2016 (2) TMI 1177 - AT - Income Tax

Disallowance of expenditure incurred for Pooja/function - disallowance of consultancy charges holding it as capital in nature - disallowance of charges for services - denial of claim of exclusion of interest u/s. 244A - disallowance of proportionate amount of premium on lease hold land by treating it as capital expenditure - Not allowing deduction of profit derived from Himachal Unit (located in Industrially Backward District in computing the book profit as per clause 5 to the explanation of 2nd proviso of section 115JA (MAT) - Not granting exclusion of export profit as computed under the provisions of Act in book profit for the purpose of section 115JA - adjustment of MOVDAT in the opening stock u/s. 145A Appeal filed by the assessee is partly allowed and the appeal of the Revenue is dismissed.

Issues Involved:
1. Disallowance of expenditure for Pooja/function.
2. Disallowance of consultancy charges as capital in nature.
3. Disallowance of charges for services.
4. Denial of claim of exclusion of interest under section 244A.
5. Disallowance of proportionate amount of premium on leasehold land.
6. Classification of interest income, incentive of application money, and truck hire charges under "Income from other sources."
7. Addition of unutilized MODVAT credit under section 145A.
8. Non-allowance of deduction of profit derived from Himachal Unit in computing book profit under section 115JA.
9. Non-granting of exclusion of export profit in book profit for section 115JA.
10. Non-exclusion of capital profit on sale of investment from net profit in computing book profit under section 115JA.
11. Deletion of disallowance of community welfare expenses.
12. Deletion of disallowance on account of Temple expenses.
13. Deletion of disallowance of mines prospecting charges.
14. Deletion of disallowance of foreign exchange loss.
15. Direction to make corresponding adjustments in the opening stock under section 145A.

Issue-wise Detailed Analysis:

1. Disallowance of Expenditure for Pooja/Function:
The Tribunal noted that similar disallowances were made in previous assessment years (AY 1988-89 and AY 1989-90), which were decided in favor of the assessee. The expenses were considered normal day-to-day expenses for running the temple in the vicinity of the plant. Following the principle of consistency and previous tribunal decisions, this ground was allowed in favor of the assessee.

2. Disallowance of Consultancy Charges as Capital in Nature:
The Tribunal observed that similar disallowances were made in AY 1990-91 and AY 1992-93, which were allowed in favor of the assessee by the CIT(A) and ITAT. The consultancy charges were not directly related to the creation of new capital assets and were considered revenue expenditure. Hence, this ground was allowed in favor of the assessee.

3. Disallowance of Charges for Services:
Similar to consultancy charges, service charges disallowances were made in AY 1992-93 and were allowed in favor of the assessee by the ITAT. The Tribunal held that the service charges were in the nature of revenue expenditure. This ground was allowed in favor of the assessee.

4. Denial of Claim of Exclusion of Interest under Section 244A:
The Tribunal referred to the special bench decision in Avada Trading Company Pvt. Ltd. vs. ACIT, which held that interest granted under section 143(1a) should be taxed in the year it is received. This ground was allowed in favor of the assessee.

5. Disallowance of Proportionate Amount of Premium on Leasehold Land:
The Tribunal noted that this issue was covered against the assessee by the special bench decision in JCIT vs. Mukund Ltd., which treated the expenditure on acquiring leasehold rights as capital expenditure. This ground was dismissed.

6. Classification of Interest Income, Incentive of Application Money, and Truck Hire Charges:
The Tribunal referred to its decision in AY 1995-96, where it directed the AO to verify the nexus between the income from unutilized funds and interest on borrowed funds. The AO was instructed to determine the net income after considering actual expenditure incurred to earn the income. This ground was restored to the AO for similar verification.

7. Addition of Unutilized MODVAT Credit under Section 145A:
The Tribunal noted that the unutilized MODVAT credit is not includable in the value of closing stock, following decisions in Hawkins Cookers Ltd. vs. ITO and CIT vs. Godrej & Boyce Mfg. Co. Ltd. This ground was allowed in favor of the assessee.

8. Non-Allowance of Deduction of Profit Derived from Himachal Unit in Computing Book Profit under Section 115JA:
The Tribunal referred to its decision in AY 1997-98, where it held that the profit of the Himachal unit computed as per books should be excluded while computing book profit under section 115JA. This ground was allowed in favor of the assessee.

9. Non-Granting of Exclusion of Export Profit in Book Profit for Section 115JA:
The Tribunal noted that similar claims were allowed in AY 1997-98, following the decision in CIT vs. Bhari Information Technologies System (P) Ltd. This ground was allowed in favor of the assessee.

10. Non-Exclusion of Capital Profit on Sale of Investment from Net Profit in Computing Book Profit under Section 115JA:
The Tribunal referred to the decision in CIT vs. Veekaylal Investments Company P. Ltd., which held that capital gains should be included for computing book profits. This ground was dismissed.

11. Deletion of Disallowance of Community Welfare Expenses:
The Tribunal noted that similar disallowances were made in previous years and were allowed by the ITAT. The expenses were considered part of business expenditure incurred out of commercial expediency. This ground was dismissed.

12. Deletion of Disallowance on Account of Temple Expenses:
The Tribunal referred to its decision in the assessee's appeal (ITA No. 2486/Mum/2005) and dismissed this ground, following the principle of consistency.

13. Deletion of Disallowance of Mines Prospecting Charges:
The Tribunal noted that similar disallowances were made in previous years and were allowed by the ITAT. The expenses were considered revenue expenditure. This ground was dismissed.

14. Deletion of Disallowance of Foreign Exchange Loss:
The Tribunal referred to the decision in CIT vs. Woodward Governor (I). Pvt. Ltd. and Oil and Natural Gas Corporation vs. CIT, which allowed foreign exchange loss incurred for revenue purposes as expenditure under section 37(1). This ground was dismissed.

15. Direction to Make Corresponding Adjustments in the Opening Stock under Section 145A:
The Tribunal noted that this ground was identical to Ground No. 7 raised by the assessee and had already been decided in favor of the assessee. This ground was dismissed.

Conclusion:
The appeal filed by the assessee was partly allowed, and the appeal filed by the Revenue was dismissed. The order was pronounced in the open court on 30th May 2016.

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