2014 (2) TMI 1110 - AT - Income Tax

Denial of deduction in respect of accrued leave salaries Held that - The decision in Commissioner of Income-tax Versus West Coast Paper Mills Ltd. 1991 (3) TMI 386 - BOMBAY HIGH COURT followed - There was no reason for not allowing the claim on the basis of changed method so far as the change was concerned and on the earlier method if the liability in regard thereto had not already been allowed as deduction thus, the assessee was entitled to the deduction in the year the AO is directed to allow the claim of leave salary Decided in favour of Assessee. Recovery of Guest House Expenses under Rule 6D of the Rules Held that - As decided in assessee s own case for the previous assessment years, the user of guest house facilities provided by the company to the employees of the company in connection with discharge of their official duties does not alter the basic character of the expenditure - Ultimately such expenses are connected with the travelling by such employees and, therefore, should be treated accordingly, irrespective of the fact that such employees stayed in the guest house of the company - the AO is directed to allow the deduction of amount received from parent departments as expenditure in the nature of travelling expenses and in accordance with Rule 6D of the IT Rules Decided in favour of Assessee. Disallowance made under Rule 6B of the Rules Expenditure on Calendars and Diaries Held that - The decision in Commissioner Of Income-Tax Versus Allana Sons Private Limited 1993 (4) TMI 13 - BOMBAY High Court followed - presentation articles bearing the logo of the assessee would fall within the ambit of Rule 6B as expenditure in the nature of advertisement Decided against Assessee. Disallowance of Annual General Meeting Expenses Held that - As decided in assessee s own case for the previous assessment years - the definition of entertainment expenditure was inserted by the Finance Act, 1983 with retrospective effect from 1. 4. 1976 - the expenditure incurred on serving tea, coffee and soft drinks is covered by the Explanation 2 to section 37(2A)/(37(2) - In the Explanation 2 it is stipulated that the expenditure on provision of hospitality of every kind by the assessee to any person whether by way of provision of food or beverages or in any other manner, whatsoever, would be entertainment expenditure Decided against Assessee. Disallowance of expenditure u/s 37(2A) of the Act Expenses on tea and coffee served to visitors Held that - As decided in assessee s own case for the previous assessment years, the Tribunal made a disallowance of 25% of entertainment expenses on this ground would be reasonable thus, the AO is directed to restrict the disallowance to 25% of the expenses - Decided partly in favour of Assessee. Disallowance u/s 37(2A)of the Act - Business meetings and conferences of the employees Expenditure on food at employees get together Held that - As decided in assessee s own case for the previous assessment years, it has been decided that as per Explanation 1 to section 37(2A), the entertainment expenditure includes the amount of any disallowance in the nature of entertainment allowance paid to the employee - the entertainment expenditure also includes the expenditure incurred by the employee for the purpose of business or profession Decided against Assessee. Disallowance u/s 40A (5) of the Act - Deemed perquisites Held that - The disallowance was estimated by it on account of non-availability of information readily at the time of furnishing of the returns, that the auditors had also not quantify the disallowance u/s. 40A(5) the quantification of the expenses incurred towards maintenance of property, sweeper, wages, repairs, depreciation, soft furnishings etc. were correct - The decision in Lubrizol India Limited Versus Commissioner Of Income-Tax 1990 (7) TMI 45 - BOMBAY High Court followed the estimate of disallowance u/s. 40A(5) as made by the CIT(A) is proper and has to be upheld Decided against Assessee. Expenditure on Partly Convertible Debenture Held that - The decision Brooke Bond India Limited Versus Commissioner of Income-Tax 1997 (2) TMI 11 - SUPREME Court followed - the expenditure incurred by a company in connection with the issue of shares with a view to increase its share capital was directly related to the expansion of the capital base of the company and was a capital expenditure even though it might incidentally help in the business of the company and in the profit making, that the action of the AO was as per the provisions of law Decided against Assessee. Disallowance of Tata Steel Rural Development Society (TSRDS) expenditure Disallowance of Annual Contribution to Steel Plants Sports Board and Tata Sports Club - Contributions to various Institutions - Contribution to the society for sports and stadium Contribution made to Beldih and United clubs Held that - The decision in TELCO ITA/6003 to 6008/Mum/98 followed the payments were made keeping in mind business expediency viz. , to have a motivated work force thus, the expenditure in question has to be allowed as a deduction u/s. 37(1) MOU makes the facts and circumstances of the case peculiar thus, the deduction is to be allowed Decided in favour of Assessee. Disallowance u/s 35D of the Act - Fees paid to consultants for feasibility studies Held that - As decided in assessee s own case for the previous assessment years, it has been decided that the expenditure incurred on report for increasing production capacity and future development thus, the expenditure was not a capital expenditure and allowed deduction of same as a revenue expenditure Decided in favour of Assessee. Disallowance of allowances - Investment Allowance and Extra Shift Allowance on Town Division assets, investment allowance on various items Plant and Machinery and Investment Allowance on items of P&M of Tubes Division Held that - As decided in assessee s own case for the previous assessment years, it has been decided that the main works and the township formed an integral part of the whole industrial complex, one of which cannot exist without the other - the plant and machinery installed even for providing the necessary facilities to the employees which does not apparently have any connection with the manufacturing activity is directly needed for the running of the priority industry - investment allowance is admissible to the assessee on the plant and machinery in the Town Division, particularly when on the items like light and fan installations the assessee had itself not claimed any investment allowance - additional depreciation, extra shift allowance and investment allowance are admissible to the assessee on the plant and machinery in the Town Division Decided in favour of Assessee. Deduction u/s 35(1)(iii) of the Act - Contribution to Xavier Labour Relations Institute Held that - contribution to XLRI is allowable on the same principles that we have followed in allowing the earlier grounds, but same is subject to production of evidence of payment of contribution by the assessee thus, the matter remitted back to the AO for verification Decided partly in favour of Assessee. Bad and doubtful debts written off Held that - As decided in assessee s own case for the previous assessment years, it has been decided that the write off of the debt as bad has to be construed as a bonafide write off - It was based on commercial providence the deduction claimed is allowed Decided in favour of Assessee. Restriction of claim made u/s. 80HHC of the Act Held that - The decision in Karimjee (P.) Ltd. Versus Deputy Commissioner of Income-Tax And Another 2002 (9) TMI 5 - SUPREME Court followed - the assessee should be allowed to have an opportunity to create the reserve for the additional amount thus, the matter remitted back to the AO for adjudication Decided partly in favour of Assessee. Allowability of deduction on account of provision for leave salaries Allowability of 20% of initial contribution as deduction - Held that - As decided in assessee s own case for the previous assessment years, it has been decided that the department had not challenged the order of the Tribunal before the Hon ble High Court while filing appeal for that AY the whole of initial contribution to the ASF was deductible u/s. 36(1 )(iv) in computing the business income of the assessee in the year of contribution itself, that there was no provision in the Act which stipulated disallowance of a part of the contribution to ASF and spreading over the balance amount over a period of five years - Decided against Revenue. Deduction on account of guarantee amount paid to Ahmedabad Advance Mills Ltd. (AAML) Held that - As decided in assessee s own case for the previous assessment years, it has been decided that the assessee in terms of the agreement entered into a commercial transaction and thereby incurred expenses in first three years, that commercial expediency compelled the assessee to make the payment, that the sums paid by the assessee to AAML were admissible as deduction - the transactions with the AAML were in the revenue field Decided against Revenue. Payment for holiday plan at hotels as guest house expenses u/s 37(4) of the Act Held that - As decided in assessee s own case for the previous assessment years, it has been decided that the assessee had employed more than 100 whole time employees during the previous year and the hotels were used exclusively for the benefit of the employees while on leave - the assessee s case was covered by the second proviso to section 37(4) and the expenditure incurred could not be called as expenditure incurred on the maintenance of a guest house Decided against Revenue. Allowability of remuneration to chairman and MD Held that - FAA held that the assessee had denied having provided any furniture or air conditioners at the residence of the CMD, that the power was supplied to the CMD from its own resources, that the car was provided to him for official purposes only, that the assessee had provided accommodation to the CMD but rent was collected from him - the assessee had admitted that accommodation let out to him was maintained by it - the estimation made by the AO towards perquisites was deleted - the FAA has given a categorical finding of fact that certain facilities were not provided to the CMD and rent was collected from him Decided against Revenue. Contribution to Tata Services for maintenance of Horniman Circle gardens as an advertising campaign Held that - As decided in assessee s own case for the previous assessment years, it has been decided that the contribution was towards beautification of the garden the assessee along with the other companies was allowed to put up their logos in and around the garden - the expenditure was incurred on advertisement campaign Decided against Revenue. Investment allowance and Extra shift allowance on town division, Investment allowance on P& M installed at stock yard and Investment allowance on various items of P&M Held that - As decided in assessee s own case for the previous assessment years, it has been decided that The investment allowance is admissible to the assessee on the plant and machinery in the Town Division, particularly when on the items like light and fan installations the assessee had itself not claimed any investment allowance - additional depredation, extra shift allowance and investment allowance are admissible to the assessee on the plant and machinery in the Town Division Decided against Revenue. Investment Allowance on P&M of stock yard Held that - As decided in assessee s own case for the previous assessment years, it has been decided that the claim of the assessee on account of investment allowance on railway sidings at stock yard allowed - in absence of any contrary material brought to notice against the decision of the Tribunal- there was no infirmity in the order of the CIT(A)allowing the investment allowance on the plant and machinery installed by the assessee in the stock yard Decided against Revenue.

Summary

Issues Involved:

1. Deduction of accrued leave salaries.
2. Expenditure on maintenance of certain buildings.
3. Recovery of guest house expenses under Rule 6D.
4. Disallowance under Rule 6B for calendars and diaries.
5. Disallowance of Annual General Meeting expenses.
6. Disallowance of expenditure on tea and coffee served to visitors.
7. Disallowance of expenditure on business meetings and conferences.
8. Disallowance of payments to clubs.
9. Disallowance of expenditure on employees' get-togethers.
10. Disallowance under Section 40A(5) for deemed perquisites.
11. Expenditure on partly convertible debentures.
12. Disallowance of Tata Steel Rural Development Society expenditure.
13. Disallowance of annual contribution to Steel Plants' Sports Board and Tata Sports Club.
14. Contributions to various institutions.
15. Fees paid to consultants for feasibility studies.
16. Payments in cash in excess of Rs. 2,500.
17. Disallowance of investment allowance and extra shift allowance on town division assets.
18. Investment allowance on various items of plant and machinery.
19. Contribution to the Society for Sports & Stadium at Kolkata.
20. Contribution to Beldih and United Clubs.
21. Contribution to Xavier Labour Relations Institute.
22. Payment of excise duty.
23. Bad and doubtful debts written off.
24. Depreciation on rolling mill rolls.
25. Restriction of 80HHC deduction.
26. Bad debts written off.
27. Deduction on account of provision for leave salaries.
28. Deduction of initial contribution to the approved superannuation fund.
29. Deduction on account of guaranteed payment to Ahmedabad Advance Mills Ltd.
30. Deduction for holiday plan at hotels as guest house expenses.
31. Remuneration to Chairman and Managing Director.
32. Contribution to Tata Services for maintenance of Horniman Circle gardens.
33. Investment allowance on plant and machinery installed at stock yards.
34. Investment allowance on various items of plant and machinery.

Detailed Analysis:

1. Deduction of Accrued Leave Salaries:
The Tribunal allowed the deduction of Rs. 2.96 Crores for accrued leave salaries paid during the Assessment Year 1986-87, following the precedent set in the previous year and the judgment of the Hon'ble Bombay High Court in the case of West Coast Sugar Mills Ltd.

2. Expenditure on Maintenance of Certain Buildings:
The ground was not pressed by the assessee, and thus, it was dismissed.

3. Recovery of Guest House Expenses Under Rule 6D:
The Tribunal decided in favor of the assessee, allowing the deduction for recoveries made from parent departments as traveling expenses, following the precedent set in the previous year.

4. Disallowance Under Rule 6B for Calendars and Diaries:
The Tribunal upheld the disallowance, following the precedent set in the previous year, where it was held that diaries and calendars with the company's logo fell under Rule 6B as advertisement expenditure.

5. Disallowance of Annual General Meeting Expenses:
The Tribunal upheld the disallowance of Rs. 24,656, treating the expenditure as entertainment expenditure, following the precedent set in the previous year.

6. Disallowance of Expenditure on Tea and Coffee Served to Visitors:
The Tribunal partly allowed the appeal, restricting the disallowance to 25% of the expenditure incurred, following the precedent set in the previous year.

7. Disallowance of Expenditure on Business Meetings and Conferences:
The Tribunal upheld the disallowance, treating the expenditure as entertainment expenditure, following the precedent set in the previous year.

8. Disallowance of Payments to Clubs:
The Tribunal upheld the disallowance, treating the payments as entertainment expenditure, following the precedent set in the previous year.

9. Disallowance of Expenditure on Employees' Get-Togethers:
The Tribunal upheld the disallowance, treating the expenditure as entertainment expenditure, following the precedent set in the previous year.

10. Disallowance Under Section 40A(5) for Deemed Perquisites:
The Tribunal upheld the disallowance, following the precedent set in the previous year.

11. Expenditure on Partly Convertible Debentures:
The Tribunal dismissed the ground, treating the expenditure as capital expenditure, following the judgments of the Hon'ble Supreme Court in the cases of Brooke Bond India Ltd. and Punjab State Industrial Development Corporation Ltd.

12. Disallowance of Tata Steel Rural Development Society Expenditure:
The Tribunal allowed the expenditure, considering the peculiar facts of the case and the Memorandum of Understanding with the workers' union, following the precedent set in the previous year.

13. Disallowance of Annual Contribution to Steel Plants' Sports Board and Tata Sports Club:
The Tribunal allowed the contribution, following the precedent set in the previous year.

14. Contributions to Various Institutions:
The Tribunal allowed the contributions, considering the nexus with the business, following the precedent set in the previous year.

15. Fees Paid to Consultants for Feasibility Studies:
The Tribunal allowed the expenditure, following the precedent set in the previous year.

16. Payments in Cash in Excess of Rs. 2,500:
The Tribunal dismissed the ground, following the precedent set in the previous year.

17. Disallowance of Investment Allowance and Extra Shift Allowance on Town Division Assets:
The Tribunal allowed the investment allowance and extra shift allowance, following the precedent set in the previous year.

18. Investment Allowance on Various Items of Plant and Machinery:
The Tribunal allowed the investment allowance, following the precedent set in the previous year.

19. Contribution to the Society for Sports & Stadium at Kolkata:
The Tribunal allowed the contribution, treating it as advertisement expenditure, following the precedent set in the previous year.

20. Contribution to Beldih and United Clubs:
The Tribunal allowed the contributions, following the precedent set in the previous year.

21. Contribution to Xavier Labour Relations Institute:
The Tribunal allowed the contribution, subject to the production of evidence, following the precedent set in the previous year.

22. Payment of Excise Duty:
The ground was not pressed by the assessee and was dismissed.

23. Bad and Doubtful Debts Written Off:
The Tribunal allowed the deduction, following the precedent set in the previous year.

24. Depreciation on Rolling Mill Rolls:
The ground was not pressed by the assessee and was dismissed.

25. Restriction of 80HHC Deduction:
The Tribunal allowed the assessee an opportunity to create the reserve for the additional amount, following the judgment of the Hon'ble Supreme Court in the case of Karimjee P. Ltd.

26. Bad Debts Written Off:
The Tribunal remitted the matter back to the file of the FAA for fresh adjudication.

27. Deduction on Account of Provision for Leave Salaries:
The Tribunal upheld the deduction, following the precedent set in the previous years.

28. Deduction of Initial Contribution to the Approved Superannuation Fund:
The Tribunal upheld the deduction, following the precedent set in the previous years.

29. Deduction on Account of Guaranteed Payment to Ahmedabad Advance Mills Ltd.:
The Tribunal upheld the deduction, following the precedent set in the previous year.

30. Deduction for Holiday Plan at Hotels as Guest House Expenses:
The Tribunal upheld the deduction, following the precedent set in the previous year.

31. Remuneration to Chairman and Managing Director:
The Tribunal upheld the deduction, following the precedent set in the previous year.

32. Contribution to Tata Services for Maintenance of Horniman Circle Gardens:
The Tribunal upheld the deduction, following the precedent set in the previous year.

33. Investment Allowance on Plant and Machinery Installed at Stock Yards:
The Tribunal upheld the deduction, following the precedent set in the previous years.

34. Investment Allowance on Various Items of Plant and Machinery:
The Tribunal upheld the deduction, following the precedent set in the previous years.