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2018 (8) TMI 593 - AT - Income TaxNature of expenditure - major repairs, renovations re-furbishing the premises / project site - revenue or capital expenditure - Held that - Although the benefit of the stated expenditure may have been derived by the assessee for more than one year but as already noted, there is no concept of deferred revenue expenditure under the statute and therefore, once the expenditure is found to be revenue in nature, the same is allowable to the assessee in the year of incurrence thereof - once expenditure is allowed as revenue expenditure, deprecation allowed is to be reversed. - Decided in favor of assessee. Disallowance of expenditure u/s 14A - Held that - it is undisputed fact that the assessee has not earned any exempt dividend income during the impugned AY - Decided against the revenue. Claim of deduction towards advances written-off - Held that - the justification / basis of the same or the circumstances under which these have been written-off is not clear from the record, In principle, while approving the submissions that the business losses written-off in ordinary course of business were allowable to assessee as business loss - Matter remanded back for verification. Addition u/s 40(a)(ia) for late deposit of TDS amount - Held that - the amendment to Section 40(a)(ia) as made by Finance Act, 2010 was retrospective in nature and therefore the amount of TDS which is deposited late but before due date of filing of return of income enables the assessee to claim the deduction of the expenditure in the concerned year itself. - Decided in favor of assessee. Payment of compounding fee to RBI for default in obtaining approval form RBI for the purpose of FIPB and FEMA - Claim of expenditure u/s 37(1) - Held that - the assessee applied for postSodexo facto approval of the same from FIPB which was granted subject to compounding of the same by Reserve Bank of India RBI . The aforesaid lapse, in the opinion of assessee, was merely procedural defect in nature and was in the nature of condonation subject to pecuniary payment and therefore, not hit by the explanation to Section 37(1). - Decided in favor of assessee.
Issues Involved:
1. Disallowance of deferred revenue expenditure. 2. Disallowance under Section 14A read with Rule 8D. 3. Disallowance under Section 37(1). 4. Advances written-off. 5. Disallowance under Section 40(a)(ia). Detailed Analysis: 1. Disallowance of Deferred Revenue Expenditure: The appeals for AY 2002-03 and 2003-04 contested the disallowance of deferred revenue expenditure. The assessee incurred expenses on renovation and refurbishing leased premises, which were treated as capital expenditure by the Assessing Officer (AO) and allowed depreciation thereon. The Tribunal noted that the nature of expenditure should be examined irrespective of the ownership of the premises. The Tribunal concluded that the expenditure was essential for business operations and formed part of the profit-earning process. Therefore, the expenditure should be treated as revenue expenditure, not capital, and allowed in the year of incurrence. The AO was directed to verify that deferred expenditure claimed in subsequent years was disallowed in those years. 2. Disallowance under Section 14A read with Rule 8D: For AY 2009-10, the AO disallowed ?10.73 Lacs under Section 14A for expenses related to exempt income. The Tribunal noted that the assessee had not earned any exempt income during the year. Citing various judicial pronouncements, the Tribunal held that no disallowance under Section 14A was warranted if no exempt income was earned. Consequently, the disallowance was deleted. 3. Disallowance under Section 37(1): The AO disallowed ?18 Lacs as penalty under FEMA, treating it as penal in nature. The Tribunal observed that the payment was for compounding a procedural lapse and was compensatory, not penal. The Tribunal relied on judicial precedents to conclude that such payments are allowable as business expenditure. Thus, the disallowance under Section 37(1) was deleted. 4. Advances Written-off: The AO disallowed ?115.52 Lacs of advances written-off due to lack of explanation. The Tribunal found that the assessee had provided a summary of the advances to the AO. However, the justification for writing off these advances was unclear. The Tribunal remitted the matter back to the AO for re-adjudication, directing the assessee to substantiate the basis for the write-off. 5. Disallowance under Section 40(a)(ia): The AO made disallowances for late payment and short deduction of TDS. The Tribunal noted that late payment of TDS, if made before the due date of filing the return, does not attract disallowance under Section 40(a)(ia), citing the Delhi High Court's judgment. Regarding short deduction of TDS, the Tribunal followed the Calcutta High Court's decision, which held that short deduction does not warrant disallowance under Section 40(a)(ia). Thus, the disallowances were deleted. Conclusion: The Tribunal allowed the appeals for AY 2002-03 and 2003-04, treating the deferred revenue expenditure as revenue expenditure. For AY 2009-10, the Tribunal deleted the disallowance under Section 14A, allowed the claim under Section 37(1), and remitted the issue of advances written-off back to the AO. The Tribunal also deleted the disallowance under Section 40(a)(ia) for both late payment and short deduction of TDS. The revenue's appeal was partly allowed for statistical purposes.
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