2008 (7) TMI 605 - AT - Income Tax

Issues Involved:
1. Disallowance under Rule 6D.
2. Disallowance of expenses incurred by foreign citizens traveling in India.
3. Disallowance of expenses incurred on guest house.
4. Disallowance of expenditure incurred on employees treated as entertainment expenditure.
5. Disallowance of expenditure on meals during conference treated as entertainment.
6. Disallowance of expenditure incurred on rural development.
7. Deduction of premium on redemption of Non-Convertible Debentures.
8. Inclusion of unclaimed balances credited to profit & loss account.
9. Disallowance of payments made to clubs.
10. Disallowance under section 40A(9) for payments made to Indrayon School.
11. Disallowance under section 40A(3) for cash payments exceeding Rs. 10,000.
12. Disallowance of expenditure on issue of Fully Convertible Debentures and Non-Convertible Debentures.
13. Alternative claims regarding debenture issue expenditure.
14. Disallowance of prospecting expenses.
15. Disallowance under Section 6B.
16. Deletion of addition on account of Modvat credit in closing stock.
17. Depreciation rate on ESP for Kiln dust and water treatment plant.
18. Deletion of disallowance of expenditure on issue of Non-Convertible Debentures.
19. Cross objections regarding Modvat credit and opening stock adjustments.

Issue-wise Analysis:

1. Disallowance under Rule 6D (Rs. 1,29,762):
The Tribunal rejected the assessee's ground, following the jurisdictional High Court's judgment in CIT v. Aorow India Ltd. [1998] 229 ITR 325 (Bom.).

2. Disallowance of expenses by foreign citizens (Rs. 11,195):
The assessee conceded this ground, and it was rejected based on precedents from earlier assessment years.

3. Disallowance of expenses on guest house (Rs. 17,05,666):
This issue was settled against the assessee by the Supreme Court in Britannia Industries Ltd. v. CIT [2005] 278 ITR 546.

4. Disallowance of expenditure on employees (Rs. 19,27,271):
The Tribunal directed the Assessing Officer to exclude 25% of the hotel expenditure towards employees' participation, following its own decision in the assessee's case for earlier years.

5. Disallowance of expenditure on meals during conference (Rs. 29,37,471):
The Tribunal decided in favor of the assessee, directing the Assessing Officer to allow the expenditure, following precedents from earlier years and the Special Bench decision in Lakhanpal National Ltd. v. ITO [1999] 69 ITD 9 (Ahd.).

6. Disallowance of expenditure on rural development (Rs. 2,60,779):
The issue was restored to the Assessing Officer for fresh decision in light of the Tribunal's decision in Asstt. CIT v. Grasim Industries Ltd. [2002] 82 ITD 158 (Mum.).

7. Deduction of premium on redemption of Non-Convertible Debentures:
The Tribunal upheld the CIT(A)'s decision to allow Rs. 44,44,444 as a deduction, rejecting the alternative contentions of the assessee. The Tribunal followed its own decision for the assessment year 1988-89 and the Supreme Court's judgment in Madras Industrial & Investment Corpn. Ltd. [1997] 225 ITR 802.

8. Inclusion of unclaimed balances (Rs. 23,79,714):
The Tribunal allowed the ground in favor of the assessee, consistent with its earlier decisions for assessment years 1992-93 and 1993-94.

9. Disallowance of payments to clubs (Rs. 2,05,635):
The Tribunal allowed the ground in favor of the assessee, following the jurisdictional High Court's judgment in Otis Elevator Co. (India) Ltd. v. CIT [1992] 195 ITR 682 (Bom.).

10. Disallowance under section 40A(9) for payments to Indrayon School:
The Tribunal allowed the ground in favor of the assessee, consistent with its earlier decisions for assessment years 1992-93 and 1993-94.

11. Disallowance under section 40A(3) for cash payments (Rs. 4,03,695):
The Tribunal dismissed the assessee's ground, agreeing with the first appellate authority that the assessee failed to demonstrate the payments were covered under rule 6DD(j).

12. Disallowance of expenditure on issue of debentures (Rs. 2,47,42,890):
The Tribunal dismissed the assessee's claim for deduction of debenture issue expenses, following the Special Bench decision in Ashima Syntex Ltd. v. Asstt. CIT [2006] 100 ITD 247 and its own decision in the assessee's case for assessment year 1989-90.

13. Alternative claims regarding debenture issue expenditure:
The Tribunal dismissed the first alternative ground as infructuous. The second alternative ground for deduction under section 35D was allowed, following its decision for the assessment year 1988-89.

14. Disallowance of prospecting expenses:
The Tribunal dismissed the ground as infructuous, as the claim was fully allowed in assessment year 1980-81.

15. Disallowance under Section 6B (Rs. 2,83,815):
The Tribunal rejected the revenue's ground, following the jurisdictional High Court's judgment in CIT v. Allana Sons (P.) Ltd. [1995] 216 ITR 690 (Bom.).

16. Deletion of addition on account of Modvat credit in closing stock (Rs. 12,32,176):
The Tribunal dismissed the revenue's ground, following the Supreme Court's judgment in CIT v. Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275.

17. Depreciation rate on ESP for Kiln dust and water treatment plant:
The Tribunal rejected the revenue's ground, following its earlier decision in the assessee's case for assessment year 1993-94.

18. Deletion of disallowance of expenditure on Non-Convertible Debentures:
The Tribunal dismissed the revenue's ground, following its earlier decisions for assessment years 1988-89 and 1989-90.

19. Cross objections regarding Modvat credit and opening stock adjustments:
The Tribunal dismissed the cross objections as infructuous, as the additions were deleted in assessment year 1993-94.

Conclusion:
The appeal filed by the assessee was partly allowed, the appeal filed by the revenue was dismissed, and the cross objection filed by the assessee was dismissed.

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