Tribunal rules in favor of assessee on various expenses and depreciation rates.

The Tribunal partly allowed the assessee's appeal, dismissing the revenue's appeal. The matter was remanded back to the Assessing Officer for further examination regarding the addition under section 41(1) of the Income Tax Act. Disallowances on festival expenditure and legal/professional expenses were ruled in favor of the assessee, while a partial disallowance was upheld for vessel repair and maintenance. The deletion of the difference in depreciation rates was also supported. The Tribunal's decision was pronounced on 23/07/2019.

---

---

Issues Involved:
1. Addition under section 41(1) of the Income Tax Act, 1961.
2. Disallowance on account of festival expenditure.
3. Disallowance on account of legal and professional expenses.
4. Disallowance on account of vessel repair and maintenance under section 40(a)(ia).
5. Deletion of difference between depreciation as per Companies Act and Income Tax Act under section 115JB.

Issue-wise Detailed Analysis:

1. Addition under section 41(1) of the Income Tax Act, 1961:
The assessee contested the addition of Rs. 508,583 under section 41(1) for static creditors that were neither written off nor paid. The revenue argued that the liabilities ceased to exist, while the assessee maintained that the liabilities were acknowledged in the balance sheet and thus still existed. The Tribunal noted that the creditors were related to a contract with ONGCL, and the amounts would be payable only upon settlement of claims with ONGCL. Since the confirmations were not filed before the revenue authorities, the matter was remanded back to the Assessing Officer to examine the settlement and take a view in accordance with the law.

2. Disallowance on account of festival expenditure:
The AO disallowed 25% of the festival expenditure amounting to Rs. 6,78,200, citing that most expenses were in cash and not ascertainable as business expenses. The assessee argued that the expenses were justified by increased turnover and profits, and the books were audited with no discrepancies found. The Tribunal found that the disallowance was made without evidence and held that it could not be legally sustained, referencing judgments from the Apex Court and other legal precedents.

3. Disallowance on account of legal and professional expenses:
The revenue disallowed payments of Rs. 64,000 to R.N. Kalra and Rs. 75,000 to M.C. Panda due to non-deduction of TDS. The assessee argued that these individuals were arbitrators appointed by ONGCL and their services did not fall under the purview of section 194J for TDS deduction. The Tribunal, however, held that arbitration services are professional services, and TDS was required under section 194J. Thus, the disallowance by the revenue was upheld.

4. Disallowance on account of vessel repair and maintenance under section 40(a)(ia):
The assessee made payments for repair and maintenance without deducting TDS, arguing that some payments were for visa charges and others were related to services covered under section 44BB. The Tribunal accepted the argument regarding visa charges but held that other payments required TDS deduction. The disallowance was limited to 10% of the deemed profits of the recipient company, amounting to Rs. 295,287, in line with section 195, 44BB, and 40(a)(ia) of the Act and CBDT Circular 3/2015.

5. Deletion of difference between depreciation as per Companies Act and Income Tax Act under section 115JB:
The revenue contested the deletion of Rs. 4,06,94,480 on account of depreciation differences. The assessee argued that the depreciation rates used were consistent with those presented at the AGM and compliant with section 115JB. The Tribunal found that the depreciation claimed in the P&L account was correctly considered for determining book profit and referenced judgments from the Supreme Court and High Courts to support this. The addition by the AO was deleted.

Conclusion:
The appeal of the assessee was partly allowed, and the appeal of the revenue was dismissed. The Tribunal's order was pronounced in the open court on 23/07/2019.

---