2002 (4) TMI 893 - AT - Income Tax

Issues Involved:
1. Disallowance of incidental expenses under Rule 6D.
2. Allocation of electricity expenses for Section 80-I deduction.
3. Deletion of addition to closing stock on account of MODVAT credit.
4. Disallowance of guest house expenses u/s 37(4).
5. Disallowance of sundry expenses.
6. Disallowance u/s 43B.
7. Deduction u/s 80HHC.
8. Allocation of interest on unsecured loans for Section 80-I deduction.
9. Disallowance of payments made to buy out shareholders u/s 402 of the Companies Act.

Summary:

1. Disallowance of incidental expenses under Rule 6D:
The Revenue's appeal contested the deletion of Rs. 1,17,475 by the Commissioner of Income-tax (Appeals) related to incidental expenses connected to tours. The Tribunal upheld the CIT(A)'s view, referencing the Calcutta High Court's decision in CIT v. Vidyut Metallics Ltd., which confined Rule 6D's restriction to expenses on stay only, rejecting the Revenue's ground.

2. Allocation of electricity expenses for Section 80-I deduction:
The Revenue challenged the CIT(A)'s restriction of electricity expenses allocation to Rs. 2,00,000 from Rs. 4,33,630. The Tribunal upheld the CIT(A)'s decision, finding the allocation reasonable and rejecting the Revenue's ground.

3. Deletion of addition to closing stock on account of MODVAT credit:
The Revenue's appeal against the deletion of Rs. 33,79,025 added to the closing stock due to MODVAT credit was rejected. The Tribunal followed the Bombay High Court's decision in CIT v. Indo Nippon Chemical Co. Ltd., which favored the assessee.

4. Disallowance of guest house expenses u/s 37(4):
The assessee's appeal against the disallowance of guest house expenses was rejected. The Tribunal cited its previous decision in Deputy CIT v. Murply (India) Ltd., confirming that such expenses are not allowable under section 37(4).

5. Disallowance of sundry expenses:
The assessee's appeal against the disallowance of Rs. 2,90,000 paid to employees and trade unions was rejected. The Tribunal noted the lack of evidence such as bills or vouchers and upheld the CIT(A)'s decision, referencing the jurisdictional High Court's view in CIT v. Goodlass Nerolac Paints Ltd.

6. Disallowance u/s 43B:
The assessee did not press this ground, and it was rejected.

7. Deduction u/s 80HHC:
The assessee's exclusion of packing, freight, inspection, testing charges, and octroi from total turnover for Section 80HHC deduction was contested. The Tribunal remitted the issue back to the Assessing Officer for a fresh inquiry, noting the lack of detailed information on the expenses.

8. Allocation of interest on unsecured loans for Section 80-I deduction:
The assessee's appeal against the allocation of Rs. 7,45,976 interest on unsecured loans was allowed. The Tribunal found that the interest was not allocable to the new unit as the investments were made from internal reserves, directing the Assessing Officer to allow the claim.

9. Disallowance of payments made to buy out shareholders u/s 402 of the Companies Act:
The assessee's appeal against the disallowance of Rs. 9,21,23,100 paid to buy out shareholders was allowed. The Tribunal held that the expenditure was incurred for business expediency, ensuring smooth functioning and avoiding winding up under sections 397 and 398 of the Companies Act. The expenditure was deemed allowable as revenue expenditure, setting aside the CIT(A)'s order.

Conclusion:
The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed.

← Previous Next →