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2014 (12) TMI 255 - AT - Income TaxNature of expenses on premium paid for buy back of shares – Revenue expenses or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that while accepting the compromise or settlement between the two warring groups, for a proceeding under ss. 397 and 398 of the Companies Act, 1956, the Court will keep in mind the prime interest of the company as well as public interest - the assessee has obtained any right or advantage which would affect its capital structure - The settlement was that as a result of the compromise the assessee acquired the shares and the share capital was reduced - merely represented the mode of settlement and it cannot be the test to be applied to determine the question whether the assessee derived any benefit on capital account - payment made to secure peace and harmony and smooth management of the company, the interest of business would serve and that is the whole purpose of such payment - Therefore, the amount paid for this purpose was on revenue account - by getting rid of the minority shareholders, the company could not be said to have acquired any enduring benefit – thus, there was no infirmity in the order of the CIT(A) allowing the premium paid on buy back of shares as a revenue expenditure – Decided against revenue. Disallowance on payment of PF and ESI made u/s 43B – Payments made after prescribed due dates – Held that:- It has been held in various decisions that PF & ESI dues, if paid before filing of the return prescribed u/s.139(1) is an allowable deduction - the assessee has paid/deposited the PF & ESI dues much prior to the due date of filing of the return, therefore, there was no infirmity in the order of the CIT(A) – Decided against revenue. Amount of compensation debited by assesse - The assessee had assigned the work of interior design of 106 rooms of the Hotel in the year 1997 to one M/s. Jay Arts - Due to certain disputes that arose between the said party and the assessee, a case was filed before the Civil Court who in its judgment dated 10-08-2007 had granted compensation to Jay Arts against the work done with respect to interior designing of the hotel in the year 1997 and some additional work - The assessee had debited compensation of ₹ 2 crores paid to Jay Arts in its profit and loss account for the A.Y. 2008-09 - CIT(A) allowed an amount of ₹ 32 lakhs out of the ₹ 1,82,00,000/- being revenue in nature for the AY and the balance amount of ₹ 1,50,00,000/- in the subsequent year on the ground that there is a court order directing the assessee to pay compensation and interest - the amount of ₹ 2,07,32,232/-, i.e. 48% of the total liability relates to the outstanding amounts and the balance amount is towards interest - Since the assessee has settled the claim of ₹ 3,50,00,000/-, therefore, on prorata basis, the capital expenditure comes to ₹ 1,68,00,000/- and the interest portion comes to ₹ 1,82,00,000/-. Accrual of liability to pay damages - Held that:- Accrual of liability to pay damages from the date on which the MOU is signed for full and final settlement, CIT(A) rightly relied upon Kaveri Engineering Industries Limited. Versus Deputy Commissioner Of Income-Tax [1992 (7) TMI 131 - ITAT MADRAS-B] - there is a difference between a statutory liability and a liability arising on account of a breach of contract or breach of faith - Statutory liability arises on the happening of the taxable event. Such liability arises by reason of the statute itself and merely because the assessee disputes the liability, its accrual does not get postponed. Treatment of interest expenses – Held that:- The CIT(A) rightly followed the decision in Bombay Steel Navigation Company (P) Ltd., Vs. CIT [1964 (10) TMI 12 - SUPREME Court] there was no infirmity in the order of CIT(A) in allowing an amount of ₹ 32,00,000/- out of the payment of ₹ 2,00,00,000/- to M/s. Jay Arts treating the same as revenue expenditure - the order of the CIT(A) in directing the AO to allow depreciation on the capital expenditure is concerned, there is no infirmity in the same - when certain amount is allocated towards capital assets of the assessee company, the assessee is entitled to claim depreciation on the same – Decided against revenue.
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