Upfront fee paid to bank to obtain loan for acquisition of capital asset allowable

Again, architect fee paid for supervising construction of building is capitalised. Expenditure incurred for reconditioning of old fixed assets such as expenditure incurred on repairing or overhealing of secondhand machinery. The loans received from foreign Governments and bodies, disinvestment receipts and recoveries of loans from State and Union Territory Governments and other parties are also part of capital receipts. The Union Budget, which is presented by the Finance Minister of India, comprises Capital Budget and Revenue Budget.

loan taken from bank is a capital expenditure

Ld.Sr.DR submitted that expenses claimed under the head ‘commission, discount and brokerage’ amounting to Rs.1,18,94,891/- has been paid to 3rdparties by assessee related to sales made to government. It has been submitted that Ld.AO rightly disallowed commission, as there is no middlemen and commission agents permitted to operate in purchases or perky procurement made by government. Thus he emphasised that only business expenses can be allowed under section 37 of the Act incurred by assessee. Deferred revenue expenditure should be distinguished from prepaid expenses. In case of deferred revenue expenditure the benefits available cannot be precisely estimated but in case of prepaid expenses, like payment of insurance in advance, benefits available can be precisely estimated.

Q. How the capital expenditure loan / Cash Credit Limit be utilized ?

Generally, a period of 12 months is considered as a substantial period unless a shorter or longer period can be justified based on facts and circumstances of the case. On the facts and circumstances of the case and law, the Ld.CIThas erred in deleting the addition of Rs.22,00,00,000/- made out ofinterest expenses. 4.1 Ground No.6 raised by revenue, pertains to deleting disallowance on account of professional charges having been incurred to the tune https://1investing.in/ of Rs.7,92,67,976/- on various projects. Ground No.5 & 5 raised by revenue pertains to deleting of disallowance amounting to Rs.35,75,330/- on account of proto-type development. In the result appeal filed by revenue stands dismissed. From the decision of the Hon’ble Supreme Court, it is clear that the expenditure incurred for evading the provisions of the Act and also the penalty levied for such evasion was held to be not allowable as a deduction.

Expenditures incurred on other direct expenses, e., expenses on production and purchase of goods such as wages, power, freight etc. are revenue expenditure. However, if tax certainty is desired for deductibility of the interest, it is best to treat such IPO application activity as a business, and claim the interest as a business expenditure. Of course, care would have to be taken to ensure that tax is deducted at source on the interest paid, if applicable.

  • ` 400 spent on painting the factory is a revenue expenditure as it was incurred to maintain the factory building.
  • CIT deleted addition in part as assessee had provided certain bills which were relating to year in consideration and was of the opinion that payments crystallised during the year to that extent.
  • The loans received from foreign Governments and bodies, disinvestment receipts and recoveries of loans from State and Union Territory Governments and other parties are also part of capital receipts.
  • An expenditure incurred for putting an old asset into working condition is treated as capital expenditure and added to the cost of the asset.
  • It is recurring in nature.

“9.2. It was further mentioned that the details, confirmation and copies of appointment letters along with PAN as filed before the AO are being enclosed. It was further mentioned that identical expenditure has been claimed in the past assessment years and has been allowed by the AO himself as also at the stage of appeals.

One thought on “Capital and Revenue Expenditure and Receipts”

12.2. DR submitted that profit and loss on investment are dealt with in accordance with provisions of section 45 to section 55A of the Act. It has been submitted that these sections clarify that loss on investment can be allowed only on sale or transfer of investment. Ld.Sr.DR submitted that assessee in present case has not sold or transferred investments.

loan taken from bank is a capital expenditure

Interest on short term loans or long-term debts should be included as part of borrowing cost. Ground no.7 raised by revenue pertains to deleting addition of Rs.28,07,055/- on account of prior period expenses. 38.Ground No.4 raised by revenue pertains to deleting of disallowance amounting to Rs.32,00,000/- paid as upfront fees. Ld.Sr.DR placed reliance on order of Ld.AO, however, he could not controvert submissions of Ld.Counsel. 33.6.

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On the contrary Ld.Sr.DR submitted that assessee has made investments during year as per order of Ld.CIT which has yielded dividend income also. He submitted that it cannot be accepted that no expenditure could be attributable for earning of exempt income as section 14 A is triggered the moment there is exempt income earned during year by assessee. Further placing reliance upon decision of Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs CIT reported in 91 taxguru.in 154. Ld.Sr.DR submitted that strategic investments would also fall within the ambit of disallowance. Counsel submitted that Ld.

If an expenditure is made not for the purpose of bringing into existence any capital asset or advantage of enduring nature but for running the business or working it with a view to produce the profits is revenue expenditure. Such expenditure benefits the current period only. It is incurred to maintain the existing earning capacity of the business. For example, the amount spent on purchase of stock-in-trade is of revenue nature. Administrative expenses and selling and distribution expenses are other examples of revenue expenditure. 29.1.

■ Term deposits for a fixed period of not less than 5 years with a scheduled bank, and which is in accordance with a scheme11 framed and notified. The payment should be made with the specified direction that the sum shall be used in a scientific research undertaken under an approved programme. Advertisement expense ` 50,000 incurred during peak festive season on regular basis is a revenue expenditure. `2,000 paid for hiring of computer time for the preparation of the accounts of the business. Expenditure incurred for improvement or extension of fixed assets such as increasing the seating capacity of a theatre. Loans and advances granted by Central Government to State and Union Territory Governments, Government companies, Corporations and other parties are also part of capital payments.

That apart, the AO put on the appellant the burden of filing the acknowledgement receipt of the return filed by the payees whereas it was his obligation to make requisite enquiries. 13.2. Assessee before us has not been able to establish how the company was dissolved, and manner in which its assets/liabilities have been dealt with.

Q:- How much own contribution to be deposited?

It will benefit in future also. Freight and cartage on the new machine and erection charges ` 500 are capitalised because they will benefit the business for more than one accounting period. Overhaul expenses spent on second hand machinery purchased is a capital expenditure. Expenditure incurred for protecting the business is a revenue expenditure. For example, the amount spent on propaganda campaign to oppose the threatened nationalisation of industry is of revenue nature. Depreciation on fixed assets is revenue expenditure.

Non-debt Capital Receipts (NDCR)

In the preceding assessment year, the same has been allowed and the facts were identical. The job profile of these agents is procurement of orders from the Government departments and also to follow up for the payments after the supplies. The payments made by the assessee cannot be termed as illegal or violation of law.

Deduction shall be allowed under section 32AD in addition to deduction under section 32AC if assessee fulfils the specified conditions. Proviso to Section 32Additional depreciation shall be allowed at 35% of actual cost of new plant and machinery [other than ships, aircraft, office appliances, second hand plant or machinery, etc.] . The nature loan taken from bank is a capital expenditure of receipt is decided from the point of view of the person receiving it. Amount spent in connection with obtaining licence for starting a factory is a capital expenditure. Lawyer’s fee to defend the impugned suit is a revenue expenditure. `1,50,000 spent on the repairs and white-washing for the first time on purchase of an old building.

We do not find any infirmity in aforestated detailed factual analysis carried out by Ld.CIT , based upon which, addition has been deleted. We accordingly uphold the view of Ld.CIT . That the investments had been made in the shares of subsidiary/group companies. The copies of assignment letters/appointment letters of the agents along with confirmation in respect of the entire payment of Rs.64,95,097 were filed before the AO.

The main functions of accounting include the ascertainment of profit/loss for an accounting period and financial position as at the end of that period. The distinction between capital and revenue items is important both from the Income Statement as well as the Position Statement point of view. For example, if a depreciable asset is purchased, the depreciation on that asset is charged to the Profit and Loss Account, and the written down value of the asset is shown in the Balance Sheet.

Expenditure incurred by an enterprise to discharge itself from recurring liability is of revenue nature. For example, a lump sum amount paid to a pensioner by the employer is revenue expenditure. Expenditure incurred to bring the fixed assets to the place of their use and expenditure incurred on their installation or erection such as freight on fixed assets, wages paid for installation.

An amount received for surrender of certain right under an agreement is a capital receipt whereas amount received by way of compensation of loss of future profits is a revenue receipt. For example, pension is a revenue receipt whereas lump sum received in commutation of pension is a capital receipt . A receipt in substitution of source of income is a capital receipt whereas a receipt in substitution of income alone is a revenue receipt. For example, compensation for loss of employment or agency is a capital receipt whereas damages for breach of business contract is a revenue receipt. Receipts from sale of fixed assets and non-current investments. Amount spent on repairs and white-washing for the first time on purchase of old building is a capital expenditure.

Today, the state can boast of state-of-the-art two Data Centers, MPLS technology based Karnataka State Wide Area Network and core applications such as e-procurement and HRMS groomed under CeG with cent percent performance quality and standards, even setting certain benchmarks. Further, a new sub-section is inserted to provide for additional deduction to the extent of Rs. 50,000. The additional deduction is not subject to ceiling limit of Rs. 1,50,000 as provided under section 80CCE. • Only 30 per cent expenditure to be disallowed – In case of TDS default, 30 per cent of expenditure will be disallowed. ■ Payment on account of preventive health check-up may be made in cash.

It was submitted that in none of the preceding assessment years Assessing Officer held such investments in shares as being for non business purposes, and in fact he had not even recorded any finding in the year under consideration. What is the fate of the remaining interest, which is not allowed as a deduction from the dividends? Is that lost, or can one claim a deduction in any other manner? The deductibility of the interest is, therefore, postponed to the year of sale of the shares.

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