2014 (5) TMI 322 - HC - Income Tax

Sustenance of 50% of disallowance towards travelling expenses Held that - The disallowance is sustained to the extent of 50% - the trips have been undertaken by the employees - there is no dispute with regard to the trips but the extent of the material required to be produced that the Tribunal has sustained the disallowance partially thus, no substantial question of law arises for consideration Decided against Revenue. Admission of appeal - Guest house expenses Held that - The Tribunal has assigned cogent and satisfactory reasons - The expenditure incurred on maintenance of guest house is an issue which has been examined Relying upon Britannia Industries Ltd. v/s CIT 2005 (10) TMI 30 - SUPREME Court - factual matters have to be verified and examined in the light of the legal principles that the matter has been remitted back to the AO as such the direction does not raise any substantial question of law Decided against Revenue. Fully convertible FCCBs into equity shares Held that - The CIT(A) had confirmed the disallowance on the footing that the bonds were fully convertible into shares, the issue of bonds was made after creating an authorized capital and which could take into account stock of shares, therefore, a debatable question is raised the appeal admitted on this question Decided in favour of Revenue. Development expenses Applicability of section 35AB of the Act Held that - The Tribunal has considered the matter essentially in the light of the factual position brought on record - The matter has been decided in the light of the payment made to the M.S.E.B. as non- refundable and that is towards consumers contribution/service charges on account of availing additional power - the fact that the claim of development expenses has been examined by the Tribunal in the light of the provisions of Section 35AB of the Act this aspect is also admitted to be considered - Decided in favour of Revenue. Deletion made u/s 40(A)(9) of the Act Held that - The Tribunal rightly noted that the expenses already incurred are reduced and the balance was accounted as provision - This is found to be an admissible deduction - the provision for pending labour demands and its disallowance made by the AO is rightly deleted - The Tribunal has found that the demands were pending - There was wage issue raised by the labour unions and, therefore, in the given facts and circumstances and to maintain industrial harmony and peace, the assessee company made a provision of Rs.537.09 - The revenue may term it as contingent in nature thus, as such there is no substantial question of law arises for consideration Decided against Revenue.

Issues:
1. Disallowance of travelling expenses
2. Disallowance of guest house expenses
3. Treatment of foreign currency bonds as capital expenditure
4. Development expenses under Section 37 vs. Section 35AB
5. Payment for improving ride and handling comforts of vehicles
6. Deletion of disallowance for additional power payment
7. Deletion of addition under Section 40(A)(9)
8. Provision for warranties
9. Provision for pending labour demands

1. Disallowance of Travelling Expenses:
The Tribunal sustained 50% disallowance of travelling expenses made by the Assessing Officer. The Tribunal's decision was based on consistency with earlier orders and the extent of material provided by the assessee. The Court found the disallowance partially sustained by the Tribunal and concluded that it did not raise a substantial question of law. The appeal on this issue was dismissed.

2. Disallowance of Guest House Expenses:
The Tribunal remitted the issue of guest house expenses back to the Assessing Officer for verification and examination in light of legal principles, which did not raise a substantial question of law. The Court agreed with the Tribunal's decision and kept all contentions open for further examination by the Assessing Officer.

3. Treatment of Foreign Currency Bonds:
There was a disagreement on whether foreign currency bonds fully convertible into equity shares should be treated as capital expenditure or a loan. The Tribunal followed a judgment of the Rajasthan High Court, while the appellant argued for detailed examination due to the conversion into shares after a lock-in period. The Court admitted the appeal on this issue as a substantial question of law.

4. Development Expenses under Section 37 vs. Section 35AB:
The Tribunal's decision on development expenses incurred for technical knowhow under Section 37 was challenged, as the Assessing Officer held it should be covered under Section 35AB. The Court found this issue raised an important aspect of interpretation of both provisions and admitted the appeal as a substantial question of law.

5. Payment for Improving Ride and Handling Comforts of Vehicles:
The Tribunal examined the nature of expenses paid for improving vehicle performance and concluded they were development expenses, not technical knowhow payments. The Court agreed with the Tribunal's decision, finding that the matter raised interpretation issues of relevant provisions.

6. Deletion of Disallowance for Additional Power Payment:
The Tribunal's deletion of disallowance for payment made to M.S.E.B. for additional power was upheld by the Court, as it considered the factual position and reasons provided by the Tribunal. The Court found no substantial question of law raised in this regard.

7. Deletion of Addition under Section 40(A)(9):
The Tribunal's decision to delete the addition under Section 40(A)(9) was upheld by the Court, as it followed its earlier order and did not raise any substantial question of law. The Court found the matter did not warrant further examination.

8. Provision for Warranties:
The Tribunal's decision on provision for warranties was found to be in line with previous orders and did not raise a substantial question of law. The Court agreed with the Tribunal's analysis and dismissed the appeal on this aspect.

9. Provision for Pending Labour Demands:
The Tribunal's deletion of disallowance for pending labour demands was upheld by the Court, as it considered the pending demands and the need for industrial harmony. The Court found no substantial question of law raised in this regard and partly dismissed the appeal.

This detailed analysis covers all the issues involved in the judgment, providing a comprehensive overview of the legal reasoning and decisions made by the High Court.

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