2012 (10) TMI 46 - AT - Income Tax

Assessee's Appeal Partially Allowed, Revenue's Appeal Dismissed, Disallowances Remanded for Fresh Consideration

The Tribunal partially allowed the assessee's appeal for statistical purposes, remanding various disallowances back to the Assessing Officer for fresh ... Disallowance u/s 37(3A) - revised return filed by assessee - Held that:- there are mistakes in the amounts of disallowance made by the A.O. - Submission of assessee requires clarification. - in favour of assessee for statistical purposes. Guest house expenses - expenses incurred on salaries & wages to staff & repairs and renovation expenses are in the nature of guest house expenses - held that: these are not allowable in view of the decision of the Hon’ble Supreme Court in the case of Britannia Industries Ltd. vs. CIT (2005 (10) TMI 30 - SUPREME COURT) and accordingly the disallowance made by the A.O. upheld - With regard to the food expenses, matter remanded back. Incentive bonus - Held that:- this amount is allowable u/s 37(1) since it is remuneration to workers for extra work done which partakes the character of salary and it is not bonus as provided under the Payment of Bonus Act, 1965 - in favour of assessee. Deduction u/s 80VV - expenses incurred in connection with certain proceedings - payments for consultations, conferences and appearances relating to proceedings - Held that:- As decided in CIT Versus Hayward Waldia Refinery Limited [1992 (7) TMI 5 - CALCUTTA HIGH COURT] section 80VV seeks to restrict the allowance in respect of expenditure incurred by an assessee in respect of a specific proceeding under the Income-tax Act having no application in relation to remuneration or fees paid by an assessee to a tax consultant or other adviser for giving general advice in relation to taxation matters - Thus in the present case the disallowance made is deleted - in favour of assessee. Disallowance of Bhanwad Prospecting Survey expenses - Held that:- As the disallowance of Bhanwad Prospecting Survey expenses, it has been consistently held by the Tribunal in earlier assessment years that the assessee is entitled to the deduction u/s 35E, thus following the same the A.O. is directed to follow the orders of the Tribunal - in favour of assessee. Disallowance of repairs to building and machinery - Held that:- All these renovation and repairs were carried out by the assessee in its facilities available at the salt pans of the assessee are all essential repair and maintenance expenditure. Nothing is procured and embedded as new. The assessee has not extended its operational facilities area or plant. Therefore, these expenditures are to be treated as revenue in nature - in favour of assessee. Disallowance of Depreciation - Held that:- Since the foreign travel expenses has been treated as capital expenditure, therefore, on the said amount the assessee is entitled to the depreciation. As in the absence of any contrary material placed on record by the Revenue, we direct the A.O. to allow depreciation on foreign travel expenses treated as capital expenditure - in favour of assessee. Disallowance u/s 40A(3) - Held that:- The issue has not been properly examined as disallowance has been made on the basis of Tax Audit Report. The payments to employees cannot be said that the assessee has failed to establish the identity of the payees. It has also not been examined by the A.O. as to whether there is any single payment not exceeding Rs. 2,500/- in view of the decision of CIT vs. Aloo Supply Co. (1979 (12) TMI 60 - ORISSA HIGH COURT) - restore this issue back to the file of the A.O. to decide the same afresh - in favour of assessee for statistical purposes. Disallowance of expenses on fish and prawn culture - Held that:- The issue is covered in favour of the assessee by the order of the Tribunal in assessee’s own case for the assessment years 1981-82 and 1982-83 wherein it is held that the maintenance of fish ponds does not constitute any separate business but it is an essential part of the business carried on by the assessee in the normal course - in favour of assessee. Disallowance of interest on outstanding electricity duty, Central Sales Tax and Gujarat Sales Tax - Held that:- As the Tribunal in assessee’s own case for A.Y. 1984-85 observing that the interest on electricity deposit is neither duty nor tax, therefore, it is out of the scope of the section 43B, thus directed the A.O. to delete the addition - and with regard to the disallowance of Central Sales Tax and Gujarat Sales Tax, the Tribunal restored the issue back to the file of the A.O. to verify the payment - thus following same order appeal decided - partly in favour of assessee. Disallowance of payment made to Tata Services Ltd. - Held that:- Observing the order passed in assessee' own case for A.Y. 1984-85 that the A.O. was not justified in making adhoc disallowance of Rs. 2 lacs and accordingly directions to delete the disallowance - in favour of assessee. Disallowance of payment of Tata Sons, Cess charges and various items individually costing - Held that:- As assessee before the CIT(A) has filed detail note who without considering the same has decided the issue against the assessee, thus the issue should be restored back to the file of the A.O. - in favour of assessee for statistical purposes. Disallowance of interest paid on borrowings - Held that:- The assessee company was having its own funds aggregating to Rs. 160.73 crores as on 31-3-1985 and out of it, the assessee has advanced Rs. 3.58 crores, was not controverted. Thus as per decision in Munjal Sales Corporation Versus CIT [2008 (2) TMI 19 - SUPREME COURT] the Appellate Tribunal ought to have held that the loan given was from the assessee’s own funds - in favour of assessee. Disallowance of forfeiture of security deposits/performance guarantee deposit - Held that:- There is no dispute that the assessee has received Rs. 1,41,51,010/- towards full value of sale of 5000 MTs. of Soda Ash. However, there is no material on record to show the date of entry of consideration of the sale price recorded i.e. at the time of delivery of goods or receipt of sale value of Rs. 1,41,51,010/- or at a later stage i.e. on or before 31-3-1985. There is no material on record to show as to whether the HLL has received the imported consignment of Soda Ash on or before 31-3-1985 or whether any effort was made by the HLL to return the supply to the assessee by 31-3-1985 or has refused to return the goods or has sought extension of time to return the goods to the assessee - In the absence of all these relevant material on record the matter should go back to the file of the A.O. for fresh reconsideration - in favour of assessee for statistical purposes. Disallowance of expenditure on scientific research u/s 35(1)(ii) - Held that:- The assessee has made payment of Rs. 5 lacs to the Indian Institute of Chemical Engineers, Calcutta & in the absence of any material to show that the expression u/s 35(1)(ii) that “any sum paid to a scientific research association” does not include the payment made by the assessee or such payment is not allowable the view of CIT(A) was fully justified in deleting the disallowance - in favour of assessee. Levy of interest u/s 139(8) - Held that:- As this ground is consequential which was not objected to by the D.R the A.O. is directed to allow consequential relief to the assessee in respect of levy interest u/s 139(8) - in favour of assessee. Issues Involved:1. Sustenance of disallowance under Section 37(3A) of the Income Tax Act.2. Sustenance of disallowance of entertainment expenses.3. Sustenance of disallowance under Section 37(3) read with Rule 6D.4. Sustenance of disallowance of guest house expenses.5. Sustenance of disallowance of liability of bonus.6. Sustenance of disallowance of incentive bonus.7. Sustenance of disallowance under Section 80VV.8. Sustenance of disallowance under Section 40A(5) read with 40(c).9. Disallowance of various expenses as capital expenditure.10. Claim of depreciation on items treated as capital expenditure.11. Sustenance of disallowance under Section 40A(3).12. Sustenance of disallowance of contribution to Scientific Research Association under Section 35(1)(iii).13. Sustenance of disallowance of expenses on fish and prawn culture.14. Sustenance of disallowance of interest on outstanding electricity duty, Central Sales Tax, and Gujarat Sales Tax under Section 43B.15. Sustenance of disallowance of Royalty and sundry contributions.16. Sustenance of disallowance of payment to Tata Services Ltd.17. Sustenance of disallowance of provision for revision in salary payable to employees.18. Sustenance of disallowance of certain expenses aggregating to Rs. 8,29,812.19. Sustenance of disallowance of interest on borrowings.20. Sustenance of disallowance of forfeiture of security deposits/performance guarantee deposit.21. Sustenance of disallowance of extra shift depreciation.22. Sustenance of disallowance of investment allowance.23. Levy of interest under Section 139(8).24. Non-admission of additional ground of appeal by CIT(A).25. Deletion of addition under Section 37(2A).26. Deletion of disallowance under Section 35(1)(ii).27. Deletion of disallowance of sundry contributions.Issue-wise Detailed Analysis:1. Sustenance of Disallowance under Section 37(3A) of the Income Tax Act:The assessee disallowed Rs. 3,02,842/- under Section 37(3A) but the AO found additional expenses disallowable under this section, totaling Rs. 30,73,662/-. The CIT(A) upheld the AO's decision. The Tribunal noted factual mistakes and remanded the issue back to the AO for fresh consideration in light of relevant judgments.2. Sustenance of Disallowance of Entertainment Expenses:The AO disallowed Rs. 86,803/- for expenses deemed as advertisement under Section 37(3A). The CIT(A) upheld this disallowance. The Tribunal remanded the issue back to the AO for reconsideration.3. Sustenance of Disallowance under Section 37(3) read with Rule 6D:The AO disallowed Rs. 2,96,950/- for travel expenses not considered by the assessee. The CIT(A) directed the AO to rework the disallowance. The Tribunal remanded the issue back to the AO for fresh consideration.4. Sustenance of Disallowance of Guest House Expenses:The AO disallowed Rs. 14,24,078/- under Section 37(4). The CIT(A) upheld the disallowance. The Tribunal upheld disallowance for salaries and repairs but remanded the issue of food expenses back to the AO.5. Sustenance of Disallowance of Liability of Bonus:The assessee did not press this ground as the liability was allowed in subsequent years. The Tribunal rejected the ground as not pressed.6. Sustenance of Disallowance of Incentive Bonus:The AO disallowed Rs. 1,90,747/- as it was over and above the statutory bonus. The CIT(A) upheld the disallowance. The Tribunal deleted the disallowance, following its earlier decision in the assessee's case.7. Sustenance of Disallowance under Section 80VV:The AO disallowed Rs. 27,650/- for legal fees not related to proceedings before tax authorities. The CIT(A) upheld the disallowance. The Tribunal deleted the disallowance, holding that the expenses did not fall under Section 80VV.8. Sustenance of Disallowance under Section 40A(5) read with 40(c):The assessee withdrew this ground. The Tribunal rejected it as not pressed.9. Disallowance of Various Expenses as Capital Expenditure:The AO disallowed several expenses as capital expenditure. The CIT(A) upheld the disallowance. The Tribunal allowed deduction for Bhanwad Prospecting Survey expenses under Section 35E and repairs to building and machinery as revenue expenditure, remanding other items back to the AO.10. Claim of Depreciation on Items Treated as Capital Expenditure:The Tribunal directed the AO to allow depreciation on foreign travel expenses treated as capital expenditure.11. Sustenance of Disallowance under Section 40A(3):The AO disallowed Rs. 1,35,633/- for payments exceeding Rs. 2,500/-. The CIT(A) upheld the disallowance. The Tribunal remanded the issue back to the AO for fresh consideration.12. Sustenance of Disallowance of Contribution to Scientific Research Association under Section 35(1)(iii):The assessee withdrew this ground. The Tribunal rejected it as not pressed.13. Sustenance of Disallowance of Expenses on Fish and Prawn Culture:The AO disallowed Rs. 1,66,610/- as it related to a new line of business. The CIT(A) upheld the disallowance. The Tribunal deleted the disallowance, following its earlier decision in the assessee's case.14. Sustenance of Disallowance of Interest on Outstanding Electricity Duty, Central Sales Tax, and Gujarat Sales Tax under Section 43B:The AO disallowed Rs. 35,74,052/- under Section 43B. The CIT(A) upheld the disallowance. The Tribunal remanded the issue back to the AO for verification of payments.15. Sustenance of Disallowance of Royalty and Sundry Contributions:The assessee withdrew these grounds. The Tribunal rejected them as not pressed.16. Sustenance of Disallowance of Payment to Tata Services Ltd.:The AO disallowed Rs. 2 lacs as part of common service expenses. The CIT(A) upheld the disallowance. The Tribunal deleted the disallowance, following its earlier decision in the assessee's case.17. Sustenance of Disallowance of Provision for Revision in Salary Payable to Employees:The assessee did not press this ground. The Tribunal rejected it as not pressed.18. Sustenance of Disallowance of Certain Expenses Aggregating to Rs. 8,29,812:The AO disallowed various expenses due to lack of details. The CIT(A) upheld the disallowance. The Tribunal remanded the issue back to the AO for fresh consideration.19. Sustenance of Disallowance of Interest on Borrowings:The AO disallowed Rs. 23,33,000/- for interest-free advances to a subsidiary. The CIT(A) upheld the disallowance. The Tribunal deleted the disallowance, following its earlier decision in the assessee's case and the judgment in Reliance Utilities and Power Ltd.20. Sustenance of Disallowance of Forfeiture of Security Deposits/Performance Guarantee Deposit:The AO treated Rs. 50 lacs as taxable income. The CIT(A) upheld the addition. The Tribunal remanded the issue back to the AO for fresh consideration in light of relevant legal provisions and decisions.21. Sustenance of Disallowance of Extra Shift Depreciation:The assessee withdrew this ground. The Tribunal rejected it as not pressed.22. Sustenance of Disallowance of Investment Allowance:The AO disallowed Rs. 54,58,163/-. The CIT(A) upheld the disallowance. The Tribunal directed the AO to allow investment allowance on exchange loss and remanded other items for fresh consideration.23. Levy of Interest under Section 139(8):The Tribunal directed the AO to allow consequential relief in respect of interest under Section 139(8).24. Non-admission of Additional Ground of Appeal by CIT(A):The assessee did not argue this ground. The Tribunal rejected it.25. Deletion of Addition under Section 37(2A):The AO disallowed Rs. 3,32,457/- for food subsidy. The CIT(A) deleted the disallowance. The Tribunal upheld the CIT(A)'s decision, following its earlier orders.26. Deletion of Disallowance under Section 35(1)(ii):The AO disallowed Rs. 5 lacs for contribution to a building fund. The CIT(A) deleted the disallowance. The Tribunal upheld the CIT(A)'s decision.27. Deletion of Disallowance of Sundry Contributions:The AO disallowed Rs. 2,61,500/-. The CIT(A) deleted the disallowance. The Tribunal upheld the CIT(A)'s decision, following its earlier orders.Conclusion:The assessee's appeal was partly allowed for statistical purposes, and the Revenue's appeal was dismissed.