2016 (9) TMI 1145 - AT - Income Tax

Allowability of expenditure incurred to renovation of expenses - revenue v/s capital expenditure - Held that - We find that ld.CIT(A) while deciding the issue in favour of assessee has noted that the expenditure incurred was to make tenanted premises more suitable and conducive to business activity and by incurring the expenditure no new asset has been brought into existence. He has also given finding that the expenditure incurred also included expenditure by way of replacement /repairing of old existing furniture and fixtures and modification made to facilitate the display of changed models of products of companies whose goods are sold by assessee. - Decided against revenue Addition on account of notional interest on furniture deposits - Held that - We find that the ld.CIT(A) while deciding the issue has given a finding that the deposits have been given for the purpose of business and further it was for use of existing furniture for which assessee was not paying any rent. We also find that identical issue arose in assessee s own case for AY 2008-09 in favour of assessee as noted that the furniture deposit was old amount given to Sales India and M/s.Santosh Trading for using the existing furniture of these concerns without payment of rent. He has further noted that the deposits have been given for the purpose of business and there was no justification of disallowing the notional interest - Decided against revenue Addition u/s 40A - Held that - The assessing officer has not properly appreciated the facts and considering the factual aspect of the payment and the fact that no such disallowance was made in the earlier years except in AY 1990-91 which was also deleted and applying the principle of consistency to the similar facts the addition u/s.40A(2)(b) is directed to be deleted and this ground of appeal is allowed in favour of assessee Disallowance of delayed payment of employees contribution of ESIC - delayed payment - Held that - The employees contribution of ESIC has not being paid before the due dates and in the absence of any contrary binding decision in favour of assessee, we respectfully following the decision of Hon ble Gujarat High Court in the case of CIT vs. Gujarat State Road Transport Corporation (2014 (1) TMI 502 - GUJARAT HIGH COURT ) we set aside the order of ld. CIT(A) on this issue and uphold the decision of A.O. - Decided against assessee

Summary

Issues Involved:
1. Disallowance of showroom expenses as revenue expenditure.
2. Deleting the notional addition of interest under Section 36(1)(iii).
3. Deleting the addition of advertisement expenses under Section 40A(2)(b).
4. Deleting the addition on account of late payment of employee’s contribution to PF and ESIC.

Issue-wise Detailed Analysis:

1. Disallowance of Showroom Expenses as Revenue Expenditure:
The AO disallowed ?25,75,940/- of showroom expenses, treating them as capital expenditure, but allowed 10% depreciation. The CIT(A) reversed this, treating the expenses as revenue expenditure, noting that the expenses were for repairs and renovations of rented premises, making them more suitable for business without creating a new asset. The ITAT upheld the CIT(A)’s decision, referencing a similar decision from AY 2008-09, where such expenses were also treated as revenue expenditure.

2. Deleting the Notional Addition of Interest under Section 36(1)(iii):
The AO added notional interest of ?3,96,000/- on the grounds that the assessee gave interest-free deposits to directors, which was not justified. The CIT(A) deleted this addition, stating that the deposits were old and given for business purposes, allowing the use of furniture without rent. The ITAT upheld this decision, citing a similar case from AY 2008-09, where such notional interest was also deleted.

3. Deleting the Addition of Advertisement Expenses under Section 40A(2)(b):
The AO disallowed ?18,29,568/- for advertisement expenses paid to a related party, Arts India, arguing that the 15% discount received by Arts India was not passed on to the assessee. The CIT(A) deleted the addition, noting that similar expenses were allowed in previous years and that no comparable cases were provided by the AO to justify the disallowance. The ITAT upheld this decision, referencing a similar case from AY 2008-09, where such disallowance was also deleted.

4. Deleting the Addition on Account of Late Payment of Employee’s Contribution to PF and ESIC:
The AO added ?10,715/- for late payment of ESIC contributions, not paid within the due date. The CIT(A) deleted this addition, relying on the Supreme Court’s decision in Alom Extrusions Ltd., which allowed such deductions if paid before the due date of filing the return under Section 139(1). However, the ITAT reversed this decision, following the Gujarat High Court’s decision in CIT vs. Gujarat State Road Transport Corporation, which mandates that contributions must be paid within the due date prescribed under the respective Acts.

Conclusion:
The ITAT upheld the CIT(A)’s decisions on showroom expenses, notional interest, and advertisement expenses, but reversed the decision on the late payment of employee’s contributions to PF and ESIC, aligning with the Gujarat High Court’s ruling. The Revenue’s appeal was partly allowed, and the assessee’s cross-objection was dismissed.