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2016 (5) TMI 972 - ITAT AHMEDABADAddition on account of disallowance out of various expenses of textile division - Held that:- As per Section 170(1), where a person carrying on any business or profession has been succeeded therein by any other person who continues to carry on that business or profession, the predecessor shall be assessed in respect of the income of the previous year in which the succession took place upto the date of succession and the successor shall be assessed in respect of income of the previous year after the date of succession. From the aforesaid provision of Section 170 of the Act, it is clear that the expenses incurred upto the date of conversion or succession shall be allowed in the hands of the firm and expenses incurred after the conversion of succession shall be allowed in the hands of succeeding company. We find that the professional expenditure pertains to earlier period. Therefore, in respect of disallowance towards CA’s bills is justified. In respect of disallowance of wages to workers and packing credit bank loan interest, we find no merit into the contention of the assessee. Proportionate disallowance with regard to packing credit loan interest for 11 days comes to ₹ 1,29,154/-, whereas the Assessing Officer computed the same as on 31.12.2007. Accordingly, we direct the Assessing Officer to restrict this disallowance to the extent of ₹ 1,29,154/- and the rest of the disallowance is deleted. With regard to wages to workers, the liability of wages to workers for the month of December 2007 arose in the end of the month, i.e., 31st December 2007. Since the wages are paid on daily basis, the Assessing Officer was justified in disallowing the expenditure pertaining to 11 days, i.e., the period before succession; therefore, the contention in this regard is rejected. - Decided partly in favour of assessee. Disallowance out of various expenses of Power Division - Held that:- Disallowance of expenses of ₹ 7,24,700/-, only ₹ 7,09,780/- is contested before us; i.e., ₹ 5,55,210/- out of interest on term loan and ₹ 1,54,570/- on account of preliminary expenses. With regard to disallowance on account of interest on term loan amounting to ₹ 5,55,210/-, the contention of the assessee was that the interest for ₹ 15,65,807/- on term loan was debited on 31.12.2007. Therefore, the liability of bank loan interest arose when the bank debits the interest amount in the bank account. In this case, the bank had debited ₹ 15,65,807/- on 31.12.2007 and therefore, the liability arose on 31.12.2007. We do not find force in this submission of the assessee as the interest is debited on daily basis but not on monthly basis. Therefore, the contention of the assessee in this regard is rejected, being devoid of any merit. With regard to preliminary expenses amounting to ₹ 1,54,570/-, it is submitted that the preliminary expenses of ₹ 11,09,260/- actually pertained to the company itself and therefore, 20% of ₹ 11,09,260/-, which amounts to ₹ 2,21,852/- was debited to the profit and loss account u/s 35D of the Act. We find that the preliminary expenses are in respect of incorporation of the company; however, the Assessing Officer assumed the expenses for the whole year and disallowed proportionately. Therefore, no disallowance is called for in this case and the Assessing Officer is directed accordingly.- Decided partly in favour of assessee.
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