2017 (1) TMI 1607 - AT - Income Tax

Nature of expenditure - dismantling expenses - capital or revenue expenditure - Held that - assessee has incurred expenses in dismantling the plant and machinery to replace and install the new one in order to upgrade and enhance the production capacity of the assessee - following the decisions in various cases, expenses allowed u/d 37(1) - Decided in favor of assessee. Nature of expenses incurred towards Gujarat Earthquake relief and claimed deduction u/s 37(1) - Held that - FAA allowed the same by holding these expenses at par with community welfare expenses which has been allowed as admissible expenses in assessee‟s own case supra. - Order of CIT(A) confirmed - Decided in favor of assessee.

Issues Involved:
1. Disallowance of Pooja/Function Expenses
2. Disallowance of Consultancy and Service Charges
3. Disallowance of Employees Stock Option Expenses
4. Disallowance of Dismantling Expenses
5. Disallowance of Expenses for Earning Dividend Income
6. Classification of Interest Income and Truck Hire Charges
7. Disallowance of Premium on Leasehold Land
8. Adjustment of Unutilized MODVAT Credit
9. Computation of Book Profit under Section 115JB
10. Charging of Interest under Section 234C
11. Disallowance of Community Welfare Expenses
12. Disallowance of Temple and Pooja Expenses
13. Disallowance of Mines Prospecting Charges
14. Disallowance of Foreign Exchange Loss
15. Disallowance of Expenses on Powerline and Marine Structures
16. Disallowance of Gujarat Earthquake Relief Expenses
17. Inclusion of Sales Tax and Excise Duty in Total Turnover for Section 80HHC
18. Adjustment in Opening Stock under Section 145A

Detailed Analysis:

1. Disallowance of Pooja/Function Expenses:
The Tribunal found that similar disallowances were made in previous years and decided in favor of the assessee. It was held that the expenses were normal day-to-day expenses for running a temple in the vicinity of the plant, thus allowable as business expenditure.

2. Disallowance of Consultancy and Service Charges:
The Tribunal observed that similar disallowances were made in earlier years and were allowed in favor of the assessee. Consultancy charges and service charges were deemed not directly related to the creation of new capital assets and were considered revenue expenditure.

3. Disallowance of Employees Stock Option Expenses:
The Tribunal followed its previous decision, which allowed the ESOP expenses based on the precedent set in the case of Biocon Ltd. vs. DCIT, where such expenses were considered allowable.

4. Disallowance of Dismantling Expenses:
The Tribunal held that expenses incurred on dismantling a plant to replace it with new machinery for upgrading and enhancing production capacity should be allowed as revenue expenses. The decisions in Alembic Chemicals Works Co Ltd vs. CIT and DCIT vs. Escorts Tractors Ltd were cited to support this view.

5. Disallowance of Expenses for Earning Dividend Income:
The Tribunal upheld the CIT(A)'s decision to restrict the disallowance to ?50,000/- instead of 2% of the dividend income, as no specific expenses were incurred for earning the dividend income.

6. Classification of Interest Income and Truck Hire Charges:
The Tribunal directed the AO to verify the nexus between the income from temporary deployment of surplus funds and interest on borrowed funds. It was held that only the net income after deducting actual expenses incurred to earn the income should be taxed.

7. Disallowance of Premium on Leasehold Land:
The Tribunal followed its earlier decision and dismissed the appeal of the assessee, holding that the premium on leasehold land is a capital expenditure and not allowable as revenue expenditure.

8. Adjustment of Unutilized MODVAT Credit:
The Tribunal allowed the adjustment of unutilized MODVAT credit as per section 145A, following its earlier decision in the assessee's own case. It was held that MODVAT credit of excise duty is not includable in the value of closing stock.

9. Computation of Book Profit under Section 115JB:
The Tribunal decided in favor of the assessee, holding that the deduction under section 80HHC should be computed based on the profit of the business as per the accounts prepared under the Companies Act.

10. Charging of Interest under Section 234C:
The Tribunal directed the AO to calculate interest under section 234C based on the return of income and not the assessed income.

11. Disallowance of Community Welfare Expenses:
The Tribunal dismissed the revenue's appeal, holding that community welfare expenses are allowable business expenses, as decided in the assessee's own case in earlier years.

12. Disallowance of Temple and Pooja Expenses:
The Tribunal followed its decision in ITA No.3360/Mum/2005 and dismissed the revenue's appeal, allowing the temple and pooja expenses as business expenditure.

13. Disallowance of Mines Prospecting Charges:
The Tribunal dismissed the revenue's appeal, following its earlier decision that mines prospecting expenses are revenue in nature and allowable under section 37(1).

14. Disallowance of Foreign Exchange Loss:
The Tribunal dismissed the revenue's appeal, holding that the foreign exchange loss incurred for revenue expenditure and loans for day-to-day business operations is allowable as expenditure under section 37(1).

15. Disallowance of Expenses on Powerline and Marine Structures:
The Tribunal dismissed the revenue's appeal, following the decision of the Hon'ble Supreme Court in Gujarat Mineral Devp.Corp, holding that such expenses are revenue in nature and allowable.

16. Disallowance of Gujarat Earthquake Relief Expenses:
The Tribunal upheld the CIT(A)'s decision, allowing the expenses as community welfare expenses, which are admissible as business expenditure.

17. Inclusion of Sales Tax and Excise Duty in Total Turnover for Section 80HHC:
The Tribunal dismissed the revenue's appeal, following the decision of the Hon'ble Supreme Court in CIT vs. Lakshmi Machine Works, holding that sales tax and excise duty do not form part of "turnover" for computing deduction under section 80HHC.

18. Adjustment in Opening Stock under Section 145A:
The Tribunal dismissed the revenue's appeal, directing the AO to make corresponding adjustments in the opening stock as per section 145A, following its earlier decision in the assessee's own case.

Conclusion:
The Tribunal's consolidated order addressed various issues raised by both the assessee and the revenue, primarily following the precedent set in earlier years and other relevant judicial decisions. The majority of the issues were decided in favor of the assessee, with the Tribunal emphasizing the principles of consistency and the nature of the expenses in question.

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