2011 (9) TMI 1026 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of assessment under Section 147.
2. Disallowance of prior period expenses.
3. Deduction under Section 80HHC.
4. Nature of tooling and repair expenses.
5. Disallowance of interest expenditure.
6. Disallowance of provision for commission/turnover discount.
7. Disallowance of commission paid to directors.
8. Disallowance of bad debts.
9. Disallowance of advance written off.
10. Disallowance of staff welfare expenses.
11. Disallowance of miscellaneous expenses.
12. Disallowance of foreign travel expenses.
13. Carried forward of long-term capital loss.

Detailed Analysis:

1. Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment under Section 147, arguing that the notice was served beyond the six-year period. The tribunal held that the notice issued on 31-03-2008 and served on 01-04-2008 was valid, referencing the Supreme Court decision in R.K. Upadhyay vs. Shanbhai P. Latel, which distinguished between the "issue of notice" and "service of notice." Consequently, the reopening of the assessment was upheld.

2. Disallowance of Prior Period Expenses:
The assessee contended that the prior period expenses of Rs. 1,20,181 had crystallized in the current year. However, the tribunal found discrepancies between the bills presented and the details of expenses. As the bills did not match the claimed expenses and lacked clarity on late receipt, the tribunal confirmed the disallowance.

3. Deduction under Section 80HHC:
The revenue's appeal contested the CIT(A)'s direction to compute the deduction under Section 80HHC as per the ITAT Special Bench decision in Topman Exports. The tribunal referred to the Bombay High Court decision in CIT vs. Kalpataru Colour & Chemical, which clarified the computation of profits under Section 28(iiid) regarding DEPB credits. Following this decision, the tribunal allowed the revenue's appeal.

4. Nature of Tooling and Repair Expenses:
The tribunal examined the assessee's claim that tooling expenses were revenue in nature due to their short life span. However, significant items like cutters were claimed without corresponding bills. The tribunal upheld the CIT(A)'s decision to disallow Rs. 1,09,61,257 as capital expenditure but allowed Rs. 22,65,705 for spares and repairs as revenue expenditure.

5. Disallowance of Interest Expenditure:
The tribunal agreed with the CIT(A) that interest on investments generating exempt income should be disallowed under Section 14A. However, it noted that the disallowance should not be based on Rule 8D, which applies from A.Y 2008-09. The tribunal remanded the issue to the AO for recomputation following the Bombay High Court decision in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT.

6. Disallowance of Provision for Commission/Turnover Discount:
The tribunal found merit in the assessee's argument that the provision for commission and trade discount was based on actual turnover and schemes, not contingent liabilities. It remanded the issue to the AO to verify the provision against actual credit notes and allow the claim accordingly.

7. Disallowance of Commission Paid to Directors:
The tribunal upheld the CIT(A)'s partial allowance of commission paid to Mr. S.K. Maheshwari, a technocrat, while disallowing the commission to Mr. D.C. Anand, the promoter, due to the lack of an agreement. This decision was consistent across multiple assessment years.

8. Disallowance of Bad Debts:
The tribunal noted the absence of details supporting the bad debt claims. Citing the Bombay High Court decision in DIT vs. Oman International Bank, it emphasized the need for bona fide write-offs. Without sufficient details, the tribunal confirmed the disallowance.

9. Disallowance of Advance Written Off:
This ground was not pressed by the assessee and was dismissed as not pressed.

10. Disallowance of Staff Welfare Expenses:
The tribunal referenced its earlier decision in the assessee's favor for A.Y 2003-04, where such disallowances were deemed unwarranted. It followed this precedent and allowed the claim.

11. Disallowance of Miscellaneous Expenses:
Similarly, the tribunal allowed the claim for miscellaneous expenses, following its earlier decision for A.Y 2003-04.

12. Disallowance of Foreign Travel Expenses:
The tribunal allowed the claim for foreign travel expenses, consistent with its earlier decision for A.Y 2003-04.

13. Carried Forward of Long-Term Capital Loss:
The tribunal found the AO and CIT(A)'s summary rejection of the long-term capital loss claim insufficient. It remanded the issue to the AO for a detailed examination of the business expediency and transaction genuineness.

Conclusion:
The tribunal's decisions varied across issues, with some disallowances being upheld due to lack of evidence, while others were remanded for further verification or allowed based on precedents. The tribunal emphasized the importance of detailed evidence and bona fide transactions in tax claims.