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

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ITA 571/MUM/2023Status: DisposedITAT Mumbai31 July 2023AY 2011-129 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that video shooting expenses, even if capitalized in books, are revenue in nature for income tax purposes as they do not provide enduring benefit. For NCD issue expenses, it held that proportionate disallowance to the extent of investment in fixed assets not yet put to use is correct.

What were the facts?

The assessee claimed video shooting expenses as revenue expenditure, but capitalized them in its books. The Assessing Officer disallowed this. The assessee also incurred expenditure on issuing non-convertible debentures, which was debited to share premium account, but claimed as deductible. The Dispute Resolution Panel directed partial disallowance for both.

What were the issues?

Whether video shooting expenses capitalized in books are deductible as revenue expenditure. Whether expenses incurred on issue of non-convertible debentures are deductible, and if so, to what extent.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI

For Respondent: Shri Dhiraj Kumar, DR
Hearing: 19.07.2023Pronounced: 31.07.2023
1.

Asst. Commissioner of Income Tax 1(1)(1), Mumbai (the learned Assessing Officer) against the assessment order passed under Section 143(3) read with section 144C(13) of the Income- tax Act, 1961 (the Act) dated 30th January, 2016, in case of Cox & Kings Ltd, now under the Insolvency Resolution Process and therefore, represented by IRP, wherein the return of income of the assessee field on 30th November, 2011 at a total income of ₹86,23,89,109/- is assessed at ₹97,95,23,830/-.

3.

First dispute is with respect to the video shooting expenses of ₹3,33,41,372/-, claimed by the assessee as revenue expenditure in the computation of income but capitalized into the books of accounts and shown in the balance sheet. The learned Assessing Officer made the addition of the same in the draft assessment order dated 9th March, 2015. On objections before the learned Dispute Resolution Panel, the learned Assessing Officer was directed to delete the addition. Therefore, no addition was made in the final assessment order, but the learned Assessing Officer is aggrieved with the direction of learned Dispute Resolution Panel and therefore, the learned Assessing Officer filed an appeal before us.

4.

The second issue is with respect to the expenditure incurred on issue of nonconvertible debenture. The expenditure so incurred was debited by the assessee to the share premium account. However while filing the return of income, the assessee claimed as a deductible expenditure under section 37 (1) of the act. The learned dispute resolution panel directed the learned assessing officer treating that the disallowance should be restricted only to the extent of nonconvertible debenture money raised used for capital expenditure. The balance expenditure was directed to be allowed as deduction to the assessee despite above accounting treatment. Therefore, the learned AO restricting the addition as per the direction

5.

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

6.

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

7.

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

8.

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

9.

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.

10.

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

11.

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

12.

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

13.

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

Order pronounced in the open court on 31.07. 2023.

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