2012 (7) TMI 492 - AT - Income Tax

Appeal outcome: Expenses partly allowed, trading loss disallowed, interest confirmed

APL INDIA PVT LTD Versus ADDL COMMISSIONER OF INCOME TAX

APL INDIA PVT LTD Versus ADDL COMMISSIONER OF INCOME TAX - TMI Issues Involved:1. Disallowance of computer expenses as capital in nature.2. Disallowance of repairs and maintenance expenses as capital in nature.3. Disallowance of deduction for the amount receivable from a subsidiary company as bad debts, trading loss, or business expenditure.4. Charging of interest under section 220(2).Detailed Analysis:1. Disallowance of Computer Expenses as Capital in Nature:The Assessing Officer (AO) noted that the assessee had debited Rs. 32,80,058/- for computer expenses, of which Rs. 1,18,225/- was for hardware like CD Rom Drive, Hard disk drive, RAM, Printer, Scanner, and Web Camera. The AO categorized these as capital expenses and allowed proportionate depreciation. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this decision, referencing the Rajasthan High Court's decision in Arawali Construction Company and the Tribunal's decision in Maruti Udyong Ltd. The assessee argued that these were replacements of defective parts, not additions to the asset block. The Tribunal concluded that while CD Rom Drive, Hard disk drive, and RAM are spares and thus revenue expenditure, the Printer, Scanner, and Web Camera are independent devices and capital in nature. Thus, Rs. 86,975/- was allowed as revenue expenditure, and Rs. 31,250/- was confirmed as capital expenditure.2. Disallowance of Repairs and Maintenance Expenses as Capital in Nature:The AO disallowed Rs. 1,66,463/- out of Rs. 50,35,444/- claimed for repairs and maintenance, citing expenses for Kandla office renovation and split AC charges as capital in nature. The CIT(A) confirmed this, stating the expenses were for renovation/improvement immediately after leasing the premises. The assessee argued these were revenue expenses for leased premises. The Tribunal allowed Rs. 1,35,613/- for renovation as revenue expenditure but confirmed Rs. 30,850/- for split AC as capital expenditure, allowing only depreciation.3. Disallowance of Deduction for Amount Receivable from Subsidiary Company:The assessee claimed Rs. 2,80,31,905/- as bad debts or trading loss, representing deposits to its subsidiary for leased premises. The AO disallowed this, noting the amount was not shown as income. The CIT(A) upheld this, stating the amount was not debited to the P&L account and did not meet conditions under sec. 36(1)(iii). The Tribunal noted the absence of a business transaction or commercial expediency between the assessee and the subsidiary. The deposit was deemed a capital outgo, not business-related, and thus not allowable as a trading loss or business expenditure. The Tribunal referenced the Supreme Court's decision in Goetze (India) Ltd. to assert the jurisdiction of appellate authorities to consider fresh claims. The Tribunal concluded the loss was capital in nature and not allowable.4. Charging of Interest under Section 220(2):Interest under section 220(2) is consequential, and no specific finding was required.Conclusion:The Tribunal partly allowed the appeal, granting partial relief on computer expenses and repairs while upholding the disallowance of the trading loss and confirming the consequential nature of interest under section 220(2).