2012 (2) TMI 571 - AT - Income Tax

Issues Involved:
1. Disallowance of sales tax collection u/s 43B.
2. Reduction in depreciation on new plant & machinery u/s 32.
3. Disallowance of travelling expenses u/s 37(3) r.w.r 6D.
4. Disallowance of guest house expenses u/s 37(4).
5. Disallowance of expenses on food and beverages u/s 37(2).
6. Disallowance of contributions u/s 35(1)(iii).
7. Disallowance of donations u/s 80G.
8. Taxability of time-barred liabilities written back u/s 41(1).
9. Deduction u/s 80HH and 80I.
10. Set-off of earlier years' losses for deduction u/s 80I.
11. Tax treatment of interest income for purposes of sec. 80HHC.
12. Deduction for provision of retirement pension payable to employees.

Summary:

1. Disallowance of sales tax collection u/s 43B:
The Tribunal upheld the disallowance of sales tax collection u/s 43B, emphasizing that the sales tax collected is a revenue receipt and must be included in the trading account. The object of sec. 43B is to ensure payment of tax, duty, cess, or fee before allowing any deduction.

2. Reduction in depreciation on new plant & machinery u/s 32:
The Tribunal decided in favor of the assessee, stating that the capital subsidy received from the Government of Jammu & Kashmir for setting up a unit should not reduce the cost of plant and machinery for depreciation purposes, following the Supreme Court's decision in Commissioner of Income-tax v. P.J. Chemicals Ltd.

3. Disallowance of travelling expenses u/s 37(3) r.w.r 6D:
The Tribunal upheld the disallowance of travelling expenses computed on a per-trip basis, following the decision of the Bombay High Court in Commissioner of Income-tax vs. Arrow India Ltd. However, it directed the Assessing Officer to examine and allow travelling expenses incurred by Research Scientists u/s 35(1)(i).

4. Disallowance of guest house expenses u/s 37(4):
The Tribunal upheld the disallowance of guest house expenses, including rent, repairs, rates, taxes, and depreciation, following the Supreme Court's decision in Britannia Industries Ltd. v. Commissioner of Income-tax.

5. Disallowance of expenses on food and beverages u/s 37(2):
The Tribunal allowed the expenditure on food and beverages provided to employees at get-together and conferences but disallowed the expenditure on food and beverages provided to business visitors, following earlier Tribunal decisions.

6. Disallowance of contributions u/s 35(1)(iii):
The Tribunal directed the Assessing Officer to verify the eligibility of contributions to the Indian Institute of Education and Consumer Education Society for deduction u/s 35(1)(iii), as the claim was raised for the first time before the Tribunal.

7. Disallowance of donations u/s 80G:
The Tribunal directed the Assessing Officer to verify the exemption certificates of the institutions to whom donations were made and decide the claim of the assessee for deduction u/s 80G accordingly.

8. Taxability of time-barred liabilities written back u/s 41(1):
The Tribunal upheld the addition of time-barred liabilities written back as income u/s 41(1), following the Tribunal's decision in the assessee's own case for earlier years.

9. Deduction u/s 80HH and 80I:
The Tribunal directed the Assessing Officer to exclude certain head office expenses from allocation while computing deductions u/s 80HH and 80I, following the Tribunal's earlier decisions.

10. Set-off of earlier years' losses for deduction u/s 80I:
The Tribunal upheld the set-off of earlier years' losses and unabsorbed depreciation before allowing deduction u/s 80I, following the Tribunal's decision in the assessee's own case for earlier years.

11. Tax treatment of interest income for purposes of sec. 80HHC:
The Tribunal upheld the treatment of interest income as "income from other sources" and not as business income, thereby excluding it from the computation of deduction u/s 80HHC.

12. Deduction for provision of retirement pension payable to employees:
The Tribunal set aside the issue of provision for retirement pension payable to employees to the Assessing Officer for fresh examination and verification of the Pension Scheme, following the Supreme Court's decision in Bharat Earth Movers v. Commissioner of Income-tax.

Miscellaneous Issues in Revenue's Appeal:
The Tribunal decided various issues in favor of the assessee, including foreign travel expenses of spouses, club subscription and entrance fees, refreshment to shareholders at AGM, and rural development expenses, following earlier Tribunal decisions. The issue of excluding excise duty, sales tax, and miscellaneous income from total turnover for computing deduction u/s 80HHC was directed to be re-computed in light of the Supreme Court's decisions.

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