2012 (5) TMI 189 - AT - Income Tax

Deduction u/s 80IB - erection of telecom shelter erected at the site of mobile telephone service providers - article or thing or just an immovable property - meaning of attached to the earth - manufacture or production of an article or thing - Held that - the product manufactured by the assessee is liable to excise duty and sales tax and accordingly - aforesaid process was a movable property and not an immovable property like a building or dam, since the same can be dismantled and installed at a new place. - the expression attached to the earth that the telecom shelters fixed to a foundation with the help of nuts and bolts to provide stability to the shelter does not qualify for being described as attached to the earth under any one of the three clauses extracted above. - Deduction allowed - Decided in favour of the assessee. Disallowance of Rs.4,13,416/- on account of foreign travel expenses - Held that - In the absence of any evidence of purpose of visit at each of the places/persons visited or even break up of expenses incurred at each of such places, the ld. CIT(A) was not justified in deleting the disallowance. - Decided against the assessee by way of remand. Depreciation on copy right expenses @ 25% - Held that - assessee submitted before the lower authorities and even before us that the amount of Rs.4,47,000/- represented the amount paid to a foreign company, Climator AB towards charges for agreeing to sell their products exclusively to the assessee for a period of one year, the relevant terms and conditions or a copy of the agreement has not been placed before us. - It introduces clarity, checks the introduction of extraneous or irrelevant considerations and minimizes arbitrariness in the decision-making process. - As is apparent, the order f CIT(A) suffers from lack of reasoning and is not a speaking order. - matter remanded back. Disallowance u/s 14A - Held that - AO made an estimated disallowance of aforesaid expenses on account of interest and administrative expenses since the assessee earned exempt income, invoking provisions of sec. 14A of the Act. - CIT(A) did not succinctly brought out as to whether or not borrowed funds had indeed been invested in mutual funds or any other expenditure had nexus with earning of aforesaid dividend income nor he had the benefit of the view taken in the aforesaid decisions, - Decided in favour of the assessee by way of remand of CIT(A)

Issues Involved:

1. Deduction under section 80IB of the IT Act.
2. Validity of proceedings under section 147.
3. Disallowance of foreign travel expenses.
4. Depreciation on copyright expenses.
5. Disallowance of provision for slow-moving inventory.
6. Disallowance under section 14A.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IB of the IT Act:

The primary issue was whether the telecom shelters manufactured by the assessee qualified as "articles" or "things" and whether the process involved constituted "manufacture or production" under section 80IB. The Assessing Officer (AO) denied the deduction, arguing that the shelters were immovable properties and the process was merely assembling, not manufacturing. The assessee contended that the shelters were movable and paid excise duty and sales tax, implying they were manufactured goods. The CIT(A) agreed with the assessee, concluding that the shelters were movable properties and the process amounted to manufacturing. The Tribunal upheld the CIT(A)'s decision, noting that the product was a distinct marketable commodity with a different name, character, and use from its components.

2. Validity of Proceedings under Section 147:

The assessee challenged the validity of the proceedings under section 147, arguing that the notice under section 148 was issued after the expiry of four years from the end of the relevant assessment year and was based on the same facts already considered during the original assessment. The CIT(A) upheld the validity of the proceedings, and the Tribunal dismissed the assessee's grounds, noting that the assessee did not press these grounds during the hearing.

3. Disallowance of Foreign Travel Expenses:

The AO disallowed foreign travel expenses of Rs.4,13,416/- due to the lack of evidence regarding the purpose of the trips. The CIT(A) deleted the disallowance, accepting the assessee's explanation that the trips were for business purposes. However, the Tribunal found that the assessee did not provide sufficient evidence of the purpose of the trips and the expenses incurred at each location. Therefore, the Tribunal set aside the CIT(A)'s order and remanded the matter for fresh consideration.

4. Depreciation on Copyright Expenses:

The AO treated the copyright expenses of Rs.4,47,000/- as capital expenditure and allowed depreciation at 25%. The CIT(A) upheld the AO's decision but directed to allow depreciation on the entire amount. The Tribunal found that the CIT(A)'s order lacked reasoning and remanded the matter for fresh consideration, directing the CIT(A) to pass a speaking order.

5. Disallowance of Provision for Slow-moving Inventory:

The AO disallowed the provision for slow-moving inventory of Rs.1,49,490/-, stating it was merely a provision and not an actual write-off. The CIT(A) upheld the disallowance, and the Tribunal agreed, noting that the assessee did not provide any material to controvert the CIT(A)'s findings.

6. Disallowance under Section 14A:

The AO made a disallowance under section 14A, invoking Rule 8D, which the CIT(A) upheld. The Tribunal noted that Rule 8D applies prospectively from AY 2008-09, and for earlier years, the AO must determine the disallowable expenditure by a reasonable method. The Tribunal set aside the CIT(A)'s order and remanded the matter for fresh consideration in light of judicial pronouncements, including the decisions in Godrej & Boyce Mfg. Co. Ltd. and Walfort Share & Stock Brokers (P.) Ltd.

Conclusion:

The Tribunal upheld the CIT(A)'s decision on the deduction under section 80IB but remanded the issues of foreign travel expenses, depreciation on copyright expenses, and disallowance under section 14A for fresh consideration. The Tribunal dismissed the grounds related to the validity of proceedings under section 147 and the provision for slow-moving inventory. The appeals were partly allowed for statistical purposes.

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