Appeal partially allowed for assessment years 2004-05 and 2005-06, addressing preliminary expenditure, Gratuity, and Section 10B deduction.

The tribunal allowed the appeal for the assessment year 2004-05, partially addressing issues related to preliminary expenditure, Gratuity payment, and deduction under Section 10B. For the assessment year 2005-06, the appeal was partly allowed, addressing the Gratuity payment issue similarly to the previous year but upholding the disallowance of depreciation on fixed assets. The order was pronounced on June 13, 2013, in Chennai.

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Issues Involved:
1. Condonation of delay in filing the appeals.
2. Disallowance of preliminary expenditure.
3. Disallowance of Gratuity payment due to lack of approval.
4. Disallowance of deduction under Section 10B.
5. Disallowance of depreciation on fixed assets.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeals:
The appeals were filed with a delay of 208 days. The assessee, a wholly-owned subsidiary of a UK company, attributed the delay to the mismanagement by employee Directors who provided false information regarding tax dues and persisted in dubious methods. The delay was discovered when a new management team took over in September 2012, and the appeals were filed immediately thereafter. The tribunal found sufficient evidence supporting the assessee's claims and condoned the delay, admitting the appeals.

2. Disallowance of Preliminary Expenditure:
The assessee's claim for preliminary expenditure of Rs. 34,40,902/- was disallowed by the Assessing Officer (A.O.) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The expenditure was related to the setting up and training of personnel for a new unit in Trivandrum. The A.O. disallowed the claim, stating that pre-operative expenditure could not be claimed as revenue outgo. However, the tribunal noted that the expenditure was for expanding the existing line of business and was of revenue nature, thus allowable under Section 37 of the Income-tax Act. The disallowance was deleted.

3. Disallowance of Gratuity Payment:
The assessee's payment of Rs. 2,56,659/- to LIC towards Group Gratuity Fund was disallowed as the fund was not approved by the CIT/CCIT. The CIT(A) upheld the disallowance. The tribunal noted that the assessee had applied for approval of the Gratuity scheme, which was still pending. The tribunal referred to the decision of the Hon'ble Apex Court in the case of Textool Co. Ltd., which emphasized the importance of the fund being approved. The matter was remitted back to the A.O. for reconsideration, allowing the assessee to produce the approval for the Gratuity scheme.

4. Disallowance of Deduction under Section 10B:
The assessee's claim for deduction under Section 10B for its Trivandrum unit was partially disallowed due to insufficient evidence of receipt of sale proceeds in convertible foreign exchange. The CIT(A) confirmed the eligibility for the claim to the extent of Rs. 4,04,75,670/-. The tribunal noted that the assessee had subsequently received Foreign Inward Remittance Certificates (FIRC) for the balance amount and remitted the issue back to the A.O. for fresh consideration, allowing the assessee to produce FIRCs for the entire export proceeds.

5. Disallowance of Depreciation on Fixed Assets:
For the assessment year 2005-06, the assessee's claim for depreciation on certain fixed assets was disallowed due to the inability to produce relevant bills. The CIT(A) upheld the disallowance. The tribunal noted that the disallowance was consistent with the previous years where the assessee failed to provide evidence of acquisition. The tribunal found no reason to interfere with the disallowance for the impugned assessment year.

Conclusion:
The appeal for the assessment year 2004-05 was allowed pro tanto, addressing the issues of preliminary expenditure, Gratuity payment, and deduction under Section 10B. The appeal for the assessment year 2005-06 was partly allowed, addressing the Gratuity payment issue similarly to the previous year, but upholding the disallowance of depreciation on fixed assets. The order was pronounced on June 13, 2013, at Chennai.

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