2011 (6) TMI 792 - AT - Income Tax

Issues Involved:
1. Disallowance of entertainment expenses under Section 37(2).
2. Deduction of premium on leasehold land.
3. Deduction of process know-how fees under Section 35AB.
4. Disallowance under Rule 6B for gifts.
5. Provision for warranty obligations.
6. Taxation of mesne profits.
7. Deduction for short deducted tax paid to Income-tax Department.
8. Deduction of public issue expenses.
9. Deduction under Section 80-I for various incomes.
10. Exclusion of retention money from sales.
11. Deduction under Section 80-HHC for various incomes.
12. Deduction under Section 43B for late payment of Provident Fund.
13. Deduction under Section 35 for scientific research expenses.
14. Computation of indirect costs for Section 80HHC.

Detailed Analysis:

1. Disallowance of Entertainment Expenses under Section 37(2):
- The assessee's contention that only individual instances of entertainment expenses exceeding Rs. 10,000 should be considered was dismissed as it was not pressed during the hearing.
- The claim that 60% of entertainment expenses related to employees was also dismissed, following the precedent in the assessee's own case for the assessment year 1994-95.

2. Deduction of Premium on Leasehold Land:
- The claim for deduction of Rs. 1,98,775 and Rs. 16,34,000 as premium on leasehold land was disallowed, following the decision of the Special Bench in Mukund Limited and the Tribunal's decision for the assessment year 1994-95.

3. Deduction of Process Know-How Fees under Section 35AB:
- The assessee's claim for deduction of the full amount of Rs. 1,84,28,945 as process know-how fees was disallowed, following the Tribunal's decisions for assessment years 1993-94 and 1994-95.
- The matter was remanded to the Assessing Officer to re-examine new agreements in light of the Supreme Court's decision in Swaraj Engines Ltd.

4. Disallowance under Rule 6B for Gifts:
- The disallowance of Rs. 1,50,462 under Rule 6B was upheld due to the assessee's failure to provide names of recipients, following the Tribunal's decision for the assessment year 1994-95.

5. Provision for Warranty Obligations:
- The provision of Rs. 1,20,73,791 for warranty obligations was disallowed as contingent in nature. The Tribunal directed the Assessing Officer to follow the precedent set in the assessee's own case for the assessment year 1993-94.

6. Taxation of Mesne Profits:
- The amount of Rs. 1,32,751 received as mesne profits was treated as a casual and non-recurring receipt and taxed accordingly, following the Tribunal's decision for the assessment year 1994-95.

7. Deduction for Short Deducted Tax Paid to Income-tax Department:
- The claim for deduction of Rs. 25,55,407 paid to the Income-tax Department for short deduction of tax at source was disallowed, following the Supreme Court's decision in Indian Aluminium Co. Ltd.

8. Deduction of Public Issue Expenses:
- The claim for deduction of Rs. 4,44,46,017 as public issue expenses was disallowed under Section 37(1) and Section 35, following the Supreme Court's decisions in Brooke Bond India Ltd. and Punjab State Industrial Development Corporation Ltd.

9. Deduction under Section 80-I for Various Incomes:
- The claims for deduction under Section 80-I for various incomes were partly allowed and partly dismissed, following the Tribunal's decisions for the assessment year 1994-95.

10. Exclusion of Retention Money from Sales:
- The claim for exclusion of retention money from sales was dismissed as it was not pressed during the hearing.

11. Deduction under Section 80-HHC for Various Incomes:
- The issues relating to exclusion of excise duty and sales tax from total turnover were decided in favor of the assessee, following the Supreme Court's decision in Lakshmi Machine Works.
- Other issues were decided based on precedents and specific facts, with some being remanded for re-examination.

12. Deduction under Section 43B for Late Payment of Provident Fund:
- The Assessing Officer was directed to re-work the disallowance under Section 43B, considering payments made within the grace period as allowable deductions.

13. Deduction under Section 35 for Scientific Research Expenses:
- The claim for deduction of expenses on scientific research was allowed, following the Madras High Court's decision in Rane Brake Linings Ltd.

14. Computation of Indirect Costs for Section 80HHC:
- The issue of computing indirect costs for trading goods was remanded to the Assessing Officer to follow the directions given in the Tribunal's order for the assessment year 1994-95.

Conclusion:
All the captioned appeals of the assessee and the Revenue were partly allowed, with specific issues remanded for re-examination or decided based on precedents. The decision was pronounced in the open Court on 30th June, 2011.

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