2005 (12) TMI 453 - AT - Income Tax

Appellate Tribunal,Interest chargeable, Business expenditure, Interest on borrowed capital, Minimum alternate tax, Collection and recovery of tax,

Issues Involved:
1. Condonation of delay in filing cross objections.
2. Disallowance under Rule 6B.
3. Disallowance of entertainment expenses.
4. Addition of Modvat Credit of Excise Duty in the value of closing stock.
5. Depreciation and investment allowance on technical know-how.
6. Computation of income under section 115J.
7. Set off of unabsorbed depreciation of previous year.
8. Disallowance under section 43B.
9. Pre-operative interest income.
10. Disallowance of royalty under section 40(a)(i).
11. Claim under section 80HHC.
12. Charging of interest under sections 234B and 234C.
13. Disallowance under Rule 6D.
14. Allowability of fees to clubs.
15. Disallowance of capital subsidy from the cost of the assets.
16. Taxability of import benefit.
17. Disallowance of prior period expenses.
18. Disallowance towards capital expenditure debited to revenue account.
19. Grant of depreciation on furniture at Guest House.
20. Allowance of loss on account of purchase and sale of shares.
21. Interest expenditure incurred on borrowed funds for financing the expansion of existing business.
22. Computation of income under section 115JA.

Detailed Analysis:

1. Condonation of Delay in Filing Cross Objections:
The assessee's cross objections for AYs 1998-99 and 1999-2000 were time-barred. The Tribunal condoned the delay, citing the Supreme Court's liberal interpretation of "sufficient cause" to advance substantial justice, as seen in cases like State of West Bengal v. Administrator, Howrah Municipality and N. Balakrishnan v. M. Krishnamurthy.

2. Disallowance under Rule 6B:
The Tribunal deleted the disallowance under Rule 6B for AYs 1989-90 and 1991-92, following the Bombay High Court's decision in CIT v. Allana Sons, which held that presented articles not bearing the company's logo should not be disallowed.

3. Disallowance of Entertainment Expenses:
For AY 1989-90, the Tribunal allowed partial relief by permitting 25% of the expenses, based on the precedent set in AY 1990-91. The disallowance for AYs 1991-92 to 1993-94 was not pressed by the assessee.

4. Addition of Modvat Credit of Excise Duty in the Value of Closing Stock:
The Tribunal ruled in favor of the assessee, allowing the method of valuing stock at net cost (purchase price minus Modvat Credit), as supported by the Supreme Court in CIT v. Indo Nippon Chemicals Co. Ltd.

5. Depreciation and Investment Allowance on Technical Know-How:
The Tribunal allowed investment allowance on technical know-how, referencing the decision in Tata Telecom Ltd., while the assessee did not press for depreciation.

6. Computation of Income under Section 115J:
The Tribunal held that the Assessing Officer could not adjust depreciation in the assessee's accounts for computing book profit under section 115J, following the Supreme Court's decision in Apollo Tyres Ltd. v. CIT and the Bombay High Court's decision in Kinetic Motor Co. Ltd. v. Dy. CIT.

7. Set Off of Unabsorbed Depreciation of Previous Year:
The assessee did not press this ground, and it was rejected for AYs 1989-90, 1991-92, and 1992-93.

8. Disallowance under Section 43B:
The Tribunal set aside the disallowance of PF/EPF and ESIC liabilities for fresh adjudication, following the precedent set in AY 1990-91.

9. Pre-Operative Interest Income:
The assessee did not press this ground, and the Tribunal allowed the revenue's appeal for AY 1993-94.

10. Disallowance of Royalty under Section 40(a)(i):
The assessee did not press this ground for AYs 1991-92 and 1992-93.

11. Claim under Section 80HHC:
The assessee did not press this ground for AYs 1991-92 and 1992-93.

12. Charging of Interest under Sections 234B and 234C:
The Tribunal directed the Assessing Officer to verify the facts regarding the levy of interest under section 234C and re-adjudicate the issue.

13. Disallowance under Rule 6D:
The Tribunal allowed the revenue's appeal, following the Bombay High Court's decision in CIT v. Arrow India Ltd.

14. Allowability of Fees to Clubs:
The Tribunal allowed the assessee's appeal for AY 1993-94 and rejected the revenue's appeal for AY 1991-92, following the decisions in Otis Elevator Co. India Ltd. v. CIT and Gujarat State Export Corpn. Ltd. v. CIT.

15. Disallowance of Capital Subsidy from Cost of the Assets:
The Tribunal rejected the revenue's appeal, following the Supreme Court's decision in CIT v. P.J. Chemicals.

16. Taxability of Import Benefit:
The assessee did not contest this ground, and the Tribunal allowed the revenue's appeal for AY 1991-92.

17. Disallowance of Prior Period Expenses:
The Tribunal allowed the assessee's appeal, following the Gujarat High Court's decision in Saurashtra Cement & Chemicals Industries Ltd. v. CIT, which held that expenses crystallized in the relevant year should be allowed.

18. Disallowance Towards Capital Expenditure Debited to Revenue Account:
The Tribunal upheld the CIT(A)'s decision, disallowing minor expenses on carpet, briefcase, and suitcase.

19. Grant of Depreciation on Furniture at Guest House:
The assessee did not contest this ground, and the Tribunal allowed the revenue's appeal for AYs 1993-94 to 1995-96.

20. Allowance of Loss on Account of Purchase and Sale of Shares:
The Tribunal upheld the CIT(A)'s decision, allowing the loss as short-term capital loss, as the shares were shown as investments and not stock-in-trade.

21. Interest Expenditure Incurred on Borrowed Funds for Financing the Expansion of Existing Business:
The Tribunal allowed the assessee's appeal, holding that the interest expenses on borrowed funds for various projects were allowable as revenue expenses, as the projects were part of the expansion of the existing business.

22. Computation of Income under Section 115JA:
The Tribunal upheld the CIT(A)'s decision, allowing the assessee to prepare separate accounts for AGM and section 115JA purposes, provided the accounts complied with Parts II and III of Schedule VI of the Companies Act. The Tribunal followed the decisions in Asstt. CIT v. Bell Ceramics Ltd., Nippon Denro Ispat Ltd. v. Dy. CIT, and Modern Woollen Ltd. v. Dy. CIT.

Summary:
The Tribunal provided a detailed and issue-wise analysis of the judgment, addressing each contention raised by the assessee and the revenue. The Tribunal's decisions were based on precedents set by higher courts and relevant accounting standards, ensuring that the principles of substantial justice and proper accounting practices were upheld.

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