TaxTMI 
TaxTMI 
2010 (11) TMI 1147
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....onnected to tour should not be included while computing the disallowance under prescribed rules. 3. In course of assessment proceedings, the Assessing Officer called upon the assessee to furnish full and complete details regarding travelling expenses. Under sub-section 3 to section 37 of the Act as it existed up to A.Y. 1997-98, any expenditure incurred by an assessee in connection with traveling by an employee or any other person including hotel expenses or allowance paid in connection with such traveling, shall be allowed as a deduction in computing total income only to the extent and subject to such condition, if any, as may be prescribed. Rule 6D of the Income Tax Rules imposed restriction on traveling expenses, inside India and outside the headquarters claimed as deduction is limited to travelling expenses actually incurred and daily allowance not existing a specified limit and depending upon whether the boarding or lodging facilities are available to the employees or to the other persons. In view of the aforesaid provisions, assessee had on its own submitted that a sum of Rs. 23,36,220/- is liable to be disallowed and the said sum was offered for taxation in the asses....
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....e & Somappa Ltd. Vs. CIT reported in 190 ITR 152 cannot be made applicable in the case of the appellant on account of distinguishing facts as pointed out by learned A/R of the appellant. The case of the appellant in may view gets full support by the following judicial pronouncements relied upon by the appellant : CIT Vs. Gannon Dunkerly & Co. reported in 69 Taxman 563 (Bom) CIT Vs. Vidyut Metallics Ltd. reported in 203 ITR 779 (Cal) Decision of Special Bench of the Madras ITAT in the case of Sundaram Finance Ltd. Vs. IAC reported in 7 ITD 845. The additional disallowance of Rs. 16,63,780/- has been made by the DC(IT) without pointing out a single inadmissible item on presumption on adhoc basis. The addition disallowance of Rs. 16,63,780/- made by the DC(IT) is therefore deleted being unjust." 5. Aggrieved by the aforesaid order of learned CIT(A), the revenue has raised Ground No. 1 before the Tribunal. 6. Before us, learned DR relied on the decision of Hon'ble Bombay High Court in the case of CIT Vs. Aorow India Ltd., 229 ITR 325, wherein Hon'ble Bombay High Court has held that ceiling of expenditure by an employee on traveling as laid....
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....uding all forms of indirect taxes. The Assessing Officer, however, was of the view that this was not a proper method and he therefore made the aforesaid addition. 12. On appeal by the assessee, learned CIT (A) deleted the addition made by the Assessing Officer accepting assessee's contention that method of accounting followed by the assessee to debit purchase of raw materials net of excise duty and therefore closing stock was also to be required to be valued at cost net of excise duty. The Assessee also pointed out that if excise duty is added to the purchase as well as closing stock, effect on profit will be nil. The decision of Calcutta High Court in the case of Berger Paints India Ltd. Vs. CIT, 44 ITR 573 was also relied upon by the assessee. Accepting the contentions raised by the assessee, the learned CIT (A) deleted the addition made by the Assessing Officer. 13. Before us, it is not in dispute that the issue raised by the revenue in Ground No. 3 has to be dismissed in view of the decision of Hon'ble Supreme Court in the case of Indo Nippon Chemical Co. Ltd., 261 ITR 275 (SC). In the aforesaid decision, Hon'ble Supreme Court has held that whether the net me....
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....Going by the nature of expenses incurred by the assessee as explained before learned CIT(A), there was no justification to treat expenses as capital expenditure. Moreover, adhoc disallowance cannot be made in a case of this nature. In these circumstances, we are satisfied that the action of learned CIT (A) in deleting the addition made by the Assessing Officer was correct and calls for no interference. 18. Ground No. 5(a) raised by the revenue reads as follows :- On the facts and circumstances of the case and in law, learned CIT (A) erred in deleting the disallowance of Rs. 25,00,000/- out of an amount of Rs. 3,91,82,174/- attributable to the expenditure claimed for buying time on Television for releasing the advertisement films etc. disregarding the fact that assessee had not submitted the details before the Assessing Officer. This ground can be conveniently decided along with ground No. 9 of assessee's appeal which reads as follows :- 9(1) Learned CIT (A) erred in confirming the disallowance of Rs. 85,47,046/- being the expenditure incurred on promotion films, slides and TV films production by treating it as a capital expenditure o....
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....ertising purpose was capital expenditure. 20. The learned CIT (A) confirmed the order of the Assessing Officer on this issue. Against this disallowance assessee has raised Ground No. 9 before the Tribunal. 21. Apart from the above, the assessee also incurred a sum of Rs. 25,00,000/- for getting time slot and to release advertisements in various media. This was disallowed by the Assessing Officer because in his opinion the expenditure was capital expenditure and not revenue expenditure. The learned CIT(A), however, allowed the claim of the assessee for deduction holding that the expenditure was revenue expenditure. Against the order of learned CIT(A), the revenue has raised Ground 5(a). 22. We have heard the rival submissions. In assessee's own case, this issue had come up for consideration in A.Y. 1996-97. The Tribunal in ITA No. 2189/Mum/03 for A.Y. 1996-97 held that the aforesaid expenditure was revenue expenditure and had to be allowed as a deduction. The Tribunal also took into consideration the decision of Hon'ble Bombay High Court in the case of Patel International Films Ltd. (supra) referred to by the Assessing Officer in the assessment order in t....
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....a sum of Rs. 7,74,175 in respect of gift articles under the head 'advertisement and publicity expenses' and the Assessing Officer had made adhoc disallowance of Rs.. 5,00,000/- out of the aforesaid expenses. The learned CIT (A) therefore thought it fit to examine the aforesaid adhoc disallowance of Rs.. 5,00,000/-. The learned CIT (A) dealt with the issue of disallowance of Rs.. 5,00,000/- at paragraph 44 of his order. In paragraph 44, learned CIT (A) held that the disallowance of Rs.. 5,00,000/- also included disallowance of Rs. 1,43,498/- made on account of invocation of Rule 6B of the I.T. Rules. The learned CIT (A) restricted the adhoc disallowance of Rs.. 5,00,000/- made by the Assessing Officer to Rs.. 1,62,598/-. Since, disallowance of Rs. 1,43,498/- is already included in the amount of Rs.. 1,62,598/- sustained by learned CIT(A), this addition was deleted by learned CIT(A). It may be mentioned here that in Ground No. 3(b) of the assessee's appeal, the assessee has challenged the action of learned CIT (A) in sustaining the disallowance of Rs.. 1,62,598/- included 'advertisement and publicity expenses'. In our view, grievance projected by the revenue in th....
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.... received in respect of which deduction has been claimed u/s. 80M are as under :- CIBATUAL Final Dividend 1989-90 Rs.. 6,60,000/- CIBATUAL Interim Dividend Rs.. 3,85,000/- CIBATUAL dividend 1989-90 on 10 equity shares of Rs.. 10/- each Rs.. 25/- Unit Trust of India 1964 Scheme 45,19,000 units @ Rs.. 1.60 per unit Rs..81,34,200/- Rs..91,79,225/- 30. The Assessee submitted that shares of Cibatual Limited are old holdings and there was no interest charge on the same. It was also submitted that no administrative or management expenses were incurred on receiving the said dividend. It was pointed out that except 9,00,000 units all the other units were purchased during the earlier assessment years. The 9,00,000 units which were purchased during the A.Y. under reference were purchased out of accumulated sales proceeds and not out of alleged borrowings. Thus, there was no justification for estimating any expenditure in the nature of interest on alleged borrowed funds. The assessee also furnished copy of bank statement as per Annexure 23 to show that the units were not purchased out of borrowed funds. The Assessee contended that units of U....
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....have heard the rival submissions. A perusal of the orders of the authorities shows that the disallowance has been made purely on adhoc basis. It has been held by Hon'ble Bombay High Court in the case of CIT Vs. General Insurance Corporation of India, 254 ITR 203 (Bom) that only expenses that are directly relatable to earning of dividend have to be reduced for the purpose of computing deduction u/s. 80M of the Act. As already stated there has been no identification of expenses directly relatable to earning of dividend. The disallowance on the basis of estimate cannot be sustained. We therefore direct that the deduction u/s. 80M as claimed by the assessee be allowed. Ground No. 10 of the assessee's appeal is accordingly allowed while Ground No. 6 raised by the revenue is dismissed. 34. Ground No. 7 raised by the revenue reads as follows :- On the facts and circumstances of the case and in law, learned CIT (A) erred in holding that speculation loss on sale of units amounting to Rs.. 14,62,500/- assessed under Explanation to section 73 of the I.T. Act should be allowed as short term capital loss which is contrary to the provision of section 32 read with s....
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....d. It was further submitted that the unit holder is a mere investor and is not a shareholder of the UTI and this position in law further substantiated by the amendment to the proviso to section 2(42A) of the I.T. Act, 1961 vide Finance Act, 1964 which clearly brings out the fact that units of UTI are not shares. The Assessee submitted that in view of the above facts and the decision of the ITAT in the case of Appollo tyres Ltd. (supra), the Assessing Officer was not justified in applying provisions of explanation to section 73 in the case of the assessee by holding that units of UTI were shares. It was prayed that the Assessing Officer should therefore be directed to allow the loss of Rs.. 14,62,500/- as claimed by the assessee. 36. The learned CIT (A) held that 9,00,000 units of UTI were purchased on 28.5.1990 as evidenced by the purchase contract from Citibank. The payment of stamp duty has also been confirmed by the bank. Full payment for purchase of these units was made and the assessee had also taken physical delivery thereof. These units were also sent for transfer to UTI on 29.5.1990. The units were transferred in the name of Hindustan Ciba Geiygy Ltd., which is eviden....
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....nies. The CIT (A) therefore held that the Assessing Officer was not justified in applying explanation to section 73 of the I.T. Act. Accordingly the loss was directed to be treated as a business loss. 37. Before us, it is not in dispute that this issue has now been decided by the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT, 255 ITR 273. The Hon'ble Supreme Court held that 'even though section 32(3) of the UTI Act, 1963 creates a fiction to make the UTI a deemed company and distribution of income received by the unit holder a deemed dividend for the purposes of the I.T. Act, by virtue of those provisions it cannot be said that section also makes the unit of the UTI a deemed share. The deeming provision in section 32(3) should be confirmed only to deeming the UTI a company and the income from units a dividend. In the absence of any specific deeming provision in regard to the units as shares it would be erroneous to extend the provisions of section 32(3) for the purpose of holding the unit shares. It was accordingly held that buying and selling of units by the assessee company could not be treated as a speculative business. The Explanation to ....
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....of the above, the appellants submit that the disallowance made by the DCI on this account be deleted." 42. The details of the expenses incurred at the transit house at goregoan and Goa are as follows: Particulars Goregaon (Rs.) Goa (Rs.) Electricity, Fuel, Water, etc. 25,000 20,130 Other expenses 814 0 Salaries 12,906 0 Total 38,720 20,130 Total Expenditure on transit House ( 38,720 + 20,130) 58,850 Less: Amounts recovered from the users of the Transit House 47,838 11,012 Other expenses incurred contended not to be disallowable u/s 37(4) Rent/Lease Expenses 3,468 0 Insurance 2,193 317 Canteen Supply materials 3,244 147,512 Repairs 1,293 2,401 Service Charges/documentation charges 5,133 0 Depreciation as per I T Rules 10,803 19,630 26,134 169,860 Total 64,854 189,990 43. The whole of the above expenses were disallowed by the revenue authorities on the ground that they were expenses in connection with maintenance of guest house and therefore hit by the prohibition contained....
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....en incurred to maintain the guesthouse, though its allowability can be examined in the light of provisions of sec.37(2) of the Act. We are, therefore, of the view that the disallowance made by the Revenue authorities are not proper. We, however, restore this issue to the file of the AO to examine in the light of provisions of sec. 37(2) of the I T Act and if the assessee succeeds in proving that these expenses on food and beverages on its employees were incurred at the work place, it may be allowed as per Explanation 2 of sec. 37(2) of I T Act." From the above, it may be seen that the Tribunal held that expenditure on food and beverages in respect of staff employed for maintenance of guesthouse will be in the nature of expenditure on maintenance of guesthouse and will be hit by sec. 37(4) of the Act. However, the expenditure on inhabitants will not be covered under the expenditure for maintenance of guesthouse even though the same can be considered u/s 37(2) or u/s 37(2A). This issue is, therefore, resorted back to the Assessing Officer to be considered and decided in the light of the observations made by the Tribunal, which have been reproduced above. We are of the vie....
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.... and publicity expenses. In this connection, the appellants submit as under: 1. Rs. 1,62,598/- represents the total expenditure on gift articles which cost more than Rs. 200/- each. Out of this, only one item amounting to Rs. 2,740/- bear the company's logo. The disallowance on this item amounting to Rs. 2,540/- has been made by the appellants themselves. 2. The balance of Rs. 1,59,858/- represents items not bearing the company's logo and hence do not result in any advertising/entertainment. 3. Without prejudice to the above, out of Rs. 1,59,858/- Rs. 19,200/- being the amount allowable per Rules 6B ought to be allowed. The appellants submit that the DCI be given suitable directions in this matter. C. The CIT (A) erred in confirming the disallowance made by the DCI of Rs. 87,000/- being the subscription paid to the cricket club of India for corporate membership on the ground that it is an expenditure on entertainment. The appellants submit that the subscription has been made to maintain, establish, develop and strengthen business contacts, connections etc., with a view to increasing the volume of business. There is no e....
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....order constituted of the following items: i) Business Meeting - employees Rs.1,08,647/- ii) Business Meeting expenses Rs. 2,26,531/- iii) Conference expenses Rs. 4,29,745/- iv) Business meeting - Business Associates -disallowed as Entertainment expenses in ROI by the appellants Rs. 1,67,633/ v) Business Meeting - disallowed u//r 6D in the ROI by the appellants. Rs. 27,240/- vi) Conference expenses - disallowed u/r 6D in the ROI by the appellants Rs.3,44,608/- ---------------- Rs.13,04,404/- =========== 47.1 The Assessee contended that the items appearing at Sr.No.4, 5 & 6 aggregating to Rs..5,39,341/- have already been offered by the appellant as entertainment expenditure in the computation of income. Thus, by making ad-hoc disallowance of Rs. 10,00,000/- the Assessing Officer has made an effective disallowances of Rs. 15,39,841/- whereas the total expenditure under this head was Rs. 13,04,404/- only. The Assessee submitted that this action by itself would show that the entire addition has been made in a most arbitrary and casual manner wit....
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.... the subsequent asst. year full details of these expenses were also specifically called for by the DC(IT) and these were furnished by the assessee to the satisfaction of the DC(IT). Even in the earlier asst. Year the Assessing Officer has allowed the entire expenditure as admissible revenue deduction. 47.3 As regards disallowance of Rs..87,000/- paid to cricket club of India -Corporate Membership, the Assessee contended that the amount paid to cricket club of India is not entertainment expenditure as held in the following cases: i) ITAT decision in CIT vs Maker Development Services Ltd 25 BCAJ 1230 ii) ITAT decision in the case of American Bureau of Shipping (AY 91-82, 82-93 and 83-84) The AR argued that in view of above fact and circumstances of the case and judicial pronouncements involved in favour of the assessee the entire addition of Rs..15,87,000/- made by the Assessing Officer deserves to be deleted. 48. The CIT (A) held as follows: "42 I have considered the entire matter carefully. There is some force in the plea of the ld counsel of the appellant that by making an adhoc disallowance of Rs. 10,00,000/- out of total sales, conference and ....
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....The above disallowance was confirmed by the CIT (A) vide order dated 11.11.1994 in the case of the appellant. After examining the relevant facts and circumstances of the case in the subsequent year also the DC(IT) has made disallowance of Rs. 4,64,252/- as entertainment expenditure which works out to about 5% of the total canteen expenditure. The facts and circumstances for the assessment year under reference are also the same. The AR was therefore given a specific opportunity to show as to why part of canteen expenditure should not be considered for disallowance as entertainment expenditure as the appellant has not maintained any separate account for offering tea, coffee and pleasantries to the outsiders who visit office. It was also made clear to the ld counsel of the appellant that the Assessing Officer has not separately quantified any specific amount in this connection by the relevant observations have been made in the assessment order while making the impugned disallowance. In this connection, it was argued by the AR that the expenditure on tea and refreshments served to constituents of the business cannot be treated as entertainment expenditure. The disallowance made in this....
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....lant company on gift articles. The total of gift items costing more than Rs. 200/- each has been given by the appellant at Rs. 1,62,598/-. In my opinion, in view of the decision of the Hon'ble Himachal Pradesh High Court in the case of CIT vs Mohan Meaking Breweries Ltd reported in 192 ITR 134, the presentation items costing more than Rs. 200/- each aggregating to Rs. 1,62,598/ come within the ambit of entertainment expenditure. In this connection, it is relevant to note that the gift items included gold chain etc., worth Rs. 1,18,318/. These gifts were given to customers and business associates for which specific details have not been furnished. Considering these facts and circumstances of the case, it would be reasonable if the disallowance out of advertisement and promotional expenditure is restricted to Rs. 1,62,598/- as against Rs. 5,00,000/- made by the Assessing Officer. The excess thereof stands deleted. The above referred disallowances of Rs. Rs. 1,62,598/- is obviously inclusive of disallowance of Rs. 1,43,498/-. Thus, there is no need of making separate addition of Rs. 1,43,498/-. The disallowance of Rs. 1,43,498/- which has been agitated by the appellant in ground no.3 ....
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....s laid down in the following decisions on which reliance was placed by the learned counsel for the Assessee. Lakhanpal National Ltd. Vs. ITO 69 ITD 9 (ahd.) (SB) Associate Marketing Agencies Vs. ITO 43 ITD 543 (Mad) Sharada Plywood Industries Ltd. Vs. CIT 238 ITR 354 (Cal) CIT Vs. Kirloskar Oil Engines Ltd. 157 ITR 762 (Bom) The tribunal has considered all these decisions in the case of Cadbury India Ltd. Vs. DCIT ITA No. 9910/Mum/92 order dated 18-10-2001 and has held that expenditure on conference and meetings cannot be disallowed as they are for the purposes of business and there is no element of entertainment to any outsider. In view of the aforesaid decisions, the disallowance sustained, in so far as it relates to expenditure on conference and business meeting is deleted. 52. As far as canteen expenses disallowed as entertainment expenditure is concerned, the same has been made by the CIT (A) for the reason that the Assessee has not maintained complete records regarding the expenditure incurred under this head to employees and outsiders and has also taken note of the past history of the Assessee's case. We are of the view that an ....
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....ds, forecasts, exports, general management training (CEMTRAK), technical discussions, conferences, expansion of the company's existing lines of business, marketing strategies, management development issues (HRD) etc. The appellants submit that the expenses had been incurred wholly and exclusively for the purposes of their business and therefore ought to b allowed. The appellants pray that the DCI be directed to allow hem this amount of Rs. Rs. 12,87,799/-. (b) Without prejudice to the above, the appellants submit that the disallowance of 20% of total foreign travel expenses is excessive and unreasonable. As per the appellants calculations, the total amount spent on all the travel identified by the DCI in Annexure 1 of his order works out to Rs. 7,43,829/- and therefore pray that the disallowance on this account should not exceed 20% of Rs. 7,43,829/- i.e. Rs. 1,48,766/- under any circumstances. (c) Without prejudice to the above, the appellants submit that full details of foreign travel expenses had been furnished to the DCI and the CIT (A) and disallowance if any, should be made on itemized basis and not on ad-hoc basis. The appellants pray that the DCI ....
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....A) that full details of expenses incurred on foreign travel have been furnished vide Annexure 28 to the return of income. The assessee also submitted copies of letters and supporting submitted to the RBI seeking its approval and also approval received from the RBI in connection with all the foreign travel vide their letter dated 18.3.1994 together with Annexure. The assessee also submitted the objective of the various foreign travel undertaken which costed the company a sum of Rs. 7,43,829/-. The Assessee pointed out that the purpose of these visit have been enumerated on page 3 of the Annexure I to the DC(IT)'s order. A perusal of these details would reveal that all the visits were entirely in connection with the purpose of the company's business and were not in connection with the purchase of plant and machinery or development of a new line of business and were not for the benefit of the parent company of the foreign shareholders and further that the entire duration was devoted to travelling or on company's business. It was pointed that on a perusal of the details furnished in respect of foreign travel submitted it can be seen that no travel was undertaken for vision 2000. The Vi....
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.... H A Monteiro which costed the appellant company a sum of Rs. 76,055/- was undertaken in respect of latest developments in various business segments and their influences on parent company's business in India. This visit was mainly undertaken for the development of the business of the parent company. The narration given in respect of visit of Mrs P Ram, appearing on Sr no.14 also does not indicate that the visit was for conducting business of the appellant company. In view of above facts and various other factors as mentioned by the Assessing Officer in the asst order and also in Annexure I annexed to the present asst. order some disallowance was definitely warranted out of foreign travel expenditure. I also do not find any force in the alternate plea of the appellant that as the total amount spent on the travel enumerated above works out to Rs. 7,43,829/-, the disallowance of Rs. 20,00,000/- made by the DC(IT) is unsupportable. In this connection, I agree with AR of the appellant only to the limited extent that the estimation of disallowance made by the Assessing Officer was on the high side but the disallowance is not to be restricted with reference to only a sum of Rs..7,43,829/-....
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....Sukmar Rs. 63,455/- Rs. 63,055/- Rs. 64,015/- General Management Training Kit -Seminar for Senior Managers 5 Dr A B Vaidya Rs. 570/- Exchange released by RBI was subject to repatriation of the exchange and production of FIRC in due course which was done. 6 Dr D S Nag Rs. 50,912/- Participating in Regional Leadership Workshop & Divisional Managers Meeting. 7 Shri S S Patel Rs. 42,649/- Organizational & HRD issues & Management development 8 Mr R C Hartland Rs. 64,729/- Pending projects & business plan 9 Shri S G Kale Rs. 61,860/- Tinopal CBS-X Project. 10 Mr A K Bahl & Mr J M Smith - Travel not undertaken 11 Mr F Quadros - Travel not undertaken 12 Dr H A Monteiro Rs. 76,055/- Latest developments in various business segments and their repercussion on Indian Business. 13 Dr A B Vaidya - Exchange released by RBI was subject to repatriation of the exchange & production of FIRC in due course which was done. 14 Mr R Ram Rs. 79,299/- Conference covering empowerment to negotiations, communicating during corporate restricting, ethical communication, the new co....
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.... nexus to exports have to be excluded for s. 80HHC deduction The Court held that Explanation (baa) to s. 80HHC defines the term "profits of the business" to mean business profits as reduced by 90% of .. "receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature". The Hon'ble Court noticed that the Tribunal took the view, on the basis of Bangalore Clothing 260 ITR 371 (Bom) that receipts towards recovery of freight, insurance, packing receipts, sales tax set off/refund and service income were "operational income" and not liable to be excluded under Expl (baa) to s. 80HHC. On appeal by the Revenue, the Hon'ble Bombay High Court held reversing the Tribunal: (i) The ratio of Ravindranathan Nair 295 ITR 228 (SC) is that Explanation (baa) to s. 80HHC required receipts constituting independent income having no nexus with exports to be reduced from business profits under clause (baa) so as to avoid distortion in the computation of export profits;(ii) In Bangalore Clothing Co 260 ITR 371 (Bom) it was held that If an item of income is closely linked with business operations and constitutes "operational income", it cannot be excluded under Expl....
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....e extent of the exclusion, it would not be open to the Court to order otherwise by rewriting the legislative provision. The task of interpretation is to find out the true intent of a legislative provision and it is clearly not open to the Court to legislate by substituting a formula or provision other than what has been legislated by Parliament. It is not open to say that something more than the 10% statutorily provided should also be allowed. In Shri Ram Honda Power Equip 289 ITR 475 the Delhi High Court has not adequately emphasized the entire rationale for confining the deduction only to the extent of ninety per cent of the excludible receipts and it cannot be followed; (iii) As regards the judgement of the Special Bench in Lalsons Enterprises "We are affirmatively of the view that ... the Tribunal ... has transgressed the limitations on the exercise of judicial power and .... has in effect legislated by providing a deduction on the ground of expenses other than in the terms which have been allowed by Parliament. That is impermissible". 60. The learned Counsel for the Assessee made a prayer that in so as far as the interest on overdue account receivable from customers of Rs. ....
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....ing clearance and order u/s 8(4) of the said Act. A copy of the revised order u/s 8(4) of the ULC Act and a note briefly explaining the relevant provisions of the ULC Act were submitted to the CIT (A) which clearly brings out the fact that the above expenditure was incurred solely for meeting the company's statutory obligations and hence are for the purpose of its business. Further, the appellants submit that the above expenditure has not resulted in any acquisition or improvement of an asset or in perfecting the title or getting rid of a defect in the title of any asset but has been incurred for successfully preserving and protecting the company's property from getting dissipated. Therefore, it has not increased the value of land. Merely because the Bhandup factory has subsequently closed does not mean that the expenditure is capital in nature. The appellants pray that the DCI be directed to delete the disallowance of Rs. 5,50,000/- b) The CIT (A) further erred in not considering the appellants without prejudice contention that deduction u/s 35(1) ought to be allowed in respect of the expenditure pertaining to Goregaon where the appellants' Research Centre is loc....
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....ture as a revenue expenditure relating to the business of the appellant. 63.2 The Assessee had raised an alternative pleas that deduction u/s 35(1) ought to be allowed in respect of the expenditure pertaining to Goregaon where the assessees' Research Centre is located and that the expenditure should be added to the cost of the capital asset as and when the property is sold and capital gain in computed on such sale. The CIT (A) held on this alternative plea of the assessee that in case the expenditure is treated as a capital expenditure the same should be allowed as a deduction if the land is sold in future in computing the capital gains/loss, that the claim was a premature relief sought by the assessee which cannot be allowed in the present appeal. 64. The learned counsel for the Assessee relied on the decision of the House of Lords in the case of In Morgan (Inspector of Taxes) v. Tate & Lyle Ltd. 26 I.T.R. 195 . The House of Lords in the aforesaid case held that expenditure incurred by a Company engaged in sugar refining, in a propaganda campaign to oppose the threatened nationalization of the industry was a sum wholly and exclusively laid out for the purpose of the Company&....
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....in the computation of taxable income. 66. The learned D.R. relied on the order of the CIT(A). We are of the view that the expenditure has to be allowed as a deduction on the basis of the principles laid down in the aforesaid two judicial pronouncements of the Hon'ble Supreme Court. The expenditure cannot be said to merely increase the value of the land. The expenditure had to be incurred to ensure that the land is not declared surplus and acquired under the Urban Land Ceiling laws. We therefore direct that the expenditure in question be allowed as a deduction. Thus ground No. 6(a) is allowed. Ground No. 6(b) and (c) do not require adjudication as they are alternate grounds. 67. Ground No. 7 (1) to 7(4) raised by the Assessee reads as follows: 1. The CIT (A) erred in upholding the disallowance made by the DCI to the extent of Rs. 5,00,000/- being the alleged capital expenditure incurred by the appellants on the vision 2000 programme. In this connection, the appellants submit that the Vision 2000 programme is a corporate is a corporate strategy tailored to effectively meet the challenge of change in an increasingly competitive and demanding busi....
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....rtly on employee training and gearing them up for fulfilling the company's goal/vision. Part of the expenditure on brochures could fall within the ambit of expenditure on advertisement and would be an allowable deduction. The assessee further submitted that it was self evident that the expenditure incurred on Vision 2000 was not a capital expenditure. In any event the amount of Rs. 10,00,000/- estimated by the DC(IT) was abnormally excessive and unreasonable. The Assessee further contended that Hon'ble Himachal Pradesh High Court in the case of Mohan Makin Breweries reported in 118 ITR 101 has held that u/s 37(3), expenditure on advertisement was allowable as a deduction irrespective of the fact whether such expenditure is of capital or revenue nature. The Assessee contended that in view of above facts and decision of the Himachal Pradesh High Court in the case of Mohan Meakin Breweries reported in118 ITR 10q the expenditure of Rs. 10,00,000/-incurred by the assessee was permissible as a deduction. 68.2 After considering the submissions of both sides, the CIT (A) has given relief to the assessee by observing as follows :- "30. After due considering I find some force in ....
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....n under Section 37 of the Act. It is in this context the Himachal Pradesh High Court observed that the question whether it is of revenue or capital nature would not be the relevant consideration; but the relevant consideration would be the conditions and restrictions contemplated by Section 37(3) itself. The use of the non-obstante clause clearly excludes the considerations which are contemplated by Section 37(1) of the Act and, therefore, when once it is found that a particular deduction can be considered on account of expenditure, the said deduction squarely falls within Sub-section (3), leaving the situation as to whether the expenditure is of a capital nature or of a revenue nature as wholly irrelevant for consideration in the context. In our judgment, the situation would not be different if the same non-obstante clause is taken up for consideration as to be found in Section 37(3A) of the Act. The learned D.R. relied on the order of the CIT(A). 70. We have considered the rival submissions. In our view the expenditure in question cannot by any stretch of imagination termed as capital expenditure. A perusal of the contents of Vision 2000 brought out by the Assessee shows that ....
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....curred to publicize the name of the company. The appellant therefore pray that the DCI be directed to allow them the deduction of Rs. 20,000/- 73 The AO disallowed a sum of Rs. 4,99,000/- being the entire amount debited to corporate development account. Details of these expenses are reproduced as under: Sl. No Vendor Description Amount 1 Assocn. Of Basic Mfgs of Pesticides Share of production cost of video cassette on safety in transportation of pesticides 50,000 2 Embassy of Switzerland 129 3 B V Patel - Pharmaceutical Education Research Centre Donation (exempt u/s35) 250,000 4 Neurological Society of India Institution of Hindustan Ciba-Geigy for best paper on epilepsy 50,000 5 Vasco Environment Environmental Production week 20,000 Total 4,99,000 While making the impugned disallowance the AO on page 11 of the asst order has stated that the assessee spent an amount of Rs. 4,99,000/- towards contribution to corporate development. The same was not allowable as revenue expenditure because expenditure appearing at Srl.No.1 was towards share of production cost of video cassette on safety ....
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....iture. As regards payment of Rs. 20,000/- to Vasco Environment towards the Environmental Protection week, the Assessee explained that the purpose of the Environmental week to be held in Goa where the main plants were situated, was to explain ecological importance to the community and was in the nature of advertisement and publicity. In this connection the Assessee placed reliance on the decision of the Himachal Pradesh High Court in the case of Mohan Meakin Breweries reported in 118 ITR 101. The Assessee also placed reliance on the order of the CIT (A) in the appellant's own case for the asst year 1984-85 wherein the expenditure of the same nature disallowed by the DC(IT) as being in the nature of donation was allowed as a deduction. 73.2 The CIT (A) held as follows: "32 I have considered the entire matter carefully. A sum of Rs. 50,000/- was paid by the appellant to the Association of Basic Manufacturers of Pesticides which was the share payable by the appellant company to the Association. The payment was made for making the video cassettes for advertising cum general public awareness campaign highlighting the safety measures involved. The same was therefore, an admiss....
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....se of business the same will have to be allowed as a deduction even if the nexus is not proximate. The findings of the CIT (A) are reversed." Further our attention was also drawn regarding the correspondence in respect of the aforesaid donations with the aforesaid entities copies of which are available at pages 117 to 134 of the paper book. The learned D.R. relied on the order of the CIT(A). 75. We have considered the rival submissions. The payment of Rs..1,29,000 to Swiss Embassy is towards Swiss cultural programme organized in India in 1991. The events were Alpine Culture exhibition, Collegium Academicism and an exhibition of products made in Switzerland. It has been the stand of the Assessee that since there was no indo-Swiss chamber of commerce, the embassy would represent the interest of the indo-Swiss business relationship and hence the payment was made. The headquarters of the Assessee's parent company was in Switzerland. We are of the view that the aforesaid expenditure has no nexus with the business of the Assessee or earning of profit and cannot be allowed as a deduction. As far as the remaining items of expenditure are concerned, the payment to Neurological Society....
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....y the appellant company even before installation of the same. The purpose of buying these items is only for either &D lab or the production units. The loss incurred on ths account was therefore created as a loss of capital and was not allowed as a charge against income of the year. 77.2 Before CIT(A), the Assessee contended that the assessee had purchased CHN analyzers for Rs. 11,00,413/ in November, 1988. As the same has not been installed the amount of Rs. 11,00,413/- was not capitalized in the books of account. As the assets were never installed or capitalized no depreciation on the same was claimed by the assessee. The CHN analyzers were ultimately disposed of by the assessee in May 1990 for Rs. 4,99,743/-. The assessee did not claim this loss as a trading loss but have claimed it as a short term capital loss as the same had arisen on the transfer of capital asst held for less than 36 months and on which no depreciation was ever claimed or allowed. The set off of such loss was clearly permissible u/s 71 of the I T Act, as it then stood, which permitted set off of such loss against the business income. In view of the specific provisions of sec.71, it was argued that the DC(IT....