1998 (6) TMI 569 - AT - Income Tax

Issues involved:

1. Disallowance of deduction u/s 80M of the Income-tax Act, 1961.
2. Disallowance of interest claimed u/s 36(1)(iii) of the Income-tax Act.
3. Disallowance of depreciation and loss claimed on Ispat Unit.
4. Levy of interest u/s 234B of the Income-tax Act.
5. Disallowance of depreciation on various assets.
6. Disallowance of remuneration paid to female employees.
7. Disallowance of entertainment expenditure.
8. Disallowance of presentation articles.
9. Disallowance of travelling expenses.
10. Disallowance of legal and professional expenses.
11. Disallowance u/s 43B of the Income-tax Act.
12. Disallowance of project expenses.
13. Disallowance of various business expenses.
14. Disallowance of help to journalists.
15. Disallowance of contributions to local organizations.
16. Disallowance of application fee for import of aircraft.
17. Disallowance of fee paid to Registrar of Companies.
18. Disallowance of commission/brokerage for want of confirmation.
19. Taxability of interest granted u/s 244(1A) and 244(1)(b) of the Income-tax Act.
20. Disallowance of claim u/s 80HHC of the Income-tax Act.

Summary:

1. Disallowance of deduction u/s 80M:
The Tribunal held that the allocation of Rs. 6.94 crores as expenditure relatable to dividend income was not justified. The assessee's income and own funds far exceeded the investments giving dividend income, and the borrowed funds were taken for business purposes. The allocation of interest towards earning dividend income was unjustified.

2. Disallowance of interest claimed u/s 36(1)(iii):
The Tribunal found that the assessee was carrying on the "same business" across different units, having common management, funds, and interdependence. Therefore, the interest paid on borrowings was to be deductible u/s 36(1)(iii) of the Act.

3. Disallowance of depreciation and loss claimed on Ispat Unit:
The Tribunal held that the business of the assessee was set up on 30th March 1993, and it was entitled to depreciation on the plant and business loss amounting to Rs. 27.54 lakhs. The plant was ready to commence production, satisfying the test laid down by the jurisdictional High Court.

4. Levy of interest u/s 234B:
The Tribunal rejected the assessee's claim, stating that assessed tax is the tax on the total income determined under section 143(1) or on regular assessment, not the tax on total income declared in the return.

5. Disallowance of depreciation on various assets:
The Tribunal accepted the assessee's claim for depreciation on intake well, telpher, acid tank, lagoon tank, effluent tank, lime storage tank, and false ceiling, treating them as plant and machinery.

6. Disallowance of remuneration paid to female employees:
The Tribunal allowed 75% of the salary paid to certain female employees, disallowing only 25%, consistent with the Tribunal's order in the earlier assessment year.

7. Disallowance of entertainment expenditure:
The Tribunal upheld the disallowance of 50% of the entertainment expenditure on tea, coffee, snacks, and soft drinks provided to customers, suppliers, guests, and auditors.

8. Disallowance of presentation articles:
The Tribunal deleted the disallowance of Rs. 9,04,536 for presentation articles, stating that such expenditure was not in the nature of entertainment but could be considered advertisement expenditure.

9. Disallowance of travelling expenses:
The Tribunal allowed certain travel expenses incurred for business purposes but upheld the disallowance of expenses related to acquiring new business and expenses without sufficient business connection.

10. Disallowance of legal and professional expenses:
The Tribunal upheld the disallowance of legal and professional expenses related to capital assets but allowed the expenditure of Rs. 38,870 incurred for disputing higher compensation claims.

11. Disallowance u/s 43B:
The Tribunal held that Explanation 2 to section 43B does not govern payments under clauses (b), (c), and (d) and directed the Assessing Officer to consider the disallowance in light of the Andhra Pradesh High Court's decision.

12. Disallowance of project expenses:
The Tribunal upheld the disallowance of Rs. 36,03,003 as capital expenditure but directed that Rs. 4,02,016 incurred for projects materialized up to 31st March 1997 be capitalized and added to the cost of assets.

13. Disallowance of various business expenses:
The Tribunal upheld the disallowance of certain business expenses for lack of evidence but allowed the interest on land compensation as a deductible expense.

14. Disallowance of help to journalists:
The Tribunal upheld the disallowance of Rs. 27,475, stating that the assessee failed to establish how the expenditure helped its business.

15. Disallowance of contributions to local organizations:
The Tribunal upheld the disallowance of Rs. 2,35,196, as the assessee did not establish any connection between the contributions and its business.

16. Disallowance of application fee for import of aircraft:
The Tribunal allowed the application fee of Rs. 1 lakh for importing an aircraft on lease, treating it as revenue expenditure.

17. Disallowance of fee paid to Registrar of Companies:
The Tribunal upheld the disallowance of Rs. 3 lakh paid to the Registrar of Companies for increasing the authorized capital as capital expenditure.

18. Disallowance of commission/brokerage for want of confirmation:
The Tribunal set aside the disallowance and remitted the matter back to the Assessing Officer for reconsideration after verifying the details furnished by the assessee.

19. Taxability of interest granted u/s 244(1A) and 244(1)(b):
The Tribunal directed the Assessing Officer to reduce the taxable interest by the amount subsequently withdrawn.

20. Disallowance of claim u/s 80HHC:
The Tribunal set aside the disallowance and directed the Assessing Officer to allow the assessee an opportunity to furnish the certificate in the prescribed form for the company as a whole.

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