2011 (6) TMI 504 - AT - Income Tax

Tribunal Decides on Revenue and Assessee Appeals, Directs Reconsideration of Disallowances

The Tribunal allowed the Revenue's appeals for statistical purposes and partly allowed the assessee's appeals. The Assessing Officer was directed to ... Disallowance u/s. 36(1)(iii) and 14A - interest free advances to sister concerns out of interest bearing funds - Held that:- The issue raised in the above grounds of the appeals are fully covered by the decision of Pune Bench of the Tribunal in the case of assessee itself for A.Ys. 2000-01 to 2004-05 following the decision in the case of CIT v/s. Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - HIGH COURT BOMBAY) that the assessee having a interest free funds of its own with a further availability share capital calls for no disallowance - set aside the matter to the file of the A.O to decide the same afresh - in favour of assessee statistical purposes. Expenditure for construction of Dome type structure in jogging park for advertisement - Revenue v/s Capital - Held that:- As no benefit of enduring nature was created out of the structure since after construction of it, the same was donated to the PMC. Thus expenses incurred on the construction are revenue in nature within the meaning of Section 37 - in favour of assessee. Disallowance of 20% of motor vehicles and telephones expenses - Held that:- In absence of maintenance of log book for vehicles movement and register for telephone calls, the possibility of personal user of these facilities cannot be ruled out. the claimed expenditure can be allowed if the assessee company is able to establish that these facilities of vehicle and telephone were allowed to its employees as perquisites as per terms of the agreement with them. Restrict the disallowances to 10% - partly in favour of assessee. Depreciation claim - Held that:- Allow the claimed depreciation on the vehicles undisputedly purchased from the funds of the assessee company for its business purposes - in favour of assessee. Non deduction of TDS - disallowance u/s 40(ia) - Held that:- The claim of the assessee that it had subsequently paid the TDS alongwith interest u/s 201 the issue needs fresh consideration after verification of certain basic fact. This verifiable material fact is, as to whether the TDS was paid before the filing of the return u/s. 139(1) for the year under consideration -n favour of assessee for statistical purposes. Issues Involved:1. Disallowance of interest under Sections 36(1)(iii) and 14A.2. Disallowance of advertisement expenditure.3. Disallowance of vehicle and telephone expenses.4. Disallowance of depreciation on cars.5. Disallowance under Section 40(a)(ia) for non-deduction of TDS on surcharge and education cess.Detailed Analysis:1. Disallowance of Interest under Sections 36(1)(iii) and 14A:The assessee challenged the disallowance of Rs. 16,95,102/- out of Rs. 72,88,204/- made by the Assessing Officer (A.O.) on account of interest paid under Sections 36(1)(iii) and 14A. The Revenue contended that the CIT(A) erred in restricting the disallowance and ignoring the interest-free advances to sister concerns. The Tribunal noted that similar issues were previously decided in favor of the assessee for earlier assessment years (A.Y. 2000-01 to 2004-05) and directed the A.O. to reconsider the matter based on the Tribunal's earlier decision and relevant judicial precedents, including the decisions of the Bombay High Court in CIT v. Reliance Utilities and Power Ltd. and Godrej & Boyce Mfg. Co. Ltd. v. DCIT.2. Disallowance of Advertisement Expenditure:The A.O. disallowed Rs. 3,85,000/- for constructing a dome for advertisement, considering it a capital expenditure. The assessee argued that the dome was handed over to PMC and did not create any enduring benefit. The Tribunal agreed with the assessee, holding that the expenditure was revenue in nature under Section 37 of the Act, as no enduring benefit was created, and directed the A.O. to allow the expenditure.3. Disallowance of Vehicle and Telephone Expenses:The A.O. disallowed 20% of vehicle and telephone expenses due to the absence of logbooks and call records, resulting in disallowances of Rs. 3,31,730/- and Rs. 3,69,796/-, respectively. The CIT(A) upheld the disallowance. The Tribunal acknowledged the possibility of personal use but found the disallowance excessive and restricted it to 10%, directing the A.O. to adjust accordingly.4. Disallowance of Depreciation on Cars:The A.O. disallowed Rs. 7,97,902/- claimed as depreciation on cars purchased in the names of directors, citing non-compliance with Section 32 of the Act. The Tribunal, following the Bombay High Court's decision in Dilip Singh Sardar Singh Bagga and the Pune Bench's decision in Rohan Builders and Developers (P.) Ltd., directed the A.O. to allow the claimed depreciation, as the cars were purchased with the assessee's funds for business purposes.5. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS:The A.O. disallowed Rs. 11,58,261/- for non-deduction of TDS on surcharge and education cess. The assessee argued that there was no mandate for deducting TDS on these components. The Tribunal noted that the assessee subsequently paid the TDS along with interest under Section 201 and directed the CIT(A) to verify if the TDS was paid before the filing of the return under Section 139(1). The Tribunal also referenced the Mumbai Bench's decision in Bansal Parivahan (India) (P) Ltd. v. ITO, which held that amendments to Section 40(a)(ia) are retrospective.Conclusion:The appeals by the Revenue were allowed for statistical purposes, and the assessee's appeals were partly allowed. The Tribunal directed the A.O. to reconsider the issues based on prior decisions and judicial precedents, ensuring adequate opportunity for the assessee to be heard. The order was pronounced on 30th June 2011.