2009 (9) TMI 982 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of interest and lease rent.
2. Disallowance of PF contribution made after due dates.
3. Inclusion of excise duty in the value of closing stock.
4. Treatment of expenditure on installation/replacement/re-membraning in membrane cell plants.
5. Disallowance of contributions to GACL Employees' Welfare Trust and GACL Benevolent Fund.

Summary:

1. Disallowance of Interest and Lease Rent:
The AO disallowed the claim for deduction of interest and lease rent, asserting that the borrowings were utilized for new projects which had not commenced commercial production. The CIT(A) allowed the claim, relying on previous ITAT orders. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in DCIT v. Core Health Care Ltd., which clarified that interest on borrowings for business purposes is deductible u/s 36(1)(iii) regardless of whether the borrowed capital is used to acquire a revenue or capital asset.

2. Disallowance of PF Contribution Made After Due Dates:
The AO disallowed Rs. 1,78,722 for employees' contribution deposited after the due date. The CIT(A) upheld the disallowance. However, the Tribunal allowed the assessee's appeal, noting that the payment was made within the grace period permitted under the relevant enactment, referencing CIT v. Salem Co-operative Spinning Mills Ltd.

3. Inclusion of Excise Duty in the Value of Closing Stock:
The assessee contested the inclusion of excise duty in the closing stock valuation. The CIT(A) directed the AO to verify the payment of excise duty and allow deduction u/s 43B. The Tribunal dismissed the assessee's ground but directed the AO to consider the deduction u/s 43B in accordance with the law.

4. Treatment of Expenditure on Installation/Replacement/Re-membraning in Membrane Cell Plants:
The AO treated the expenditure as capital in nature, allowing depreciation. The CIT(A) upheld this view. The Tribunal, however, allowed the assessee's appeal, emphasizing the principle of consistency, as similar claims were treated as revenue expenditure in earlier years without any change in facts or circumstances.

5. Disallowance of Contributions to GACL Employees' Welfare Trust and GACL Benevolent Fund:
The AO disallowed the contributions, and the CIT(A) upheld the disallowance due to the lack of factual data. The Tribunal also upheld the disallowance, noting that the assessee failed to provide necessary details or submissions regarding the applicability of sec. 40A(9) and 40A(10).

Conclusion:
The appeal of the Revenue was dismissed, while the appeals of the assessee were partly allowed. The Tribunal upheld the CIT(A)'s findings on interest and lease rent, PF contributions, and excise duty inclusion but reversed the decision on the treatment of membrane cell expenditure, emphasizing consistency. The disallowance of contributions to welfare funds was upheld due to insufficient evidence.