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2013 (2) TMI 321 - AT - Income TaxPersonal expenses - Section 37(1) - Disallowance part of Telephone expenses - Travelling expenses - Vehicle maintenance Personal expenditure Held that - These disallowances were made by the A.O. on the ground that personal use of the facility cannot be ruled out. No specific defect showing that concerned expenditure was incurred for personal use of the assessee has been pointed out by the A.O. The additions in this regard are only on estimate basis without any dollop of cogency In favour of assessee Nature of incentive subsidy - Capital or revenue receipt - subsidy from the Haryana State Government on the purchase of generator set A.O. opined that assessee was required to reduce the cost of generator set by this amount and then claim the depreciation on the balance amount Held that - Following the decision in case of Ponni Sugars & Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT) the subsidy in the case was granted by the State Government on the purchase of generator set. Hence, the same is capital subsidy and should go on to reduce the cost of asset In favour of assessee The case law from the Apex court in the case of P.J. Chemicals (1994 (9) TMI 1 - SUPREME COURT) is also not applicable on the facts of the case. In the said case the subsidy was with reference to a percentage of capital cost, which is not the case here.
Issues Involved:
1. Deduction under section 35(1)(iv) r.w.s. 35(2) of the Income Tax Act for scientific research. 2. Disallowance of various expenditures (telephone, traveling, vehicle maintenance, gifts and rewards). 3. Treatment of subsidy received for the purchase of a generator set. Issue-wise Detailed Analysis: 1. Deduction under section 35(1)(iv) r.w.s. 35(2) of the Income Tax Act for scientific research: The Revenue's appeal challenged the allowance of Rs. 8,14,368/- as a deduction for scientific research by the Ld. Commissioner of Income Tax (A), arguing that no research work was carried out by the assessee. However, the tribunal noted that the tax effect in this case was less than Rs. 3 lakhs, which is below the threshold for filing an appeal as per CBDT Instruction No. 3/2011. Thus, the appeal was dismissed due to the contravention of the CBDT Circular/Instruction. 2. Disallowance of various expenditures: The assessee's cross objection contested the partial disallowance of expenses under several heads, arguing that these expenses were already declared and taxed under Fringe Benefit Tax (FBT). The disallowances were as follows: - Telephone expenses: Rs. 80,000/- out of Rs. 9,38,661/-, with Rs. 20,000/- confirmed. - Traveling expenses: Rs. 1,00,000/- out of Rs. 13,73,900/-, with Rs. 20,000/- confirmed. - Vehicle maintenance: Rs. 1,20,000/- out of Rs. 11,89,886/-, with Rs. 20,000/- confirmed. The tribunal found that the Assessing Officer's disallowances were based on estimates without substantial evidence of personal use. Thus, the tribunal deleted these additions, stating that the disallowances lacked cogency and were merely estimations. 3. Treatment of subsidy received for the purchase of a generator set: The assessee received a subsidy of Rs. 75,000/- from the Haryana State Government for purchasing a generator set. The Assessing Officer held that this subsidy should reduce the cost of the generator set and that it should be accounted for as income from other sources if not reduced from the asset's cost. The Ld. Commissioner of Income Tax (A) directed that the subsidy should reduce the cost of the asset, following the Supreme Court's decision in C.I.T. vs. P.J. Chemicals Ltd. The tribunal upheld this decision, stating that the subsidy was a capital receipt intended to reduce the cost of the asset, aligning with the Supreme Court's ruling in the Ponni Sugars & Chemicals case, which emphasized the purpose of the subsidy in determining its nature. Conclusion: - The Revenue's appeal was dismissed due to the tax effect being below the prescribed limit. - The tribunal deleted the disallowances of telephone, traveling, and vehicle maintenance expenses, finding them to be unjustified estimations. - The tribunal upheld the treatment of the subsidy as a reduction in the cost of the generator set, affirming it as a capital receipt. Result: The Revenue's appeal was dismissed, and the Assessee's Cross Objection was partly allowed.
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