2011 (12) TMI 720 - AT - Income Tax

Issues Involved:
1. Disallowance of expenditure under the head 'technical design & drawings'.
2. Disallowance of foreign travelling expenses.
3. Disallowance of training expenses.
4. Disallowance of vehicle hire expenses.
5. Applicability of Section 145.
6. Estimation of net profit on Bhandar Dhara Project.
7. Disallowance of provision for accrued unpaid interest.
8. Disallowance on account of sale of turbo generator and compensation for high cost.
9. Disallowance of warranty expenses.
10. Disallowance of excise duty and sales tax.
11. Adhoc disallowance.
12. Disallowance of bad debts.

Summary:

1. Disallowance of Expenditure under the Head 'Technical Design & Drawings':
The Tribunal upheld the CIT(A)'s decision, agreeing that the payments made for the purchase of technical drawings and designs from the Austrian parent company were not in the nature of royalty but constituted an outright purchase. The Tribunal emphasized that the transaction was a principal-to-principal sale and not a transfer of rights in the copyright. Consequently, the payments did not attract tax u/s 195.

2. Disallowance of Foreign Travelling Expenses:
The Tribunal affirmed the CIT(A)'s decision to grant relief of Rs. 7,31,541/- out of the total disallowance of Rs. 9,06,541/-. It was held that the foreign travel expenses were incurred for business purposes, including finalization of accounts and procurement of contracts, and were therefore allowable.

3. Disallowance of Training Expenses:
The Tribunal upheld the CIT(A)'s decision to grant relief of Rs. 78,75,385/- out of the total disallowance of Rs. 81,00,385/-. It was noted that the training expenses were incurred for the legitimate needs of the business to enhance employee productivity and were thus allowable u/s 37 of the Act.

4. Disallowance of Vehicle Hire Expenses:
The Tribunal confirmed the CIT(A)'s decision to delete the disallowance of Rs. 5 lacs out of the total vehicle hire charges of Rs. 23,25,134/-. The Tribunal found that the expenses were supported by proper bills and vouchers, and no specific defect was pointed out by the Assessing Officer.

5. Applicability of Section 145:
The Tribunal agreed with the CIT(A) that the provisions of Section 145 were not applicable. The expenses on technical drawings and designs were genuine business expenditures and formed part of the cost of manufacturing. The Assessing Officer's suspicion was not supported by concrete evidence.

6. Estimation of Net Profit on Bhandar Dhara Project:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 81,72,801/-. The Assessing Officer's estimation of net profit was found to be presumptive and not based on any material evidence.

7. Disallowance of Provision for Accrued Unpaid Interest:
The Tribunal affirmed the CIT(A)'s decision to delete the disallowance of Rs. 5,03,508/-. It was held that the provision for accrued interest on foreign currency loans was allowable u/s 36(1)(iii) as the assessee followed the mercantile system of accounting.

8. Disallowance on Account of Sale of Turbo Generator and Compensation for High Cost:
The Tribunal upheld the CIT(A)'s decision to delete the additions of Rs. 43,00,800/- and Rs. 70,85,625/-. The Assessing Officer's additions were found to be based on assumptions without any substantiating evidence.

9. Disallowance of Warranty Expenses:
The Tribunal confirmed the CIT(A)'s decision to delete the disallowance of Rs. 15,88,080/-. It was held that the warranty provision was a business necessity and an allowable deduction u/s 37 of the Act.

10. Disallowance of Excise Duty and Sales Tax:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance of Rs. 20,21,688/-. The excise duty and sales tax were paid by the assessee for the Shiva Project and were allowable deductions u/s 37 r.w. Section 43B.

11. Adhoc Disallowance:
The Tribunal affirmed the CIT(A)'s decision to delete the adhoc disallowance of Rs. 10 lacs. The Assessing Officer did not pinpoint any defects in the audited books of account to justify the disallowance.

12. Disallowance of Bad Debts:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance of Rs. 1,91,487/-. It was held that after 1.4.1989, it is sufficient if the bad debt is written off as irrecoverable in the accounts of the assessee.

Cross-Objections:
The Tribunal dismissed the cross-objections raised by the assessee, finding no merit in the claims for additional deductions.

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