Sum Paid for Hard disk and RAM is allowable as Revenue Exp.
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Citation :
IN THE ITAT MUMBAI BENCH 'D'
APL India (P.) Ltd.
v.
Additional Commissioner of Income-tax
VIJAY PAL RAO, JUDICIAL MEMBER
AND N.K. BILLAIYA, ACCOUNTANT MEMBER
IT APPEAL NO. 5619 (MUM.) OF 2009
[ASSESSMENT YEAR 2004-05]
JUNE 8, 2012
ORDER
Vijay
Pal Rao, Judicial Member - This appeal by the assessee is directed against the
order dated 6.8.2009 of the Commissioner of Income Tax(Appeals) for the Assessment
Year 2004-05.
2.
The assessee has raised the following effective grounds in this appeal:
1.
The Learned Commissioner of Income Tax (Appeals) in the facts and circumstances
of the case of the appellant and in law erred in-
(a)
disallowing Rs. 1,18,225/- in respect of computer expenses as capital in nature
under the
domain
of computer.
(b)
Disallowing Rs. 1,66,463/- in respect of repairs and maintenance expenses as
"capital" in
nature.
(c)
Not granting deduction in respect of amount of Rs. 2,80,31,905/- receivable
from the subsidiary company NOL Properties (India) Pvt. Ltd., which was written
off during the year, either as "bad debts" or as "trading
loss" or "expenditure incurred for the purpose of business", as
the case may, be under the relevant provisions of the Act.
(d)
Charging interest under section 220(2) amounting to Rs. 1,05,330/- as there was
no demand outstanding, which was payable.
Ground
1(a) is regarding disallowance of computer expenses being capital in nature.
3.1
The Assessing Officer has noted that the assessee has debited an amount of Rs.
32,80,058/- on accountof computer expenses. The assessee was asked to explain
as to why the computer expenses should not be capitalised. In response, the
assessee has filed the details of computer expenses. From the details filed by the
assessee, the Assessing Officer found that some of the expenses are in relation
to CD Rom Drive/Hard disk drive/RAM of Rs. 86,975/- and Printer/Scanner/Web
Camra of Rs. 31,250/-. Accordingly, the Assessing Officer held that the
expenditure of Rs. 1,18,225/- is capital in nature being computer hardware acquired
by the assessee, which is depreciable asset and disallowed the same. The
Assessing Officer accordingly allowed proportionate depreciation @ 60%. Because
CD Rom Drive/Hard disk/RAM were purchased after 30.9.2003; therefore, 30% of
Rs. 86,975/- was allowed in this respect.
3.2
On appeal, the Commissioner of Income Tax(Appeals) confirmed the action of the
Assessing Officer by following the decision of the Hon'ble Rajasthan High Court
in the case of CIT v. Arawali Construction Co. (P.) Ltd. [2003] 259 ITR
30/[2002] 124 Taxman 146 (Raj.) and the order of the Tribunal in the case of
Maruti Udyog Ltd. v. Dy. CIT [2005] 92 ITD 119/142 Taxman 57 (Delhi) (Mag.).
4.
Before us, the ld AR of the assessee has submitted that the expenditure was
incurred on replacement of the defective computer parts and not for any
addition in the block of assets. He has referred the written down value of the
fixed assets particularly computer and submitted that whatever capital
expenditure incurred by the assessee on computer has been included in the block
of assets. The opening written down value the computer is Rs. 3.79 crores
whereas the Closing Down Value (CDV) is Rs. 3.86 crores which shows that the
addition made by the assessee during the year in the computer has been duly
included in the fixed assets. The ld AR of the assessee thus submitted that
since the expenditure was incurred for replacement of parts/accessories of the
computer; as such in the nature of allowable revenue expenditure.
4.1
On the other hand, the ld DR has relied upon the orders of the authorities
below and submitted that the Assessing Officer has clearly made out in the
assessment order that out of the total expenditure of Rs. 32,80,058/-, Rs.
1,18,225/- was incurred by the assessee for new hardware of the computer, which
is in the nature of capital.
5.
We have considered the rival contention as well as the relevant material on
record. The Assessing Officer has given the details of the expenditure incurred
by the assessee in respect of the computer hardware in para. 4.4 as under:
4.4
The submission of the assessee has been perused and considered. From the
details filed by the assessee it was seen that the following expenses were
incurred in respect of computer hardware. The details of the same are as under:
1. CD Rom Drive/Hard disk drive/RAM of
Rs. 86,975/-
2. Printer/Scanner/Web Camra of Rs.
31,250/-.
Total
Rs. 1,18,225/-
5.1
It is to be noted that apart from the expenditure of Rs. 32,80,058/-, the
assessee has also purchased some computer, which were included in the fixed
assets as clear from the Schedule C showing the fixed assets at the written
down value. The parks like CD ROM Drive, Hard Disk Drive and RAM are only spares
of the Central Processing Unit (CPU) of the computer and they cannot be
considered as separate and independent machinery. Accordingly, replacement of
the parts of the machinery is allowable expenditure. The expenditure incurred
on Printer, Scanner and Web Camera cannot be said to be replacement of the
spares /defective parts of the computer. The printer, scanner and Web Camera
are independent and separate device; therefore, the expenditure of Rs. 31,250/-
incurred on printer, scanner and Web Camera Is capital in nature and
accordingly, the addition to the extent of Rs. 31,250/- is confirmed. This
issue is partly allowed to the extent of the expenditure of Rs. 86,975/- as
revenue expenditure u/s 37 of the IT Act.
6.
Ground no. 1(b) is regarding disallowance of repairs and maintenance expenses
by treating as capital in nature.
6.1
The Assessing Officer noted that the assessee has accounted for repairs and
maintenance expenses of Rs. 50,35,444/-. The assessee was asked to furnish the
details and the statement of expenses incurred with regard to the repairs and
maintenance. In response, the assessee filed the details. From the details
filed by the assessee, the Assessing Officer observed that various amounts
aggregating to Rs. 1,66,463/- have been debited , which are capital in nature.
The said expenditure was incurred in respect of Kandla office renovation of Rs.
1,35,613/- and Kandla Office Split AC office charges of Rs. 30,850/- total
amounting to Rs. 1,66,463/-. The Assessing Officer accordingly disallowed the
same.
6.2
On appeal, the Commissioner of Income Tax(Appeals) has confirmed the
disallowance made by the Assessing Officer on the ground that the expenditure
incurred on renovation/improvement of the office premises immediately after
taking over the premises on lease was capital expenditure.
7.
Before us, the ld AR of the assessee has submitted that the expenditure was
incurred only for renovation work carried out at the office premises, which was
taken on lease by the assessee; therefore, the same is revenue in nature. She
has referred the details of the expenditure on renovation and repairs at pages
34 of the paper book, She has also relied upon the order of the Tribunal in the
case of Ogilvy & Mather (P.) Ltd in ITA No 3343/Mum/2004 dated 17.12.2008
and submitted that similar issue has been considered the decided by the
coordinate Bench of the Tribunal in favour of the assessee.
7.1
The ld DR on the other hand has submitted that the Commissioner of Income Tax(Appeals)
has given a finding of facts that the expenditure has been incurred by the
assessee prior to use of the premises in question and after taking the same on
lease; therefore, the same is capital in nature and not allowable.
8.
We have considered the rival contention as well as the relevant material on
record. The details of expenditure given by the Assessing Officer in para 5.2
are as under:
5.2
On a perusal of the details, furnished it was observed that various amounts
aggregating to
Rs.1,66,463/-
have been debited, which appears to be of capital nature, the details whereof
as under:
(i)
Kandla Office renovation charges Rs.1,35,613/-
(ii)
Kandla office split AC office charges Rs.30,850/-
Rs.1,66,463/-
8.1
From the details, it clear that out of the total expenditure of Rs.
50,35,444/-, the Assessing Officer disallowed Rs. 1,66,423/- being capital in
nature.
8.2
As regards the expenditure of Rs. 1,35,613/-, pertains to office renovation
charges, the same has been incurred by the assessee to make the office premises
as fit for business use of the assessee and without bringing any new capital
asset into existence; therefore, the same is allowable as revenue expenditure.
8.3
As regards the expenditure on split AC of Rs. 30,850/-, it is apparent that the
assessee has brought into existence a new asset; therefore, the same is capital
in nature and only depreciation is allowable.
Accordingly,
we confirm the disallowance to the extent of Rs. 30,850/ towards spilt
air-conditioning expenditure.
9.
Ground no. 1(c) is regarding disallowance of trading loss.
9.1
The assessee made a claim of Rs. 2,80,31,905/- as bad debts. The Assessing
Officer noted that the said amount represents part of deposits given by the
assessee in the earlier years to its subsidiary company M/s NOL Properties
(India) Pvt Ltd against the lease of premises. The said NOL Properties India P
Ltd have refunded part of the total amount of advance. Since the amount
received back by the assessee has not been shown as income, therefore, the
Assessing Officer disallowed the claim of bad debts or trading loss or expenditure
incurred for business as claimed by the assessee.
9.2
On appeal, the Commissioner of Income Tax (Appeals) has confirmed the
disallowance made by the Assessing Officer on the ground that the assessee
itself has not shown this amount as bad debts or trading loss in the books of
account; but made a claim only in the form of note. The Commissioner of Income Tax(Appeals)
has held that in order to claim bad debts or trading loss, the amount should
have been debited to the P&L account and also fulfil the conditions laid
down in sec. 36(1)(iii) of the I T Act. Since the assessee has not fulfilled
the conditions of bad debts or business loss; therefore, the Commissioner of
Income
Tax(Appeals) held that the Assessing Officer has rightly disallowed the claim
of the assessee.
10.
Before us, the ld AR of the assessee has submitted that the deposit was given
to the subsidiary company for taking the premises on lease. The lease was
cancelled and the subsidiary company did not refund the full amount, resulting
the assessee has suffered loss of Rs. 2,80,31,905/-. The ld AR has further
submitted that the un-recovered amount has been written off by the assessee to
the general reserves during the year and therefore, it should be allowed as bad
debt or alternatively trade loss or business expenditure. The ld AR has
submitted that the written off amount has been shown by the assessee in
Schedule B of the balance sheet. Since the subsidiary company has suffered loss
and was having no income; therefore, it could not refund the advance paid by
the assessee. The ld AR has further submitted that when the rent paid for the premises
is allowed as business expenditure, then, the loss of advance given for taking
the premises on lease is also an allowable expenditure. The subsidiary company
has sold its assets in question and paid the assessee part of the advance
amount and the balance was claimed by the assessee as loss. The ld AR has submitted
that the entries in the books of account are not relevant for allowing the
claim, which is otherwise allowable. In support of her contention, the ld AR
has relied upon the decision of the Hon'ble jurisdictional High Court I.B.M.
World Trade Corpn. v. CIT [1990] 186 ITR 412/48 Taxman 11 (Bom.). The ld AR has
also relied on the following decisions:
(i)
CIT v. Gillanders Arbuthnot & Co Ltd. [1992] 195 ITR 331/[1993] 69 Taxman
31(Cal)
(ii)
CIT v. Investa Industrial Corpn Ltd [1979] 119 ITR 380(Bom)
(iii)
Vassanji Sons & Co (P.) Ltd v. CIT [1980] 125 ITR 462(Bom)
10.1
On the other hand, the ld DR has submitted that the assessee has not even
claimed trading loss in the return of income but has made a claim only during
the appellate proceedings by way of a note. Thus, in the absence of revised
return, the assessee cannot make a fresh claim and the Assessing Officer has no
jurisdiction to consider a fresh claim. He has relied upon the decision of the
Hon'ble Supreme Court in the case of Goetze (India) Ltd. v.CIT [2006] 284 ITR
323/157 Taxman 1 (SC). The ld DR has also referred the order of the
Commissioner of Income Tax(Appeals) and submitted that when the assessee has
not debited the bad debts or trading loss in the profit & loss account and
also not shown any income in respect of the advance then the conditions for
allowing the claim are not fulfilled.
10.2
In rebuttal, the ld AR has submitted that the assessee has not claimed bad
debts or trading loss in the return of income to avoid levy of penalty.
Therefore, the assessee has made the claim by way of a note.
11.
We have considered the rival contention as well as relevant material on record.
As regards the objection raised by the ld DR that without filing the revised
return the Assessing Officer has no jurisdiction to entertain a fresh claim; it
is to be noted that the jurisdiction of the appellate authorities is not barred
as observed by the Hon'ble Supreme Court in the case of Goetze (India) Ltd.
(supra). Therefore, the assessee can very well raise fresh claim before the
appellate authorities.
12.
The assessee has claimed bad debts/trading loss of Rs. 2,80,31,905/- being non
recoverable deposit given to the subsidiary company M/s NOL Properties (India)
Pvt Ltd. This amount of trading loss claimed by the assessee is part of the
total advance/deposits given by the assessee to the subsidiary company for taking
the premises on lease. However, there is no agreement between the assessee and
the subsidiary company showing the advance given by the assessee is against the
premises taken by the assessee. It is not the case of the assessee that the
advance was given to the subsidiary company during the ordinary course of business
or in relation to the business of the assessee. The assessee is not in the
business of financing or advancing. The loan was not given to the subsidiary
company for commercial expediency or in connection with commercial or business
relations with the subsidiary company. It is clear that the assessee had no business
transaction with the subsidiary company and therefore. The deposit was not
given in the process of any business transaction or it may be called for
commercial expediency. The assessee has claimed that the advance was given for
taking the premises on lease; whereas the deposits or advance is given to the
lessor being the security and to ensure the performance of the agreement viz -
default in payment of rent, damage of the leased property and for timely
vacation of the premises. Therefore, the deposit made against taking the
premises on lease is a capital outgo because the same is refundable.
12.1
The parties in the transaction are holding and subsidiary company is therefore,
the subsidiary company is not supposed to demand any deposit from the holding
company against the property given on lease because the security deposit is
necessary only in the cases where the lessor has otherwise no control for compliance
of the lease agreement; therefore, to protect the interest of lessor against
default or arrears of rent, damage of the property by the lessee including
vacation of the premises, the deposit is demanded.
When
the assessee is holding company and both the companies are controlled by the
same management then there was no such need for any deposit. Therefore, the
element of commercial expediency does not exist in the case in hand.
12.2
The decision relied upon by the ld AR of the assessee are clearly on the point
when the advance or loan was given by the assessee in the ordinary course of
business or in relation to the business of the assessee, then the loss on such
advance was allowable as business loss. Therefore, the decision relied upon by
the ld AR will not helps the case of the assessee. Even in the case of I.B.M.
World Trade Corpn. (supra), the advance was given for timely and speedy
construction of the factory premises; but subsequently, the Landlord become
insolvent and the entire amount inclusive of interest was written off by the
assessee.
13.
In the case in hand, it was not a case of insolvency of the subsidiary company;
but the assessee voluntarily waive off the claim; therefore, when the advance
was not given either in the ordinary course of business or in connection with
the business, then the loss of the same is loss of capital and is not
allowable.
14.
It is settled proposition of law that when the liability made by the assessee
was not loss made in the course of carrying on the business of money lending,
then it would not be treated as un-recovered expenditure any loss of such
refundable deposit will be loss of capital. Accordingly, this issue is decided against
the assessee.
15.
Ground no1(d) is regarding interest u/s 220(2) of the IT Act.
16.
Since interest u/s 220(2) is consequential in nature; therefore, no specific
finding is required.
17.
In the result, the appeal filed by the assessee is partly allowed.
Thanx for sharing info...
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