2016 (2) TMI 1353 - AT - Income Tax

Revenue's Appeals Dismissed, Assessee's Partially Allowed: Business Expenses, Depreciation, Disallowance, Capital Gains

DCIT, Cen. Circle-1 (3), Ahmedabad Versus Lok Prakashan Ltd and ACIT, Cen. Cir. 1 (3), Ahmedabad Versus Lok Prakashan Ltd. and vica-Versa

DCIT, Cen. Circle-1 (3), Ahmedabad Versus Lok Prakashan Ltd and ACIT, Cen. Cir. 1 (3), Ahmedabad Versus Lok Prakashan Ltd. and vica-Versa - TMI Issues Involved:1. Deletion of addition of business development expenses by CIT(A) and not holding them as capital expenses.2. Deletion of addition of depreciation claimed on plant and machinery given to Rajasthan State Electricity Board (RSEB) under sale and leaseback transaction.3. Relief given by CIT(A) regarding disallowance under Section 14A of the Income Tax Act.4. Treatment of surplus derived from transaction of shares and mutual funds as business income or capital gains.5. Deletion of disallowance under Section 41(1) of the Income Tax Act in respect of outstanding creditors.6. Disallowance of foreign travel expenses.Detailed Analysis:1. Deletion of Addition of Business Development Expenses:The Assessing Officer (AO) disallowed business development expenses treating them as capital expenditure for the assessment years 2005-06 to 2009-10. However, the Tribunal found that similar issues had been decided in favor of the assessee in previous years, where such expenses were held to be business expenses and not capital in nature. The Tribunal confirmed the order of the CIT(A), who had deleted the additions, by following the precedent set in the assessee's own case for earlier years.2. Deletion of Addition of Depreciation Claimed on Plant and Machinery:The AO disallowed the depreciation claimed on assets leased back to RSEB, treating the transaction as a financial lease. The Tribunal noted that similar issues had been decided in favor of the assessee in previous years, where it was held that the assessee was entitled to depreciation as the transaction was genuine and not merely a financial arrangement. The Tribunal confirmed the order of the CIT(A), who had deleted the disallowance.3. Relief Given by CIT(A) Regarding Disallowance Under Section 14A:The AO made proportionate disallowance of interest expenses under Section 14A, which was partly reduced by the CIT(A). The Tribunal upheld the CIT(A)'s approach, noting that the assessee had sufficient interest-free funds and that the disallowance should be based on the proportion of investments to total assets. The Tribunal also noted that the disallowance of administrative expenses should be reasonable and upheld the CIT(A)'s reduction of such expenses.4. Treatment of Surplus Derived from Transaction of Shares and Mutual Funds:The AO treated the surplus from the sale of shares and mutual funds as business income, citing frequent transactions and short holding periods. The CIT(A) partly accepted this view but held that transactions where shares were held for more than one month should be treated as capital gains. The Tribunal, however, found that the assessee had consistently shown such income as capital gains in past years, which had been accepted by the department. The Tribunal held that the entire surplus should be treated as capital gains and not business income.5. Deletion of Disallowance Under Section 41(1) of the Income Tax Act:The AO made a lump sum disallowance under Section 41(1) for cessation of liability without specifying the creditors or amounts. The CIT(A) deleted the disallowance, noting the lack of specific details and evidence of cessation of liability. The Tribunal upheld the CIT(A)'s order, citing the need for clear evidence of cessation of liability and referring to relevant case law.6. Disallowance of Foreign Travel Expenses:The AO disallowed foreign travel expenses for lack of evidence of business purpose. The CIT(A) confirmed the disallowance, noting the absence of supporting details. The Tribunal also upheld the disallowance, finding that the assessee had failed to provide sufficient evidence to justify the expenses as being for business purposes.Conclusion:The Tribunal dismissed the appeals of the Revenue and partly allowed the appeals of the assessee, confirming the CIT(A)'s decisions on various issues, including the treatment of business development expenses, depreciation claims, disallowance under Section 14A, and the treatment of surplus from share transactions as capital gains. The Tribunal also upheld the deletion of disallowance under Section 41(1) and the disallowance of foreign travel expenses.