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2022 (1) TMI 1387 - ITAT BANGALOREBusiness Expenditrue - Deduction u/s 37(1) - assessee advanced money for the purpose of purchase of material to construct the hotel building - HELD THAT:- As it is clear that the amount paid to various vendors for supply of construction material for construction of hotel building was not in the normal course of business of assessee. Since the amount was given for the purpose of creation of capital asset, the same cannot be treated as a revenue loss, but a capital loss. Accordingly, the debt arisen in the normal course of business is revenue in nature, but in the present case, the debt arose in the field of capital investment and writing off the same was in the nature of capital loss and cannot be allowed as a deduction. This ground of the assessee is dismissed. Accrual of income - incentive deposit received for rebranding of the hotel - AO observed that the 'incentive' has been received during the year under consideration for rebranding of the hotel and corresponding expenditure has been debited in the instant year itself, the amount received is an revenue receipt - HELD THAT:- The argument of the assessee is that income not at all accrued to the assessee, as such, incentive cannot be taxed in the hands of the assessee in the year under consideration. In our opinion, the assessee is following mercantile system of accounting. The assessee treated the expenditure as an asset and claimed depreciation on it and charged it to P&L account. However, corresponding incentive received by the assessee towards brand building has been shown as liability which is against the provisions of Section 5 of the Act. Accordingly, AO rightly brought it to tax. The assessee cannot postpone it on the reason that it is liability and there is likelihood of repaying the amount in a phased manner after 5th of every year in case agreement is prematurely terminated. If the assessee refunds back to the payer, then it could be claimed as deduction in the year in which was paid back by the assessee. Decided against assessee.
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