2011 (10) TMI 702 - AT - Income Tax

Tribunal rulings: Revenue and assessee appeals partly allowed, key outcomes on staff welfare, depreciation, deduction, and disallowances.

ACIT, Circle- 2, Kota Versus Chambal Fertilizers & Chemicals Ltd. And Chambal Fertilizers & Chemicals Ltd. Versus ITO, Ward- 1 (1), Kota

The Tribunal partly allowed the revenue's appeals and fully allowed the assessee's appeal. The decisions were based on detailed analysis and previous ... Payment to DAV Trust being reimbursement for running school in the premises of the assessee is allowable as staff welfare expenses u/s 37 - claim of depreciation on catalyst - deduction u/s 80IA - addition of club expenses - disallowance u/s 43B - disallowance of loss on account of sale of inventory and store items to sister concern made by the AO by invoking the provisions of Section 40A(2)(a) - disallowance of loss on account of revaluation of inventory of two imported pumps - credit of TDS on receipt from IMACID (Morocco)- pre-payment of deferred sales tax liability as capital receipt Issues Involved:1. Allowability of payment to DAV Trust as staff welfare expenses.2. Entitlement to depreciation on catalyst.3. Deduction u/s 80IA for Captive Power Plant.4. Disallowance of club expenses.5. Disallowance u/s 43B for bonus payment.6. Disallowance of loss on sale of inventory to sister concern.7. Disallowance of loss on revaluation of inventory of imported pumps.8. Credit of TDS on receipt from IMACID (Morocco).9. Credit of TDS amounting to Rs. 36,23,108/-.10. Pre-payment of deferred sales tax liability as capital in nature.Detailed Analysis:1. Allowability of Payment to DAV Trust as Staff Welfare Expenses:The revenue contended that the payment of Rs. 20,77,107/- to DAV Trust for running a school should not be allowed as a deduction under Section 40A(9) and Section 37 of the Income Tax Act. The assessee argued that the payment was a reimbursement for staff welfare. The Tribunal upheld the CIT(A)'s decision, allowing the deduction, stating the expenditure was for the welfare of employees and not covered under Section 40A(9).2. Entitlement to Depreciation on Catalyst:The revenue's appeal against the CIT(A)'s decision to allow depreciation on catalyst was dismissed. The Tribunal followed its earlier decision, affirming that the assessee was entitled to claim depreciation.3. Deduction u/s 80IA for Captive Power Plant:The AO disallowed the claim of deduction u/s 80IA, arguing the time period for claiming had expired. The Tribunal upheld the CIT(A)'s decision, allowing the deduction, following earlier Tribunal decisions that the assessee had validly exercised its option under Section 80IA(2).4. Disallowance of Club Expenses:The AO disallowed club expenses, stating they were reimbursements to individual employees. The Tribunal upheld the CIT(A)'s decision to allow the expenses, as they were incurred for business purposes, following earlier Tribunal decisions.5. Disallowance u/s 43B for Bonus Payment:The AO disallowed the bonus payment, claiming it was not shown as disallowed in earlier years. The Tribunal restored the issue to the AO for verification, following its decision in the earlier assessment year.6. Disallowance of Loss on Sale of Inventory to Sister Concern:The AO disallowed the loss on sale of catalyst to a sister concern, invoking Section 40A(2)(a). The Tribunal upheld the CIT(A)'s decision, deleting the disallowance, as the sale was at market rate and not a sham transaction.7. Disallowance of Loss on Revaluation of Inventory of Imported Pumps:The AO disallowed the loss on revaluation of imported pumps. The Tribunal reversed the CIT(A)'s decision, stating the loss should be allowed when the pumps are treated as scrap or sold, not in the current year.8. Credit of TDS on Receipt from IMACID (Morocco):The Tribunal upheld the CIT(A)'s decision to allow credit of TDS on receipt from IMACID, following its decision in the earlier assessment year.9. Credit of TDS Amounting to Rs. 36,23,108/-:The Tribunal upheld the CIT(A)'s decision to allow the credit of TDS claimed by the assessee in the revised return, finding no infirmity in the CIT(A)'s order.10. Pre-payment of Deferred Sales Tax Liability as Capital in Nature:The Tribunal reversed the CIT(A)'s decision, holding that the pre-payment of deferred sales tax liability should be allowed as a deduction under Section 43B, following its decision in the earlier assessment year.Conclusion:The Tribunal partly allowed the revenue's appeals and fully allowed the assessee's appeal, providing detailed justifications for each decision based on previous rulings and relevant legal provisions.