TaxTMI 
TaxTMI 
2013 (11) TMI 1279
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....ssue relates to the computation of depreciation on the machinery installed in the show rooms of dealers. The facts relating thereto are stated in brief. The assessee installed certain machineries at the premises of its dealers, who owned the "branded show rooms" under the name and style "Apollo Tyre World"/"Apollo Radial World". The cost of machineries installed during the year under consideration was Rs.88,22,753/-. The assessee had collected security deposits from those dealers @ 50% of the cost of machineries. The assessee claimed the above said sum of Rs.88,22,753/- as revenue expenditure, though it had capitalised the same in its books of account. The AO held that the amount of Rs.88,22,753/- spent on purchase of machineries is capital in nature and accordingly disallowed the said claim. He further held that the depreciation on these machineries is not allowable, since they were used in the premises of the dealers and not by the assessee. The AO further opined that the depreciation, if found to be allowable, the same has to be allowed only on 50% of the cost of machineries, as the other 50% has been collected by the assessee as security deposit from the concerned dealers. 4....
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....he agreement that the dealer shall hold the machineries in trust. The question of refund/adjustment of deposit arises only on the event of the dealer choosing to give up/discontinue the Car Radial Business. Hence, in our considered view, it cannot be said that the dealers have contributed money for purchase of these machineries. Hence the question of adjustment of security deposit against the cost of assets for the purpose of computation of depreciation does not arise. Accordingly, we uphold the view taken by Ld CIT(A) on these two issues. 6. The next issue relates to the expenditure incurred on clubs. The assessee had claimed a sum of Rs.7,26,998/- as expenditure incurred in clubs. The disallowance of this claim made by the AO was reversed by Ld CIT(A). We notice that this bench of the Tribunal has considered an identical issue in the assessee's own case relating to the assessment year 2007-08 in ITA No.430/coch/2006 and the Tribunal, vide its order dated 24-08-2012, has held that the expenditure incurred towards entrance fee/subscription can be termed as business expenditure and the cost of services can be allowed only if the commercial expediency in incurring the same is prov....
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.... (b) Deduction for loss incurred on quality claims raised in export market. 11. The first issue relates to the claim of amount written as irrecoverable. The assessee gave a sum of Rs.2.76 crores as advance towards purchase of machinery. Since the deal did not materialise and since the supplier adjusted the said advance against his charges towards cost and time spent for refurbishing and modifying the machinery, the assessee wrote off the advance in its books of account and claimed the same as deduction. The AO disallowed the said claim by holding that assessee did not disclose the above said amount as its income in any of the year and hence the same is not allowable u/s 36(1)(vii) of the Act. The Ld CIT(A) held that the said claim is not allowable even as business loss or business expenditure, since it was a capital loss. The Ld CIT(A) relied upon many case law in support of his decision. For the sake of convenience, we extract below the relevant observations made by the Ld CIT(A) on this issue:- "5.4 I have carefully considered the above submission. The appellant's claim of deduction under sec. 36(1)(vii) is not at all allowable in view of sec. 36(2) as the amou....
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....ing to Rs.2,,32,93,575/-, the assessee gets support from the decision of Hon'ble Delhi High Court in the case of Mohan Meakin Ltd Vs. CIT (2011)(59 DTR (Del) 401); wherein the High Court, by following the following decisions held that the trade advances written off can be allowed as deduction u/s 37 of the Act. (a) Chenab Forest Co. Vs. CIT (1974) (96 ITR 568)(J & K) (b) CIT Vs. Mysore Sugar Co. Ltd (1962)(46 ITR 649) (SC) (c) CIT Vs. Mahalakshmi Textile Mills Ltd (1967)(66 ITR 710)(SC). In the case of Mysore Sugar Co. Ltd, supra, the Hon'ble Apex Court had an occasion to discuss the nature of losses and the following observations made by the Hon'ble Supreme Court in that case are very much relevant here:- "To find whether an expenditure is on the capital account or on revenue, one must consider the expenditure in relation to the business. Since all payments reduce capital in the ultimate analysis, one is apt to consider a loss as amounting to a loss of capital. But this is not true of all losses, because losses in the running of business c....
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.... with the provisions of sec. 70(3) of the Income Tax Act, 1961, the assessee is entitled to have any loss arising on account of transfer of any long term capital asset set off against income, if any, arising on account of transfer of any other capital asset in the same assessment year. Sec. 70(3) is reproduced hereunder: "Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capita asset (other than a short term capital asset) is loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short term capital asset". Sec. 70 was substituted for the existing Sec. 70 w.e.f. 01-04-2003 i.e. assessment year 2003-04. Had it been the intention of the legislature to not allow set off of loss arising on account of sale of equity shares (income on which is exempt under sec. 10(38), against long term capital loss arising on account of sale of immovable property, it would have made necessary amendment....
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..../s. 10 is granted not when a claim is made. It is granted if the condition stipulated therein is satisfied. The necessity of proving the condition comes up only when the Assessing Officer feels that conditions are not satisfied. When this was again brought to the notice of the assessee, it argued that "The shares transferred on which loss was incurred were chargeable to securities transaction tax. However, being a capital asset the transaction is liable to capital gains tax for which capital gain is to be computed in accordance with the provisions of sections 48 to 55 of the Income Tax Act, 1961. It is only after the capital gain is computed that exemption u/s. 10(38) of the Income Tax Act comes into play. The intention of the legislature is to exempt long term capital gains and not to exclude the transactions of sale of long term capital assets from the purview of capital gains computation." "An asset which is a capital asset has to be transferred only after complying with the provisions relating to the computation and payment of capital gains tax. There is no exemption to long term capital assets bein....
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.... the assessee's case Long Term Capital Gain on sale of land is taxable whereas Long Term Capital gain on sale of share on which SIT has been paid, is exempt." In view of the above, we uphold the order passed by Ld CIT(A) on this issue. 16. The next issue relates to the addition of "deferred tax liability" for the purposes of computation of book profit u/s 115JB of the Act. Both the parties agreed that the provisions of sec. 115JB have been amended by Finance Act, 2008 with retrospective effect from 1.4.2001, as per which "the amount of deferred tax and the provision thereof" is liable to added to the net profit for the purpose of computation of book profit. We notice that the Ld CIT(A) has followed the amendment cited above in order to decide this issue against the assessee. Hence, we do not find any infirmity in his order on this issue. 17. The next issue relates to the claim of weighted deduction on the scientific research expenditure claimed by the assessee. The assessee has lodged this claim before us for the first time. Since, it is a legal issue, we admit the same. Though the assessee claims that it has obtained approval for its research programme, the Ld D.R pointed....
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....& 99 of 2002 in its order dated 01-06-2011. In the above said case, the assessee therein made a payment of Rs.16.00 lakhs in one year and Rs.37.00 lakhs in another year to a group company towards "Corporate Service charges" and claimed the same as expenditure. However, it could not furnish the nature and details of services except a statement showing services in broad terms. The AO disallowed 75% of the claim and the Ld CIT(A) restricted the disallowance to 50%, which was also confirmed by the Tribunal. In the appeal preferred by the assessee before the Hon'ble High Court, it was held as under:- "4. After hearing both sides and after going through the orders, we do not find any justification to interfere with the orders passed by the Tribunal as well as the lower authorities limiting the appellant's claim for deduction of service charges paid at 50% of the claim amount. The finding of these authorities is that the appellant did not furnish specific details about the services rendered and what is stated is about the broad support and help received by the appellant from the group company to justify payments. We do not know why the appellant could not furnish brake up ....