2021 (9) TMI 736 - HC - Income Tax

Nature of expenditure - expenditure for purchasing equipments such as wheel balancer, wheel aligner, wheel changer and tyre changer for the use by dealers of assessee at Apollo Tyre World showroom - ownership of the equipment purchased - expenditure is in the nature of purchase of equipment or expenditure incurred by the assessee for refurbishing its showroom - revenue or capital expenditure -whether the Tribunal is correct in treating the expenditure as capital expenditure on the ground that ownership of these assets was retained by the assessee? - HELD THAT - The findings of fact recorded by the Tribunal are based on record and warranted. The auditor s report is referred to by the Assessing Officer for coming to the conclusion that the expenditure made by the assessee towards purchase of equipment, such as wheel balancer/wheel aligner/wheel changer/tyre changer, is capital expenditure but not revenue expenditure. The spreadover utility or utilization of equipment over a period of a few years is not disputed. The location of equipment could be in the shops of respective dealers or the dealers were allowed to use the equipment, that cannot be understood as divesting the ownership of assessee on the equipment. The Commissioner, as rightly pointed out by the Tribunal, assumed something more than what is either available in the circumstances of the case or made out literally a new case in favour of the assessee. For the above reasons we are of the view that the question does not fall within the scope of Section 260A of the Act. - Decided against assessee. Expenditure incurred on account of payments towards club membership and service charges - HELD THAT - The assessee is entitled to claim only the membership fee but not the amount spent by the assessee for availing the services of goods etc. in the club. In the case on hand, the finding is that it is not for membership. Having regard to the findings of fact recorded, the question is answered in favour of the Revenue, against the assessee. Disallowance of part depreciation claimed by the assessee of Gurgaon building in relation to the let out portion to Appolo International Ltd. - Rule of consistency - HELD THAT - Tribunal has merely followed its earlier view and rejected the claim of petitioner under this head. No other ground is argued before us to contend that the view taken, at any rate, is impermissible in law. By taking note of the circumstances stated by the assessee in respect of this particular claim, and the consideration by the Tribunal, we are of the view that the Tribunal has rightly maintained consistency in this behalf for the Assessment Years 2002-03 2019 (12) TMI 375 - KERALA HIGH COURT and 2003-04 2013 (9) TMI 74 - ITAT COCHIN . The question raised is answered in favour of the Revenue. Claim of writing off bad debts - as per tribunal debts and advances relating to acquisition of capital assets written off in the books of accounts are not allowable as revenue expenditure on the ground these are of the nature of capital loss outside the purview of Section 37(1) or 36(1) (vii) read with Section 36(2) - HELD THAT - The assessee claims that the advances made for acquisition of capital assets have been written off and they have to be treated as bad debt. The consideration of this issue by the Assessing Officer is independent and has completely explained the circumstances why the claim of assessee cannot be accepted in this behalf. The Tribunal has considered the scope of applicable section and also recorded that the expenditure does not satisfy the test laid down by the Supreme Court in CIT v. Mysore Sugar Company Ltd. 1962 (5) TMI 3 - SUPREME COURT We are in full agreement with the reasoning of the Tribunal while considering the writing off bad debts from advances made towards capital asset acquisition of the assessee. The appeal filed by the Revenue, insofar as it related to revenue expenditure was dismissed and we do not see any other reason now while applying the same test to accept the claim of the assessee made towards bad debts written off on advances made. - Decided against assessee.

Issues Involved:
1. Expenditure for purchasing equipment for showroom use.
2. Expenditure incurred on account of payments towards club membership and service charges.
3. Disallowance of part depreciation claimed for a rented portion of a building.
4. Rejection of the claim of bad debts written off for advances made for capital assets.

Issue-wise Detailed Analysis:

1. Expenditure for Purchasing Equipment for Showroom Use:
The first issue pertains to the assessee's claim of expenditure for purchasing equipment such as wheel balancer, wheel aligner, wheel changer, and tyre changer for use by dealers at the Apollo Tyre World showroom. The assessee argued that this expenditure should be treated as revenue expenditure since it was incurred to refurbish the showrooms and expand business opportunities. However, the Assessing Officer classified this expenditure as capital expenditure, allowing only depreciation and not the full amount as revenue expenditure. The Assessing Officer noted that the ownership of the equipment remained with the assessee and could be moved to other showrooms, thus treating it as a capital asset. The Commissioner of Income Tax (Appeals) allowed the claim as revenue expenditure, stating that the ownership passed to the dealers. However, the Tribunal reversed this decision, noting that the ownership remained with the assessee and the equipment could be reused, thus treating it as capital expenditure. The High Court upheld the Tribunal’s decision, agreeing that the expenditure should be treated as capital expenditure due to the retained ownership and the movable nature of the equipment.

2. Expenditure Incurred on Account of Payments Towards Club Membership and Service Charges:
The second issue involves the expenditure of ?1,48,212/- incurred by the assessee on club membership and service charges. The High Court referred to a previous judgment in the case of the assessee for the Assessment Year 2002-2003, which distinguished between membership fees and expenses incurred for services or goods availed at the club. The Court held that only the membership fee could be claimed as revenue expenditure, not the service charges. Since the expenditure in question was not for membership, the Court ruled in favor of the Revenue, disallowing the claim.

3. Disallowance of Part Depreciation Claimed for a Rented Portion of a Building:
The third issue concerns the disallowance of part depreciation amounting to ?25,27,505/- claimed by the assessee for a portion of the Gurgaon building rented out to Apollo International Ltd. The Tribunal referred to a similar disallowance made in the preceding year, which had been upheld. The High Court noted that the assessee had accepted the Tribunal’s earlier decision and found no reason to deviate from this precedent. The Court upheld the Tribunal’s decision, disallowing the depreciation claim and ruling in favor of the Revenue.

4. Rejection of the Claim of Bad Debts Written Off for Advances Made for Capital Assets:
The fourth issue involves the rejection of the assessee’s claim to write off bad debts amounting to ?28,67,407/- for advances made towards the acquisition of capital assets. The Tribunal had considered the scope of the applicable sections and the Supreme Court’s ruling in CIT v. Mysore Sugar Company Ltd, concluding that the expenditure did not satisfy the criteria for being treated as revenue expenditure. The High Court agreed with the Tribunal’s reasoning, noting that the advances made for capital asset acquisition did not qualify as bad debts under the applicable sections. The Court ruled in favor of the Revenue, disallowing the claim.

Conclusion:
The High Court dismissed the appeal filed by the assessee, ruling in favor of the Revenue on all four issues. The Court upheld the Tribunal’s findings, emphasizing the nature of the expenditures and the ownership of the assets in question. No order as to costs was made.

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