2017 (6) TMI 597 - AT - Income Tax

Disallowance of leasehold / refurbishment expenses - revenue or capital expenditure - Held that - The assessee may have received benefit of enduring nature but the same was not sole and decisive factor of determining the nature of impugned expenditure. The impugned expenses were only to conduct the business more profitably and therefore, allowable to the assessee as revenue expenditure. Therefore, after considering all the factors as discussed above and noting that the impugned expenditure did not bring into existence any capital asset, we see no reason to interfere with the findings of the Ld. CIT(A) and hence, the expenditure being revenue in nature and incurred towards refurbishment of leasehold properties were allowable to the assessee as revenue expenditure. The revenue s appeal stands dismissed with a direction to Ld. AO to verify the fact that the assessee has disallowed depreciation against the same in succeeding years and the assessee, in turn, is also directed to demonstrate the same before Ld. AO. Addition of certain income accrued on preference share capital - Held that - The preference shares being held as Long Term Investments as capital assets were assessable to tax under the head capital gains u/s 45. The revenue could not bring any material to establish the fact that any dividend was actually declared by these companies during the impugned AY. Further, the capital gains offered by assessee upon sale of preference shares has been accepted by the revenue in succeeding years in Section 143(3) proceedings and therefore, we find no reason to interfere with those assessments. Certain additional evidences in the form of paper-book dated 24/10/2013 has been produced before us in support of calculations of accrual of income on preference shares/ maturity value etc., which require, appreciation at the level of Ld. AO since the Ld. AR has asserted that whatever dividend / income has been accrued / received on these instruments, the same has been inbuilt into the maturity value and there is no revenue leakage. Therefore, in principal, while upholding the claim of the assessee that the income on these shares was assessable under the head capital gains upon their maturity, we remit the matter back to the file of AO for the purpose of verifying the fact whether all income accrued / received on these shares was inbuilt into the maturity / redemption / sale value and there was no revenue leakage. The assessee, in turn, is directed to substantiate the same forthwith, failing which the Ld. AO shall be at liberty to dispose-off the issue on the basis of material available on record. The assessee s ground of appeal stands allowed for statistical purposes. Disallowance of Debt issue expenses and employees contribution to provident fund - Held that - We find that since the contribution has been deposited by the assessee before due date of filing of return of income, no disallowance is called for in terms of Section 43B. The impugned addition stands deleted

Summary

Issues Involved:

1. Deletion of disallowance of leasehold/refurbishment expenses.
2. Addition of income accrued on preference share capital.
3. Disallowance of debt issue expenses.
4. Disallowance of employees' contribution to provident fund.

Detailed Analysis:

1. Deletion of Disallowance of Leasehold/Refurbishment Expenses:

The Revenue appealed against the deletion of the disallowance of ?135,53,555/- claimed by the assessee as refurbishment expenses on leasehold property. The AO had treated these expenses as capital in nature, arguing they were related to starting a new line of business. The CIT(A) reversed this decision, noting that the assessee, already engaged in corporate financing, incurred these expenses while venturing into retail financing, a related business. The expenses were on leasehold properties not owned by the assessee, hence considered revenue expenditure. The Tribunal upheld the CIT(A)'s decision, citing the principle that the nature of expenditure should be judged within the statutory framework, and since the expenses did not create any capital asset, they were allowable as revenue expenditure. The Tribunal dismissed the Revenue's appeal, directing the AO to verify the disallowance of depreciation in succeeding years.

2. Addition of Income Accrued on Preference Share Capital:

The AO added ?8.56 crores to the assessee's income, treating it as interest income from preference shares, which the assessee had classified as long-term capital assets. The CIT(A) upheld this addition. The Tribunal noted that the preference shares were held as long-term investments and any income from them should be considered under capital gains upon redemption or sale. The Tribunal found that the income recognized over the tenure of the shares was an accounting methodology and not actual interest income. The Tribunal remitted the matter back to the AO for verification of whether all income accrued was included in the maturity value, ensuring no revenue leakage. The assessee's ground was allowed for statistical purposes.

3. Disallowance of Debt Issue Expenses:

The AO disallowed ?1.78 crores as debt issue expenses, following a precedent in the assessee's own case for previous years. The CIT(A) confirmed this disallowance. The Tribunal noted that similar issues for AY 2004-05 and 2005-06 were remitted back to the AO for verification. Following this precedent, the Tribunal remitted the issue back to the AO for verification and re-adjudication, allowing the assessee's ground for statistical purposes.

4. Disallowance of Employees' Contribution to Provident Fund:

The AO disallowed ?40,505/- for late deposit of employees' contribution to the provident fund. The CIT(A) upheld this disallowance. The Tribunal referred to the judgment of the Hon'ble Bombay High Court in CIT Vs. Ghatge Patil Transports Ltd., which allowed deductions if contributions were deposited before the due date of filing the return. Since the assessee deposited the amount before the return filing due date, the Tribunal deleted the disallowance, allowing the assessee's ground.

Conclusion:

The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed. The AO was directed to recompute book profit u/s 115JB and brought forward/set-off losses if required. The order was pronounced in the open court on 02nd June, 2017.