2003 (3) TMI 276 - AT - Income Tax

Tribunal Ruling: Deletions upheld, disallowances sustained, and additions reversed in tax appeal

DEPUTY COMMISSIONER OF INCOME TAX. Versus MOUNT SHIVALIK BREWERIES LTD.

The Tribunal upheld the deletion of additions made on account of closing stock, prepaid excise duty, and prepaid license fee, as well as the deletion of ... - Issues Involved:1. Deletion of addition made on account of closing stock.2. Deletion of addition made on account of prepaid excise duty.3. Deletion of addition made on account of prepaid licence fee.4. Deletion of disallowance made on account of entertainment expenses.5. Deletion of disallowance made on account of guest house expenses.6. Deletion of addition made under section 40A(3).7. Sustaining disallowance of employees' and employer's contribution towards provident fund under section 43B.Issue-wise Detailed Analysis:1. Deletion of addition made on account of closing stock:The Revenue challenged the deletion of Rs. 93,02,777 (Rs. 74,34,854 for AY 1995-96) made on account of closing stock. The AO made the addition due to the deferred excise duty liability forming part of the closing stock of finished goods. The CIT(A) deleted the addition based on previous orders. Both parties conceded that this issue was covered in favor of the assessee by the Tribunal's consolidated order dated 20th May 2002. The Tribunal confirmed that adding deferred excise duty to the closing stock without a corresponding debit in the P&L account was unjustified, thus upholding the CIT(A)'s deletion of the addition.2. Deletion of addition made on account of prepaid excise duty:The Revenue disputed the deletion of Rs. 5,51,096 (Rs. 4,34,854 for AY 1995-96) made by the AO on the grounds that prepaid excise duty was a liability of future years. The CIT(A) deleted the addition, relying on earlier orders. Both parties agreed that this issue was also decided in favor of the assessee by the Tribunal's previous consolidated order. The Tribunal upheld the CIT(A)'s deletion of the addition, referencing the Special 'B' Bench decision which allowed deduction on actual payment basis under section 43B.3. Deletion of addition made on account of prepaid licence fee:The Revenue contested the deletion of Rs. 19,11,900 (Rs. 19,07,075 for AY 1995-96) related to prepaid licence fee. The AO disallowed the deduction, claiming it related to future years. The CIT(A) deleted the addition, relying on prior appellate orders. Both parties acknowledged that this issue had been resolved in favor of the assessee in previous years. The Tribunal affirmed the CIT(A)'s deletion of the addition, following the earlier consolidated order.4. Deletion of disallowance made on account of entertainment expenses:The Revenue challenged the deletion of Rs. 1,75,655 (Rs. 1,46,583 for AY 1995-96) disallowed by the AO, who rejected the assessee's claim that 25% of entertainment expenses were for employees' food and beverages. The CIT(A) deleted the disallowance, referencing past orders. Both parties conceded that this issue was covered in favor of the assessee by previous Tribunal orders. The Tribunal upheld the CIT(A)'s deletion, citing consistent past rulings.5. Deletion of disallowance made on account of guest house expenses:The Revenue and the assessee disputed the disallowance of guest house expenses. The AO disallowed Rs. 2,55,784 (Rs. 2,59,672 for AY 1995-96) under section 37(4). The CIT(A) allowed part of the deduction under sections 30, 31, and 32 but upheld the disallowance of Rs. 2,31,855 for AY 1995-96. The Tribunal, referencing a Special Bench decision, ruled that sections 37(4) and 37(5) override general provisions, disallowing the expenses. Thus, the Tribunal restored the AO's orders and dismissed the assessee's appeal regarding sustained disallowance.6. Deletion of addition made under section 40A(3):The Revenue contested the deletion of Rs. 26,000 added under section 40A(3) for payments made in cash. The CIT(A) accepted the assessee's explanation that the payments were customary and covered by exceptional circumstances under rule 6DD(j). The Tribunal upheld the CIT(A)'s deletion, finding no legal or factual infirmity.7. Sustaining disallowance of employees' and employer's contribution towards provident fund under section 43B:The AO disallowed Rs. 1,36,747 for delayed payment of provident fund contributions. The CIT(A) upheld the disallowance. The Tribunal, referencing multiple Tribunal and High Court decisions, ruled that the small delay should be condoned, and the payment made within the accounting year should be allowed. Thus, the Tribunal set aside the CIT(A)'s order and allowed the assessee's appeal.Conclusion:Both the Revenue's and the assessee's appeals were partly allowed, with the Tribunal upholding certain deletions and disallowances while reversing others based on established precedents and legal interpretations.