2003 (6) TMI 189 - AT - Income Tax

Tribunal upholds CIT(A) decisions, disallows Section 43B claim, guest-house expenses, allows debenture premium proportionately.

The Tribunal upheld most of the CIT(A)'s decisions, except for the disallowance of the claim under Section 43B and guest-house expenses, which were ruled ... Business disallowance - Certain deductions to be allowed only on actual payment Issues Involved:1. Addition under Rule 6D of the IT Rules.2. Deduction under Section 43B of the IT Act for sales-tax deferral.3. Disallowance of premium payable on redemption of non-convertible debentures.4. Disallowance of rent and repairs of guest-house under Sections 37(4) and 37(5) of the IT Act.5. Disallowance of hospitality expenses.6. Depreciation on assets of household use given to employees.Issue 1: Addition under Rule 6D of the IT RulesThe assessee challenged the addition of Rs. 4,135 under Rule 6D. The AO noticed excess traveling expenses and asked for details as per each journey, not aggregate. The assessee contended the aggregate basis was correct, citing Tribunal orders. The AO, relying on the Andhra Pradesh High Court judgment in CIT vs. Coramandel Fertilisers Ltd., added Rs. 4,135. The CIT(A) upheld this, following the same High Court judgment. The Tribunal found the issue covered by the Andhra Pradesh High Court judgment, thus confirming the CIT(A)'s order.Issue 2: Deduction under Section 43B of the IT Act for Sales-Tax DeferralThe assessee claimed a deduction of Rs. 3,65,15,643 under Section 43B for sales-tax deferral granted by the Maharashtra Government. The AO disallowed it, stating the provisions applied only to new industries, not old ones like the assessee. The CIT(A) upheld the disallowance, noting the sales-tax was not converted into a loan liability. The Tribunal examined the BIFR order and the relevant provisions, concluding that without fulfilling the conditions and obtaining an eligibility certificate, the assessee couldn't claim the benefit under Section 43B. The Tribunal upheld the CIT(A)'s decision.Issue 3: Disallowance of Premium Payable on Redemption of Non-Convertible DebenturesThe assessee claimed Rs. 8,57,143 as premium on redemption of debentures. The AO disallowed it, stating the liability arises only in the year of redemption. The CIT(A) upheld this, considering it a contingent liability. The Tribunal, referencing the Supreme Court judgment in Madras Industrial Investment Corpn. Ltd. vs. CIT, held that the premium should be spread over the period of debentures. The Tribunal directed the AO to allow the claim proportionately.Issue 4: Disallowance of Rent and Repairs of Guest-House under Sections 37(4) and 37(5) of the IT ActThe Revenue appealed against the CIT(A)'s deletion of disallowance of Rs. 1,36,680 and Rs. 87,015 for guest-house rent and repairs. The Tribunal noted the issue was covered by the Special Bench judgment in Eicher Tractors Ltd. vs. Dy. CIT, which was against the assessee. The Tribunal decided this issue against the assessee.Issue 5: Disallowance of Hospitality ExpensesThe AO made an ad hoc disallowance of Rs. 1 lakh from hospitality expenses. The CIT(A) deleted this, following the Tribunal's judgment in Jay Engineering Works Ltd. The Tribunal, finding no merit in the Revenue's contention, upheld the CIT(A)'s order.Issue 6: Depreciation on Assets of Household Use Given to EmployeesThe Revenue challenged the CIT(A)'s direction to allow depreciation on household assets given to employees. The Tribunal noted the issue was covered by its order in Dy. CIT vs. Eicher Tractors Ltd., where it directed the AO to allow such depreciation. The Tribunal decided this issue against the Revenue.Conclusion:The Tribunal upheld the CIT(A)'s decisions on most issues, except for the claim under Section 43B and the guest-house expenses, which were decided against the assessee. The premium on redemption of debentures was to be allowed proportionately over the period of debentures. Both appeals were partly allowed.