2017 (9) TMI 845 - AT - Income Tax

Tribunal decision: Partial win for assessee, salary issue remitted, revenue expenditure allowed.

Ambalal Sarabhai Enterprises Ltd. Versus Dy. Commissioner of Income-tax, Circle 1 (1) (1), Vadodara

Ambalal Sarabhai Enterprises Ltd. Versus Dy. Commissioner of Income-tax, Circle 1 (1) (1), Vadodara - Tmi Issues Involved:1. Disallowance of Rs. 1,20,097/- @ 5% of total expenditure.2. Adoption of fair market value (FMV) of capital asset as on 01.04.1981.3. Disallowance of refund money of Rs. 2,33,98,605/- paid back to the vendee.4. Disallowance of salary and wages pertaining to employees of Packart Press Unit.5. Section 14A disallowance of Rs. 49,03,488/- added for computing book profits.6. Allowance of expenditure of Rs. 4,91,318/- as revenue in nature.Detailed Analysis:1. Disallowance of Rs. 1,20,097/- @ 5% of Total Expenditure:The assessee initially contested the disallowance of Rs. 1,20,097/- @ 5% of total expenditure. However, it later withdrew this ground. The Revenue also raised a corresponding ground seeking to revive the entire disallowance sum of Rs. 8,04,813/- including telephone and vehicle expenses of Rs. 6,84,716/-. The CIT(A) had followed the precedent set in the assessment year 1998-99, restricting the disallowance to 5%. The Tribunal upheld the CIT(A)’s order, and both parties failed in their first substantive ground.2. Adoption of Fair Market Value (FMV) of Capital Asset as on 01.04.1981:The assessee and Revenue disputed the FMV of the capital asset sold. The CIT(A) had enhanced the cost of acquisition from Rs. 250/- per sq.mtr. to Rs. 550/- per sq.mtr. The Tribunal noted that in previous assessment years, the FMV had been adopted at Rs. 980/- per sq.mtr. The Tribunal directed the Assessing Officer to adopt the cost of acquisition at Rs. 980/- per sq.mtr. for re-computation of capital gains, thereby partly allowing the assessee’s grievance and declining the Revenue’s corresponding ground.3. Disallowance of Refund Money of Rs. 2,33,98,605/- Paid Back to the Vendee:The assessee claimed the refund money paid back to the vendee as expenditure under Section 48 of the Act. The Assessing Officer and CIT(A) disallowed this claim, noting that the sale consideration was Rs. 33,53,80,000/- as per the registered sale deed, and no such conversion obligation was on the assessee. The Tribunal upheld the CIT(A)’s findings, stating that the assessee’s claim did not inspire confidence and was not in tune with the registered documents. The Tribunal found no merit in the assessee’s contention and upheld the disallowance.4. Disallowance of Salary and Wages Pertaining to Employees of Packart Press Unit:The assessee contested the disallowance of salary and wages amounting to Rs. 28,78,876/-. The Tribunal referred to a co-ordinate bench order in the preceding assessment year, which had set aside the issue back to the Assessing Officer. Following the same course of action, the Tribunal remitted the issue back to the Assessing Officer for a fresh decision, treating this ground as accepted for statistical purposes.5. Section 14A Disallowance of Rs. 49,03,488/- Added for Computing Book Profits:The CIT(A) deleted the Section 14A disallowance on the ground that the assessee had not derived any exempt income in the impugned assessment year, following the jurisdictional High Court’s decision in CIT vs. Corrtech Energy Pvt. Ltd. The Tribunal saw no reason to interfere with the CIT(A)’s conclusion, thereby declining the Revenue’s ground and dismissing the assessee’s corresponding ground as infructuous.6. Allowance of Expenditure of Rs. 4,91,318/- as Revenue in Nature:The Revenue contested the CIT(A)’s order allowing expenditure of Rs. 4,91,318/- as revenue in nature. The Tribunal noted that the assessee had incurred the expenditure on various heads like barricading, scooter parking shed, and waterproofing. The Revenue failed to indicate that these repairs created new assets. Following the jurisdictional High Court’s decision in Manoj B. Mansukhani’s case, the Tribunal upheld the CIT(A)’s order treating the expenditure as revenue in nature.Conclusion:The assessee’s appeal was partly accepted, and the Revenue’s appeal was dismissed. The Tribunal’s decision was pronounced on 13th September 2017.