2016 (3) TMI 926 - AT - Income Tax

Tribunal remits ad expenses, allows bad debts, dismisses GDR expenses disallowance, and partially allows cross appeals.

Assistant Commissioner of Income Tax, Crompton Greaves Ltd. Versus Crompton Greaves Ltd., Joint Commissioner of Income Tax

The Tribunal remitted the disallowance of prior year's advertisement expenses for determination of crystallization of liability. The appeal succeeded for ... Disallowance of advertisement expenses as prior year's expenses - Held that:- There is no dispute that the related invoices are issued at the fag end of preceding previous year. The point of dispute really is as to the point of time when these invoices were served upon the assessee. The liability for payment would crystallise, so far as the assessee is concerned, when the bills are received by the assessee. As there is no finding on this aspect, and with the consent of the parties, the matter is remitted to the file of the Assessing Officer for fresh adjudication, in the light of our directions and observations as above, after giving yet another opportunity of hearing to the assessee on this point, in accordance with the law and by way of a speaking order. We direct so.- Decided in favour of assessee Admissibility of deduction in respect of debts written off - Held that:- So far as the onus, of proving that amounts have actually become bad and unrecoverable, is concerned, the matter is now settled, in favour of the assessee, by Hon'ble Supreme Court in the case of TRF Limited vs. CIT [2010 (2) TMI 211 - SUPREME COURT]. As long as the assessee has actually written off the debts, which is not even in dispute before us, the assessee is eligible for deduction under section 36(1)(iii). That leaves us with only two amounts i.e. ₹ 12,00,000/- as advance given for buying the office and ₹ 12,750/- given as house rent advance. There is no dispute that these amounts have been given during the ordinary course of business and the amounts have actually become bad and recoverable. Such being the undisputed facts, in our considered view, the loss being incidental to carrying on the business, the assessee is entitled to deduction of these amounts as business loss. In view of these discussions, the assessee's grievance against the disallowance of ₹ 81,31,389/- is upheld.- Decided in favour of assessee Disallowance being 1/10th Global Depository Receipts - whether the GDR is nothing but increase in the capital and expenses relating to the same is capital in nature? - Held that:- what the Assessing Officer has overlooked is that there is no bar on capital expenses being amortised under section 35D. Section 35D deals with amortisation of expenses over a period of ten years and such an amortisation is not dependent upon the expenses being revenue in nature. Section 35D(2)(iv) categorically deals with the expenses in connection with the issue, or public subscription of shares and debentures of the Company. In view of these discussions, in our considered view, grievance of the Assessing Officer is ill conceived. As regards learned Departmental Representative's reliance on Hon'ble Delhi High Court's judgement in the case of CIT vs. Hindustan Insecticides Limited (2001 (2) TMI 75 - DELHI High Court), suffice to say that the short issue in that case was whether fee for enhancing share capital can indeed be amortised under section 35D(2)(iii) and that is not even the claim of the assessee before us. - Decided in favour of assessee Issues involved:1. Disallowance of advertisement expenses as prior year's expenses.2. Disallowance of bad debts.3. Disallowance under section 35D.Issue 1: Disallowance of Advertisement Expenses as Prior Year's Expenses:The appeal challenges the disallowance of prior year's expenses of Rs. 87,58,803 related to advertisements given in newspapers during the financial year 1996-97 but claimed as a deduction in the financial year 1997-98. The Assessing Officer disallowed the deduction as the expenses pertained to a prior period. The Tribunal remitted the matter to the Assessing Officer to determine the crystallization of liability based on when the bills were received, allowing the appeal for statistical purposes.Issue 2: Disallowance of Bad Debts:The appeal contests the disallowance of a deduction for debts written off amounting to Rs. 81,31,389, including bad debts of Rs. 68,49,376. The Tribunal held that as long as the debts were actually written off, the assessee was eligible for a deduction under section 36(1)(iii). Additionally, amounts given during the ordinary course of business, such as advances for buying an office and house rent, were considered business losses and allowed as deductions. The appeal was upheld.Issue 3: Disallowance under Section 35D:The Assessing Officer disallowed a deduction of Rs. 53,74,474, being 1/10th of expenses incurred on Global Depository Receipts (GDR), claiming the expenses were capital in nature. The Tribunal disagreed, noting that there was no bar on capital expenses being amortized under section 35D. The Tribunal clarified that section 35D allows for the amortization of expenses over ten years, even if they are capital in nature. The appeal by the Assessing Officer was dismissed.The Tribunal partially allowed the cross appeals, addressing the specific issues raised in each appeal. The judgment provided detailed reasoning for each issue, focusing on the legal interpretations and factual considerations. The Tribunal's decision was based on a thorough analysis of the applicable legal provisions and relevant precedents, ensuring a comprehensive adjudication of the matters at hand.