2005 (6) TMI 486 - AT - Income Tax

Summary

Issues Involved:

1. Addition of Rs. 29,000 regarding disallowance of set-off of interest received on share application money.
2. Disallowance of expenditure of Rs. 1,43,341 on gifts and presentations.
3. Disallowance of 50% of expenditure on technical conference of stockists as entertainment expenditure.
4. Disallowance of guesthouse expenses of Rs. 5,06,481.
5. Disallowance of pooja expenses of Rs. 61,984.
6. Disallowance of Rs. 93,220 being village welfare expenses.
7. Disallowance of Rs. 1,01,31,669 paid for power lines and transmission towers to Gujarat Electricity Board (GEB).
8. Disallowance of miscellaneous expenditure: Quarry development expenses, Market research and development expenses, and Advertisement for corporate image.
9. Disallowance of depreciation on office premises.
10. Disallowance of depreciation on pre-operative expenses capitalized before the start of commercial production.
11. Penalty proceedings.

Detailed Analysis:

1. Addition of Rs. 29,000 regarding disallowance of set-off of interest received on share application money:
The Tribunal allowed the set-off of interest received on share application money against share issue expenses, citing a direct nexus between the interest income earned and share issue expenses. The decision was supported by the Supreme Court's ruling in CIT v. Bokaro Steels Ltd. and section 69(4) of the Companies Act, 1956. This issue was decided in favor of the assessee.

2. Disallowance of expenditure of Rs. 1,43,341 on gifts and presentations:
The Tribunal allowed the expenditure on gifts and presentations, following its own decisions in the assessee's case for subsequent assessment years (1989-90, 1990-91, and 1991-92). The facts and circumstances being the same, this ground was decided in favor of the assessee.

3. Disallowance of 50% of expenditure on technical conference of stockists as entertainment expenditure:
The Tribunal partially allowed this ground, following its earlier decision for the assessment year 1989-90. It was held that hotel expenditure for stockists and distributors was of an entertainment nature. A disallowance of Rs. 20,000 was deemed just, providing partial relief to the assessee.

4. Disallowance of guesthouse expenses of Rs. 5,06,481:
The Tribunal confirmed the disallowance of guesthouse expenses, following its earlier decision in the assessee's case for the assessment year 1989-90. This ground was decided against the assessee.

5. Disallowance of pooja expenses of Rs. 61,984:
The Tribunal allowed the pooja expenses, citing its earlier decision in the assessee's case for the assessment year 1989-90. It was noted that the expenses were for normal day-to-day pooja activities at the temple near the plant. This ground was decided in favor of the assessee.

6. Disallowance of Rs. 93,220 being village welfare expenses:
The Tribunal allowed the village welfare expenses, following its earlier decision in the assessee's case for the assessment year 1989-90. This ground was decided in favor of the assessee.

7. Disallowance of Rs. 1,01,31,669 paid for power lines and transmission towers to Gujarat Electricity Board (GEB):
The Tribunal found that the expenditure was revenue in nature but incurred in the financial year 1985-86, thus pre-operative. It directed the Assessing Officer to capitalize the expenditure and allow depreciation. The assessee received partial relief on this ground.

8. Disallowance of miscellaneous expenditure:
- Quarry development expenses of Rs. 25,69,139: The Tribunal treated these as revenue expenditure, following its earlier decision and the Supreme Court ruling in Empire Jute Co. Ltd. v. CIT.
- Market research and development expenses of Rs. 8,18,712: Allowed as revenue expenditure, following the Calcutta High Court decision in CIT v. Ananda Bazar Patrika (P.) Ltd.
- Advertisement for corporate image of Rs. 8,53,980: Allowed as revenue expenditure, following the Calcutta High Court decision in CIT v. Berger Paints (India) Ltd. (No. 2).

9. Disallowance of depreciation on office premises:
The Tribunal allowed depreciation on office premises, following its earlier decisions in the assessee's case for the assessment years 1989-90 and 1990-91. This ground was decided in favor of the assessee.

10. Disallowance of depreciation on pre-operative expenses capitalized before the start of commercial production:
The Tribunal held that the assessee is entitled to depreciation on capitalized pre-operative expenses, including depreciation on assets used in the pre-operative period. This was in accordance with accounting principles and supported by several High Court and Supreme Court decisions.

11. Penalty proceedings:
The Tribunal did not interfere with the penalty proceedings, noting that they are to be decided independently based on the facts and law. This ground was rejected.

Conclusion:
The appeal of the assessee was partly allowed, with several grounds decided in favor of the assessee, providing partial relief on others, and confirming some disallowances.