2010 (4) TMI 1100 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the CIT(A)'s order.
2. Disallowance of amortization of lease rent.
3. Disallowance of contributions to welfare and benevolent funds.
4. Classification of expenditure on replacement of membrane cells.
5. Disallowance under Section 40A(3).
6. Deduction of lease rent claimed by the assessee.
7. Adjustment of provision for bad debts and diminution in value of investments.
8. Deduction under Section 80HHC while computing book profits.
9. Levy of interest under Sections 234B and 234C.

Detailed Analysis:

1. Validity of the CIT(A)'s Order:
The assessee contended that the CIT(A)'s order was "bad in law, contrary to legal pronouncements" and sought its quashing. The Tribunal dismissed this ground as being general in nature and not requiring separate adjudication.

2. Disallowance of Amortization of Lease Rent:
The assessee claimed amortization of lease rent for land as a revenue expenditure. The CIT(A) upheld the AO's view that the payment was capital in nature, providing an enduring benefit. The Tribunal noted the assessee's admission that the issue had been decided against them in earlier years and upheld the CIT(A)'s decision.

3. Contributions to Welfare and Benevolent Funds:
The assessee's contributions to the "GACL Employees Welfare Trust Fund" and "GACL Employees Benevolent Fund" were disallowed under Section 40A(9). The CIT(A) upheld the disallowance based on earlier Tribunal decisions. The Tribunal confirmed the CIT(A)'s decision, noting the lack of new material or arguments from the assessee.

4. Classification of Expenditure on Replacement of Membrane Cells:
The AO treated the expenditure on replacing membrane cells as capital in nature, while the assessee argued it was revenue expenditure. The CIT(A) upheld the AO's decision, but the Tribunal reversed this, citing consistency with earlier years where similar expenditure was allowed as revenue.

5. Disallowance under Section 40A(3):
The AO disallowed 20% of cash payments under Section 40A(3). The CIT(A) upheld this disallowance due to the lack of evidence from the assessee that the payments were advances not debited to the profit and loss account. The Tribunal affirmed the CIT(A)'s decision, noting the assessee's failure to provide supporting evidence.

6. Deduction of Lease Rent Claimed by the Assessee:
The AO allowed only the interest component of the lease rent, treating the principal as repayment of a loan. The CIT(A) allowed the entire lease rent deduction, following earlier Tribunal decisions. The Tribunal upheld the CIT(A)'s decision, noting consistency with previous years and the Revenue's acceptance of similar decisions.

7. Adjustment of Provision for Bad Debts and Diminution in Value of Investments:
The AO added back provisions for bad debts and diminution in investment value while computing book profits under Section 115JB. The CIT(A) deleted these additions, and the Tribunal upheld this, citing the Supreme Court's decision in CIT v. HCL Comnet Systems & Services Ltd. that such provisions are not liabilities.

8. Deduction under Section 80HHC while Computing Book Profits:
The AO denied the deduction under Section 80HHC for book profits, but the CIT(A) allowed it based on the Tribunal's decision in DCIT v. Syncome Formulations (I) Ltd. The Tribunal set aside the CIT(A)'s order and remanded the issue for reconsideration in light of the Bombay High Court's decision in CIT v. Ajanta Pharma Ltd.

9. Levy of Interest under Sections 234B and 234C:
The CIT(A) canceled the interest charged under Sections 234B and 234C on book profits. The Tribunal reversed this decision, citing the Special Bench decision in Additional CIT v. Ashima Syntex Ltd. and other judicial precedents, holding that interest is mandatory on book profits under Section 115JB.

Conclusion:
The Tribunal's decisions resulted in partly allowing the appeals of both the Revenue and the assessee. The Tribunal upheld the CIT(A)'s findings on several issues, reversed some decisions, and remanded others for reconsideration based on judicial precedents and consistency with earlier years.