Tribunal Partially Allows Appeal: Staff Welfare Denied, Excise Duty Out of Turnover, Car/Phone Disallowances Deleted.

The Tribunal's decision resulted in a partial allowance of the appeal. It upheld the disallowance of staff welfare expenses for the year in question, permitting deduction only upon actual land transfer. It directed the exclusion of excise duty and sales tax from 'total turnover' for computing deduction u/s 80HHC and ordered the deletion of disallowances concerning motor car expenses and personal use of phone by directors, aligning with the precedent that a company, as an artificial person, cannot incur personal expenses.

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Issues Involved:
1. Disallowance of staff welfare expenses as capital expenses.
2. Inclusion of excise duty and sales tax in 'total turnover' for computing deduction u/s 80HHC.
3. Disallowance of motor car expenses and personal use of phone by directors.

Summary:

1. Disallowance of Staff Welfare Expenses as Capital Expenses:
The assessee contested the CIT(A)'s confirmation of disallowance of Rs. 4,00,500 on account of staff welfare expenses, treating them as capital expenses. The expenses were incurred for purchasing land to be given to workers as per a union settlement. The Assessing Officer (AO) and CIT(A) held that the land remained a capital asset of the company until transferred to the workers, thus disallowing the expenditure as revenue deduction. The Tribunal concluded that while the expenditure is justified on grounds of commercial expediency and does not constitute a capital expenditure, the deduction is allowable only in the year the land is actually transferred to the workers. The Tribunal upheld the disallowance for the year in question but noted that the assessee could approach the AO or CIT for relief in the appropriate year.

2. Inclusion of Excise Duty and Sales Tax in 'Total Turnover' for Computing Deduction u/s 80HHC:
The assessee challenged the inclusion of excise duty and sales tax in the 'total turnover' for the purpose of computing deduction u/s 80HHC. The Tribunal found that this issue was covered in favor of the assessee by the jurisdictional High Court's decision in CIT v. Sudarshan Chemical Industries Ltd. [2000] 245 ITR 769. Consequently, the Tribunal directed the AO to exclude excise duty and sales tax from 'total turnover' for computing the deduction.

3. Disallowance of Motor Car Expenses and Personal Use of Phone by Directors:
The assessee contested the disallowance of 1/10th of motor car expenses and Rs. 15,000 for personal use of phone by directors. The Tribunal, following the precedent set by the Gujarat High Court in Sayaji Iron & Engg. Co. v. CIT [2002] 253 ITR 749, held that there cannot be any personal expenses for a company, as it is an artificial person. The Tribunal directed the AO to delete these disallowances.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the disallowance of staff welfare expenses for the year in question but allowed the exclusion of excise duty and sales tax from 'total turnover' and directed the deletion of disallowances related to motor car expenses and personal use of phone by directors.

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