Tribunal Partly Allows Appeal: Upholds Expense Deductions, Reverses on Leased Assets, Remits Investment Losses for Review.
Deputy Commissioner Of Income-Tax. Versus Finolex Cables Limited.
Deputy Commissioner Of Income-Tax. Versus Finolex Cables Limited. - TTJ 114, 785,
Issues Involved:1. Deletion of disallowance of expenses on gift articles.
2. Deletion of disallowance of club expenses.
3. Allowance of bad debts claimed by the assessee.
4. Allowance of loss on sale of investments.
5. Allowance of depreciation on vacant flats.
6. Allowance of depreciation on leased out assets.
7. Allowance of interest on loans taken for purchase of leased assets.
8. Relief in computation of deduction under Section 80-1.
Issue-wise Detailed Analysis:Ground No. 1: Deletion of Disallowance of Expenses on Gift ArticlesThe CIT(A) deleted the disallowance of Rs. 6,90,303, which represented expenses on gift articles without the company logo, deemed non-business expenses by the AO. The Tribunal found this issue covered in favor of the assessee by its own decision for asst. yr. 1990-91, where such expenditure was allowed in full, referencing the Bombay High Court decision in CIT v. Allana Sons Ltd. Therefore, the Tribunal rejected this ground.
Ground No. 2: Deletion of Disallowance of Club ExpensesThe CIT(A) deleted the disallowance of Rs. 7,050 made by the AO for club payments. The Tribunal noted that this issue was covered against the assessee by its own decision for asst. yr. 1991-92, where similar disallowance was upheld. Hence, the Tribunal allowed this ground.
Ground No. 3: Allowance of Bad Debts Claimed by the AssesseeThe CIT(A) allowed Rs. 6,48,429 as bad debts claimed by the assessee, which represented short supply of goods to MTNL, Delhi. The Tribunal upheld this, agreeing with the CIT(A) that the claim was allowable under Section 37 of the Act, and thus rejected this ground.
Ground No. 4: Allowance of Loss on Sale of InvestmentsThe CIT(A) directed to allow a loss of Rs. 45,05,000 on sale of investments. The AO had disallowed this, following his order for asst. yr. 1990-91. The Tribunal found that the CIT(A) passed a cryptic order and directed the matter to be restored to the CIT(A) for a speaking order after giving the assessee an opportunity to be heard. This ground was thus remitted back.
Ground No. 5: Allowance of Depreciation on Vacant FlatsThe CIT(A) allowed depreciation on flats of Rs. 6,73,080, which were either vacant or used for guest house purposes. The Tribunal upheld this, agreeing with the CIT(A) that depreciation was allowable on the entire block of assets, referencing the decision in the case of Packwell Printers. This ground was rejected.
Ground Nos. 6 and 7: Allowance of Depreciation and Interest on Leased Out AssetsThe CIT(A) allowed depreciation of Rs. 9,27,69,040 and interest of Rs. 1,74,92,387 on leased out assets. The AO had disallowed these, viewing the transactions as tax avoidance devices. The Tribunal found the transactions to be colorable devices aimed at reducing taxable income, referencing the Special Bench decision in Mid East Portfolio Management Ltd. v. Dy. CIT. The Tribunal reversed the CIT(A)'s order, restored the AO's order, and deleted the lease rent assessed on a protective basis. These grounds were allowed.
Ground No. 8: Relief in Computation of Deduction under Section 80-1The CIT(A) allowed relief of Rs. 82,78,125 in the computation of deduction under Section 80-1. The AO had restricted the claim under Section 80-1 to Rs. 5,84,33,253, reallocating expenses between the Pimpri and Urse units. The Tribunal found the CIT(A)'s approach inconsistent and arbitrary. It remitted the issue back to the CIT(A) to re-examine the allocation of expenses as per the Tribunal's directions in the assessee's own case for asst. yr. 1990-91. This ground was remitted back.
Conclusion:The Tribunal partly allowed the Department's appeal, remitting certain issues back to the CIT(A) for re-examination and upholding the AO's decisions on others.
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