2014 (3) TMI 1150 - AT - Income Tax

Expenditure on maintenance of certain Buildings - CIT (A) rejecting the claim of the appellant that certain buildings were maintained at far flung places due to business expediency and as hotels were not available in these places expenditure on the same is allowable as revenue expenditure - HELD THAT - This issue was decided against the assessee by the order of the Tribunal for the AY. 1986-87 2014 (2) TMI 1110 - ITAT MUMBAI Recovery of Guest House Expenses considered under Rule 6D of the Income-tax Rules 1962(Rules) - HELD THAT - Tribunal for the AY. 1986-87 2014 (2) TMI 1110 - ITAT MUMBAI held Admittedly recoveries have been made from the parent departments of the company whose persons utilised the facilities of the guest house in the course of official work relating to the business of the company. Assuming the situation of non-existence of the guest house of the company in that place then such employees would have stayed in a hotel or guest house run by third parties and made payments to them for use of their facilities and accordingly payments made to outside parties would have been treated as travelling expenses incurred by the company for its business. Therefore the user of guest house facilities provided by the company to the employees of the company in connection with discharge of their official duties does not alter the basic character of the expenditure. Ultimately such expenses are connected with the travelling by such employees and therefore should be treated accordingly irrespective of the fact that such employees stayed in the guest house of the company. In view of the above facts and circumstances we direct the AO to allow the deduction of amount received from parent departments as expenditure in the nature of travelling expenses ;and in accordance with Rule 6D of the IT Rules. Thus this ground of the assessee is accepted. Disallowance under Rule 6B of the Rules for Calendars and Diaries - Assessee before us was that the products of the company being iron and steel the giving of diaries and calendars even with the logo of the assessee contained therein cannot be said to be in the nature of advertisement calling for invocation of Rule 6B of the Income-tax Rules read with the provisions of section 37(3A) 3(3) and (3C) of the Act - HELD THAT - We are of the view that in the light of the decision of the Hon ble Bombay High Court in the case of Allana Sons Pvt. Ltd. 1993 (4) TMI 13 - BOMBAY HIGH COURT holding that presentation articles bearing the logo of the assessee would fall within the ambit of Rule 6B as expenditure in the nature of advertisement the argument of the learned counsel for the assessee cannot be accepted. Disallowance of Annual General Meeting Expenses of the shareholders - Addition under consideration u/s. 37 (2A)/37(2) - HELD THAT - Tribunal for the AY. 1986-87 2014 (2) TMI 1110 - ITAT MUMBAI held expenditure incurred at the general body meeting is covered by the Explanation 2 to section 37(2A). Respectfully following the judgment of the Karnataka High Court in the case of Mysore Minerals Ltd. 1986 (8) TMI 54 - KARNATAKA HIGH COURT the disallowance made by the AO u/s. 37 (2A)/37(2)is upheld. To sum up the expenditure incurred on serving tea coffee soft drinks to the shareholders at the Annual General Meeting is treated as entertainment expenditure. The action of the AO is upheld. Disallowance of expenditure on Tea and Coffee served to visitors - HELD THAT - Respectfully following the orders for the earlier years 1981-82 and 1985-86 we direct the AO. s to restrict the disallowance to 25% of the expenditure incurred ( 2. 25lakhs 2. 75lakhs 35 395/-)for the AY. s1987-88 1989-90 1990-91. Ground no. 5/6 for the AY. s under consideration are allowed in part. Expenditure of expenditure on payments made to Clubs - HELD THAT - AR admitted that issue was covered against the assessee by the order of the earlier year. We find that identical issue was considered by the Tribunal of the order for the AY. 1985-86(supra). We have already mentioned that the Tribunal had dismissed the ground pertaining to entertainment including the expenditure incurred in clubs for employees employers meetings therefore following the same ground no. 9 is dismissed Expenditure on payment to Tata Steel Rural Development Society(TSRDS) - As per the AO. s assessee had claimed expenditure on rural development in the assessment years under consideration as business expenditure u/s. 37(1) - HELD THAT - We have perused the MOU signed by the assessee with the workers union. Considering the terms and conditions of the MOU we are of the opinion that orders of the Tribunal delivered in the case of the assessee as well as TELCO should be followed. In our views MOU makes the facts and circumstances of the case peculiar. We find that Hon ble jurisdictional High Court has TATA IRON STEEL CO. LTD. 2012 (4) TMI 638 - BOMBAY HIGH COURT where similar issue of contribution to various institutions was decided in favour of the assessee by the Tribunal. (Ground no. B and F). As far as discharging of social responsibility is concerned Voltas Ltd. had to be considered the guiding case. As in that case there was no MOU with the workers so considering the peculiarity of facts of the case as against the matter of Voltas we decide the issue in favour of the assessee. Contribution to Steel Plants sport Board and Tata Sports Board - admissible deduction u/s. 37(1) - HELD THAT - We find that following the order for allowing expenditure to TSRDC Tribunal had decided the issue of payment to Steel Plants Sport Board and Tata Sports Board in favour of assessee while adjudicating appeal for the year 1986-87. Following the orders for the earlier AY we decide the ground no. G. 12 and G. 11for the AY. 1987-88 and AY. 1990-91 in favour of the assessee . Additional depreciation extra shift allowance and investment allowance are admissible to the assessee on the plant and machinery in the Town Division. Expenses incurred in connection with increase in authorised share capital/Right share issue expense - HELD THAT - Hon ble supreme Court in the case of Brooke Bond India Ltd. 1997 (2) TMI 11 - SUPREME COURT and Punjab State Industrial Development Corporation Ltd. 1996 (12) TMI 6 - SUPREME COURT FAA held that the expenditure incurred by a company in connection with the issue of shares with a view to increase its share capital was directly related to the expansion of the capital base of the company and was a capital expenditure even though it might incidentally help in the business of the company and in the profit making that the action of the AO was as per the provisions of law. Before us AR agreed that after the judgments of Hon ble Apex Court issue has to be decided against the assessee. Disallowance of Investment Allowance and ESA on water works - HELD THAT - FAA held that the P M was used for the purpose of bringing water from the rivers for manufacturing purpose and also for the purpose of supply of water to the town wherein the residential quarters were located that the P M was partly used for the purpose of manufacture of steel and partly for the purpose of supply of water to the residential quarters that the investment allowance was admissible on the plant and machinery which was used for the purpose of manufacture. He directed to the AO to segregate the value of the P M into two categories and to allow the investment allowance on the P M attributable to the manufacturing process and not to allow investment allowance on the plant and machinery which was used for the residential purposes. We find that identical issue was decided in favour of the assessee in the appeal for AY. 1986- 87(supra) while deciding the issue of investment allowance and ESA of town division. Following the said order G. 18 is decided in favour of the assessee Bad and Doubtful written off dues from Government departments - HELD THAT - Bombay High Court in Jethabhai Hiiji v/s. CIT 1977 (11) TMI 11 - BOMBAY HIGH COURT wherein the following principles have been laid down proceedings taken are pending in the year for which the claim for bad debt is made and they subsequently end in a decree in favour of the assessee. It was therefore submitted that the bad debts written off be allowed as deduction. We are of the view that the write off of the debt as bad has to be construed as a bonafide write off. It was based on commercial providence. In the light of the principles laid down by the Hon ble Bombay High Court we direct that the deduction claimed be allowed. Disallowance of expenditure incurred for AGM - HELD THAT - We find that while deciding the appeal for the AY. 1986-87(supra) contribution made by the assessee to Xavier Labour Relations Institute(XLRI) Jamshedpur has been allowed with a condition that assessee would produce necessary documents in this regard. Following the same principle we allow G. 22 for the AY. 1989 -1990. Contributions ranking as business expenditure - HELD THAT - We find that out of the total expenditure of 71 99 185/-claimed by the assessee AO had allowed 21 17 000/- that the assessee had not produced any evidence before the AO or the FAA to support its claim for the remaining amount. Even if it is agreed in principle that contribution made by it were for discharging civic duties the assessee has to prove the fact of incurring of expenditure. As it has failed to substantiate the claim made by it so in our opinion FAA was justified in rejecting its appeal. Before us also fact of incurring of expenditure was not established. Therefore confirming the order of the FAA we decided ground no. G. 23 for the year under appeal against the assessee. Deduction u/s. 80M - HELD THAT - We find that in the balance sheet filed by the assessee for the year under consideration funds available under the heads capital reserves and surplus and subscription received is more than 800 Crores that investments made by the assessee in purchasing units of UTI is much less than the funds available with it. We find that with regard to availability of interest bearing and interest free fund in the case of Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT we are of the opinion that addition made by the AO was not justified. As the interest free fund were far more than the investment so it has to be presumed that investment was made by the assessee -company from the interest free funds only. Reversing the order of the FAA we decide G. 24 in favour of the assessee. Contribution to Tata Services for maintenance of Horniman Circle gardens allowed as relying on own case. Allowance of 20% of initial contribution as deduction in the year in which the initial contribution was made to the Approved Superannuation Funds(ASF) - HELD THAT - Issue was covered by the judgment of the Sirpur Paper Mills 1999 (3) TMI 8 - SUPREME COURT that in view of the said decision the assessee was entitled to claim the entire initial contribution to the ASF as deduction. Guaranteed payment to AAML on the ground that such payment was in the nature of a capital payment - HELD THAT - Assessee paid the shortfall in the minimum guaranteed amount in the initial three years and during the 4th and 5th year has earned more operative profit which has been offered to tax. We find in the initial three years the assessee has paid a sum of 6. 11 crores whereas in the A. Ys. 1988-89 1989-90 and 1990-9 1 the assessee received a sum of 8. 31 crores and offered the same for taxation. Thus there is a surplus in the deal with AAML to the extent of 2. 2 crores from A. Ys. 1985-86 to 1990-91. Further nothing has been brought on record that the agreements are false or untrue or that the payments made are excessive or non-genuine or false. In this view of the matter and in view of the elaborate discussion by the CIT(A) on this issue while deleting the disallowance we do not find any infirmity in the same and therefore the same is upheld. The ground raised by the Revenue is accordingly dismissed Expenditure on report for increasing production capacity and future development is allowable revenue expenditure Exclude sales tax excise duty from total turnover for the purpose of calculating deduction for 80HHC - HELD THAT - As decided in favour of assessee by the decisions delivered by the Hon ble Supreme Court in the cases of Catapharma (India) P. Ltd. 2007 (7) TMI 203 - SUPREME COURT and Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME COURT Expenditure incurred on repairs - HELD THAT - We find that while holding that the assessee had incurred capital expenditure AO has not given any details of the items that were of capital nature. Without giving any reason no disallowance can be made. But the AO has done it-he has made a disallowance of 1. 25 Crores under the head repairs. In our opinion by deleting addition made by the AO FAA has chosen a right and legal path. We do not find any infirmity in his order.

Summary

Issues Involved:
1. Expenditure on maintenance of certain buildings.
2. Recovery of guest house expenses considered under Rule 6D.
3. Disallowance under Rule 6B with respect to calendars and diaries.
4. Disallowance of annual general meeting expenses.
5. Disallowance of expenditure on tea and coffee served to visitors.
6. Expenditure on business meetings and conferences of employees.
7. Payments to clubs.
8. Expenditure on food at employees' get-together.
9. Disallowance under Rule 40A(5).
10. Expenditure on partly convertible debenture.
11. Disallowance of Tata Steel Rural Development Society expenditure.
12. Contributions to various institutions.
13. Fees paid to consultants for feasibility studies.
14. Immovable assets in Bhutan.
15. Payments in cash in excess of Rs. 2,500.
16. Investment allowance on town division assets.
17. Investment allowance on foreign exchange fluctuations.
18. Investment allowance on various items of plant and machinery.
19. Rights share issue expenses.
20. Bad debts written off.
21. Expenditure incurred on Darjeeling holiday home.
22. Disallowance of annual general meeting expenses.
23. Contribution to IIT, Kharagpur.
24. Contributions ranking as business expenditure.
25. Deduction u/s. 80M.
26. Provision for leave salary.
27. 20% of initial contribution to approved superannuation fund.
28. Payment for holiday plan at hotels as guest house expenses.
29. Investment allowance on plant and machinery of stock yard.
30. Maintenance of Horniman Circle gardens.
31. Deduction on account of guaranteed payment to AAML.
32. Remuneration to Chairman and Managing Director.
33. Expenditure on fees to consultants for feasibility studies.
34. Exclusion of sales tax, excise duty for 80HHC deduction.
35. Expenditure on repairs.

Detailed Analysis:

1. Expenditure on Maintenance of Certain Buildings:
- Judgment: The Tribunal upheld the disallowance of the expenditure on the maintenance of certain buildings under Section 37(4) of the Act, following its decision in the previous assessment year (AY 1986-87).

2. Recovery of Guest House Expenses Considered Under Rule 6D:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the deduction of recoveries made from the parent departments for guest house expenses, treating them as traveling expenses, as per its previous ruling.

3. Disallowance Under Rule 6B with Respect to Calendars and Diaries:
- Judgment: The Tribunal upheld the disallowance of expenditure on calendars and diaries, considering them as advertisement expenses, following the precedent set in the previous assessment year.

4. Disallowance of Annual General Meeting Expenses:
- Judgment: The Tribunal confirmed the disallowance of expenses incurred on tea, coffee, and soft drinks served at the Annual General Meeting, treating them as entertainment expenses under Section 37(2A).

5. Disallowance of Expenditure on Tea and Coffee Served to Visitors:
- Judgment: The Tribunal restricted the disallowance to 25% of the expenditure incurred on tea and coffee served to visitors, following its decision in the previous assessment year.

6. Expenditure on Business Meetings and Conferences of Employees:
- Judgment: The Tribunal upheld the disallowance of expenditure on business meetings and conferences held at hotels, treating them as entertainment expenses under Section 37(2A).

7. Payments to Clubs:
- Judgment: The Tribunal upheld the disallowance of payments made to clubs, treating them as entertainment expenses under Section 37(2A).

8. Expenditure on Food at Employees' Get-together:
- Judgment: The Tribunal upheld the disallowance of expenditure on food at employees' get-together, treating it as entertainment expenditure.

9. Disallowance Under Rule 40A(5):
- Judgment: The Tribunal upheld the disallowance of deemed perquisites under Section 40A(5), following its decision in the previous assessment year.

10. Expenditure on Partly Convertible Debenture:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the expenditure on partly convertible debentures, following the precedent set in the case of Secure Meters by the Rajasthan High Court.

11. Disallowance of Tata Steel Rural Development Society Expenditure:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the expenditure incurred through Tata Steel Rural Development Society, following its decision in the previous assessment year.

12. Contributions to Various Institutions:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the contributions made to various institutions, following its decision in the previous assessment year.

13. Fees Paid to Consultants for Feasibility Studies:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the fees paid to consultants for feasibility studies, treating them as revenue expenditure.

14. Immovable Assets in Bhutan:
- Judgment: The Tribunal allowed depreciation on the expenditure incurred on immovable assets in Bhutan, treating it as capital expenditure.

15. Payments in Cash in Excess of Rs. 2,500:
- Judgment: The Tribunal upheld the disallowance of payments made in cash exceeding Rs. 2,500, following its decision in the previous assessment year.

16. Investment Allowance on Town Division Assets:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the investment allowance on town division assets, following its decision in the previous assessment year.

17. Investment Allowance on Foreign Exchange Fluctuations:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the investment allowance on foreign exchange fluctuations, following the jurisdictional High Court's decision in the case of Associated Bearing Co. Ltd.

18. Investment Allowance on Various Items of Plant and Machinery:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the investment allowance on various items of plant and machinery, following its decision in the previous assessment year.

19. Rights Share Issue Expenses:
- Judgment: The Tribunal upheld the disallowance of expenses incurred on rights share issue, treating them as capital expenditure, following the Supreme Court's decisions in Brooke Bond India Ltd. and Punjab State Industrial Development Corporation Ltd.

20. Bad Debts Written Off:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the write-off of bad debts from government departments, following its decision in the previous assessment year.

21. Expenditure Incurred on Darjeeling Holiday Home:
- Judgment: The Tribunal upheld the disallowance of expenditure incurred on the Darjeeling holiday home, treating it as guest house expenses.

22. Disallowance of Annual General Meeting Expenses:
- Judgment: The Tribunal upheld the disallowance of expenditure incurred for the Annual General Meeting, treating it as entertainment expenditure.

23. Contribution to IIT, Kharagpur:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the contribution made to IIT, Kharagpur, treating it as business expenditure.

24. Contributions Ranking as Business Expenditure:
- Judgment: The Tribunal upheld the disallowance of contributions ranking as business expenditure, due to the absence of evidence substantiating the claim.

25. Deduction u/s. 80M:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the deduction under Section 80M, following the Supreme Court's decisions in Catapharma (India) P. Ltd. and Lakshmi Machine Works.

26. Provision for Leave Salary:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the provision for leave salary, following its decision in the previous assessment year.

27. 20% of Initial Contribution to Approved Superannuation Fund:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the entire initial contribution to the approved superannuation fund, following the Supreme Court's decision in Sirpur Paper Mills.

28. Payment for Holiday Plan at Hotels as Guest House Expenses:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the payment for the holiday plan at hotels, treating it as business expenditure.

29. Investment Allowance on Plant and Machinery of Stock Yard:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the investment allowance on plant and machinery installed at the stock yard, following its decision in the previous assessment year.

30. Maintenance of Horniman Circle Gardens:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the expenditure incurred for the maintenance of Horniman Circle gardens, treating it as advertisement expenditure.

31. Deduction on Account of Guaranteed Payment to AAML:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the deduction on account of guaranteed payment to Ahmedabad Advance Mills Ltd., following its decision in the previous assessment year.

32. Remuneration to Chairman and Managing Director:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the remuneration to the Chairman and Managing Director, following its decision in the previous assessment year.

33. Expenditure on Fees to Consultants for Feasibility Studies:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the expenditure on fees to consultants for feasibility studies, treating it as revenue expenditure.

34. Exclusion of Sales Tax, Excise Duty for 80HHC Deduction:
- Judgment: The Tribunal ruled in favor of the assessee, allowing the exclusion of sales tax and excise duty from the total turnover for the purpose of calculating the deduction under Section 80HHC, following the Supreme Court's decisions in Catapharma (India) P. Ltd. and Lakshmi Machine Works.

35. Expenditure on Repairs:
- Judgment: The Tribunal upheld the deletion of the disallowance of expenditure on repairs, made by the Assessing Officer on an ad hoc basis, due to the absence of specific details and reasons.