2005 (6) TMI 477 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of expenditure on construction of school premises under section 40A(9).
2. Denial of benefits under section 80HHC for sales to international airlines and foreign flag vessels.
3. Denial of interest under section 215/139(8).
4. Disallowance of sales tax under section 43B.
5. Disallowance of guest house expenses.
6. Disallowance of entertainment expenses.
7. Deduction under section 80HH and 80-I for profits of pipelines.
8. Deduction under section 32AB for various incomes.
9. Deduction under section 80HHC for export of petroleum products.
10. Disallowance of miscellaneous expenses.
11. Disallowance of depreciation on lease-hold land and right of way.
12. Disallowance under section 40A(5).

Issue-wise Detailed Analysis:

1. Disallowance of Expenditure on Construction of School Premises under Section 40A(9):
The Tribunal found that the expenditure on the construction of school premises at Haldia was not disallowable under section 40A(9). This was based on a precedent in the assessee's own case for the assessment year 1985-86, where similar expenditure was considered welfare expenses and not challenged further. Consequently, the disallowance was deleted.

2. Denial of Benefits under Section 80HHC for Sales to International Airlines and Foreign Flag Vessels:
The Tribunal upheld the denial of benefits under section 80HHC for sales of aviation fuel, lubes, etc., to international airlines and sales of bunker and marine lubricants to foreign flag vessels. This decision was consistent with previous rulings against the assessee for the assessment year 1985-86.

3. Denial of Interest under Section 215/139(8):
The Tribunal rejected the ground pertaining to the denial of interest under section 215/139(8) as it was not permitted by the Committee on Disputes (COD).

4. Disallowance of Sales Tax under Section 43B:
The Tribunal restored the issue to the Assessing Officer (AO) to verify if the sales tax was paid before the due date for filing the return under section 139(1). If verified, the disallowance would not be justified.

5. Disallowance of Guest House Expenses:
The Tribunal confirmed the disallowance of guest house expenses, following the precedent set by the ITAT, Delhi Special Bench decision in the case of Eicher Tractors Ltd. v. Dy. CIT.

6. Disallowance of Entertainment Expenses:
The Tribunal rejected the ground pertaining to disallowance of entertainment expenses as it was not permitted by the COD.

7. Deduction under Section 80HH and 80-I for Profits of Pipelines:
The Tribunal upheld the decision that the V.M. Pipeline and M.J. Pipeline were not independent industrial undertakings but part of Mathura Refinery. Therefore, profits from these pipelines should be added to the profits of Mathura Refinery for deductions under sections 80HH and 80-I.

8. Deduction under Section 32AB for Various Incomes:
The Tribunal reversed the CIT(A)'s order, directing the AO to include the relevant items of income in the profits of eligible business for computing deduction under section 32AB. This decision was based on the Bombay High Court ruling in CIT v. Parle Biscuits Ltd. and the Supreme Court's judgment in Apollo Tyres Ltd. v. CIT.

9. Deduction under Section 80HHC for Export of Petroleum Products:
The Tribunal upheld the CIT(A)'s decision that petroleum products like Naphtha, diesel, and fuel oil are classified as mineral oil. Therefore, the assessee was not entitled to deduction under section 80HHC for these products. This decision was supported by the Bombay High Court's observations in Burmah Shell Refineries Ltd. v. G.B. Chand, ITO.

10. Disallowance of Miscellaneous Expenses:
The Tribunal noted that the ground pertaining to disallowance of miscellaneous expenses was withdrawn by the assessee's counsel and thus rejected as withdrawn.

11. Disallowance of Depreciation on Lease-hold Land and Right of Way:
The Tribunal rejected the ground pertaining to disallowance of depreciation on lease-hold land and right of way as it was not permitted by the COD.

12. Disallowance under Section 40A(5):
The Tribunal rejected the ground pertaining to disallowance under section 40A(5) as it was not permitted by the COD.

Conclusion:
Both appeals were partly allowed, with some grounds being upheld, others rejected, and a few issues remanded back to the AO for further verification.