2011 (2) TMI 1509 - AT - Income Tax

Tribunal Upholds CIT(A) Decisions: Disallowances Deleted, Expenses Allowed

Asstt. Commissioner of Income-tax Circle-7, Kolkata Versus M/s. Britannia Industries Ltd.

Asstt. Commissioner of Income-tax Circle-7, Kolkata Versus M/s. Britannia Industries Ltd. - TMI Issues Involved:1. Deletion of additions on account of working capital advances written off.2. Treatment of share buyback expenses as revenue expenditure.3. Treatment of software charges as revenue expenses.Issue-wise Detailed Analysis:1. Deletion of Additions on Account of Working Capital Advances Written OffThe department challenged the deletion of Rs. 18,51,98,485 on account of working capital advances written off, arguing that these were neither working capital nor advances. The assessee had given advances to two sister concerns, JBMFPL and MFPL, which were contract biscuit manufacturers. The assessee claimed these advances as business losses due to irrecoverability. The A.O. disallowed the claim, considering these as capital expenditure since the advances were used for loans and investments, not for day-to-day operations. The A.O. also argued that the loss was not real due to the close connection between the entities and the lack of recovery efforts.The ld. C.I.T.(A) deleted the disallowance, stating that the advances were trading advances, not loans, and were written off due to subvention agreements executed in March 2004. The financial statements of the debtor companies supported the write-off. The ld. C.I.T.(A) concluded that the write-off was a business loss, necessary for the assessee's economic interest, and allowed the deduction.The Tribunal upheld the ld. C.I.T.(A)'s decision, agreeing that the advances were given for business expediency to ensure continued supply of biscuits and were written off due to the financial incapacity of the debtor companies. The Tribunal referenced the Hon'ble Apex Court's decision in S.A. Builders vs. C.I.T., emphasizing that commercial expediency includes such expenditures as a prudent businessman incurs for the purpose of business.2. Treatment of Share Buyback Expenses as Revenue ExpenditureThe department contested the treatment of share buyback expenses as revenue expenditure. The Tribunal noted that this issue was covered by its earlier decision in the assessee's case for assessment year 2003-04, where it was held that the expenditure on share buyback was revenue in nature. The Tribunal, following its previous decision, upheld the ld. C.I.T.(A)'s order, confirming the deletion of the disallowance of Rs. 11,42,963/-.3. Treatment of Software Charges as Revenue ExpensesThe department argued that software charges should not be considered as revenue expenses. The Tribunal referred to its previous decisions and various judicial pronouncements, including the Hon'ble Supreme Court's decision in Empier Jute Co. Ltd. vs. CIT and the Hon'ble jurisdictional High Court's decision in CIT vs. Health & Co (Calcutta) (P.) Ltd. The Tribunal concluded that software expenses are revenue in nature due to their short life span and the need for frequent updates. The Tribunal upheld the ld. C.I.T.(A)'s order, deleting the disallowance made by the A.O. on this count.ConclusionThe Tribunal dismissed the Revenue's appeal, upholding the ld. C.I.T.(A)'s decisions on all grounds:1. Deletion of the disallowance of Rs. 18,51,98,485/- on account of working capital advances written off.2. Treatment of share buyback expenses as revenue expenditure.3. Treatment of software charges as revenue expenses.This order was pronounced in open Court on 11.02.2011.