2010 (10) TMI 1116 - AT - Income Tax

Tribunal upholds business expenses, directs reassessment review, and allows assessee's cross objection

The Tribunal dismissed both departmental appeals regarding deferred revenue expenditure and depreciation on goodwill for A.Y. 2003-04, upholding the ... - Issues Involved:The judgment involves issues related to deferred revenue expenditure, depreciation on goodwill, and the validity of reassessment proceedings.Deferred Revenue Expenditure (A.Y. 2003-04):The appeal by the revenue and cross objection by the assessee were directed against the order of CIT(A) for A.Y. 2003-04. The dispute centered around the disallowance of deferred revenue expenditure. The AO disallowed a portion of the claimed expenditure, considering only the amount written off in the books as eligible for set off against current year's income. However, the CIT(A) allowed the claim, citing previous Tribunal orders and statutory provisions. The Tribunal upheld the CIT(A)'s decision, emphasizing that expenses necessary for efficient business operations should be allowed in accordance with sec. 37(1) of the Income Tax Act. The appeal of the revenue for A.Y. 2007-08 was also dismissed based on the same reasoning.Depreciation on Goodwill (A.Y. 2003-04):Another issue in the appeal for A.Y. 2003-04 was the eligibility of depreciation on goodwill. The Tribunal found this issue covered by previous orders, where it was held that the payment made was for acquiring commercial rights, not goodwill. The AO's departure from past treatment and reliance on book entries were deemed incorrect. The Tribunal confirmed the CIT(A)'s decision to allow depreciation on the cost related to goodwill, dismissing the department's appeal.Validity of Reassessment Proceedings:The cross objection by the assessee raised concerns about the validity of reassessment proceedings, which the CIT(A) did not address in the initial decision. The Tribunal agreed with the assessee's contention that this issue should have been adjudicated first. Consequently, the Tribunal directed the CIT(A) to reconsider and decide the validity of the reassessment proceedings after providing a reasonable opportunity for the assessee to present their case. The cross objection of the assessee was allowed for statistical purposes.In conclusion, the Tribunal dismissed both departmental appeals while allowing the cross objection of the assessee for statistical purposes. The judgment highlighted the importance of considering statutory provisions and the nature of expenses in determining their allowance, as well as the need for proper adjudication of all relevant issues in the assessment process.