Tribunal decision: remand under-pricing issue, reduce ERS disallowance, uphold foreign travel, business expenses

The Tribunal remanded the issue of under-pricing sales to a subsidiary back to the Assessing Officer (AO) for re-examination, reduced the disallowance of provisions for Executive Retirement Scheme (ERS) based on actual payments, upheld the disallowance of foreign travel expenses, confirmed some disallowances of entertainment expenses but allowed certain business expenses, upheld the reduction in deduction under section 80IA, rejected the ad-hoc disallowance of 2% of dividend income, allowed expenditure on advertising films, accepted the MODVAT credit claim, excluded excise duty and trade discount from total turnover for deduction under section 80HHC, did not rule on the validity of re-assessment, allowed payment to NPPA as a revenue expenditure, and directed computation of interest under section 220(2) in accordance with the law.

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Issues Involved:
1. Addition on account of sales to a subsidiary.
2. Disallowance of provisions for Executive Retirement Scheme (ERS).
3. Disallowance of foreign travel expenses.
4. Disallowance of various entertainment expenses.
5. Deduction under section 80IA.
6. Ad-hoc disallowance of 2% of dividend income.
7. Disallowance of expenditure on production of advertising films.
8. Addition on account of MODVAT credit.
9. Exclusion of excise duty and trade discount from the total turnover for deduction under section 80HHC.
10. Validity of re-assessment under section 147.
11. Disallowance of payment to NPPA.
12. Levy of interest under section 220(2).

Detailed Analysis:

1. Addition on account of sales to a subsidiary:
The assessee sold products to its 100% subsidiary at lower rates compared to third parties. The Assessing Officer (AO) found this under-pricing resulted in a loss of Rs. 3,19,77,685. The Commissioner (Appeals) (CIT(A)) reduced the disallowance to Rs. 1,62,37,205 after considering certain expenses not incurred for subsidiary sales. The Tribunal restored the issue to the AO to re-examine the price difference and actual expenses attributable to the subsidiary sales.

2. Disallowance of provisions for Executive Retirement Scheme (ERS):
The AO disallowed Rs. 1,56,59,547 as a contingent liability. The Tribunal, following earlier decisions, directed the AO to allow the expenses based on actual payment made during the relevant assessment year.

3. Disallowance of foreign travel expenses:
The AO disallowed Rs. 1,68,597 incurred on the wife of an executive officer. The CIT(A) confirmed the disallowance, and the Tribunal upheld this decision, citing the Jurisdictional High Court's decision in Bhor Industries Ltd.

4. Disallowance of various entertainment expenses:
The AO made several disallowances under various heads, and the CIT(A) confirmed most of them. The Tribunal, following earlier decisions, upheld 80% of the disallowance confirmed by the CIT(A) and allowed certain expenses like conference expenses and training expenses as business expenses.

5. Deduction under section 80IA:
The AO reduced the deduction under section 80IA. The Tribunal, following earlier decisions, upheld the AO's action, determining that the profit attributed to the Dharavi unit was reasonable.

6. Ad-hoc disallowance of 2% of dividend income:
The AO estimated 2% of the gross dividend as expenses for earning the dividend income. The Tribunal, following the Jurisdictional High Court's decision in CIT v/s Emrald Co. Ltd., held that no such ad-hoc disallowance could be made for computing deduction under section 80M.

7. Disallowance of expenditure on production of advertising films:
The AO treated the expenditure on advertising films as capital expenditure. The Tribunal, following earlier decisions, allowed the expenditure as revenue expenditure.

8. Addition on account of MODVAT credit:
The AO added unutilized MODVAT credit to the total income. The Tribunal, following earlier decisions and the Supreme Court's judgment in CIT v/s Indo Nippon Chemicals Co. Ltd., allowed the assessee's claim.

9. Exclusion of excise duty and trade discount from the total turnover for deduction under section 80HHC:
The Tribunal, following the Supreme Court's judgment in CIT v/s Lakshmi Machine Works, held that excise duty and sales tax do not form part of the total turnover under section 80HHC.

10. Validity of re-assessment under section 147:
The Tribunal did not adjudicate on the validity of re-assessment as the issue became academic after allowing the assessee's appeal on merits.

11. Disallowance of payment to NPPA:
The AO disallowed Rs. 1.5 crores paid to NPPA, treating it as a penalty. The Tribunal allowed the payment as revenue expenditure, noting it was a refund of excess price charged and not a penalty.

12. Levy of interest under section 220(2):
The Tribunal directed the AO to compute the interest component in accordance with law, leaving the issue un-adjudicated due to lack of arguments from both parties.

Conclusion:
The Tribunal provided detailed directions and remanded certain issues back to the AO for re-examination, while upholding or reversing other disallowances based on earlier decisions and legal precedents.

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