2018 (8) TMI 848 - AT - Income Tax

Tribunal Decides on Expense Deductions, Emphasizes Consistency and Precedents

The Tribunal's judgment addressed various issues involving disallowance of expenses and deductions under different sections of the Act. The Tribunal ... Disallowance of pooja / function expenses - Held that:- this is a recurring dispute between the assessee and the Department from past several assessment years and the Tribunal has decided this issue in favour of the assessee in all the preceding assessment years. - Claim of expenditure allowed - Decided in favor of assessee. Deduction of exemptions paid towards consultancy charges for advise on civil construction - Held that:- This is a recurring dispute between the assessee and the Department for the past several years and the Tribunal has consistently decided the issue in favour of the assessee beginning from the assessment year 1995–96 to assessment year 2001–02. - Decided in favor of assessee. Valuation of stock - disallowance of un-utilized MODVAT credit under the provisions of section 145A of the Act - Held that:- MODVAT credit of Excise Duty is not includible as unutilized MODVAT credit on the last day of the accounting year - No additions - Decided in favor of assessee Nature of sales tax incentive received - the assessee itself has treated the Sales Tax incentive received by it as revenue in nature by including it in the sales as reflected in the books of account and audited financial statements. It is only at the second appellate stage before the Tribunal the assessee has claimed the Sales Tax incentives received by it as capital in nature by raising the additional grounds. - Held that:- the additional grounds raised by the assessee have to be admitted. Accordingly, we do so. However, it is a fact on record, the issues raised in the additional grounds were never raised by the assessee in course of proceedings before the Departmental Authorities. - Matter remanded back to the AO for reconsideration of the issue. Nature of expenses incurred for issue of foreign currency bonds - assessee has claimed deduction under section 35D - Held that:- It is a fact on record that the assessee is claiming deduction under section 35D of the Act @ 1/5th of the total expenditure incurred. Therefore, when a part of the expenditure has been accepted by the Department in assessment year 2001–02, it cannot be disallowed in the impugned assessment year. Issues Involved:1. Disallowance of pooja/function expenses.2. Disallowance of consultancy charges.3. Disallowance of service charges.4. Disallowance of employee stock option (ESOP) expenses.5. Disallowance under section 14A of the Act.6. Classification of interest income and truck hire charges.7. Disallowance of proportionate deduction on premium on leasehold land.8. Disallowance of unutilized MODVAT credit under section 145A of the Act.9. Exclusion of deduction under section 80HHC while computing book profit under section 115JB of the Act.10. Non-exclusion of profit on sale of investment while computing book profit under section 115JB of the Act.11. Treatment of sales tax incentives/subsidy as capital receipt.12. Deletion of disallowance of community welfare expenses.13. Deletion of disallowance of temple expenses.14. Deletion of addition made on account of prior period expenses.15. Deletion of disallowance of mines prospecting charges.16. Deletion of addition made on account of foreign exchange loss.17. Deletion of disallowance of expenses claimed on power line and marine structures.18. Deletion of addition on account of Gujarat Earthquake Relief expenses.19. Inclusion of sales tax and excise duty in the total turnover for the purpose of deduction under section 80HHC.20. Adjustment in the opening stock under section 145A.21. Disallowance of expenses incurred for issue of foreign currency bonds.22. Disallowance of write-off of investment in debentures.23. Computation of deduction under section 80HHC after reducing the deduction under section 80IB.Detailed Analysis:1. Disallowance of Pooja/Function Expenses:The Tribunal noted that this issue has been a recurring dispute and has consistently been decided in favor of the assessee in previous years. Respecting the principle of consistency, the Tribunal allowed the expenditure claimed by the assessee.2. Disallowance of Consultancy Charges:Similar to the pooja expenses, the Tribunal found that the consultancy charges have been allowed in previous years. The Tribunal followed the earlier decisions and allowed the deduction claimed.3. Disallowance of Service Charges:The Tribunal observed that this issue has also been consistently decided in favor of the assessee in previous years. Following the precedent, the Tribunal allowed the service charges claimed.4. Disallowance of Employee Stock Option (ESOP) Expenses:The Tribunal referred to its earlier decisions where the ESOP expenses were allowed. Respecting the consistent view, the Tribunal allowed the ESOP expenses claimed by the assessee.5. Disallowance under Section 14A of the Act:The Tribunal upheld the disallowance of Rs. 2,00,000 under section 14A, considering it fair and reasonable given the quantum of dividend income earned by the assessee.6. Classification of Interest Income and Truck Hire Charges:The Tribunal restored the issue to the Assessing Officer for fresh adjudication, following the directions given in earlier years.7. Disallowance of Proportionate Deduction on Premium on Leasehold Land:Following the Special Bench decision in JCIT v/s Mukund Limited, the Tribunal upheld the disallowance, treating the lease premium as capital expenditure.8. Disallowance of Unutilized MODVAT Credit under Section 145A of the Act:The Tribunal deleted the addition made on account of unutilized MODVAT credit, following its earlier decisions where such credit was not includible in the closing stock.9. Exclusion of Deduction under Section 80HHC while Computing Book Profit under Section 115JB of the Act:The Tribunal allowed the assessee’s claim, following its earlier decisions and the Hon'ble Supreme Court's decision in CIT v/s Bhari Information Technologies Systems Pvt. Ltd.10. Non-exclusion of Profit on Sale of Investment while Computing Book Profit under Section 115JB of the Act:The Tribunal dismissed the ground, following its earlier decisions where such profit was not excluded from the book profit computation.11. Treatment of Sales Tax Incentives/Subsidy as Capital Receipt:The Tribunal admitted the additional grounds raised by the assessee and restored the issue to the Assessing Officer for fresh adjudication, considering the relevant Sales Tax incentive schemes and judicial precedents.12. Deletion of Disallowance of Community Welfare Expenses:The Tribunal upheld the deletion, following its earlier decisions where such expenses were allowed as business expenditure.13. Deletion of Disallowance of Temple Expenses:The Tribunal upheld the deletion, following its earlier decisions where similar disallowances were deleted.14. Deletion of Addition Made on Account of Prior Period Expenses:The Tribunal upheld the deletion, noting that the expenses crystallized during the assessment year and the factual findings of the learned Commissioner (Appeals) were not controverted.15. Deletion of Disallowance of Mines Prospecting Charges:The Tribunal upheld the deletion, following its earlier decisions where such expenses were treated as revenue expenditure.16. Deletion of Addition Made on Account of Foreign Exchange Loss:The Tribunal upheld the deletion, noting that the assessee consistently followed an accounting method where both gains and losses from foreign exchange fluctuations were accounted for.17. Deletion of Disallowance of Expenses Claimed on Power Line and Marine Structures:The Tribunal upheld the deletion, following the Hon'ble Gujarat High Court's decision in Gujarat Mineral Devp. Corp., which was affirmed by the Hon'ble Supreme Court.18. Deletion of Addition on Account of Gujarat Earthquake Relief Expenses:The Tribunal upheld the deletion, treating the expenses as community welfare expenses.19. Inclusion of Sales Tax and Excise Duty in the Total Turnover for the Purpose of Deduction under Section 80HHC:The Tribunal upheld the exclusion of sales tax and excise duty from the total turnover, following the Hon'ble Supreme Court's decision in CIT v/s Lakshmi Machine Works.20. Adjustment in the Opening Stock under Section 145A:The Tribunal upheld the direction to make corresponding adjustments in the opening stock, following its earlier decisions.21. Disallowance of Expenses Incurred for Issue of Foreign Currency Bonds:The Tribunal upheld the decision of the learned Commissioner (Appeals) that the expenditure is allowable under section 35D, but the deduction can be claimed only from the year of commercial production.22. Disallowance of Write-off of Investment in Debentures:The Tribunal restored the issue to the Assessing Officer for fresh adjudication, noting that the object clause of the memorandum of association and the nature of the investment need to be examined.23. Computation of Deduction under Section 80HHC after Reducing the Deduction under Section 80IB:The Tribunal directed the Assessing Officer to compute the deduction under section 80HHC by applying the ratio laid down by the Hon'ble Jurisdictional High Court in Associated Capsules Pvt. Ltd., ensuring that the aggregate deduction does not exceed the profits of the business.Conclusion:The Tribunal's judgment addressed multiple recurring issues between the assessee and the Department, often following precedents set in earlier years. The Tribunal consistently upheld principles of consistency, judicial precedents, and fair adjudication, restoring certain issues to the Assessing Officer for fresh consideration. The judgment reflects a thorough application of legal principles and precedents to ensure fair and consistent treatment of the issues involved.