2016 (12) TMI 1480 - AT - Income Tax

Tribunal Decides on Expense Disallowance, Loss Treatment, Interest Charges

Citizen Metalloys Ltd. Versus Income Tax Officer, Ward-1 (3), Ahmedabad

The tribunal upheld the disallowance of deferred revenue expenses, disallowed depreciation on vehicles initially but later allowed it, set aside ... Disallowance of deferred revenue expenses - Held that:- The undisputed fact is that the assessee had a brought forward balance of ₹ 4,03,633/- in the deferred revenue expenses account. It is also an undisputed fact that the assessee has further debited a sum of ₹ 13,14,870/- and out of the total expenditure, the assessee has written off 20% in its Profit and Loss account. What is surprising to note is that the balance of 80% has been claimed as deduction in the computation of income. We fail to understand how this Act of the assessee justifiy the basic accounting principles and in doing so, the assessee has also written off the brought forward balance which does not even pertain to the year under consideration. No doubt, the assessee company is assessed to tax at the same rate of tax every year but it does not mean that expenditure can be allowed defying the basic principles of accountancy - Decided against assessee Disallowance on account of depreciation - assessee has claimed depreciation on two cars which were in the name of the directors of the assessee company - Held that:- The assessee is entitled for claim of depreciation on the vehicles used by it even though they have been purchased in the name of the directors. We draw support from the decision of the Co-ordinate Bench in the case of V-Tex Overseas Pvt. Ltd. [2015 (12) TMI 1618 - ITAT MUMBAI] - Decided against revenue Disallowances made u/s. 14A r.w.r. 8D - Held that:- The undisputed fact is that the assessee did not earn any exempt income during the year under consideration; therefore, disallowance u/s. 14A is unwarranted. We find that while making the disallowances, the A.O. drew support from the decision of the Special Bench of the Tribunal in case of Cheminvest Ltd.[2009 (8) TMI 126 - ITAT DELHI-B ]. However, the said decision of the Special Bench has been reversed by the Hon’ble High Court of Delhi in [2015 (9) TMI 238 - DELHI HIGH COURT ] which was subsequently followed by the Hon’ble Jurisdictional High Court of Gujarat in Commissioner of Income Tax –I Versus Corrtech Energy Pvt. Ltd. [2014 (3) TMI 856 - GUJARAT HIGH COURT ].Respectfully following the said ratio, we set aside the findings of the ld. CIT(A) and direct the A.O. to delete the addition - Decided against revenue Addition being loss treated as speculation loss - Held that:- Assessee has not demonstrated anything by bringing any cogent material evidences on record in justification of its loss. The assessee has also not brought on record the relevant contract notes qua the manufacturing and selling of finished products. The onus is upon the assessee to demonstrate its claim of loss. Merely by filing the copy of the ledger account would not do any good. However, in the interest of justice and fair play, we restore this issue to the files of the A.O. The assessee is directed to demonstrate the loss with its manufacturing and selling activities. The Assessee is also directed to furnish details in respect of any contract cancelled before the due date. The assessee is also directed to furnish details in respect of unexpired/outstanding contracts at the end of the year. The A.O. is directed to verify such details and decide the issue afresh after giving a reasonable opportunity of being heard to the assessee. Disallowance of foreign traveling expenses - Held that:- The undisputed fact is that these expenditures pertained to the foreign travel of the directors. We find that such expenditure include air ticket + visa charges. Since the traveling was done in the month of April, 2008 i.e. next financial year, the air tickets have to be booked prior to the date of traveling and the visa have to be taken accordingly. It is not the case of the revenue that such expenditures were not incurred for the purposes of business. Considering the nature of expenditure, we do not find any merit in the impugned disallowance.- Decided against revenue Issues:1. Disallowance of deferred revenue expenses2. Disallowance of depreciation on vehicles3. Disallowances under Section 14A read with Rule 8D4. Treatment of loss as speculation loss5. Disallowance of foreign traveling expenses6. Charging of interest under Sections 234A, 234B, and 234C7. Initiation of penalty proceedings under Section 271(1)(c)Issue 1: Disallowance of Deferred Revenue ExpensesThe assessee challenged the disallowance of deferred revenue expenses amounting to Rs. 4,03,633. The A.O. observed that the assessee claimed expenses not pertaining to the year under consideration, leading to the addition. The CIT(A) upheld the disallowance. The tribunal found the assessee's actions contrary to accounting principles and dismissed the appeal, affirming the CIT(A)'s decision.Issue 2: Disallowance of Depreciation on VehiclesThe A.O. disallowed depreciation on vehicles owned by directors of the company, leading to an addition of Rs. 3,27,045. The tribunal, considering the vehicles were used for business purposes and citing precedent, allowed the claim for depreciation, overturning the CIT(A)'s decision.Issue 3 & 4: Disallowances under Section 14A read with Rule 8DThe A.O. made an addition under Section 14A read with Rule 8D due to investments made by the assessee. However, as no exempt income was earned, the tribunal set aside the disallowance, following relevant court decisions, and directed deletion of the addition.Issue 5: Treatment of Loss as Speculation LossThe A.O. treated a hedging loss as speculation loss, disallowing trading charges. The tribunal acknowledged the business nature of the loss but required the assessee to provide more evidence to support the claim. The issue was restored to the A.O. for further examination.Issue 6: Disallowance of Foreign Traveling ExpensesThe A.O. disallowed foreign traveling expenses incurred in the subsequent financial year, which were for business purposes. The tribunal found no merit in the disallowance, as the expenses were essential for business and directed deletion of the addition.Issue 7: Charging of Interest and Initiation of Penalty ProceedingsThe tribunal directed the A.O. to levy interest as per legal provisions and dismissed the challenge to the initiation of penalty proceedings as premature. The appeal was partly allowed by the tribunal.This judgment addresses various issues including disallowances of expenses, treatment of losses, and charging of interest, providing detailed analysis and legal reasoning for each issue, resulting in partial allowance of the appeal.