2012 (8) TMI 492 - AT - Income Tax

Appeal Partly Allowed with Issues Remanded for Verification; Assessee Prevails on Precedent

M/s. Hindustan Ciba-Geigy Ltd., Versus The Director Commissioner of Income Tax, Special Range 23,

M/s. Hindustan Ciba-Geigy Ltd., Versus The Director Commissioner of Income Tax, Special Range 23, - TMI Issues Involved:1. Disallowance of Rs. 30,39,70,700/- on account of Voluntary Retirement Scheme (VRS).2. Disallowance of provisions of expenses made at the year-end amounting to Rs. 40,90,453/-.3. Disallowance of expenses totaling Rs. 65,29,929/- as capital expenditure.4. Disallowance of Rs. 11,39,876/- being the depreciation on Kandla plant.5. Disallowance of 20% on foreign travel expenses.6. Disallowance of Rs. 38,59,200/- for impending union settlement.7. Disallowance of Rs. 11,80,282/- towards hotel expenses and airfare on foreign visitors.8. Disallowance of Rs. 5,72,316/- u/s. 37(4) of the Act for expenditure on transit houses.9. Disallowance of expenses under various heads as entertainment expenses for Sec. 37(2) purposes.10. Inclusion of sales tax and trade discount from the figure of total turnover for computing deduction u/s. 80HHC.11. Disallowance of Rs. 4,28,000/- on account of prior period expenses.12. Disallowance of deduction of Rs. 2,08,378/- u/s. 80HH.Detailed Analysis:1. Disallowance of Rs. 30,39,70,700/- on account of Voluntary Retirement Scheme (VRS):The AO disallowed the VRS liability, stating it was not payable as of 31.3.1993 and was not scientifically substantiated. The CIT(A) upheld this, noting the liability was contingent. The Tribunal found the liability supported by actuarial valuation and agreements with employees and remanded the matter to the AO for verification. The assessee must provide all related documents to substantiate the claim.2. Disallowance of provisions of expenses made at the year-end amounting to Rs. 40,90,453/-:The AO disallowed the provision as it lacked basis. The CIT(A) confirmed the disallowance but directed the AO to ensure no double taxation. The Tribunal upheld the CIT(A)'s decision, referencing a similar case from the previous year.3. Disallowance of expenses totaling Rs. 65,29,929/- as capital expenditure:The AO and CIT(A) treated the expenses on film production as capital in nature. The Tribunal, referencing a previous decision and a high court ruling, treated these as revenue expenses and allowed the claim.4. Disallowance of Rs. 11,39,876/- being the depreciation on Kandla plant:The AO disallowed the depreciation, stating the plant was not operational. The CIT(A) agreed. The Tribunal remanded the issue to the AO for verification of the plant's operational status during the year.5. Disallowance of 20% on foreign travel expenses:The AO disallowed 25% of foreign travel expenses, which the CIT(A) reduced to 20%. The Tribunal, referencing earlier decisions, deleted the disallowance, allowing the expenses as business-related.6. Disallowance of Rs. 38,59,200/- for impending union settlement:The AO and CIT(A) disallowed the provision, treating it as contingent and relevant to the next assessment year. The Tribunal upheld this, noting the settlement was signed in the subsequent year.7. Disallowance of Rs. 11,80,282/- towards hotel expenses and airfare on foreign visitors:The AO and CIT(A) disallowed the expenses, deeming them non-business-related. The Tribunal, referencing a previous decision, allowed the expenses as business-related.8. Disallowance of Rs. 5,72,316/- u/s. 37(4) of the Act for expenditure on transit houses:The AO disallowed additional expenses on transit houses. The CIT(A) upheld this. The Tribunal directed the AO to allow expenses on food and beverages, restoring the matter for detailed examination.9. Disallowance of expenses under various heads as entertainment expenses for Sec. 37(2) purposes:The AO categorized several expenses as entertainment. The CIT(A) upheld this. The Tribunal directed the AO to allow business meeting and AGM expenses and limit canteen expenses disallowance to Rs. 2,00,000/-.10. Inclusion of sales tax and trade discount from the figure of total turnover for computing deduction u/s. 80HHC:The AO included these in the total turnover. The CIT(A) upheld this. The Tribunal, referencing higher court decisions, excluded these from the turnover for deduction purposes.11. Disallowance of Rs. 4,28,000/- on account of prior period expenses:The AO disallowed the expense as it related to a prior year. The CIT(A) upheld this. The Tribunal confirmed the disallowance, treating it as a prior period expense.12. Disallowance of deduction of Rs. 2,08,378/- u/s. 80HH:The AO denied the deduction, stating past losses were not considered. The CIT(A) agreed. The Tribunal remanded the issue to the AO to verify if there were any brought forward losses to set off.Conclusion:The appeal was partly allowed, with several issues remanded for verification and others decided in favor of the assessee based on previous rulings and higher court decisions. The Tribunal emphasized the need for detailed examination and verification of claims by the AO.