2012 (1) TMI 370 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance u/s 14A of the Income-tax Act, 1961.
2. Disallowance of advances written off.
3. Disallowance of repairs to factory building.
4. Exclusion of certain receipts from profit of business for deduction u/s 80HHC.
5. Deletion of addition made by AO on account of commission payment.
6. Disallowance of software expenses.
7. Disallowance u/s 36(1)(va) on account of late payment of Provident Fund.
8. Provision for warranty.
9. Allowance of CST liability pertaining to earlier years.
10. Addition on account of stock written off.
11. Exclusion of foreign exchange gain and other miscellaneous receipts for deduction u/s 80HHC.

Summary of Judgment:

1. Disallowance u/s 14A of the Income-tax Act, 1961:
Ground No. 1 of the assessee's appeal was dismissed for non-prosecution as it was not pressed by the learned Counsel for the assessee.

2. Disallowance of advances written off:
The Tribunal allowed the assessee's claim of loss of Rs. 1,00,000/- arising on account of write-off of advances given to M/s Vitara Chemicals Ltd. as a business loss u/s 28 of the Act, following the precedent set in the assessee's own case for the assessment year 2000-01.

3. Disallowance of repairs to factory building:
The Tribunal upheld the assessee's plea that the expenditure of Rs. 2,72,628/- on repairs to the factory building was revenue expenditure and not capital expenditure, as it did not result in any enduring benefit.

4. Exclusion of certain receipts from profit of business for deduction u/s 80HHC:
The Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and remitted the matter back to his file to be adjudicated afresh in line with the directions of the coordinate Bench and judgments of the Hon'ble Bombay High Court in the cases of Pfizer Ltd. and Dresser Rand India P Ltd.

5. Deletion of addition made by AO on account of commission payment:
The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to delete the addition of Rs. 2,20,84,664/- made by the AO on account of commission payment, as the assessee had substantiated their claim with sufficient proof and justification.

6. Disallowance of software expenses:
The Tribunal affirmed the decision of the Commissioner of Income-tax (Appeals) to allow software expenses as revenue expenditure, following the judgments in CIT v Varinder Agro Chemicals Ltd. and CIT v Sundaram Clayton Ltd.

7. Disallowance u/s 36(1)(va) on account of late payment of Provident Fund:
The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to delete the disallowance of Rs. 21,91,994/- as the payments were made within the grace period under the Provident Fund Act.

8. Provision for warranty:
The Tribunal affirmed the Commissioner of Income-tax (Appeals)'s decision to allow the provision for warranty, finding it reasonable and in line with the precedent set in the assessee's own case for assessment year 1998-99.

9. Allowance of CST liability pertaining to earlier years:
The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision to allow the CST liability of Rs. 10,50,000/- as it crystallized during the relevant previous year.

10. Addition on account of stock written off:
The Tribunal affirmed the Commissioner of Income-tax (Appeals)'s decision to delete the addition of Rs. 2,17,38,129/- on account of stock written off, finding the write-off in line with the regularly followed policy of identifying non-moving stock and its disposal as scrap.

11. Exclusion of foreign exchange gain and other miscellaneous receipts for deduction u/s 80HHC:
The Tribunal set aside the order of the Commissioner of Income-tax (Appeals) and remitted the matter back to his file to be adjudicated afresh in line with the judgment of the Hon'ble Bombay High Court in the cases of Pfizer Ltd. and Dresser Rand India P Ltd.

Decision:
The appeal of the assessee is partly allowed, and the appeal of the Revenue is partly allowed as above. Decision pronounced in the open Court on this 31st Day of January, 2012.