1992 (3) TMI 109 - AT - Income Tax

Tribunal rules in favor of assessee in tax dispute, rejects tax department's attempt to tax notional income.

EWAC Alloys Limited. Versus Deputy Commissioner Of Income-Tax.

EWAC Alloys Limited. Versus Deputy Commissioner Of Income-Tax. - ITD 042, 218, Issues Involved:1. Addition of Rs. 196.63 lakhs in respect of sales to M/s. Larsen & Toubro Limited.2. Depreciation allowance on the building for documentation and training center.3. Deduction of interest paid to Gujarat Industrial Development Corporation.4. Nature of expenditure on repairs to gear type rolling shutter.5. Nature of expenditure on installation of logo.6. Nature of expenditure on laying compressed air pipeline.7. Expenditure incurred for increasing authorized capital.8. Society charges on flat given to employees as perquisite u/s 40A(5).9. Deduction of technical know-how fees.10. Computation of profits for deduction u/s 80-I.11. Deduction u/s 32AB.Summary:1. Addition of Rs. 196.63 lakhs in respect of sales to M/s. Larsen & Toubro Limited:The assessee challenged the addition of Rs. 196.63 lakhs made by the Deputy Commissioner of Income-tax, confirmed by the CIT(A), alleging diversion of profits to L&T. The tribunal found that the sole selling arrangement between the assessee and L&T was bona fide and approved by the Government of India u/s 294AA of the Companies Act. It was held that the Income-tax Department cannot tax notional income that was not earned and cannot rewrite the price at which the assessee sold its products. The tribunal deleted the addition of Rs. 196.63 lakhs.2. Depreciation allowance on the building for documentation and training center:The assessee claimed depreciation at 10% as applicable to factory buildings, but it was allowed only 5% by the revenue authorities. The tribunal upheld the lower rate, stating that the training center, although within the factory campus, was not part of the factory building and did not undergo similar wear and tear.3. Deduction of interest paid to Gujarat Industrial Development Corporation:The interest of Rs. 87,627 paid to GIDC was treated as capital expenditure on a new project by the revenue authorities. The tribunal upheld this treatment due to lack of evidence showing that the land was not purchased for a new project.4. Nature of expenditure on repairs to gear type rolling shutter:The tribunal held that the expenditure of Rs. 9,000 on replacing the motor in the gear type rolling shutter was of revenue nature, considering it part of current repairs, and allowed the deduction.5. Nature of expenditure on installation of logo:The tribunal allowed the expenditure of Rs. 38,000 on the installation of the logo as revenue expenditure, citing that it did not create or add any asset but facilitated the assessee's trading operations.6. Nature of expenditure on laying compressed air pipeline:The tribunal treated the expenditure of Rs. 23,990 on laying and installing a compressed air pipeline as revenue expenditure, in line with the decisions on current repairs.7. Expenditure incurred for increasing authorized capital:The tribunal directed the assessing officer to verify if the fees were paid in connection with the issue of bonus shares. If so, the expenditure should be treated as revenue expenditure; otherwise, as capital expenditure.8. Society charges on flat given to employees as perquisite u/s 40A(5):The tribunal upheld the CIT(A)'s decision that society charges on ownership flats given to employees are perquisites and should be considered for disallowance u/s 40A(5).9. Deduction of technical know-how fees:The tribunal agreed with the CIT(A) that the expenditure on technical know-how is specifically covered u/s 35AB and should be allowed as per the provisions of that section.10. Computation of profits for deduction u/s 80-I:The tribunal directed the assessing officer to verify if any interest was received by the assessee and to deduct only the net interest paid from the profits of the new industrial undertaking for computing deduction u/s 80-I.11. Deduction u/s 32AB:The tribunal upheld the CIT(A)'s directions on the deduction u/s 32AB, stating that the deduction should be computed as per the provisions and figures of depreciation u/s 32(1) and 35 deductions from book profits after adding back book depreciation.