2016 (11) TMI 452 - AT - Income Tax

Claim of deduction u/s 10AA disallowed - retrospective amendment effect - Held that - By the virtue of the retrospective amendment, instead of ₹ 2000 (total turnover) being taken for the computation of deductible export profits, ₹ 500 (total turnover of the undertaking) is to be taken. This means that the eligible profits for deduction will be ₹ 100 and not ₹ 25. Now by the retrospective amendment to Section 10AA (7) by the Finance Act 2010 the benefit conferred on to the assessee from 1/4/2010 has been made applicable from 1/4/2006 and shall apply to Assessment Year 2007-08 also. The assessee had made payment of ₹ 84,38,357/- as professional and legal charges in relation to taking over the business from Hindustan Motors Ltd incurred during Assessment Year 2006-07. As the expenditure was incurred for the purpose of acquiring a capital asset it was not claimed as revenue expenditure by the assessee. The said professional charges were disallowed by the Assessing Officer but CIT(A) in its finding correctly held that if there is a retrospective amendment then authority with whom the matter is pending becomes legally duty bound to follow the amendment in letter and spirit. Thus, the CIT(A) allowed the additional ground and directed the Assessing Officer to grant the relief u/s 10AA of the Act. Depreciation claim on legal and professional charges - Held that - The professional charges have to be allowed because the expenses incurred by the assessee was as per the agreement and it was not Hindustan Motors which was incurring the expenses. It actually forms the part of actual cost of the acquisition. Therefore, CIT(A) was right in allowing claim of depreciation

Summary

Issues:
1. Admissibility of additional grounds of appeal regarding deduction under section 10AA of the IT Act.
2. Allowance of depreciation on capitalization of legal and professional charges.

Analysis:
1. The appeal was filed by the Revenue against the order passed by CIT(A)-V, New Delhi, regarding the deduction under section 10AA of the IT Act. The assessee had initially claimed a deduction of &8377; 14,83,714, which was later revised to &8377; 5,90,65,188 based on a speech by the Finance Minister. However, due to an amendment in Section 10AA brought by the Finance Act, 2009, the revised claim was not allowed by the Assessing Officer. The ITAT held that the retrospective amendment made the enhanced deduction applicable from 1/4/2006, benefiting the assessee for the Assessment Year 2007-08. The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision to allow the additional ground and grant the deduction under section 10AA.

2. Regarding the allowance of depreciation on legal and professional charges, the assessee had incurred &8377; 84,38,357 for taking over business from Hindustan Motors Ltd, which was disallowed by the Assessing Officer. The CIT(A) allowed the claim, stating that the charges were essential for acquiring the business units and formed part of the actual cost of acquisition. The ITAT, after considering the arguments, relied on the ITAT order in the assessee's own case for the previous assessment year and upheld the CIT(A)'s decision to allow the claim for depreciation on the professional charges. The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s order.

In conclusion, the ITAT upheld the CIT(A)'s decision on both issues, allowing the additional ground for deduction under section 10AA and permitting depreciation on legal and professional charges. The appeal of the Revenue was dismissed, and the order was pronounced on 20th October 2016.