2021 (3) TMI 1230 - AT - Income Tax

Tribunal Decisions: Assessee's Appeal Partly Allowed, Revenue's Appeal Dismissed

M/s. ABB Limited (formerly Asea Brown Boveri Limited) Versus The Additional Commissioner of Income Tax, Circle 8 (1), Bangalore. And (Vice-Versa)

M/s. ABB Limited (formerly Asea Brown Boveri Limited) Versus The Additional Commissioner of Income Tax, Circle 8 (1), Bangalore. And (Vice-Versa) - TMI Issues Involved:1. Deduction under Section 80HHC.2. Allocation of head office expenses for deduction under Sections 80-I/80-IA.3. Deduction under Section 80-O.4. Capital expenditure on repairs and renovation of leasehold premises.5. Reversal of provision for obsolete stock.6. Disallowance under Section 14A.7. Provision for loss orders.8. Bad debts written off.9. Deduction under Section 80HHB.10. Club membership fees as business expenditure.11. R&D expenditure under Section 35(1)(iv).12. Expenses on packing materials, loose tools, and consumables.Detailed Analysis:1. Deduction under Section 80HHC:The assessee contested the exclusion of 90% of various incomes from business profits for deduction under Section 80HHC. The Tribunal upheld the CIT(A)’s decision that 90% of net interest income should be excluded, not gross interest. The Tribunal also upheld the CIT(A)'s decision not to exclude 90% of certain incomes like scrap sales, cash discount, excise duty, etc., from business profits. The Tribunal followed its previous decisions in similar cases, emphasizing that only net income after setting off related expenses should be considered.2. Allocation of head office expenses for deduction under Sections 80-I/80-IA:The assessee argued against allocating head office expenses to the profit of the industrial undertaking for deductions under Sections 80-I/80-IA. The Tribunal upheld the CIT(A)’s decision that such expenses should be allocated, following the principle that all expenses attributable to the business of the industrial undertaking must be considered.3. Deduction under Section 80-O:The assessee claimed deduction under Section 80-O for fees received for supplying engineering designs and drawings. The Tribunal, following its previous decision, rejected the claim, noting that the assessee failed to provide sufficient evidence that the designs were used outside India by a foreign enterprise.4. Capital expenditure on repairs and renovation of leasehold premises:The Tribunal upheld the CIT(A)’s decision that the expenditure on repairs and renovation of leasehold premises was capital in nature and therefore not deductible as revenue expenditure.5. Reversal of provision for obsolete stock:The Tribunal confirmed the CIT(A)’s decision to disallow the deduction for the reversal of provision for obsolete stock, noting that allowing the reversal would result in double relief, as the provision was already allowed in earlier years.6. Disallowance under Section 14A:The Tribunal deleted the disallowance made under Section 14A for expenses incurred to earn dividend income, noting that the assessee’s own funds were more than the investments yielding tax-free income, and thus the borrowed funds were not used for such investments.7. Provision for loss orders:The Tribunal remanded the issue back to the AO for fresh consideration, directing the AO to verify the basis on which the assessee claimed the provision for loss orders, following the principle that anticipated losses should be recognized as expenses if reliably estimated.8. Bad debts written off:The Tribunal remitted the issue back to the AO to ascertain whether the bad debts written off were offered to income in previous years and whether the amount was debited to the profit and loss account and reduced from the asset side of the balance sheet, following the Supreme Court’s guidelines.9. Deduction under Section 80HHB:The Tribunal upheld the CIT(A)’s decision to allow the deduction under Section 80HHB, noting that the assessee maintained separate accounts for each project and provided the necessary audit certificates.10. Club membership fees as business expenditure:The Tribunal upheld the CIT(A)’s decision to allow the deduction of club membership fees as business expenditure, following the Supreme Court’s decision that such fees are admissible business expenses.11. R&D expenditure under Section 35(1)(iv):The Tribunal upheld the CIT(A)’s decision to allow the deduction for capital expenditure on R&D activities, noting that the R&D division was approved by the Department of Scientific Industrial Research and the expenditure was properly documented.12. Expenses on packing materials, loose tools, and consumables:The Tribunal upheld the CIT(A)’s decision to allow the deduction for expenses on packing materials, loose tools, and consumables in the year of purchase, noting that the assessee consistently followed this method and it was accepted in the past by revenue authorities.Conclusion:The appeal by the assessee was partly allowed, while the appeal by the revenue was dismissed. The Tribunal's decisions were based on consistent application of legal principles and previous rulings, ensuring that the deductions and disallowances were in accordance with the law and supported by proper documentation and evidence.