2017 (5) TMI 1500 - HC - Income Tax

Allowance of business expenditure u/s. 37 incurred on foreign tour of wife of the Director of the Company - Held that - Claim allowed as relying on Appollo Tyres Ltd 1998 (8) TMI 68 - KERALA High Court Allowing 100% deduction u/s.80IA specifically when the assessee company itself and claimed deduction @ 30% u/s. 80IA - Held that - The issue is now covered by the decision of Madras High Court in the case of Tamilnadu Petro Products Ltd. Vs. Assistant Commissioner of Income-tax- (2010 (11) TMI 645 - MADRAS HIGH COURT ) wherein it has been held as we dealt with the issue in the light of Section 80-IA and in particular Sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the Assessee and the income derived from such enterprise of the Assessee it will have to be held that the Assessee fully complied with the requirements prescribed under Section 80IA in order to avail the benefits provided therein. Therefore the contention based on the interpretation of the expression derived from can have no application to the case where the provisions of Section 80-IA get attracted - Decided in favour of assessee. Computation of Minimum Alternate Taxation (MAT) u/s 115JA - Entitled for consequential relief in computing income tax payable u/s. 115JA specifically when the assessee company did not distribute the power and the plant was set up for manufacturing of fertilizer and the power plant was a part of fertilizer unit of the company - Held that - Issue is squarely covered by the decision of Supreme Court in the case of Commissioner of Income-tax Vs. DCM Shriram Consolidated Ltd.- (2015 (2) TMI 759 - SUPREME COURT) wherein it has been held that it is quite evident that assessee s CPPs can as a matter of principle derive profits which is in point of fact embedded in the ultimate profit earned on the sale of the final product. - Assessee is entitled to reduce from its book profits the profits derived from its CPPs in determining tax payable for the purposes of Section 115JA of the Act. - Decided in favour of assessee. Cancelling the rectification order under Section 154 and deleting the interest levied u/s.234C by ITAT - Held that - since the issue of charging of interest under section 234C of the Act under the facts and circumstances of the present case was debatable one and hence the AO was not justified in charging the same by passing an order under section 154 of the Act. The Hon ble Supreme Court in the case of CIT vs. Hero Cycles Pvt. Ltd (1997 (8) TMI 6 - SUPREME Court ) was pleased to hold that the condition precedent for initiating the proceedings under section 154 the mistake should be glaring and obvious and it should not be debatable and therefore even if there are two views on the issue the proceedings under section 154 cannot be initiated - Decided in favour of the assessee Validity of revised return - justification of holding that the revised return u/s 139(5) was a valid return - Held that - Supreme court in the case of Goetze (India) Ltd. Vs. Commissioner of Income Tax 2006 (3) TMI 75 - SUPREME Court held that the decision in question is that the power of the Tribunal under section 254 of the Income Tax Act 1961 is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the assessing officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case we dismiss the civil appeal. However we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income Tax Appellate Tribunal under section 254 - Decided in favour of the assessee Addition account of downward impact of Retention Price Subsidy - whether Tribunal was justified in allowing the Retention Price Subsidy specifically when it was an unascertained liability and represented reverse which is not allowable? - Held that - AO has only power to make adjustment as provided in explanantion. The amount set aside for making the ascertained liability cannot be added to the book profit. Hence sub clause (c) to explanation (1) of Section 115 JB is not applicable. The amount so debited is not a reserve to be covered under sub-clause (d) to explanation 1 of Section 115JB of the Act. We do not agree with the contention ld. AR the Retention Price Subsidy credited be not treated as part of the book profit. If the assessee is crediting the Retention Price Subsidy in the books of accounts and such subsidy is included in the accounts approved in General Body Meeting the same cannot be excluded from the book profit. One has to consider the method of accounting being followed by the assessee consistently. Accordingly we hold that the debit in respect of Retention Price Subsidy on account of notification dated 15.04.2009 is allowable. - Decided in favour of the assessee. Addition in respect of fees paid to a consultant for drafting the shareholders agreement - Held that - The appellant company has incurred expenditure of Rs. 11.62 lakhs in connection with drafting of stock subscription and share holders agreement for acquiring stock/equity shares of Novasoft Information Technology Corporation USA. The Expenditure is directly relatable to the acquisition of shares/equity of another company but not in relation to the share capital of the appellant company. Hence it can not be directly considered as capital expenditure. If the shares so acquired have been treated as non-trade investment then it would have added to the cost of shares (being asset). However on perusal of balance sheet it is seen that these shares have been treated as trade investment and accordingly the expenditure so incurred may be considered as allowable revenue expenditure. However by virtue of provisions of Section 145A the direct expenses or fees (by whatever name called) incurred in acquiring the traded items will have to be added for the purpose of valuation of closing stock for determining the income chargeable under the heads profit and gains of the business. Accordingly for determining income from profits and gains of the business same is directed to be added in view of the discussion made above - Decided in favour of assessee Addition made on account of purchase of software being capital in nature - Held that - In that view of the matter the software which are purchased are installed are revenue expenditure and not of capital expenditure. Therefore we are in complete agreement with the view taken by the Tribunal. - Decided in favour of assessee Depreciation on catalyst not allowable under Section 32 - Held that - Catalyst is required for initiating the chemical process for the maufacture of a product. The expenditure incurred on the consumption of a consumable item is Revenue. Since the assessee was following consistent method of accounting therefore the AO should not have deviated from the consistent method which has been followed. There is no change in the facts and circumstances of the case - Decided in favour of assessee Accrual of income - Held that - The question whether there was real accrual of income to the assessee-Company in respect of the enhanced charges for supply of electricity has to be considered by taking the probability or improbability of realisation in a realistic manner. If the matter is considered in this light it is not possible to hold that there was real accrual of income to the assessee-Company in respect of the enhanced charges for supply of electricity which were added by the Income-tax Officer while passing the assessment orders in respect of the assessment years under consideration. The Appellate Assistant Commissioner was right in deleting the said addition made by the Income-tax Officer and the Tribunal had rightly held that the claim at the increased rates as made by the assessee-company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the Income-tax Officer did not represent the income which had really accrued to the assessee-Company during the relevant previous years - Decided in favour of assessee MAT computation - AO jurisdiction - Held that - Assessing officer while computing the income under Section 115J has only the power of examining whether the books of account are certifies by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The assessing officer thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J. Allowable business expenditure - Held that - The true test for qualification of expenditure under Section 37 of the Act is that it should be incurred wholly and exclusively for the purposes of business and the expenditure should not be towards capital account. In the instant case as discussed above the admission fee paid towards corporate membership is an expenditure incurred wholly and exclusively for the purposes of business and not towards capital account as it only facilitates smooth and efficient running of a business enterprise and does not add to the profit earning apparatus of a business enterprise. Addition u/s 40A - Held that - The expression used in this provision is incurs any expenditure in respect of which payment has been or is to be made to any person (emphasis supplied). The emphasised words clearly show that actual payment must be made and there has to be an expenditure incurred before the provision can be said to be applicable. A trade discount and admittedly it is not in dispute that the subject matter of the claim is a trade discount and not an expenditure clearly therefore there does not arise the question of applicability of Section 40-A(2)(b).

Summary

Issues Involved:
1. Business expenditure on foreign tour.
2. Deduction under Section 80IA.
3. Consequential relief under Section 115JA.
4. Rectification order under Section 154 and interest under Section 234C.
5. Validity of revised return under Section 139(5).
6. Retention Price Subsidy.
7. Fees paid to consultants.
8. Sales tax collected and converted into loan.
9. Depreciation on catalyst.
10. Interest on inter-corporate deposit.
11. Club expenses.
12. Donation to DAV Trust.
13. Welfare fund contribution.
14. Loss on sale of inventory to sister concern.
15. Revaluation of imported pumps.
16. Penalty under Section 271(1)(c).

Detailed Analysis:

1. Business Expenditure on Foreign Tour:
The Tribunal was justified in allowing Rs. 15,64,979/- as business expenditure under Section 37 incurred on the foreign tour of the wife of the Director of the Company. This issue was covered by the decisions of the Calcutta High Court in Kesoram Industries & Cotton Mills Ltd. Vs. CIT and Kerala High Court in CIT Vs. Apollo Tyres Ltd., and followed by the jurisdictional High Court in M/s Chambal Fertilizers & Chemicals Ltd. Vs. DCIT.

2. Deduction under Section 80IA:
The Tribunal was justified in allowing 100% deduction under Section 80IA even though the assessee company claimed deduction at 30%. This issue was covered by the decision of the Madras High Court in Tamilnadu Petro Products Ltd. Vs. Assistant Commissioner of Income-tax, which held that the assessee fully complied with the requirements prescribed under Section 80IA.

3. Consequential Relief under Section 115JA:
The Tribunal was justified in holding that the assessee company is entitled to consequential relief in computing income tax payable under Section 115JA. This issue was covered by the decision of the Supreme Court in Commissioner of Income-tax Vs. DCM Shriram Consolidated Ltd.

4. Rectification Order under Section 154 and Interest under Section 234C:
The Tribunal upheld the order of the CIT(A) in canceling the rectification order under Section 154 and deleting the interest levied under Section 234C. The Tribunal observed that the charging of interest was a change of opinion and the issue was debatable, thus beyond the provisions of Section 154.

5. Validity of Revised Return under Section 139(5):
The Tribunal was justified in holding that the revised return under Section 139(5) was valid. The Supreme Court in Goetze (India) Ltd. Vs. Commissioner of Income Tax clarified that the issue was limited to the power of the assessing authority and did not impinge on the power of the Income Tax Appellate Tribunal under Section 254.

6. Retention Price Subsidy:
The Tribunal was justified in deleting the addition made on account of downward impact of Retention Price Subsidy. The Supreme Court in Godhra Electricity Co. Ltd. Vs. Commissioner of Income-tax held that the income charged to tax is the real income and not hypothetical income.

7. Fees Paid to Consultants:
The Tribunal was justified in allowing the fees paid to consultants as revenue expenditure instead of capital expenditure. The CIT(A) treated the expenditure as allowable revenue expenditure since the shares were treated as trade investment.

8. Sales Tax Collected and Converted into Loan:
The Tribunal was justified in deleting the addition made under Section 115JB on account of sales tax collected and converted into loan. This issue was covered by the decision in Apollo Tyres Ltd. Vs. Commissioner of Income Tax, which held that the assessing officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J.

9. Depreciation on Catalyst:
The Tribunal was justified in deleting the disallowance of depreciation on catalyst. The Tribunal followed the principle of consistency, noting that the same practice was accepted by the department in previous years.

10. Interest on Inter-Corporate Deposit:
The Tribunal was justified in deleting the addition made on account of accrued interest on inter-corporate deposit. The Tribunal followed its decision in earlier assessment years.

11. Club Expenses:
The Tribunal was justified in allowing the club expenses incurred by the assessee for the membership of its employees under Section 37. The expenses were considered to be incurred wholly and exclusively for the purposes of business.

12. Donation to DAV Trust:
The Tribunal was justified in holding that the donation made to DAV Trust was incurred wholly and exclusively for the purpose of business of the assessee. The CIT(A) had allowed similar claims in previous assessment years.

13. Welfare Fund Contribution:
The Tribunal was justified in allowing the welfare fund contribution under Section 43B(b). The contribution was mandatory as per the agreement and was allowable on payment.

14. Loss on Sale of Inventory to Sister Concern:
The Tribunal was justified in deleting the disallowance made under Section 40A(2)(a) on account of loss on sale of inventory to the sister concern. The Tribunal held that the sale was at a concessional rate and there was no expenditure which could be disallowed.

15. Revaluation of Imported Pumps:
The Tribunal was justified in deleting the disallowance made on account of revaluation of imported pumps. The Tribunal held that the loss would be allowable as and when the pumps are treated as scrap or sold.

16. Penalty under Section 271(1)(c):
The Tribunal was justified in canceling the penalty levied under Section 271(1)(c) for furnishing inaccurate particulars and concealing particulars of income. The Tribunal followed its decision in earlier appeals where the issues were decided in favor of the assessee.

All the appeals were disposed of as indicated above.