9911796707
TMI Blog2013 (11) TMI 1279X X X X Extracts X X X X X X X X Extracts X X X X ..... rise Depreciation on machinery – Expenses incurred on clubs – Depreciation on Let Out Property - Deduction u/s 80IA - Held that:- The expenditure incurred towards entrance fee/subscription can be termed as business expenditure and the cost of services can be allowed only if the commercial expediency in incurring the same was proved - the details furnished by the assessee required verification at the end of the AO - the depreciation claimed on let out properties - the order of Ld CIT(A) on this issue and restore the addition made by the AO - deduction u/s 80IA of the Act on the D.G. power generation units I & II by considering the same as an “undertaking” for the purposes of sec. 80IA of the Act - Both the parties agreed that this issue has been decided in favour of the assessee. Claim of Amount Written as Irrecoverable - Write off of irrecoverable advance paid for purchase of machineries – Held that:- The advance written off is a loss of capital, hence not allowable as deduction – Following Swadeshi Cottom Mills Co. Ltd. Vs. CIT [1966 (9) TMI 32 - SUPREME Court] - compensation payable for breach of contract to purchase capital asset is a capital expenditure – and CIT vs. Myso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality claims - Following M/s MIL Controls limited Vs. CIT [2011 (6) TMI 495 - Kerala High Court ] - The assessee was putting forth claim for deduction of expenditure relating to “Quality Claim” only for the reason that the said claim was disallowed in the hands of M/s PTL Enterprises Ltd, even though the said company had accepted the liability for the same - the disallowance was made in the hands of M/s PTL Enterprises Ltd for the reason that the said assessee failed to furnish any proof. - ITA No.729,627/Coch/2008 - - - Dated:- 8-2-2013 - N R S Ganesan and B R Baskaran, JJ. For the Appellants : Smt Susan George Varghese, Sr. DR Smt S Vijayaprabha, Jr. DR For the Respondent : Shri V Sathyanarayanan, CA ORDER:- Per: B R Baskaran: The cross appeals are directed against the order dated 26-03-2008 passed by Ld CIT(A)-II, Kochi and they relate to the assessment year 2005-06. 2. We shall first take up the appeal filed by the revenue in ITA No.729/Coch/2008. Following issues are urged in this appeal:- (a) Depreciation on machinery installed in the show rooms of dealers. (b) Non-deduction of non-refundable deposits collected from the dealers for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the rival contentions on this issue. The assessee has not challenged the decision of Ld CIT(A) in holding that the cost of machineries installed in the Apollo Radial World , i.e., at the dealers premises, is capital in nature. The only dispute is about the depreciation allowable on the cost of those machineries. According to the assessing officer, these machineries cannot be said to be used for the purposes of business of the assessee and hence no depreciation is allowable on them. In this connection, we are inclined to accept the view taken by the Ld CIT(A). As rightly pointed out by the first appellate authority, the object of providing these machineries is to provide better after sales service, which would in turn help to increase the turnover of the assessee. These machineries are used to provide after sales service to its customers, which otherwise the assessee is expected to do. Thus, it is seen that the assessee has adopted a business strategy. Hence, we agree with the view of the Ld CIT(A) that these machineries are used for the purpose of business of the assessee only. With regard to the amount of security deposit collected from the customers, we notice from the agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estore the addition made by the AO. 8. The next issue relates to the eligibility of the assessee to claim deduction u/s 80IA of the Act on the D.G. power generation units I II by considering the same as an undertaking for the purposes of sec. 80IA of the Act. Both the parties agreed that this issue has been decided in favour of the assessee by the Tribunal in ITA No.429/Coch/2006 and 377/Coch/2009 relating to the assessment year 2002-03 and the same was followed by the Tribunal in its order dated 24-08-2012 relating to the assessment year 2003-04 in ITA No. 378/coch/2009. We notice that the decision taken by Ld CIT(A) is in accordance with the decision rendered by the Tribunal. Hence, we uphold his order on this issue. 9. We shall now take up the appeal filed by the assessee in ITA No.627/Coch/2008. Following issues are urged in this appeal:- (a) Write off of irrecoverable advance paid for purchase of machineries. (b) Setting off of long term capital loss incurred on sale of equity shares/units against long term capital gain earned on sale of land. (c) Addition of deferred tax liability , while computing book profit u/s 115JB of the Act. 10. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount as advance. Subsequently, it cancelled the order and had to pay cancellation charges which it claimed as business loss. The Hon ble Tribunal held that the appellant has incurred a loss but it could not be considered as a business loss hence not allowable as a deduction. 5.8 In the case of Hasimara Industries Ltd. Vs. CIT and another (231 ITR 842)(SC) it has been held that advance given on capital account becomes a capital loss when it becomes irrecoverable. 5.9 The appellant s case is squarely covered by the above decisions. Following these decisions I hold that the advance written off is a loss of capital, hence not allowable as deduction. The disallowance of Rs. 27600000/- is, therefore, confirmed . 12. This bench of the tribunal also considered an identical issue in the assessee s own case in ITA No.430/Coch/2009 relating to the assessment year 2007-08. The Tribunal, vide its order dated 24-08-2012 decided the said issue as under:- 19. In our view, the advances given for the purposes of acquisition of capital assets or for towards revenue purposes cannot be claimed as bad debt u/s 36(1)(vii) of the Act. Accordingly, in our view, the AO was not correct in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund units against the long term capital gain earned on sale of land. According to the assessee, the provisions of sec.70 do not prohibit such set off. However, the claim of the assessee was negated by the AO. For the sake of convenience, we extract below the discussions made by the assessing officer on this issue:- 8 On a perusal of the computation of the capital gain it is seen that the assessee has set off the loss on sale of shares against the profit on sale of land and has accounted the net figure only. For assessment year 2005-06 capital gain on sale of share is exempt u/s. 10(38). Hence neither the gain nor the loss on the sale of shares (for which STT has been paid) can be considered for Income Tax purposes. When this was pointed to the assessee, the assessee replied as under:- In response to your proposition to not allow set-off of long term capital loss on sale of shares against long term capital gain on sale of land (in view of he fact that long term capital gain arising on account of sale of equity shares is exempt u/s. 10(38) w.e.f. A.Y. 2005-08) it is submitted by the assessee company that in accordance with the provisions of sec. 70(3) of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y person, any income failing within any of the following clauses shall not be included Thus whatever income is exempt under the different Clauses of sec. 10, they have to be removed from the purview of income before computing the total income of any person. Thus once an income (which includes loss also) is exempt, computation has not to be done. Sec 70(3) becomes applicable only after computation of income as per the provisions of sec. 48 to 55 is made. In the present case there is no computation as the whole transaction has to be ignored. Needless to say sec. 70(3) is subject to sec. 10. Thus when an amendment is made in sec. 10 exempting result of certain transactions, no corresponding amendment to sec. 70(3) is called for as these two sections are mutually exclusive. And as regards the argument that to claim exemption u/s. 10(38) of Income Tax Act, assessee has to prove that they have complied with the condition therein, it has to be noted that exemption u/s. 10 is granted not when a claim is made. It is granted if the condition stipulated therein is satisfied. The necessity of proving the condition comes up only when the Assessing Officer feels that conditions are not satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 48 to 55. Thus, once income which includes loss is exempt, the same cannot be taken for computation. She has also rejected the assessee s contention that for claiming exemption under sec. 10(38), the assessee has to claim it and prove that the conditions stipulated therein are satisfied. She has rightly pointed out that exemption u/s. 10 is granted not as per claim of the assessee but as per fulfilment of conditions stipulated therein. 7.6 On going through the order of the Assessing Officer I find that she has rightly rejected the claim of the assessee. Sec. 70 provides for set off of loss from one source against income from another source under the same head of income. The very scheme of such set off implies that the source in respect of which a loss has occurred, is such that, had there been profit instead of loss they would have been chargeable to tax. In the assessee s case Long Term Capital Gain on sale of land is taxable whereas Long Term Capital gain on sale of share on which SIT has been paid, is exempt. In view of the above, we uphold the order passed by Ld CIT(A) on this issue. 16. The next issue relates to the addition of deferred tax liability for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd, with which M/s Premier Tyres Ltd was not concerned with. The said disallowance was also confirmed by the Ld CIT(A) in the appeal preferred before him by M/s Premier Tyres Ltd. 19. The Ld. A.R submitted that the amount of quality claim was disallowed in the hands of M/s Premier Tyres Ltd (also known as PTL Enterprises Ltd) and hence it may be allowed in the hands of the assessee herein. However, he could not furnish the details relating to the Quality claims . He submitted that the assessee has only passed journal entries in its books of account on the basis of certain correspondences and he fairly admitted that he could not produce the details at this stage. 20. Before proceeding to decide this issue, it is pertinent to refer to the decision rendered by the Hon ble High Court of Kerala in the case of M/s MIL Controls limited Vs. CIT in ITA No.94 99 of 2002 in its order dated 01-06-2011. In the above said case, the assessee therein made a payment of Rs.16.00 lakhs in one year and Rs.37.00 lakhs in another year to a group company towards Corporate Service charges and claimed the same as expenditure. However, it could not furnish the nature and details of services exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability, but has acted as a pipe line in collecting the liability from the lessor and passing on the same to the group concern, M/s Apollo International Trading LLC, Dubai. However, in the income tax proceeding carried in the hands of M/s PTL Enterprises Ltd, the assessing officer therein did not allow the claim, since the lease agreement did not provide for such an eventuality and further no proof was produced in respect of the said claim. 22. There cannot be any dispute that expenditure claim is allowable under the Income tax Act subject to the provisions contained therein, if it was incurred for the purposes of the business. In the instant case, the assessee herein has not accepted the liability relating to the Quality claim . It has passed on the liability to the lessor and the lessor has also accepted the said liability. It is pertinent to note that the lessor M/s PTL Enterprises Ltd is also a group company. The assessee is putting forth claim for deduction of expenditure relating to Quality Claim only for the reason that the said claim was disallowed in the hands of M/s PTL Enterprises Ltd, even though the said company had accepted the liability for the same. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
