2000 (3) TMI 167 - AT - Income Tax

Tribunal rules in favor of assessee on various deductions and disallowances under section 115J.

The Tribunal allowed the appeal in part. It held in favor of the assessee regarding the disallowance of premium on redemption of debentures, entertainment ... - Issues Involved:1. Disallowance of premium on redemption of debentures.2. Disallowance of entertainment expenditure.3. Disallowance of contribution to Indoxco Club under s. 40A(9).4. Deduction of amount transferred to debenture redemption reserve while computing 'book profit' u/s 115J.Summary:1. Disallowance of Premium on Redemption of Debentures:The assessee disputed the confirmation of disallowance by CIT(A) of Rs. 6,60,000 on account of premium on redemption of debentures. The Tribunal found that the issue was covered by the decision of the Supreme Court in Madras Industrial Investment Corpn. Ltd. vs. CIT and the Calcutta High Court in National Engineering Industries Ltd. vs. CIT. It was held that the extra premium should be spread over all the years between the date of issue and redemption, and the amount relevant to the accounting year is deductible u/s 37. The Tribunal reversed the order of CIT(A) and decided in favor of the assessee.2. Disallowance of Entertainment Expenditure:The assessee contested the disallowance of Rs. 5,000 under s. 37(2)(i) on account of entertainment expenditure. The Tribunal held that the minimum entertainment expenditure of Rs. 5,000 is allowable under s. 37(2)(i) irrespective of whether the computed income is a loss or profit. The Tribunal reversed the order of CIT(A) and decided in favor of the assessee.3. Disallowance of Contribution to Indoxco Club under s. 40A(9):The assessee challenged the disallowance of Rs. 4,57,000 representing contribution to Indoxco Club, etc. under s. 40A(9). The Tribunal observed that the contribution was a reimbursement of expenses for sports and recreational activities of employees, not for setting up or forming a fund, trust, company, etc. The Tribunal referred to the decision of the Tribunal in Dy. CIT vs. A.P.E. Belliss India Ltd., which supported the view that such expenses are not covered under s. 40A(9). The Tribunal deleted the disallowance and reversed the order of CIT(A).4. Deduction of Amount Transferred to Debenture Redemption Reserve while Computing 'Book Profit' u/s 115J:The assessee raised additional grounds regarding the deduction of Rs. 50,00,000 transferred to the debenture redemption reserve while computing 'book profit' u/s 115J. The Tribunal admitted the additional grounds, citing the Supreme Court's decision in National Thermal Power Co. Ltd. vs. CIT, which allows raising new grounds before the Tribunal if they involve a question of law based on existing facts. The Tribunal agreed with the assessee that the debenture redemption reserve is not a reserve within the meaning of cl. (b) or an unascertained liability within the meaning of cl. (c) of the Explanation to s. 115J. The Tribunal held that the amount transferred to the debenture redemption reserve should be allowed as a deduction while computing 'book profit' u/s 115J. The additional grounds were decided in favor of the assessee.Result:The appeal is allowed in part.