Tribunal decision allows assessee's expenses, upholds book profit computation, and remands land value issue.

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, directing verification and allowance of various expenses incurred by the assessee. It upheld the CIT(A)'s decision on the computation of book profit under Section 115JB and allowed claims for conveyance expenses, depreciation, and waiver of the principal loan amount. The Tribunal remanded the issue of the increase in the value of land for further adjudication.

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Issues Involved:
1. Verification and allowance of various expenses (travelling, professional charges, telephone, and other expenses) incurred by the assessee.
2. Computation of book profit under Section 115JB of the Income Tax Act.
3. Disallowance of conveyance expenses.
4. Disallowance of depreciation, including depreciation on goodwill.
5. Treatment of surplus on reorganization/demerger as taxable income.

Issue-wise Detailed Analysis:

1. Verification and Allowance of Various Expenses:
The Revenue appealed against the CIT(A)'s decision to direct the Assessing Officer (AO) to verify and allow the assessee's claims for travelling expenses (Rs. 2,39,729), professional charges (Rs. 9,93,354), telephone expenses (Rs. 97,630), and other expenses (Rs. 26,74,830). The assessee, a company declared as a sick unit under BIFR, had incurred these expenses during a period when it was not conducting active business but was preparing for revival. The AO disallowed these expenses, arguing that the company was defunct and not carrying on any business activity. However, the CIT(A) found that these expenses were necessary for the survival and revival of the company and directed the AO to verify and allow the claims accordingly. The Tribunal upheld the CIT(A)'s decision, noting that the expenses were incurred to sustain the company during a temporary lull in business and were thus allowable under Section 37(1) of the Income Tax Act.

2. Computation of Book Profit Under Section 115JB:
The Revenue also contested the CIT(A)'s direction to the AO to make only specific adjustments in computing book profit under Section 115JB. The CIT(A) had accepted the assessee's contention that no adjustments other than those specified in Section 115JB should be made, in line with the Supreme Court's decision in Apollo Tyres Ltd. v. CIT. The Tribunal affirmed the CIT(A)'s decision, stating that the AO is bound to make only the adjustments specified in Section 115JB to arrive at the Minimum Alternate Tax (MAT) income.

3. Disallowance of Conveyance Expenses:
The assessee appealed against the CIT(A)'s decision to uphold the disallowance of conveyance expenses amounting to Rs. 1,31,999. The Tribunal, following its earlier decisions for the assessment years 2004-05 and 2005-06, directed the AO to allow the claim for conveyance expenses, noting that similar expenses had been allowed in previous years under similar circumstances.

4. Disallowance of Depreciation, Including Depreciation on Goodwill:
The assessee also challenged the disallowance of depreciation amounting to Rs. 74,04,808, which included depreciation on goodwill (Rs. 69,26,452). The AO had disallowed the depreciation, arguing that the assets were not used for business purposes during the year and that goodwill is not eligible for depreciation under Section 32(1)(ii). The CIT(A) upheld the AO's decision. However, the Tribunal, referring to its earlier decisions and the Supreme Court's ruling in CIT v. Smifs Securities Ltd., allowed the claim for depreciation, including on goodwill, stating that the assets were ready for use and goodwill is an asset eligible for depreciation.

5. Treatment of Surplus on Reorganization/Demerger as Taxable Income:
The assessee contested the CIT(A)'s decision to treat the surplus on reorganization/demerger (Rs. 19,43,73,928) as taxable income. This surplus included Rs. 8,36,99,463 from the waiver of the principal amount of a loan and Rs. 11,07,74,465 from an increase in the value of land hived off. The AO had rejected the assessee's claim for additional deductions, arguing that such claims must be made through a revised return, as held by the Supreme Court in Goetz (India) Ltd. v. CIT. The CIT(A) upheld the AO's decision. The Tribunal, however, held that the appellate authorities are not restricted by the Goetz ruling and can entertain such claims. On merits, the Tribunal found that the waiver of the principal loan amount was a capital receipt and not taxable. The Tribunal directed the AO to allow the deduction for the waiver of the loan amount. The issue of the increase in the value of land was remanded to the CIT(A) for adjudication in light of Section 47(vi) of the Income Tax Act.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes, directing the AO and CIT(A) to verify and allow the claims as specified. The Tribunal upheld the CIT(A)'s directions regarding the computation of book profit under Section 115JB and allowed the claims for conveyance expenses, depreciation, and the waiver of the principal loan amount, while remanding the issue of the increase in the value of land to the CIT(A).

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