Tribunal decision on income verification, amortization expenses, advance write-off, depreciation, service tax

The tribunal directed the AO to verify if the amount declared as income in 2014-15 and, if so, delete the addition for 2010-11. The tribunal reinstated the AO's order, disallowing the amortization of expenses under Section 35D. The assessee's appeal for the advance written-off as revenue expenditure was allowed. The appeals for additional depreciation and service tax element disallowance were dismissed.

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Issues Involved:
1. Addition of Rs. 1 crore invoking the provisions of Section 41(1) of the Act.
2. Deleting the addition of Rs. 1,22,00,000/- being the claim of amortization of expenses U/s.35D of the Act.
3. Disallowance of additional depreciation U/s. 32(1)(iia) of the Act for Rs. 55,33,000/-.
4. Disallowance of service tax element attributable to the 1/5th portion of preliminary expenses U/s.35D of the Act for Rs. 55,23,203/-.
5. Disallowance of the advance written-off as revenue expenditure for Rs. 2,04,26,000/-.
6. Deleting the addition of Rs. 1,27,80,000/- being the claim of amortization of expenses U/s.35D of the Act.

Detailed Analysis:

1. Addition of Rs. 1 crore invoking the provisions of Section 41(1) of the Act:
The assessee received Rs. 1 crore from M/s. India Globalization Capital Inc, USA for installing 96 wind energy generators. The agreement expired on 31.03.2009, but the amount was kept as a liability. The AO treated this as remission of liability under Section 41(1) of the Act and added it to the income. The CIT(A) confirmed this, stating the assessee had no liability to refund the amount after the contract expired. However, the assessee argued that the amount was declared as income in the assessment year 2014-15 due to non-compliance by the client, and taxing it again would result in double taxation. The tribunal directed the AO to verify if the amount was declared as income in 2014-15 and, if so, delete the addition for 2010-11.

2. Deleting the addition of Rs. 1,22,00,000/- being the claim of amortization of expenses U/s.35D of the Act:
The assessee incurred Rs. 6,10,00,000/- as commission for raising private equity and claimed 1/5th of it as preliminary expenses. The AO disallowed this, stating it was capital expenditure. The CIT(A) allowed the appeal based on a previous tribunal decision. However, the tribunal noted that Section 35D does not cover such expenses and cited the Supreme Court's decision in Brokebond India Ltd, which held that expenses for increasing capital base are capital in nature. The tribunal reinstated the AO's order, disallowing the amortization.

3. Disallowance of additional depreciation U/s. 32(1)(iia) of the Act for Rs. 55,33,000/-:
The AO disallowed additional depreciation on windmills, stating the relevant provision came into effect from the assessment year 2013-14. The CIT(A) upheld this view. The tribunal agreed, noting the assessee claimed additional depreciation for generating power, which was not eligible in the assessment year 2011-12.

4. Disallowance of service tax element attributable to the 1/5th portion of preliminary expenses U/s.35D of the Act for Rs. 55,23,203/-:
The AO disallowed the service tax expense related to private placement of equity shares, stating it was not eligible for input credit. The CIT(A) confirmed this. The tribunal upheld the disallowance, noting that since the commission expenses were not deductible under Section 35D, related service tax expenses also could not be amortized.

5. Disallowance of the advance written-off as revenue expenditure for Rs. 2,04,26,000/-:
The assessee wrote off an advance paid for acquiring second-hand cranes as bad debts. The AO disallowed this, treating it as capital expenditure. The CIT(A) upheld the AO's decision. The tribunal, however, noted that the advance was for acquiring cranes for the business, and the loss incurred was during the course of business. Citing the Madras High Court decision in CIT vs. Indian Biselers, the tribunal allowed the deduction as revenue expenditure.

6. Deleting the addition of Rs. 1,27,80,000/- being the claim of amortization of expenses U/s.35D of the Act:
This issue was identical to the one in ITA No.319/Mds/2015. The tribunal's decision to disallow the amortization of expenses under Section 35D applied here as well, holding against the assessee.

Conclusion:
- The assessee's appeal for the addition of Rs. 1 crore was allowed for statistical purposes, pending verification.
- The revenue's appeals regarding the amortization of expenses under Section 35D were allowed.
- The assessee's appeal for additional depreciation and service tax element disallowance was dismissed.
- The assessee's appeal for the advance written-off as revenue expenditure was allowed.

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