2012 (12) TMI 630 - AT - Income Tax

Appellate Tribunal rules in favor of assessee for AY 2005-06, emphasizing capital vs. revenue expenditures.

M/s. Falcon Marine Exports Ltd. Versus Asst. Commissioner of Income-tax, Circle 1 (1), Bhubaneswar.

M/s. Falcon Marine Exports Ltd. Versus Asst. Commissioner of Income-tax, Circle 1 (1), Bhubaneswar. - TMI Issues involved:1. Disposal of cross appeals for Assessment Year 2005-06 filed by the assessee and the Revenue.2. Capitalization of interest and service charges incurred for acquisition of shares.Analysis:Issue 1: Disposal of cross appealsThe Appellate Tribunal ITAT CUTTACK addressed cross appeals for the Assessment Year 2005-06 filed by the assessee and the Revenue arising from the order of the CIT(A). The Tribunal decided to dispose of both appeals simultaneously for convenience as different issues were raised by each party. The Revenue's appeal was dismissed as the Tribunal had previously ruled in favor of the assessee on the same issue. The Tribunal found no new material presented by the Revenue to challenge the previous decision, leading to the dismissal of the Revenue's appeal.Issue 2: Capitalization of interest and service chargesThe primary issue raised by the assessee was the refusal by the CIT(A) to capitalize interest and service charges amounting to a specific sum incurred for the acquisition of shares. The assessee argued that these expenses should be treated as capital expenditure based on general accounting principles and accounting standards. The Tribunal reviewed the facts, including the investment in shares of NTPC Ltd. through Kotak Mahindra Investment, and the subsequent sale of shares. The Assessing Officer had added a differential amount to the assessee's income based on the cost of acquisition per share. The CIT(A) upheld this addition, considering the nature of the expenses as revenue in nature. However, the Tribunal disagreed with this approach, stating that the addition made by the Assessing Officer was an imaginary figure with no basis in the books of account. The Tribunal highlighted that the expenses incurred through the Portfolio Manager for share acquisition should be considered capital expenditure attributable to the cost of acquisition. Therefore, the Tribunal directed the Assessing Officer to delete the enhanced addition made by the Assessing Officer. Consequently, the appeal of the assessee was allowed, while the Revenue's appeal was dismissed.In conclusion, the Tribunal ruled in favor of the assessee regarding the capitalization of interest and service charges, emphasizing the distinction between capital and revenue expenditures in the context of share acquisition. The judgment provided clarity on the treatment of expenses related to asset acquisition and their impact on income computation, ensuring adherence to accounting principles and tax regulations.