2015 (10) TMI 2500 - AT - Income Tax

ITAT Upholds CIT(A)'s Decisions on Business Loss, Revenue Expenditure, and Additional Depreciation

The ACIT, Circle-I, Ludhiana Versus Am Kryon International Pvt. Ltd.

The ITAT dismissed the appeal, upholding the CIT(A)'s decisions on all three issues. It allowed the earnest money for land acquisition as a business loss ... Disallowance of earnest money given for acquisition of land - Held that:- If any asset is acquired and if it is a benefit of enduring nature, then, of course, assessee cannot get deduction of the amount for acquisition of land as Revenue expenditure. When land was not acquired, no capital asset has been acquired and therefore, the payment of ₹ 7,46,088/- is to be allowed as business loss. In our view, the CIT(A) has correctly held that the claim of the assessee as business loss and deserves to be allowed. - Decided against revenue Disallowance treating the expenditure claimed as deferred revenue expenditure in P&L and incurred on employee restructuring and re-engineering of business, as capital expenditure - CIT(A) allowed the claim - Held that:- The expenditure was essentially of Revenue nature as it was incurred for improvement of business practices linked with marketing and human resource utilization. It is claimed that the scope of the study relates to the promotion of products of company in order to sustain market pressure and to maintain its market position. It is also explained that the scope further included employee restructuring also so as to save the manpower cost and to achieve best utilization of human effort. , Thus it is clear that there was no creation of capital asset in the case of assessee company. In view of the above, we do not find any merit in the ground raised by the Revenue - Decided against revenue Additional depreciation claim - Held that:- Considering the entire facts and circumstances of the present case, we uphold the order of CIT(A). In our opinion the Ld. CIT(A) has correctly directed the Assessing officer to examine the claim of the assessee pertaining to additional depreciation on merits and, if found to be entitled, the same may be allowed to the assessee. There is no merit in this ground of appeal and accordingly the same is dismissed. - Decided against revenue Issues:1. Disallowance of earnest money for land acquisition2. Treatment of expenditure on employee restructuring as capital expenditure3. Claim of additional depreciation and rejection based on Goetze (India) Ltd. judgmentIssue 1: Disallowance of earnest money for land acquisitionThe appeal involved the disallowance of Rs. 7,46,088 as earnest money given for land acquisition. The Assessing Officer treated the amount as capital expenditure, but the CIT(A) deleted the addition, considering it as an allowable business loss. The ITAT upheld the CIT(A)'s decision, stating that since no enduring benefit resulted to the assessee, the expenditure could not be treated as of capital nature. As no capital asset was acquired, the amount was allowed as a business loss.Issue 2: Treatment of expenditure on employee restructuring as capital expenditureThe second issue revolved around the disallowance of Rs. 1,41,500 for expenditure on employee restructuring and business re-engineering. The Assessing Officer considered it as capital expenditure, but the CIT(A) deleted the addition, relying on the judgment in Empire Jute case. The ITAT agreed with the CIT(A), emphasizing that the expenditure aimed at facilitating business operations and enhancing efficiency, making it revenue expenditure and not capital in nature.Issue 3: Claim of additional depreciationThe final issue pertained to the claim of additional depreciation on new machinery worth Rs. 17,28,295. The Assessing Officer rejected the claim, citing the Goetze (India) Ltd. judgment. However, the CIT(A) directed a re-examination of the claim, emphasizing the right of the assessee to raise additional grounds during assessment proceedings. The ITAT upheld the CIT(A)'s decision, stating that the Goetze judgment was limited to the power of the Assessing Officer to entertain claims, and the assessee could make claims during assessment or appellate proceedings without a revised return.In conclusion, the ITAT dismissed the appeal, upholding the decisions of the CIT(A) on all three issues, emphasizing the distinction between revenue and capital expenditures and the rights of the assessee to raise claims during proceedings as per legal precedents.