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2014 (11) TMI 11 - AT - Income TaxDepreciation on assets disallowed – Assets put to use during the year for business purpose or not – Held that:- As it has been held in COMMISSIONER OF INCOME TAX-IV, NEW DELHI Versus INSILCO LIMITED [2009 (2) TMI 31 - DELHI HIGH COURT] – the assessee has followed the prescribed accounting standards - the expression ‘used for the purposes of business’ appearing in Section 32 of the Act also takes into account emergency spares which even though ready for use are not as a matter of fact consumed or used during the relevant period, as these are spares specific to a fixed asset and will in all probability be useless once the asset is discarded - the expression used for the purpose of business appearing in section 32 of the Act also takes into account emergency spares which even though ready for use are not as a matter of fact are not as a matter of fact consumed or used during the relevant period as these are spares specific to a fixed assets and will in all probability be useless once the asset is discarded - first the nature of the spare has to be established and then the case law has to be applied - Since the nature of spares has not been established nor the same were examined, the matter is to be remitted back to the AO fresh examination – Decided in favour of assessee. Set off of interest expenses disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the interest expenditure incurred by the assessee cannot be adjusted against interest income earned by the assessee upto the date of commencement of business - interest expenditure incurred by the assessee during the pre-operative period upto the date of the commencement of the business cannot be adjusted against the interest income earned. Provision of network and repair expenses – Held that:- The authorities below have totally erred in treating the provision of expenses not allowable - It is only those provisions which are contingent liability which are not allowable - the provision was made for the repairs in this regard as the relevant bills were not received and payment thereof was not made upto the close of the assessment year - in accordance with accrual system of accounting, the provision in this regard was created - Hence, the provision for network repair and maintenance expenses cannot be said to be a provision made for contingent expenses - There is no contingency in the expenditure to be incurred in this regard - The expenditure has to be incurred though the exact amount was not ascertained – thus, the order of the CIT(A) is set aside – Decided in favour of assessee. Rent expenses disallowed - Held that:- AO had made the disallowance in this regard, as some of the details were not available before the AO - assessee also agreed that the matter may be remitted to the file of the AO – thus, the matter is remitted back to the AO for examination of the details as furnished by the assessee in this regard – Decided in favour of assessee. Disallowance of expenses – Held that:- The provisions made by the assessee cannot be treated as contingent liability when nothing has been brought by the Revenue on record that expenditure in this regard was contingent in nature - The provision was made as the payment in this regard could not be made upto the close of the year as the bills in this regard were received late - Hence, there is no contingency in the expenditure to be incurred - Only the exact amount has not been ascertained - following the mercantile system of accounting such provision cannot be disallowed - thus, the order of the CIT(A) is set aside – Decided in favour of assessee. Disallowance out of brand launch expenses – Held that:- The assessee has incurred expenditure which are in the nature of brand launch expenses - the expenditure incurred upto the pre- operative period has been capitalised and expenditure incurred after the operation has started have been debited to revenue - there is no concept of deferred revenue expenditure in taxation laws - The amount has actually been incurred by the assessee as such the same is allowable in the entirely – thus, the order of the CIT(A) is set aside – Decided in favour of assessee. Allowability of set off of interest expenses against interest income – Held that:- Assessee’s business had not commenced during the previous year - It commenced only in the subsequent year in June, 2002 - In December, 2001 assessee has taken loan from the bank and assessee gave the same to its holding company - Assessee has adjusted the interest expenditure incurred in this regard with the interest income earned and offered the balance for taxation under the head ‘income from other sources’ - The interest expenditure incurred by the assessee are liable to be considered under the head ‘income from other business’ - The interest income earned is liable to be assessed under the income from other sources - assessee’s claim that interest expenditure incurred should be netted off against the interest income is not sustainable. Following the decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. vs. CIT 1997 (7) TMI 4 - SUPREME Court] - any income from non-business sources could not be set off against the liability to pay interest on funds borrowed for the purpose of plant and machinery, etc. even before the commencement of the business of the assessee – thus, the interest expenditure incurred for setting up of the business before the commencement of the business are to be computed under the preoperative expenses and are to be considered under income from business - Hence, the interest income earned, which is from the nonbusiness source cannot be adjusted against the liability to pay interest on funds borrowed of setting up of its business for purchase of plant and machinery etc. before the commencement of the business of the assessee – the order of the CIT(A) is upheld – Decided against assessee.
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