ACIT-1(1)(1), MUMBAI vs. M/S ALOK KUMAR AGRAWAL, IRP OF M/S. COX AND KINGS LTD, MUMBAI

Brief facts of the case shows that assessee is a company engaged in the business of travel agent, tour operator and forex dealer. Assessee incurred video shooting expenses of ₹3,33,41,372/-, the sum was claimed as deductible expenditure, however, in the books of account the above sum has been capitalized under the head intangible assets following Accounting Standard (AS)-26. The learned Assessing Officer questioned the dual standard adopted by the assessee, wherein in the books of account the expenses are capitalized whereas in the computation of total income, it was treated as revenue expenditure. The learned Assessing Officer disallowed the same and held it to be capital expenditure. The learned Assessing Officer was of the view that revenue expenditure or capital expenditure is not defined under the Income Tax Act. It is a matter of common understanding under certain principles that there cannot be an item of expenditure which is accounted for as capital expenditure in books of accounts and treated as revenue expenditure in the Income Tax Act. He was of the view that the same principles apply under the Income Tax Act, as well as the Companies Act to treat the expenditure as capital or revenue. Accordingly, he disallowed the same. The assessee approached the learned Dispute Resolution Panel, the learned Dispute Resolution Panel vide paragraph no.6 has held that the issue is covered in favour of the assessee by the decision of the Hon'ble

The learned Dispute Resolution Panel vehemently supported the order of the learned Assessing Officer.

None appeared on behalf of IRP and therefore, issue is decided on the merits of the case.

We have carefully considered the contentions of the learned Assessing Officer. We find that the assessee has incurred the video shooting expenditure of various tourist locations for the business purposes. Undoubtedly, the assessee has capitalized the same in its books of account following the AS-26 on intangible assets. However, the learned Dispute Resolution Panel following the decision of the Hon'ble High Court has held that the expenditure is allowable to the assessee. This shows that in the books of account the expenditure have been wrongly capitalized by the assessee. Though we fully agree with the learned assessing officer that the guiding principles classifying the expenditure as revenue on as a capital expenditure cannot

The third ground of the appeal is with respect to the direction of the learned Dispute Resolution Panel on account of disallowance of certain expenditure incurred by the assessee on the issue of non-convertible debentures.

The brief facts of the case shows that the learned Assessing Officer has disallowed expenditure incurred of ₹4,09,94,700/- for issue of non-convertible debentures (NCD). The assessee has incurred this expenditure but has debited the same to the account of the share premium account. The said premium credit account was reduced to the amount of the expenditure incurred on issue of nonconvertible debentures. Apparently assessee has not debited a to the profit and loss account. However assessee

The learned Departmental Representative vehemently supported the order of the learned Assessing Officer.

We have carefully considered the rival contentions and find that there is no infirmity in the order of the learned Dispute Resolution Panel. The learned Dispute Resolution Panel has categorically held that expenditures incurred on issue of non-convertible debentures are similar to the expenditure incurred as interest on non-convertible debentures. The learned Dispute Resolution Panel has further restricted disallowances of such expenditure to the extent of proportionate amount invested in fixed assets which have not been put to use during the year. The learned Assessing Officer could not show any infirmity in

Accordingly, Assessing Officer for A.Y. 2011-12 is dismissed.