TaxTMI 
TaxTMI 
2013 (6) TMI 220
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....al. Assessee raised the following grounds: "1. Revenue Expenses disallowed-Rs.1,69,97,820: a) The learned CIT (A) erred in law and facts in upholding order of AO treating further expenses of Rs.1,69,97,820 as capital in nature and disallowed, in addition to Rs.1,64,99,361 already capitalized by assessee. The reasons given by him for doing so are wrong, contrary to the facts of the case and against the provisions of law. b) The learned CIT (A) failed to appreciate that assessee has capitalized Rs.1,64,99,361 expenses relating to projects under implementation on scientific basis (i.e. in the ratio of capital cost of each project) and accepted by Auditors and accordingly balance is debited to Profit & Loss A/c and claimed allowable under section 37 of the Act. The disallowance made and upheld by the learned AO & learned CIT (A) is arbitrarily done on presumption and against the provisions of law, hence required to be reversed. 2. Interest Income Rs.3,82,712: The learned CIT (A) erred in law and facts in upholding the taxability of interest income of Rs.3,82,7....
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....ial complexes in more than four areas in addition to developing gaming centre at Andheri Complex. Substantial time, resources and devotion of the personnel and other infrastructure in the head office is invariably devoted to the newer projects under implementation. AO further held that it would be incorrect on the part of assessee to claim 68% of the total expenditure as revenue expenses. A break up of the head office expenses also indicate a high amount of expenses towards travel and tour, legal and professional fees, interest and finance and communication expenses in addition to employee cost and corporate brand building expenses. AO also held that the time and energy of corporate employees is invested more towards the newer projects rather than towards already running projects. Assessee has also not given any cogent reason as to why 68% of the head office expenses should be taken as revenue expenses. AO disregarded the proportion given by assessee and taken 1/3rd of the expenses as revenue expenses and the balance 2/3rd is capitalized as under: Total HO Expenses 100% 5,02,45,769 Revenue 33.33% 1,67,48,588 Capitalised 66.66% 3,34,97,176 AO ....
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....hat the appellant is actively pursuing the completion of the projects at Lucknow and Chembur as well as Bangalore. Therefore, the Head office expenditures are to be incurred/apportioned in the ratio of efforts put in by the Head Office staff including the directors. The apportionment made by the learned AO of revenue is to capital expenditure is perfectly in order as the appellant failed to give any cogent reason for the allocation made by it. The addition made by the learned AO is accordingly upheld. This ground of appeal is thus dismissed". 4.3 The learned Counsel reiterated the submissions and placed on record the table of allocation of expenditure undertaken by assessee. The learned CIT (DR) supported the order of AO and the CIT (A). 4.4 We have considered the rival contentions. As seen from the facts on record, there is no dispute to the extent of expenditure incurred in HO. The interest expenditure was directly allocated to the project as per the loans obtained. The expenditure other than the interest of Head Office was allocated on the basis of capital cost of each project. There is no dispute with the fact that three Centres are fully in operation and the other Centre....
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....2,45,769.76 4.5 As rightly contended, in earlier year the HO expenses were allocated at 93% capital and 7% revenue as only one Multiplex was in operation for part of the period. But the basis of allocation is the cost of the project. This year the investment in operational project was at Rs.124.01 crores whereas other projects was at Rs.60.63 crores. Therefore assessee allocated the expenditure at 67.16% revenue and 32.84% capital during the year. There is justification in the claim of assessee as the newly operational projects also require more attention and in some projects there was no activity except purchase of land. In the absence of any details of manpower allocation, time spend on each project, the only rationale method adopted by assessee is capital cost allocation. This cannot be faulted as AO did not examine any other method to allocate but estimated at two thirds capital and one third revenue (as against the similar ratio of assessee in contrary method ie. 1/3rd : 2/3rd). Bangalore project does not require any allocation as only land was purchased. Even one takes the operational : under construction ratio, it is 3: 3 i.e. 50% capital and 50% revenue. Lookin....
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....these expenses crystallized during the current AY. AO therefore, disallowed an amount of Rs.26,09,033. 6.1 Assessee contended before the CIT (A) during the appellate proceedings and submitted the details of Prior Period Income as under: As per A.O Actual Depreciation Net Income 35,51,055 35,96,528 13,12,695 22,83,833 Expenses 26,09,033 26,61,879 4,21,109 22,40,770 Income shown in financial statements 9,42,022 9,34,649 8,91,586 43,063 6.2 Assessee further submitted that it has shown net prior period income of Rs.9,34,649 in its Profit & Loss A/c. Assessee incurred expenses as well as earned income pertaining to earlier year during the previous year as these were crystallized during the year and submitted details of the same along with nature of expense/income of each and every item. Assessee further submitted that it claimed these expenses/income as incurred during the year as the same were crystallized during the year but shown as Prior Period (Income)/Expenses in the financial statements. Assessee further submitted that this also includes Rs.1,27,125 of Ahmedabad and Rs.2,93,984 of Andheri being dif....
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.... same are required to be classified as prior period expenses/incomes hence the said AS-5 had been followed as required under the Companies Act, 1956. 6.3 The learned CIT (A) did not agree. His order is as under: "9.3.1. I have carefully considered the contention of the appellant and also carefully gone through the documents available on record. I find that the expenses claimed by the appellant under the head "prior period expenses" are actually not a prior period expenses but these are the payment made b the appellant to M/s VSD Confin Ltd with whom the appellant was having a joint development agreement for Chandigarh project. After determination of the Chandigarh projects various payments were made to M/s VSD Confin as a part of the final payment made to M/s VSD Confin. Therefore, by no stretch of imagination it can be said that these expenses were crystallized in the year under consideration. Further, it is also not clear as to what is the modalities of the treatment given by the appellant as well as Confin Ltd to the payment/receipt of the amounts. From the submission given it can be inferred that the payment is made to M/s VSD Confin and not to the concerned ....
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....AO is directed to give due opportunity to assessee and if any expenditure is in capital nature, to examine whether they can be capitalized to the project. Consequential allowance of depreciation etc, also to be examined. With these directions, the issue of prior period income/expenditure was restored to AO. Ground is allowed for statistical purposes. 7. Ground No.4. The issue in Ground No.4 was raised as additional ground before the CIT (A). The contention of assessee is as under. " During the course of appellate proceedings, the assessee submitted that the activity of film exhibition is liable to entertainment duty by the State Governments as per the rates fixed by them which range between 20% and 100%. These entertainment duties are part of the ticket prices and are collected from the viewers and paid to the respective State Governments. However, due to lack of proper facilities in theatre- cinemas and easy entertainment on cable television, occupancy in theatre-cinemas has fallen considerably. The State Governments lost revenue in a big way. Due to lack of proper facilities and infrastructure, there has been a decline and stagnation in theatrecinema business a....
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....nments by way of exemption from payment of entertainment tax to the extent of Rs.7,86,04,884. Assessee further submitted that it has been granted exemption from payment of entertainment tax in respect of multiplexes at Ahmedabad, Andheri (Mumbai), and Chandigarh. These exemptions have been granted in pursuance of the Entertainment tax exemption policy of the respective state governments. The entire amount of entertainment tax collected by the company has been included in the schedule 15 of the profit and loss account "Sales and Operating Income" and entertainment tax incentive/subsidy has been wrongly offered to tax. The company, however, submits that above subsidy received in the form of exemption from payment of entertainment tax for promotion of construction of multiplex theatres in Maharashtra is a capital receipt not chargeable to tax. Assessee further placed reliance on the following decision'- * CIT v.Panni Sugars& Chemicals Ltd (306ITR 392) (SC) * Sadichha Chitra v. CIT (189 ITR 774) (Born.) * Kalpana Palace v. CIT (275 ITR 365) (All.) ....
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.... Rs.1,62,87,723/- on the assets which area not put to use during the relevant Financial Year ignoring the decision of the jurisdictional High Court in the case of Dinesh Kumar Gulabchand Vs. CIT (267 ITR 768) wherein the Hon'ble Court held that the language of Section 32 of the Act is such that depreciation is admissible only if asset has been actually used in the business." 2. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the proportionate disallowance of Rs.11,47,169/- out of repairs and maintenance & Housekeeping expenses related to the area which was not put to use without appreciating that such expenses were not allowable as they were not incurred wholly and exclusively for the purpose of business u/s 30/31/37(2) r.w.s. 38(2) of the Act." 8.1. Briefly stated, during the course of assessment proceedings, AO observed that assessee has claimed an area of 25,000 sft. area utilized for storage. This is in addition to parking space, storage areas and other services specific areas created by assessee in the commercial complexes constructed. The Ld. AO has not accepted assessee's adhoc claim of 25000 sq. of area utilized fo....
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.... block so the depreciation cannot be disallowed. Regarding repairs and maintenance, it was submitted that these expenses were incurred for regular upkeep of premises of the common business. It also relied on various case law. The detailed submissions are in the order of the CIT (A) at Para 3.2 8.4 After considering the submissions, the CIT (A) has allowed the claim of assessee. His order in Para 3.3 is as under: "3.3.1 I have carefully considered the contention of the appellant and also carefully gone through the documents available on record. Section 32(1) lays downs the following aspects for eligibility to claim depreciation: * Depreciation is allowable on certain kinds of assets only. As rightly observed by the Calcutta High Court in Oil India Ltd. vs. CIT (1978) 114 ITR 323 (Cal) "It is not that depreciation on every type of assets owned by an assessee is an allowable deduction under the IT Acts. Section 32 of the IT Act, 1961, allows depreciation only on buildings, machinery, plant or furniture owned by an assessee and used by him during the relevant year for the purposes of his business or profession. II * Such an asset should b....
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....ntering to block of assets. Delhi High Court held that prior to the introduction of new concept of block of assets with effect from 1-4-1988, the depreciation used to be claimed separately on each asset. The Legislature found that this was a cumbersome procedure leading to various difficulties. This necessitated introduction of the concept of block of assets and allowability of depreciation on such a block. The rationale and purpose for which the concept of block asset was introduced by the amendment in the provisions of the Act, as reflected in the Circular dated 23-9-1988 of the CBDT. Intention behind these provisions is apparent. Once the various assets are clubbed together and become block asset within the meaning of section 2(11), for the purpose of depreciation, it is one asset. Every time, a new asset is acquired, it is to be thrown into the common hotchpotch, i.e., block asset on meeting the requirement of depreciation allowable at the same rate. The value of the block asset increases and the depreciation is to be given on the aforesaid value, which is to be treated as written down value. Individual assets lose their identity from that very moment it becomes inseparable par....
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....nded and hence now it refers only to allowance under section 3.3.6 Therefore, after the amendment by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from 1-4-1988, the individual assets have lost their identity and for the purpose of allowing of depreciation, only the block of assets has to be considered. It has to be seen whether the particular block of assets is owned by the assessee and used for the purpose of business. If a block of assets is owned by the assessee and used for the purpose of business, depreciation will be allowed. Therefore, the test of user has to be applied upon the block as a whole instead of upon an individual asset. Therefore, the observation of the Ld.AO that the depreciation on building and plant and machinery will be allowed to the extent of the area which is used for business purposes vis-a-vis for non business purposes is devoid of any merit. Once it is proved that block of asset is used for the purposes of appellant business and there is no finding as to whether the block of assets or for that matter any asset falling in the block of asset is used for other business purposes proportionate disallowance....