2012 (7) TMI 646 - AT - Income Tax

Tribunal decision: Lease premium disallowed, reduced disallowance under Section 14A, remanded CGTMSE contribution deduction.

The appeal by the assessee was partly allowed, and the appeal by the Revenue was dismissed. The Tribunal upheld the disallowance of lease premium ... Disallowance of proportionate amortised amount of lease premium paid - leasehold land treated as capital expenditure – Held that:- As per the clause 6 of the said agreement, the assessee paid Lease premium for grant of lease for the term of 80 years from the date of grant of possession of land - price paid by the assessee was for acquisition of rights to a capital asset and, therefore, cannot be allowed as revenue expenditure - similar expenditure was capital in nature - expenditure in respect of lease from MMRDA in the nature of premium paid was capital in nature – appeal dismissed Disallowance of direct expenses in the form of interest - by assuming the same as expenditure incurred in relation to earning of the tax free income, by invoking the provisions of Section 14A of the Income Tax Act – Held that:- Borrowed funds on which interest was paid had not been used for making investments which yielded tax free income. Therefore, disallowance of direct expenses was rightly deleted by the Ld. CIT(A). Administrative and other expenses – Held that:- It is a case where estimation was required to be made - estimation at 5% of the dividend income made by the Ld. CIT(A) is reasonable Interest charged under section 234C of the Income Tax Act - plea of the assessee was that due to circumstances beyond its control and because of the events that happened after the date of payment of third installment of advance tax, there was a short fall in payment of advance tax leading to levy of interest u/s.234C of the Act – Held that:- Circumstances set out by the assessee have to be considered only in an petition for waiver of interest made to the administrative authorities and cannot be made in the appellate proceedings in which only liability to tax can be subject matter of the proceedings Deduction of contribution to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) - deduction is claimed by the assessee under the provisions of section 36(1)(xii) of the Act - whether the Trust Deed by which CGTMSE was constituted and the contribution made by the assessee to CGTMSE fall within the objection purpose authorized by the Act by which the assessee was constituted or established - matter remanded to AO Deduction on account of bad debts written off u/s.36(1)(vii) of the I.T. Act - which was not claimed by the assessee in the return of income – Held that:- Provisions of Sec.36(1)(viia) applies to the Assessee - no credit balance in the provision account and therefore whole of the bad debts written off would in effect be in excess of the credit balance (which is nil) in the provisions account - whole of the bad debts written off would be deductible u/s.36(1)(vii) of the Act - sum has been omitted to be claimed in the return of income has been amply demonstrated by the Assessee. Even in the reassessment proceedings the AO has no answer to the claim of the Assessee in this regard and has merely observed in his order that there is no evidence produced by the Assessee. The book entries and the return of income before the AO are enough evidence to come to the conclusion that the amount in question was not claimed in the return of income though the Assessee could have claimed it legitimately - appeal by the Revenue is dismissed. Issues Involved:1. Disallowance of lease premium amortization.2. Disallowance under Section 14A for expenses related to exempt income.3. Excess interest charged under Section 234C.4. Deduction of contribution to Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).5. Deduction of bad debts written off under Section 36(1)(vii).Issue-wise Analysis:1. Disallowance of Lease Premium Amortization:The assessee claimed a deduction of Rs. 56,99,160 as a proportionate amortized amount of lease premium paid to MMRDA, treating it as revenue expenditure. The AO disallowed the claim, treating it as capital expenditure. The CIT(A) upheld the AO's decision, referencing previous decisions in similar cases. The Tribunal confirmed the CIT(A)'s order, citing the Special Bench decision in Mukand Ltd. and the ITAT decision in National Stock Exchange of India Ltd., both of which treated similar expenditures as capital in nature.2. Disallowance under Section 14A:The assessee and the Revenue both contested the disallowance under Section 14A. The AO disallowed Rs. 5,60,82,366, assuming it as expenditure incurred for earning tax-free income. The CIT(A) reduced the disallowance to Rs. 50,00,000, considering it a reasonable estimate of administrative expenses related to earning dividend income. The Tribunal upheld the CIT(A)'s decision, agreeing that the estimation at 5% of the dividend income was reasonable.3. Excess Interest Charged under Section 234C:The assessee contested the excess interest charged under Section 234C, arguing that the shortfall in advance tax payment was due to circumstances beyond its control. The CIT(A) rejected this plea, stating that such circumstances should be considered by the administrative authorities, not in appellate proceedings. The Tribunal upheld the CIT(A)'s decision, dismissing the assessee's ground.4. Deduction of Contribution to CGTMSE:The assessee sought to admit additional grounds for the deduction of Rs. 51,83,50,000 paid to CGTMSE. The Tribunal admitted the additional grounds, emphasizing the need to determine the correct taxable income. The matter was remanded to the AO for examination, with directions to consider the additional evidence provided by the assessee.5. Deduction of Bad Debts Written Off under Section 36(1)(vii):The assessee claimed a deduction of Rs. 25,25,55,044 for bad debts written off, which was not claimed in the return of income. The CIT(A) allowed the claim, referencing the Special Bench decision in Oman International Bank and considering the provisions of Section 36(1)(vii) and 36(2). The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's contention that the claim could not be entertained as it was not made in the return of income. The Tribunal emphasized that the purpose of assessment proceedings is to determine the correct tax liability.Conclusion:The appeal by the assessee was partly allowed, and the appeal by the Revenue was dismissed. The Tribunal's decision addressed each issue with detailed legal reasoning, upholding the CIT(A)'s decisions where applicable and remanding certain matters for further examination by the AO.