2004 (6) TMI 578 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of expenses under the head Gifts & Presents.
2. Disallowance of amounts Written Off.
3. Disallowance under section 38 of the I.T. Act.
4. Disallowance of litigation expenses.
5. Disallowance of retainership fees and conveyance expenses.
6. Disallowance of legal & professional charges.
7. Treatment of expenses on mattresses and decorative pieces.
8. Disallowance of debenture issue expenses.
9. Treatment of value of Citroen cars/vans under section 28(iv).
10. Non-allowance of deduction under section 80HHC.
11. Disallowance of expenses on Annual General Meeting and Extraordinary General Meeting.
12. Disallowance of seminar-related expenses.
13. Disallowance of entertainment expenses attributable to employees.
14. Disallowance of gas, electricity, and water expenses.
15. Disallowance under section 40A(5)/40(c) for repairs and maintenance and depreciation on assets.
16. Treatment of telephone facility as perquisite.
17. Disallowance of leave travel assistance under section 40A(5).
18. Disallowance of general expenses on signboards, architect's fees, and Founder's Day celebration.
19. Disallowance of previous years' expenses.
20. Rejection of sur-tax liability deduction.
21. Disallowance of traveling expenses.
22. Disallowance of commission & discount to dealers.
23. Depreciation claims on various assets.
24. Investment allowance on LPG tank, Effluent treatment plant, and Misc. Plant & Machinery.
25. Investment allowance on exchange rate variation.
26. Charging of interest under section 215.
27. Deletion of addition on account of dealers' contribution to EDDAL.
28. Disallowance of interest paid to GIDC and HUDA.
29. Disallowance of interest on purchase of land.
30. Disallowance of interest paid to CWC.
31. Treatment of cash allowances and concessional interest as perquisites.
32. Treatment of accident insurance premium as perquisite.
33. Disallowance of club membership expenses.
34. Disallowance of medical expenses reimbursed by the employer.
35. Disallowance of conveyance allowance.
36. Taxation of cash assistance and duty drawback.
37. Disallowance of commission on accrual basis.
38. Disallowance of ex gratia payments to employees.
39. Allowability of expenses on viability, feasibility, and market research studies.
40. Depreciation and ESA on exchange rate variation.
41. Depreciation on medical center building and Bangalore flats.
42. Investment allowance on D.G. Sets, Transformer, Underground cables, Material handling equipment, and Power Plant Transmission.
43. Investment allowance on machinery purchased from investment allowance reserve.
44. Investment allowance on notional increase in value due to exchange rate variation.
45. Disallowance of expenses on rent, etc., for premises in the F.E. Division.

Detailed Analysis:

1. Disallowance of Expenses under the Head Gifts & Presents:
- The Assessing Officer disallowed Rs. 5,00,000 out of total expenditure on gifts amounting to Rs. 10,73,994. The CIT(A) reduced the disallowance to Rs. 2,00,000. Both the assessee and the department's appeals on this issue were dismissed, upholding the CIT(A)'s order.

2. Disallowance of Amounts Written Off:
- The disallowance of Rs. 12,89,200 related to the shortage of M.S. Sheets was deleted by the Tribunal, agreeing with the assessee that the shortage was negligible.

3. Disallowance under Section 38:
- The issue pertained to the disallowance of Rs. 1,77,128 under section 38 for treating expenditure on rent of premises hired for employees as disallowable. The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to 50%.

4. Disallowance of Litigation Expenses:
- The disallowance of Rs. 2,67,990 for litigation expenses was deleted by the Tribunal, following the decision in the earlier assessment year.

5. Disallowance of Retainership Fees and Conveyance Expenses:
- The disallowance of Rs. 72,000 for retainership fees and conveyance expenses was deleted, following earlier appellate orders.

6. Disallowance of Legal & Professional Charges:
- The disallowance of Rs. 25,000 paid to M/s. A.M. Consultants and Rs. 46,000 paid to other consultants was deleted, considering the nature of the expenses and the need for legal advice.

7. Treatment of Expenses on Mattresses and Decorative Pieces:
- The Tribunal deleted the disallowance of Rs. 57,838 for expenses on mattresses and decorative items, holding them as revenue expenditure.

8. Disallowance of Debenture Issue Expenses:
- The Tribunal upheld the CIT(A)'s decision to allow a proportionate deduction of debenture issue expenses, following earlier orders.

9. Treatment of Value of Citroen Cars/Vans under Section 28(iv):
- The addition of Rs. 2,29,327 under section 28(iv) was deleted by the Tribunal, considering the Supreme Court's decision in Groz-Beckert Saboo Ltd's case.

10. Non-Allowance of Deduction under Section 80HHC:
- The Tribunal directed the Assessing Officer to allow the statutory deduction under section 80HHC as per law, considering the compliance with statutory requirements.

11. Disallowance of Expenses on Annual General Meeting and Extraordinary General Meeting:
- The Tribunal deleted the disallowance of Rs. 43,975 for expenses incurred on these meetings, following earlier decisions.

12. Disallowance of Seminar-Related Expenses:
- The disallowance of Rs. 24,635 for seminar-related expenses was deleted, considering the nature of the expenses as business expenditure.

13. Disallowance of Entertainment Expenses Attributable to Employees:
- The Tribunal held that 35% of entertainment expenses should be attributed to employees' participation and excluded from disallowance under section 37(2A).

14. Disallowance of Gas, Electricity, and Water Expenses:
- The issue was restored to the Assessing Officer to decide in accordance with the law, following earlier appellate orders.

15. Disallowance under Section 40A(5)/40(c) for Repairs and Maintenance and Depreciation on Assets:
- The issue was set aside to the Assessing Officer for verification, following earlier appellate orders.

16. Treatment of Telephone Facility as Perquisite:
- The Tribunal deleted the disallowance, holding that telephone facilities are mainly for business use.

17. Disallowance of Leave Travel Assistance under Section 40A(5):
- The disallowance of Rs. 19,616 was deleted, considering the specific exclusion under section 40A(5).

18. Disallowance of General Expenses on Signboards, Architect's Fees, and Founder's Day Celebration:
- The Tribunal deleted the disallowance of Rs. 9,900 for signboards and Rs. 1,29,996 for Founder's Day celebration but upheld the disallowance of Rs. 8,500 for architect's fees, directing depreciation to be allowed.

19. Disallowance of Previous Years' Expenses:
- The disallowance of Rs. 62,250 was deleted, following earlier appellate orders.

20. Rejection of Sur-Tax Liability Deduction:
- The ground was dismissed as it was covered against the assessee.

21. Disallowance of Traveling Expenses:
- The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to Rs. 2 lakhs.

22. Disallowance of Commission & Discount to Dealers:
- The disallowance of Rs. 51,63,000 was deleted, following earlier appellate orders and considering the nature of the expenses.

23. Depreciation Claims on Various Assets:
- The Tribunal allowed the depreciation claims, following earlier appellate orders.

24. Investment Allowance on LPG Tank, Effluent Treatment Plant, and Misc. Plant & Machinery:
- The Tribunal allowed the investment allowance on LPG tank and Effluent treatment plant, following earlier orders.

25. Investment Allowance on Exchange Rate Variation:
- The Tribunal allowed the investment allowance on entire exchange variation, following High Court decisions.

26. Charging of Interest under Section 215:
- The Tribunal directed the Assessing Officer to charge interest under section 215, if any, leviable under law.

27. Deletion of Addition on Account of Dealers' Contribution to EDDAL:
- The deletion of Rs. 13,56,310 was upheld, following earlier appellate orders.

28. Disallowance of Interest Paid to GIDC and HUDA:
- The disallowances were deleted, following earlier appellate orders.

29. Disallowance of Interest on Purchase of Land:
- The deletion of Rs. 83,489 was upheld, following earlier appellate orders.

30. Disallowance of Interest Paid to CWC:
- The deletion of Rs. 2,22,934 was upheld, following earlier appellate orders.

31. Treatment of Cash Allowances and Concessional Interest as Perquisites:
- The Tribunal deleted the disallowances, following earlier appellate orders and Supreme Court decisions.

32. Treatment of Accident Insurance Premium as Perquisite:
- The deletion of disallowance was upheld, following earlier appellate orders.

33. Disallowance of Club Membership Expenses:
- The deletion of disallowance was upheld, following earlier appellate orders.

34. Disallowance of Medical Expenses Reimbursed by the Employer:
- The deletion of disallowance was upheld, following Supreme Court decisions.

35. Disallowance of Conveyance Allowance:
- The deletion of disallowance was upheld, following earlier appellate orders.

36. Taxation of Cash Assistance and Duty Drawback:
- The deletion of Rs. 1,44,990 was upheld, following earlier appellate orders.

37. Disallowance of Commission on Accrual Basis:
- The deletion of Rs. 2,00,000 was upheld, following earlier appellate orders.

38. Disallowance of Ex Gratia Payments to Employees:
- The deletion of Rs. 9,81,234 was upheld, following earlier appellate orders and Supreme Court decisions.

39. Allowability of Expenses on Viability, Feasibility, and Market Research Studies:
- The deletion of Rs. 8,89,332 was upheld, considering the nature of the expenses as related to earning dividend income.

40. Depreciation and ESA on Exchange Rate Variation:
- The deletion of disallowance was upheld, following earlier appellate orders.

41. Depreciation on Medical Center Building and Bangalore Flats:
- The allowance of depreciation was upheld, following Supreme Court and earlier appellate orders.

42. Investment Allowance on D.G. Sets, Transformer, Underground Cables, Material Handling Equipment, and Power Plant Transmission:
- The allowance of investment allowance was upheld, following earlier appellate orders.

43. Investment Allowance on Machinery Purchased from Investment Allowance Reserve:
- The allowance of investment allowance was upheld, following earlier appellate orders.

44. Investment Allowance on Notional Increase in Value due to Exchange Rate Variation:
- The allowance of investment allowance was upheld, following High Court decisions.

45. Disallowance of Expenses on Rent, etc., for Premises in the F.E. Division:
- The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to 50%.