2009 (2) TMI 862 - AT - Income Tax

2016 (12) TMI 682 - AT

Issues Involved:
1. Disallowance of pre-operative expenditure.
2. Allowability of trial run expenditure.
3. Treatment of sales tax deferment loan.
4. Deduction u/s.35AB for technical know-how fees.
5. Annual value of property.
6. Disallowance of interest.
7. Disallowance of foreign travel expenses.
8. Disallowance of expenditure for earning tax-free income.
9. Adjustment of prior period expenditure and debenture redemption reserves while computing book profit u/s.115JA.
10. Addition due to closing stock valuation.
11. Addition on account of MODVAT credit.
12. Deduction on account of training fees.
13. Allowability of deduction on account of VRS payment.

Summary:

1. Disallowance of Pre-operative Expenditure:
The Tribunal allowed the assessee's claim for pre-operative expenditure of Rs. 1,25,23,020/- incurred at the Nasik steel division, following its own decision in the assessee's case for AY 1996-97. The claim for Gopal Nagar unit was dismissed as not pressed.

2. Allowability of Trial Run Expenditure:
The Tribunal allowed the trial run expenditure of Rs. 2.69 crores for the Nasik steel project, treating it as revenue expenditure, consistent with its decision for AY 1996-97.

3. Treatment of Sales Tax Deferment Loan:
The ground regarding the sum of Rs. 22,24,144/- deposited with MP High Court was dismissed as not pressed.

4. Deduction u/s.35AB for Technical Know-how Fees:
The Tribunal upheld the CIT(A)'s decision that technical know-how fees paid in installments are covered by section 35AB, allowing only 1/6th of the gross amount as deduction, following its own decision for AY 1994-95.

5. Annual Value of Property:
The Tribunal confirmed the CIT(A)'s method of computing the annual value of JK House based on standard rent, following its decision for AY 1994-95.

6. Disallowance of Interest:
The Tribunal allowed the interest expenditure of Rs. 11,12,83,657/- for the Nasik steel unit, treating it as an extension of the existing steel division, consistent with its decision for AY 1995-96.

7. Disallowance of Foreign Travel Expenses:
The Tribunal allowed the foreign travel expenses of employees' spouses, following its decision for AY 1991-92, where such expenses were deemed essential for business purposes.

8. Disallowance of Expenditure for Earning Tax-free Income:
The ground regarding the disallowance of Rs. 1,61,999/- was dismissed as not pressed.

9. Adjustment of Prior Period Expenditure and Debenture Redemption Reserves:
The Tribunal allowed the adjustment of prior period expenditure of Rs. 300.35 lacs and deleted the addition of Rs. 1880.30 lacs for debenture redemption reserves, following the Supreme Court's judgment in Apollo Tyres and National Rayon Corporation Ltd.

10. Addition Due to Closing Stock Valuation:
The Tribunal upheld the CIT(A)'s decision to follow the direct cost method of valuation, rejecting the Assessing Officer's full cost method, consistent with its decision for AY 1997-98.

11. Addition on Account of MODVAT Credit:
The Tribunal confirmed the CIT(A)'s decision to exclude MODVAT from closing stock valuation, following the Supreme Court's judgment in Indo Nippon Chemical Co. Ltd.

12. Deduction on Account of Training Fees:
The Tribunal upheld the CIT(A)'s decision to allow training fees paid to a foreign company as revenue expenditure.

13. Allowability of Deduction on Account of VRS Payment:
The Tribunal confirmed the CIT(A)'s decision to allow VRS payment as revenue expenditure, following the High Court's judgment in Bhor Industries Ltd.

Conclusion:
The appeal of the assessee was partly allowed, and the appeal of the revenue was dismissed. The order was pronounced in open court on 25.02.2009.

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