TMI Blog2016 (7) TMI 392X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance in respect of VRS expenditure - CIT(A) allowed the claim - Held that:- Though, the assessee had debited only a portion of the said expenditure in the books of account yet, claimed the same in full in computation sheet. As held by the Hon’ble Supreme Court in the case of Taparia Tools [2015 (3) TMI 853 - SUPREME COURT ] that such course of action is permissible under law as the assessee has claimed the expenditure in the year in which these were incurred, hence, respectfully following the above judicial pronouncements, we affirm the view of the CIT(A) in this regard. - Decided against revenue Claim of depreciation allowance - Held that:- Issue is already settled in favor of the assessee Disallowance of expenses on account of amortized lease hold land premium - Held that:- The deduction of these expenses has been allowed to assessee is earlier years. The assessee has not become owner of the property in question. - Decided in favor of the assessee Disallowance of travelling expenses - Held that:- The inadmissible expenditure was quantified by the tax auditor and complete details of these expenses were already available with the AO. The details of expenses formed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consistency, 25% of the expenditure is allowed as deduction in computation of Income as allowed in earlier years. Disallowance of loss on damaged uninstalled machinery - Held that:- The AO’s order clearly spells out the fact that insurance claim has been received against the said damage and the machinery was awaiting installation. In such a scenario, the assessee’s right in the assets has been extinguishment in the favour of the insurance company and since the machinery is uninstalled, the same has not entered the block of assets eligible for claiming depreciation. It is nothing but asset of the assessee awaiting to be entered in the block of assets. Hence, the loss arising there form has been rightly claimed under the head capital gains. Disallowance of expenditure in respect of gifts - Held that:- As AR contended that that this amount has already been disallowed suo-moto by the assessee while computing taxable income for the relevant assessment year. Separate disallowance by AO would amount to double disallowance. Hence, the matter is restored back to the file of AO for verification of the claim of assessee in this regard and if found correct, the AO to give relief to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and in circumstances of the case and in law, the ld. CIT (A) has erred in directing the A.O. to tax the compensation received by assessee for surrender of tenancy rights u/s 45 as capital gain and not as Income from other sources. 4. The assessee was in possession of premises admeasuring 2400 Sq. Ft. in the Kaisar at Ballard Estate, Mumbai which was not being used by him for years and the landlord had filed eviction suit against him on this account. A compromise agreement in relation to the said premises was reached upon between the assessee and one Mr. Kamal S Malik Associates, a partnership firm, vide agreement dated 16th August, 1995 wherein the assessee agreed in principal to allow Malik to approach the landlord of the said premises to let the premises to Malik. Malik, in turn, agreed to provide alternate accommodation to the assessee. As Malik was not in a position to offer an alternate accommodation to the assessee, he agreed to pay a sum of ₹ 1 crore to the assessee. As the amount was received from a third party who had no obvious connection with the assessee, AO treated the same as casual and non recurring receipts u/s 10(3). CIT(A) found that the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Capital asset u/s 2(14) and hence rightly found taxable under the head Capital Gains by the learned CIT(A). The cost of acquisition of the same has been correctly taken as Nil as per Section 55(2)(a)(ii). We, therefore, do not find any infirmity in the order of the Ld. CIT(A) on this issue. Ground No. 2: 7. Ground No.2 reads as under: On the facts and in circumstances of the case and in law, the ld. CT(A) has erred in holding that the disallowance made by the A.O. in respect of VRS expenditure is unwarranted and further erred in deleting the same. 8. The facts are that the assessee has paid retrenchment compensation of ₹ 1,13,15,798/- to the employees during the year and claimed the same as revenue expenditure. The Assessee has debited only 20% of this expenditure to the Profit Loss Account. However the same has been claimed in full while computing its taxable income for the said year. The AO noted that the assessee himself has debited only a portion of the said expenditure in its books of account thereby treating the same as deferred revenue expenditure whereas it has claimed the full amount while calculating the taxable income. The AO has relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limited hours every week. The loom hours were bought by the assessee from another member to increase the profits. The question which arose before the Supreme Court was whether the purchase price paid constituted revenue expenditure. It was held by the Supreme Court that purchase of additional loom hours did not add to the fixed capital of the assessee and nor did it make any addition to the existing profit-making apparatus. It was held by the Supreme Court that in certain cases, the test of enduring benefit may not apply. In our view, in this case on facts, the Judgment of the Supreme Court in Empire Jute Mills' case (supra) would apply. 11. Further, the following observation of Apex court in the case of Taparia Tools Ltd 372 ITR 605 is worth noting: 18. What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the IT Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the disallowance of expenses on account of amortized lease hold land premium. 16. An amount of ₹ 64,302/- has been disallowed by the AO treating the payment made towards amortized leasehold land premium, as capital expenditure. The nature of the expenses has not been elaborated by the A.O. The same were deleted by CIT (A) on the ground that the true nature of these expenses has not been elaborated and they have been disallowed in an arbitrary manner. Moreover, he relied upon the decision of apex High court in the case of Madras Industrial Investment Corporation Ltd. 255 ITR 802.The DR supported AO s stand and relied on Delhi High Court judgment in the case of Krishank Bharti Cooperative Ltd. V Deputy Commissioner of Income Tax 350 ITR 24.On the other hand AR relied on the decision of Gujarat High Court in the case of DCIT V Sun Pharmaceuticals India Ltd 2009 24 DTR 262. 17. We have heard the arguments and noticed the following relevant portion of the Gujarat High Court judgment cited by the assessee in the case of DCIT vs. Sun Pharmaceuticals India Ltd. 2009 24 DTR 262. Thus, by this payment the assets of the assessee company had not been increased becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were available. The Auditor quantified the inadmissible portion. A copy of the extract of Auditor report has been filed before us in support of the contention. 21. We have heard the rival arguments. The inadmissible expenditure was quantified by the tax auditor and complete details of these expenses were already available with the AO. The details of expenses formed part of Audit Report. The action of the AO in disallowing the said expenditure on assumptions and estimate basis is not justifiable. Hence, we are of the opinion that CIT(A) has rightly deleted the same. Ground No. 6 22. Ground No.6 relates with the claim of prior period expenses. An amount of ₹ 85,239/- has been disallowed by AO treating these as prior period expenses which were deleted by CIT(A). We notice that similar issue has arisen in the case of the assessee for Assessment Year 1988-89 vide ITA No. 38/Mum/2003 and also in Assessment Year 1994-95 vide ITA No. 3621/Mum/2003 and the same has been decided in favor of assessee on the ground that although the expenses related with prior period but they became crystallized and ascertained only during the relevant assessment years and hence allowable. 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e new Section 35AB. Section 35AB comes into play only when the consideration is paid for acquiring the know-how. Thus in this case, it was held that the assessee s right to have deduction in respect of payments made for obtaining the use of technical know-how allowable as revenue expenditure under Section 37 remains unaffected by new Section 35AB introduced w.e.f. assessment year 1986-87. Section 35AB is enabling section and not disabling from descriptive one and, therefore, it could be applicable for that consideration paid for technical know-how which would be otherwise be disallowable as being on capital account. In the case under consideration, there is no material on record to shown that the expenditure incurred by the assessee was for acquiring the technical know-how and information, which was already available with the assessee. Therefore, the expenditure incurred by the assessee would not fall in the category of capital expenditure. The provisions of Section 35AB would be applicable only if the expenditure is held to be of capital nature. Therefore, we do not agree with the ld. Counsel for the assessee that the deduction under Section 35AB is to be allowed in this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has placed on the file the copies of the orders of the Tribunal in this respect. He, therefore has requested that on the same lines, the issue may be resorted back to the file of AO for fresh adjudication. The DR had no objection to the same. Hence, the matter is remanded back to the file of AO for fresh adjudication in terms of the decision of the Tribunal in ITA No.8896/M/95 decided on 6.8.2009 for A.Y. 1992-93. Ground No.4 31. This relates with disallowance of entertainment expenditure. An amount of ₹ 4,95,179/- was claimed by the assessee under the head entertainment expenditure. These expenses were incurred by the assessee towards food and beverages cost for employees in hotel which was outside assessee s place of business. Therefore, the AO disallowed the same on the ground that these expenses were not incurred at assessee s place of business. Partial Relief to the extent of 75% was granted to the assessee by CIT(A). The AR has contended that that the ITAT has affirmed the action of CIT(A) and allowed deduction of 25% of these expenses in assessee s own case for different assessment year. Following the rule of consistency, 25% of the expenditure is allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of any right and the assessee suffered a loss on account of damage to capital asset. The assessee has not received anything in return for the said damage. The sheer extinguishment of rights without receiving anything in lieu of such extinguishment does not come within the definition of transfer. In the case of the assessee, there was simply a dent in the value of the capital assets on account of damage and the assessee received no compensation on account of said damage. The damage or destruction to an asset may entail the extinguishment of any rights therein to the extent of damage or destruction but unless there is corresponding return of compensation for such an extinguishment of rights, the same do not come with the preview of section 45. The mode of computation of capital gain as given in Section 48 contemplates the existence of sale consideration in return for the transfer of capital asset and unless there is a consideration received or receivable by the assessee in return for transfer, the computation of capital gains cannot proceed. With this reasoning, he confirmed the additions. The DR contented that since the Machinery is a part of block of assets, the loss arising ther ..... X X X X Extracts X X X X X X X X Extracts X X X X
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