2014 (4) TMI 1012 - HC - Income Tax

Appeal dismissed on sales tax set-off, but changes allowed on medical expenses.

The High Court dismissed the appeal on the disallowance of sales tax set off under Section 43B of the Income Tax Act, stating it was not a substantial ... Deletion of disallowance u/s 43B of the Act – Sales tax set off – Held that:- As decided in assessee’s own case for the previous assessment year, the question involved in not a substantial question of law – Decided against Revenue. Disallowance u/s 37(2A) of the Act – Entertainment expenses - Held that:- The Tribunal rightly held that the explanation clarifies that 'the entertainment expenditure includes expenditure on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food or beverages or in any other manner whatsoever and whether or not any such provision is made by such express or implied contract or customs or usage of trade, but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work' - the view taken by the Tribunal is a possible view and going by the language of Explanation (2) to Section 37(2A) of the Income Tax Act,1961 as then applicable - when the disallowance is of Rs.8,97,241 – the appeal does not raise any substantial question of law – Decided against Revenue. Inclusion of amount of reimbursement of medical expenses – Held that:- The Tribunal found that the matter is squarely falling within the statutory provision u/s 40A(5) of the Act - A direction to the AO to exclude medical expenses/ club subscription /entrance fees from the salary of the employees for computing disallowance u/s 40A(5) of the Act does not give rise to any substantial question of law – Decided against Revenue. Computation of deduction u/s 80HHC of the Act – net foreign exchange receipt relating to export from Kandla Free Trade Zone to be considered as receipt u/s 10A of the Act or not – Held that:- The Tribunal held that sub-section (1) only stipulates that the assessee should be an Indian Company, resident in India and engaged in the business of export out of India of any goods or merchandise to which the section applied - merely because deduction u/s 10A was claimed by the assessee on such exports would not be a reason for dis-entitling it to claim deduction u/s 80HHC(1) (Clause a) of the Act - the relief has been confined to net foreign exchange realization in the form of export from Kandla Free Trade Zone – the issue does not raise any substantial question of law arises for consideration – Decided against Revenue. Deduction of distribution cost – Held that:- The Tribunal has considered the grievance of the assessee that the AO excluded from the total turnover excise duty and recovery of distribution costs credited to the distribution expenses while computing its eligible deduction u/s 80HHC of the Act – thus, the matter does not raise any substantial question of law arises for consideration – Decided against Revenue. Issues:1. Disallowance of sales tax set off under Section 43B of the Income Tax Act.2. Change in stand by the assessee regarding disallowance under Section 37(2A) of the Income Tax Act.3. Inclusion of reimbursement of medical expenses in the computation of disallowance under Section 40A(5) of the Income Tax Act.4. Disallowance under Section 37(2A) of the Income Tax Act for expenditure on staff get-togethers and conferences.5. Consideration of net foreign exchange relating to export from Kandla Free Trade Zone while computing deduction under Section 80HHC of the Income Tax Act.6. Deduction of distribution costs under Section 80HHC of the Income Tax Act.Analysis:1. The High Court dismissed the appeal on the disallowance of sales tax set off under Section 43B of the Income Tax Act. The Court found that the issue was not a substantial question of law based on previous orders and similar cases.2. The Court discussed the change in the assessee's stand regarding disallowance under Section 37(2A) of the Income Tax Act. The Tribunal allowed the change in stand based on the explanation provided in the Act, and the Court found the Tribunal's decision reasonable.3. The inclusion of reimbursement of medical expenses in the computation of disallowance under Section 40A(5) of the Income Tax Act was also analyzed. The Court noted that the issue had been decided in favor of the assessee for previous assessment years and did not raise a substantial question of law.4. The Court considered the disallowance under Section 37(2A) for expenditure on staff get-togethers and conferences. The Tribunal's decision to treat the expenses as incurred at the employees' places of work was upheld as a possible view based on the Act's provisions.5. Regarding the consideration of net foreign exchange from export from Kandla Free Trade Zone under Section 80HHC of the Income Tax Act, the Court found that the Tribunal's decision was reasonable and did not raise a substantial question of law.6. The deduction of distribution costs under Section 80HHC of the Income Tax Act was also discussed. The Court upheld the Tribunal's decision based on previous judgments and found no substantial question of law. The appeal was allowed in part with no order as to costs.