency and allowed 25% of the entertainment expenditure as a deduction, as had been done in earlier years. 11. Exclusion of Income from Property Development Activity: The tribunal noted that this ground had become infructuous due to the decision of the ITAT in the assessee's own case for Assessment Year 1994-1995. 12. Disallowance of Loss on Damaged Uninstalled Machinery: The tribunal allowed the assessee's appeal, stating that the loss on damaged uninstalled machinery should be set off under the head capital gains, as there was an extinguishment of rights in favor of the insurance company. 13. Disallowance of Expenditure in Respect of Gifts: The tribunal remanded the issue back to the AO for verification of the assessee's claim that the amount had already been disallowed suo-moto while computing taxable income. Conclusion: Both the department's appeals were dismissed, and the assessee's appeals were partly allowed. The judgments were pronounced in the open court on 30.06.2016.
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