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Apollo Tyres Ltd. v ACIT (ITA No. 223/Coch/2015 dated 10.01.2017) Deferred revenue expenditure allowed in year of incurring Facts:  During the year, the assessee had claimed prepaid expenses amounting to Rs. 5,15,34,726 which comprises of – Insurance expense of Rs. 96,12,402/-, – Interest expenses of Rs. 1,54,19,700, – Rent expenses of Rs. 1,83,501/- and – General expenses of Rs. 2,63,19,123/- in the nature of employee mediclaim and other expenses. According to the A.O, the said expenses were not related to the income earned during the year under consideration and were therefore, disallowed. The DRP concurred with the findings of the Draft Assessment Order and held that the claim of deduction which does not pertain to the relevant accounting year distorts the income of that year. The assessee argued that the expenses included under the head prepaid expenses are revenue in nature. The said expenditure has not resulted in acquisition of a capital asset to the assessee and therefore, is an allowable deduction.

Deferred revenue expenditure allowed in year of incurring; Loss on sale of subsidiaries’ shares allowed ...

RADIALS INTERNATIONAL v ACIT ITA No.485/2012 dated 25.04.2014 (Delhi HC) Background: Assessee is a partnership firm, engaged in the business of providing technical, marketing and maintenance services. Assessee offered the profit on sale of shares lying in PMS as capital gains. The AO held that since the motive of the transactions was the earning of profit and not a dividend, where the holding period was ranging from a few days to a few months, it was concluded that the income was business income earned by way of adventure in the nature of trade. Commissioner of Income Tax (Appeals) held that the intention at the time of purchase and sale, the magnitude and frequency of transactions has to be seen to test whether the sum of gain made “was a mere enhancement of value by realizing a security” or a “gain made in operation of business in carrying out a scheme for profit-making”. It was concluded that the shares were not in the nature of property which yielded any income or personal enjoyment to the owner, by virtue solely of its ownership. Thus, the intention was concluded to be profit-making, and the gains were found to be business income. 

Delhi HC lays down important principles in treatment of profit on sale of shares lying ...

Woodland Associates (P.) Ltd. v ITO [ITA No. 5031 (Mum.) of 2011] Mumbai ITAT Background: Assessee during the year had credited the sum of Rs. 4,52,000/- on account of rent. The flats had been let out to Ms. Rekha Jalan, Managing Director of the company for a sum of Rs. 26,000/- per month and Ms. Snehal Jalan who is her daughter at a monthly rent of Rs. 12,000/-. Ms. Rekha Jalan held 81.71% shares in the company whereas Ms. Snehal Jalan held 13.33% shares. The assessee had declared income from property as business income and the actual rent received had been shown as annual value. The property had been held as a business asset and as per memorandum of association, it was business of the company to let out properties. The AO stated that leasing out the property could not be considered as trade or commerce. AO referred to the judgment of Hon’ble Supreme Court in the case of Shambhu Investments (P.) Ltd. v. CIT [2003] 263 ITR 143/129 Taxman 70. He, therefore, assessed the rental income under the head “house property”. As regards the fair rental value, the AO contended that letting out the flats to the persons who were controlling the company was only an arrangement to reduce tax. AO after analyzing the comparative rates observed that the average rent charged in respect of similar flat in the same society was 125 per sq.ft. According to the AO, annual value which is defined as sum for which property may be let out from year to year would be the fair rent available in the market. CIT(A) held that the property was covered under Maharashtra Rent Control Act, 1999 and, therefore, Annual letable value had to be taken as standard rent and therefore, the AO was not justified in taking the market rent.

Rent from let out of flat to a director is Business Income – Mumbai ITAT