2011 (12) TMI 519 - AT - Income Tax

Tribunal Decisions: Expenditure Claims Allowed, Issues Remanded, CIT(A) Decisions Upheld

The Tribunal allowed certain expenditure claims, remanded issues for further examination, and upheld decisions made by the CIT(A) on various grounds. The ... Working out the deduction u/s 80HHC - allowability of revenue expenditure - disallowance of 90% of Fertilizer Subsidy from the computation of profit for the purpose of deduction u/s 80HHC - exp on consumption and replacement of stores and spares - Incidental expenditure incurred on substitution of high interest cost NCDs, as deduction u/s 37(1) - deduction u/s 35D - deduction u/s. 36(1)(iii) in respect of money borrowed for expansion of business for the acetic acid plant expansion - depreciation on certain assets which were given on lease basis - allowable expenditure on amount written off - Issues Involved:1. Disallowance of Rs. 10.50 lakhs for feasibility study expenditure.2. Disallowance of 90% of fertilizer subsidy for deduction u/s 80HHC.3. Reworking depreciation on certain capital expenditures.4. Disallowance of premium paid on prepayment of loan.5. Limitation on deduction u/s 35D.6. Disallowance of interest on borrowed funds for expansion.7. Disallowance of depreciation on leased assets.8. Bad debt write-off.9. Initiation of penalty proceedings.10. Levying interest u/s 234B, 234C, and 234D.11. Deletion of disallowance of interest on borrowed funds diverted to subsidiaries.12. Allowance of expenses for protecting assets of a sister concern.13. Treatment of repairs and maintenance expenses.14. Payment for Information Technology Related Services.15. Exclusion of sales tax and excise duty from total turnover for deduction u/s 80HHC.16. Disallowance u/s 14A for tax-free dividend income.17. Reopening of assessment u/s 147.Detailed Analysis:1. Disallowance of Rs. 10.50 lakhs for feasibility study expenditure:The assessee claimed Rs. 10.50 lakhs as revenue expenditure for a feasibility study to convert molten Ammonium Nitrate Melt into prill form. The AO disallowed it, considering it an enduring benefit. The CIT(A) upheld this, but the Tribunal allowed the expenditure, referencing a similar decision in the assessee's favor from AY 1986-87.2. Disallowance of 90% of fertilizer subsidy for deduction u/s 80HHC:The AO disallowed 90% of the fertilizer subsidy from the computation of profit for deduction u/s 80HHC. The CIT(A) confirmed this. The Tribunal referred to its previous decision in the assessee's case for AY 1998-99 and 2002-03, upholding the disallowance.3. Reworking depreciation on certain capital expenditures:The AO treated certain repair and maintenance expenditures as capital in nature. The CIT(A) upheld this. The Tribunal remanded the matter to the AO to examine if the parts replaced were independent machines or parts of a larger machine, directing a de novo decision.4. Disallowance of premium paid on prepayment of loan:The assessee claimed a deduction for premium paid on prepayment of loans as revenue expenditure. The AO disallowed it, spreading it over the term of the loan. The CIT(A) upheld this. The Tribunal allowed the claim, referencing the Supreme Court decision in India Cements Ltd. vs. CIT.5. Limitation on deduction u/s 35D:The AO restricted the deduction u/s 35D to Rs. 13.50 lakhs against the claimed Rs. 87.73 lakhs, considering only the incremental capital employed. The CIT(A) upheld this. The Tribunal allowed the full claim, noting no change in facts from previous years where the claim was allowed.6. Disallowance of interest on borrowed funds for expansion:The AO disallowed interest on borrowed funds for expansion, applying an amendment to section 36(1)(iii) retrospectively. The CIT(A) confirmed this. The Tribunal reversed this, following the Supreme Court decision in DCIT vs. Core Health Care Ltd.7. Disallowance of depreciation on leased assets:The AO disallowed depreciation on assets leased to Western Railways and NCPL, treating it as a financial arrangement. The CIT(A) upheld this. The Tribunal allowed the claim, noting the consistency in allowing such claims in previous years.8. Bad debt write-off:The AO disallowed the write-off of Rs. 1,38,743 as bad debt due to lack of details. The CIT(A) confirmed this. The Tribunal upheld the disallowance due to insufficient evidence.9. Initiation of penalty proceedings:The CIT(A) dismissed the ground relating to the initiation of penalty proceedings u/s 271(1)(c).10. Levying interest u/s 234B, 234C, and 234D:The CIT(A) did not deal with the grounds relating to levying interest u/s 234B, 234C, and 234D.11. Deletion of disallowance of interest on borrowed funds diverted to subsidiaries:The AO disallowed interest on borrowed funds diverted to subsidiaries. The CIT(A) deleted this disallowance, referencing previous appellate orders. The Tribunal upheld the CIT(A)'s decision.12. Allowance of expenses for protecting assets of a sister concern:The AO disallowed expenses incurred to protect the assets of a sister concern. The CIT(A) deleted this disallowance. The Tribunal upheld the CIT(A)'s decision, noting consistency with previous years' decisions.13. Treatment of repairs and maintenance expenses:The AO treated certain repairs and maintenance expenses as capital in nature. The CIT(A) allowed the claim as revenue expenditure. The Tribunal upheld the CIT(A)'s decision.14. Payment for Information Technology Related Services:The AO disallowed payments for IT-related services, treating them as capital expenditure. The CIT(A) allowed the claim as revenue expenditure. The Tribunal upheld the CIT(A)'s decision.15. Exclusion of sales tax and excise duty from total turnover for deduction u/s 80HHC:The CIT(A) directed the AO to exclude sales tax and excise duty from total turnover for deduction u/s 80HHC. The Tribunal upheld this, referencing the Special Bench decision in IFB Agro Industries and the Bombay High Court decision in Sudarshan Chemicals Ltd.16. Disallowance u/s 14A for tax-free dividend income:The AO made a notional disallowance for expenses related to tax-free dividend income. The CIT(A) deleted this disallowance. The Tribunal upheld the CIT(A)'s decision, referencing decisions in Maruti Udyog Ltd. and Eicher Ltd.17. Reopening of assessment u/s 147:The AO reopened the assessment u/s 147, citing non-consideration of subsidy for deduction u/s 80HHC. The CIT(A) upheld the reopening. The Tribunal upheld the CIT(A)'s decision, referencing the Gujarat High Court decision in Praful Chunilal Patel vs. ACIT.Conclusion:The Tribunal allowed some claims, remanded some issues for re-examination, and upheld the CIT(A)'s decisions on several grounds, maintaining consistency with previous appellate decisions and higher court rulings.