2012 (9) TMI 186 - AT - Income Tax

Tribunal partially allows appeals on expense disallowances, based on precedents and legal interpretations.

The Tribunal partly allowed the appeals filed by the assessee and the revenue, dismissing the cross objections filed by the assessee. The decisions were ... Disallowance of expenses under rule 6D - assessee has itself disallowed in the computation of income an amount of Rs. 1,07,863 - Held that:- The claim of the assessee was disregarded by the AO who went on to calculate the disallowance as per provisions of Rule 6D for different units on the basis of per person per trip as decided in CIT Vs Arrow India ltd. [1997 (7) TMI 92 - BOMBAY HIGH COURT] - against assessee. Disallowance of guest house expenses u/s. 37(4) - Held that:- As decided in Britannia Industries Limited Versus Commissioner of Income-Tax And Another [2005 (10) TMI 30 - SUPREME COURT] claim by the assessee as expenses towards rent, repairs, depreciation and maintenance of a guest house need to be disallowed which was purportedly used in connection with the business of the company - against assessee. Non exclusion of interest receivable for A.Y. 1995- 96 u/s. 244A - Held that:- As decided in Commissioner of Income-Tax Versus British Paints India Limited [1990 (12) TMI 2 - SUPREME COURT] there was no justification for the assessee to vary from the regular accounting principle of valuing stock & ITO is justified under s. 145 to reject the books of accounts and determine the correct profits and gains - if any change or reduction in the amount of interest refund to the assessee u/s. 244A, the same has to be taken into account u/s. 154 of the Act - against assessee. Disallowance u/s. 40A(3) - the payments were made to employees to purchase tickets & furniture - Held that:- As the payments for purchase of tickets are concerned, the same is not in violation of section 40A(3) but payments made to buy furniture is in violation of Sec. 40A(3) therefore A.O. is directed to restrict the disallowance to 20% of Rs. 24,000 - partly in favour of assessee. Exclusion from taxable profits the sales tax exemption benefit - Additional ground submitted by assessee - Held that:- Adjudication of the ground will require going into the incentive scheme framed by the U.P. Government which was not available before the lower authorities, the issue is restored to the file of AO for passing a fresh order after necessary examination and after allowing opportunity of hearing to the assessee - in favour of assessee for statistical purposes. Disallowance of expenses - laying transmission line and the construction of access road - Held that:- Respectfully following the finding of the Tribunal given in the immediately preceding assessment year i.e. 1995-96 it is to be hold that the expenditure so claimed are capital in nature accordingly order of the Ld. CIT(A) is set aside and that of the AO is restored - against assessee. Disallowance of period prior interest - Held that:- As the claim of interest paid on borrowed capital as deductible expenditure in the immediately preceding year the expenses for the year under consider also need to be allowed - in favour of assessee. Issues Involved:1. Disallowance of expenses under Section 6D.2. Disallowance of guest house expenses under Section 37(4).3. Disallowance of entertainment expenses under Section 37(2).4. Disallowance of sales and press conference expenses.5. Disallowance of rural development expenditure.6. Premium on redemption of Nonconvertible debentures.7. Disallowance of club expenses.8. Interest receivable under Section 244A.9. Depreciation on Roll over charges.10. Expenditure on payments made to schools.11. Disallowance under Section 40A(3).12. Sales tax exemption benefit.13. Valuation of closing stock with Modvat.14. Disallowance of interest for the period prior to commencement of business.Detailed Analysis:1. Disallowance of Expenses under Section 6D:The assessee's claim of Rs. 1,75,308/- was disallowed by the AO and upheld by the CIT(A). The Tribunal found that the issue was previously decided against the assessee in earlier years and upheld the CIT(A)'s order.2. Disallowance of Guest House Expenses under Section 37(4):The assessee's claim of Rs. 24,83,326/- was disallowed. The Tribunal upheld the CIT(A)'s order, following the Supreme Court's decision in Britania Industries Ltd., 278 ITR 546 (SC).3. Disallowance of Entertainment Expenses under Section 37(2):The AO disallowed Rs. 38,97,110/- under Section 37(2). The CIT(A) restricted the disallowance to 25%, which was upheld by the Tribunal, following its decision in earlier years.4. Disallowance of Sales and Press Conference Expenses:The CIT(A) disallowed Rs. 13,70,572/-, but the Tribunal allowed the expenditure, following its own decision in earlier years.5. Disallowance of Rural Development Expenditure:The AO disallowed Rs. 5,07,261/-. The CIT(A) upheld the disallowance, but the Tribunal allowed the claim, following its decision in earlier years.6. Premium on Redemption of Nonconvertible Debentures:The Tribunal found the ground infructuous as the claim had been accepted in earlier years.7. Disallowance of Club Expenses:The AO disallowed Rs. 24,050/-, but the CIT(A) deleted the disallowance, and the Tribunal upheld this decision, following its earlier rulings.8. Interest Receivable under Section 244A:The AO rejected the assessee's claim for deduction of Rs. 1,40,02,326/-. The CIT(A) upheld this, but the Tribunal found no merit in the assessee's ground, following the Special Bench's decision in Avada Trading Co. Vs ACIT.9. Depreciation on Roll Over Charges:The AO rejected the claim, and the CIT(A) upheld this. The Tribunal found the ground infructuous as the amount was allowed as revenue expenditure in earlier years.10. Expenditure on Payments Made to Schools:The AO disallowed Rs. 21,59,851/-, and the CIT(A) upheld this. The Tribunal allowed the claim, following its earlier decisions.11. Disallowance under Section 40A(3):The AO disallowed Rs. 28,140/-. The Tribunal partly allowed the ground, directing the AO to restrict the disallowance to 20% of Rs. 24,000/-.12. Sales Tax Exemption Benefit:The Tribunal admitted the additional ground regarding the sales tax exemption benefit of Rs. 2,42,58,647/- and restored the issue to the AO for fresh examination.13. Valuation of Closing Stock with Modvat:The AO added Rs. 99,87,962/- for undervaluation of closing stock. The CIT(A) deleted the addition, and the Tribunal upheld this, following the Supreme Court's decision in CIT Vs Indio Nippon Chemicals.14. Disallowance of Interest for the Period Prior to Commencement of Business:The AO disallowed Rs. 6,65,28,237/-, but the CIT(A) allowed the claim. The Tribunal upheld the CIT(A)'s decision, following its earlier rulings and the Supreme Court's decision in DCIT Vs Core Health Care Ltd.Conclusion:The appeals filed by the assessee and the revenue were partly allowed, and the cross objections filed by the assessee were dismissed. The Tribunal's decisions were largely based on precedents set in earlier years and higher court rulings.