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TMI Blog2013 (9) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... setting up of new hospitals are ostensibly only for expansion of the existing business of the assessee - Decided against Revenue. Revenue Expenditure or Capital Expenditure - Expenditure on recruitment of manpower - through an agency - AO was of the view that no company would be interested in spending money on recruitment repeatedly and recruitment made through agencies is not easily terminated because a lot of screening is done at the stage of recruitment itself and as this expenditure is for a long time benefit, held it to be capital in nature. - Held that:- AO has not questioned the genuineness of the expenses or the fact of the expenditure having been incurred and appears to have disallowed the said expenses only on conjectures and suspicion, for which there is no basis, nor is his finding established by any evidence. We are therefore of the considered view that the learned CIT(Appeals) has rightly held that the expenses of Rs.23,57,487 incurred towards recruitment of manpower are attributable to the appellant's business and that recruitment is an ongoing exercise in the assessee's nature of business and therefore is allowable as a revenue expenditure. Loss on disposal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.9.2011 respectively. As these appeals were heard together, they are being disposed off together by this consolidated order. ITA No.449/Bang/2012 (A.Y. 2007-08) 2. The facts of the case, in brief, in respect of this appeal are as under : 2.1 The assessee, a leading hospital in the city, filed its return of income for Assessment Year 2007-08 on 31.10.2007 declaring loss of Rs. 8,71,58,141. The return was processed under section 143(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') and was subsequently taken up for scrutiny by issue of notice under section 143(2) of the Act. The Assessing Officer completed the assessment by an order under section 143(3) of the Act on 21.12.2009 determining the loss of the assessee at Rs. 7,27,79,693 by making the following disallowances. Rs. (i) Disallowance of Depreciation 73,514 (ii) Revenue expenditure disallowed 29,60,093 (iii) Business expenditure disallowed 93,36,039 (iv) Revenue expenditure disallowed 19,71,000 (v) Disallowance under section 14A rule 8D 37,802 Total : 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re under section 35D over a period of 5 years was erroneous. The learned Departmental Representative reiterated the arguments put forth in the grounds raised and pleaded that the order of the learned CIT(Appeals) be reversed and that the finding of the Assessing Officer that the said expenditure was capital in nature be restored. 5.2 Per contra, the learned counsel for the assessee supported the finding in the order of the learned CIT(Appeals) on this issue. 5.3.1 We have heard both sides and have perused and carefully considered the material on record and the orders of the authorities below. In the course of assessment proceedings the Assessing Officer noticed that the assessee had incurred expenditure towards professional fees paid to various advocates and law firms and such other expenses amounting to Rs.95,66,039 which are listed out at pages 4 to 7 of the order of assessment. On examination thereof the Assessing Officer was of the view that out of the total amount of Rs.95,66,039 except for expenditure amounting to Rs.2,80,000 which he held to be revenue in nature, the remaining portion related directly to the acquisition of capital assets; were not in the nature of prepar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal charges for drafting the Memorandum and Articles of Association of the company; (ii) on printing of the Memorandum and Articles of Association; (iii) by way of fees for registering the company under the provisions of the Companies Act, 1956. (iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage, and charges for drafting, typing, printing and advertisement of the prospectus; (d) Such other items (not being expenditure eligible for any allowance or deduction under any other provision of this Act) as may be prescribed. As per the scheme of deduction laid out under section 35D of the Act, the concerned expenditure to be eligible for deduction should qualify the alternate condition stipulated in section 35D(1) and should be one of the items of expenditure specified in section 35D(2). In the present case, evidently the expenses have been incurred after the commencement of business and therefore in order to qualify for deduction under section 35D of the Act, the expenses have to be incurred in connection with the extension of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned CIT(Appeals) relying on the decision of the Hon'ble Karnataka High Court in the case of H.M.T. Ltd. (supra), held that this expenditure of Rs.21,90,000 are allowable as a business expenditure without elaborating on the reasons for her finding. 6.4 The learned counsel for the assessee supported the findings in the orders of the learned CIT(Appeals) on this issue inter alia placing reliance on the decision in the case of H.M.T. Ltd. (supra) and sought the dismissal of the grounds raised by revenue. 6.5 We have heard both parties, carefully perused, considered the material on record and the judicial decisions relied on by the learned CIT (Appeals) and the assessee. In order to appreciate the respective contentions, it is necessary to examine the nature of the transaction. It is not disputed by revenue that the said lease agreement dt.29.6.2006 entered into by the assessee give rise to a lease in favour of the assessee and no other legal rights in the hospital building are granted to the assessee. As such, the view of the Assessing Officer that the said lease agreement brings into existence an asset of enduring nature is, in our opinion, misplaced. The Hon'ble Apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce made at S.No.(ii) by the Assessing Officer was upheld and the disallowance made at S.No.(i) above was partly allowed to the extent of Rs. 1,36,000. In the manner as laid out above, the assessee's appeal for Assessment Year 2008-09 was partly allowed. 9. Aggrieved by the order of the learned CIT(Appeals), for Assessment Year 2008-09 dt.5.9.2011, revenue is now in appeal before us raising the following grounds : "1. The order of the CIT (Appeals) is opposed to the facts of the case. 2. The learned CIT (Appeals) has erred in deleting the addition to the extent of Rs.65,05,722. 3. The learned CIT (Appeals) has failed to appreciate the fact that the assessee had submitted the sum of Rs.1,36,000 as direct cost. 4. The CIT (Appeals) has failed to appreciate the fact that the previous year relevant to the assessment year 2008-09 is first year where the expenditure is made for the first time to an agency that is into the business of identifying manpower and arranging manpower for the company. 5. The learned CIT (Appeals) has failed to take cognizance of the fact that recruitment made through agencies is not easily terminated because at the time of rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture of Rs.2,71,39,502, the assessee itself had attributed sum of Rs.1,36,000 as expended towards the earning of exempt income and made the disallowance to this extent. In this view of the matter, it is evident that quantum of disallowance worked out by the Assessing Officer at Rs.19,31,371 includes the sum of Rs.1,36,000 already disallowed by the assessee and therefore the additional disallowance that ought to have been made by the Assessing Officer was Rs.17,95,371 (viz. Rs.19,31,371 less Rs.1,36,000). In fact at para 2 of the order of assessment, the Assessing Officer has narrated this very position as " this office is constrained to disallow Rs.19,31,371 which includes the direct cost of Rs.1,36,000 submitted by the assessee and the disallowance amounting to Rs.17,95,371 is determined by this office under section 8D." However, in the computation of income / loss at the end of the order of assessment, the amount of disallowance has been erroneously taken by the Assessing Officer at Rs,19,31,371. The learned CIT(Appeals) has only sought to point out this mistake and direct that the correct amount of Rs.17,95,371 taken for disallowance. This ground raised by revenue being friv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness and that recruitment is an ongoing exercise in the assessee's nature of business and therefore is allowable as a revenue expenditure. We, therefore, uphold the decision of the learned CIT(Appeals) and consequently dismiss the grounds raised by revenue on this issue. 13.1 In the ground raised at S.No.6, revenue contends that the learned CIT(Appeals) failed to appreciate the fact that loss on disposal of fixed assets is not admissible. The learned Departmental Representative reiterated the ground raised. 13.2 Per contra, the learned counsel for the assessee supported the findings of the learned CIT(Appeals) on this issue. It is the contention of the learned counsel for the assessee that the Assessing Officer without giving any reason disallowed the loss on disposal of fixed assets amounting to Rs.39,41,007 in spite of the fact that the same was not debited to the profit and loss account for the period relevant to the current year i.e. for Assessment Year 2008-09. The learned counsel for the assessee therefore submits that the grounds raised by revenue be rejected. 13.3 We have heard both parties and perused and carefully considered the material on record. We find that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the provisions of section 36(1)(vii) of the Act and it now stands, the following conditions have to be cumulatively satisfied for claiming deductions for bad debts :- (i) there must be a debt, an obligation to pay an ascertainable sum of money; (ii) such debt must be revenue in nature. (iii) such debt must be incidental to the business of the assessee; (iv) such debt must have been taken into account while computing the income of the assessee; (v) It must have been written off in the books of the assessee. After the amendment to the law w.e.f. 1.4.1989 in order to obtain deduction in relation to bad debts all that the assessee has to show was that the bad debt was written off as irrecoverable in its books of account. There was no need for the assessee to establish that the debt, in fact, had become bad. This proposition has been upheld by Hon'ble Apex Court in the case of T.R.F. Ltd. v. CIT [2010] 323 ITR 397. 14.3.3 In the instant case, it is not disputed that the amounts claimed as bad debts have been shown as 'receipts' and offered to tax earlier. Merely because this is the second year of the assessee's operations and the period between ..... X X X X Extracts X X X X X X X X Extracts X X X X
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