BOMBAY CHARTERED ACCOUNTANTS SOCIETY LECTURE ON

Transcription

1 BOMBAY CHARTERED ACCOUNTANTS SOCIETY LECTURE ON Business Expenditure and Deductions Recent Developments & Judicial Decisions By RAJAN R. VORA

2 1. 40(a)(ia) - Total disallowance or pro-rata rata - De during year Amd.. to cover car hire charges etc. sec.194-i I / 194C: Delay or short payment of TDS payments applicability of 40(a)(ia). Non deduction of TDS on reimb.. of expenses or on service tax impli. Dedn.. at different rates on different understanding of provisions. A/cing cing.. Year 31st Dec. whether period of 2 months for deposit of tax? Amd.. in TDS prov.. From hire of vehicle machinery - scope.

3 2. Application of Sec.14A: Exps.incurred for earning exempt income - not allowable. Disallow. of actual expenses Vs. notional disallow of exps - Punjab Ind. Development Corporation Ltd. 102 ITD 1 (Chd( Chd) (SB) Interest expenses whether for earning dividend income or ST / LT Capital Gain on shares / bonds How to allocate? Whether it will make a difference, if shares held as stock in trade? In such case, will dividend be treated as business income and will it be exempt u/s.10(34) or u/s.10(35)? Refer: AT Enterprise Ltd. 103 TTJ 810 (Mum ) Allowability of interest against share of profit - interest remuneration from firm. Refer : A.H. Baldota 103 TTJ 517 (Mum Trib)

4 3. Bad Debts: After amd.. from whether to establish debt is bad or w/off is sufficient. Oman International Bank 100 ITD 285 (Mum) (SB) In South Indian Surgical Co. Ltd. 287 ITR 62 (Mad), without referring to the amd.. held irrecoverability to be established by Assessee. Recently Morgan Securities (dt ) [Delhi] after referring amd.. & cir. decided in favour. Write off of advances whether can be claimed u/s.28 or 37 if not, u/s.36(1)(vii)

5 4. 43B Employers & Employees Contribution: Employees contri.. to PF, ESIC etc. will be allowed only if paid within the grace period. Employer s contri.. can be paid upto the due date of filing of return For years prior to A.Y.04-05, 05, amd.. held clarificatory Quality Milk Foods Ltd. 100 ITD 199 (Chennai) (SB) Against view in Synergy Financial Exchange 288 ITR 366 (Mad)

6 5. Unexplained / undisclosed expenditure found during the course of search disallowable u/s.69c: if any unexplained / undisclosed expenditure has been found during the course of action u/s.132, then exp.. Not allowed. Difference between explained expenditure Vs. unexplained net income i.e. unexplained income less unexplained expenditure. Refer: Jagdishchandra Virmani 106 TTJ 287 (Del) Chander Mohan Mehta 71 ITD 245 (Pune( Pune)

7 6. Ilegal expenses Expl.. to sec.37: Exps.. incurred for any purpose, which is an offence or which is prohibited by law, shall not be allowed. Diff. between illegal and legitimate exps.. Refer: APL India Pvt. Ltd. 96 ITD 227 (Mum) Held moral considerations are not relevant in computation of income, where only principles of commercial accounting to be followed. Difference between expenses for contractual violations, compensatory payments Vs. which are prohibited by law.

8 7. Additional depreciation [sec.32(1)(iia)]: In case of new plant & machinery installed after , further sum equal to 20% of the actual cost of plant & machinery allowed. Condition regarding increase in the installed capacity etc. removed from A.Y If the plant & machinery installed after 1st October, whether full 20% would be allowed or 10% in the first year and 10% in the next year would be allowed? Wind mill generating power, entitled for 80% depreciation will it be entitled for additional depreciation?

9 8(1).Sell / disposal of assets Terminal depreciation Vs. taxability as per sec applicability of 32(1)(iii) - only available to power sector? 8(2).Optional depreciation till A.Y Vahid Paper Converters. 98 ITD 165 (Ahd( Ahd) ) (SB) approved in Scoop Ind. (P) Ltd. (order dated ) (Bom( Bom). For deductions under Chapter VIA, depreciation needs to be considered.

10 9. Repairs and maintenance to machineries or plant etc. Expenditure on current repairs allowed u/s.31. W.e.f.. A.Y , 05, explanation current repairs shall not include any expenditure in the nature of capital expenditure - implications. Expenditure is not allowable u/s.31, allowable u/s.37? Appli. of expl? M/s. Kalyanji Mavji 122 ITR 49 (SC) Ballimal Naval Kishore 224 ITR 414 (SC)

11 10. Allowability of Interest u/s 36(1)(iii): W.e.f.. A.Y by insertion of proviso, interest paid on the capital borrowed for acquisition of asset for extension of existing business, upto the date asset was put to use, no deduction - Implication. Tata Chemicals Ltd. 256 ITR 305 (Mum) (appro( appro.. by S.C). Core Health Care Ltd. 251 ITR 61 (Guj( Guj) Advances to subsidiary: Advances / loans to subsidiary interest cannot be disallowed For the purpose of business explained. S.A. Builders Ltd. 288 ITR 1 (SC)

12 11. Borrowing by Construction Companies: If borrowing is for specific projects, interest will have to be treated as project cost (where Completion Contract Method is followed). Distinction is drawn between accounting of profit on Works In Progress Method Vs. Completed Contract Method. Refer: Wall Street Constructions Ltd. 101 ITD 156 (Mum) (SB) Lokhandwala Cons. 260 ITR 579 (Bom( Bom), distinguished on the facts.

13 12. Deduction 80IB(10): Application of amended provisions inserted by FA 2004 to earlier years or where developments have started in earlier years. Refer: Varas International (P) Ltd. 283 ITR 484 (SC) 2 Flats total area exceeding 1000 sq.ft.. sold to one person or different family members at one time or different times implications. Few flats above 1000 sq.ft (say 1% or so) implication Essential shopping above 2000 sq.ft BUA - Implication Whether pro-rata rata deduction? Favourable Bangal Ambuja Housing Dev. Ltd. (Cal Bench). Appro.. by H.C. Against Laukik Developers [ITA 532/M/06 dt ] After amendment w.e.f AY shopping upto 2000 sq ft allowed -will profit on such shopping exempt?

14 13. Deduction u/s 10A / 10B: Conversion of DTA unit into STPI or EOU Units Cir 1 / 2005 implications. I.T. Enabled services and customized services exclusive list? Eligibility of deductions for export incentives / set off etc. profit derived from. Amendment in respect of belated repatriation by T. L. Amd Set off of losses of EOU / STPI against normal Income whether possible. Avail. ded.. u/s.10a c/f normal business loss possible?

15 14. 80HHC: Export turnover less than and more than 10 cr. Deduction for both duty drawback and DEPB or either of them? Profit on Sale of DEPB Licenses - Licenses in stock not sold eligible for ded.. u/s.80-hhc? Only Profit not whole value of license to be exclu.? Non levy of interest taxes in installment only for DEPB? Duty Drawback not hit by amendment. Circular No. 5 of 2006 dated Excise / Sales tax refund whether to be reduced from cost. Refer Alfa Level 266 ITR 418 (Bom( Bom) ) and India Gelatine 275 ITR 284 (Guj( Guj) no amendment.

16 15. Deduction claimed for first time in asstt. not in return: Claims for deductions for first time at assessment stage not allowed unless same are made in the revised return. Refer :Goetz India 284 ITR 323 (SC) Diff. between claim before the AO Vs. before the Appellate Authorities. Difference between deductions claimed Vs. correcting of mistakes in returns or corrections of claims.