2016 (8) TMI 1478 - AT - Income Tax

Disallowance of expenditure incurred for Pooja function expenses - HELD THAT - As decided in own case Tribunal allowed the temple inauguration expenses except disallowance of ₹ 3.00 lac out of lavish traveling expenses of ₹ 3.8 lacs on travelling and food. The present year expenditure seems to be normal day to day expenses on pooja for running the temple in the vicinity of the plant. Accordingly, after considering the rival submissions, facts of the issue as stated above, and Tribunal s decision referred above, this ground is allowed in favour of the assessee. The addition so sustained by CIT(A) is deleted Disallowance of Consultancy Charges for services - HELD THAT - Similar ground was allowed by Hon ble ITAT in assessee s own case for AY 1995-96, 1996-97, 1997-98 Disallowances of expenses on account of non-complete fees as business expenditure - HELD THAT - Under the similar facts the Hon ble Madras High Court in case of Carborandum vs. JCIT 2012 (10) TMI 178 - MADRAS HIGH COURT as held that the payment of non compete fees for fruitful exercise of business is a commercial decision and hence should be treated as a revenue expenditure . Further in the case of CIT vs. Eicher Ltd. 2008 (3) TMI 15 - HIGH COURT OF DELHI it has been held payment of non compete fees has not resulted in acquisition of capital asset. But merely eliminated competition for a while and restrictive covenant was neither permanent nor ephemeral. Hence, the advantage was not of an enduring nature. - Decided in favour of assessee Non-exclusion of Interest u/s 244A received during the year - HELD THAT - In terest received on the revenue issued by the department is taxable in the year of receipt an in the present case the assessee has received the interest income during the previous year relevant to assessment year 1998-99 and even of taxable of interest cannot be postponed in the dies of finality of the proceedings. It was rightly held by AO as well as CIT(A) that interest received on the refund u/s 244(A) is treated as income received during the year and taxed accordingly. Hence, we see no reasons to interfere or deviate from the findings recorded and orders passed by the CIT(A) and hence this ground of appeal raised by assessee stands dismissed and the orders passed by CIT(A) are upheld. Therefore, we dismiss the appeal of the assessee Disallowance of proportionate amount of premium on leasehold land - HELD THAT - We have noticed that the assessee has acquired various lands on lease and had paid lease premium in advance for acquiring such land on lease. AO held that the expenditure incurred on leasehold right in the land has resulted in advantage having enduring benefit. Therefore, the same was treated as Capital Expenditure. After considering the case we are also of the considered view that the premium paid for acquiring leasehold rights as capital expenditure and in this respect this view is verified by the decision of the Special Bench of Hon ble Mumbai ITAT in the case of JCIT Vs. Mukund Ltd. 2007 (2) TMI 358 - ITAT MUMBAI . Therefore, considering the afore mentioned facts, this ground raised by assessee is dismissed. Assessing interest income, income from Bill Discounting Truck Hire Charges under the head Income from Other Sources - HELD THAT - AR argued that CIT(A) has also erroneously upheld the order passed by AO. Ld. AR argued that the Hon ble ITAT Mumbai Bench in assesse s own case for A.Y. 1995- 96, 1996-97, 1997-98 as set aside the issue to the file of the AO for fresh decision and to verify the nexus between the earnings. Therefore the issue with regard to truck hire charges are set aside to the file of the AO for fresh decision and the issue of interest income and bill discounting are also set aside to the file of the AO to verify the nexus between the earnings from money deployed our of unutilized funds and interest on borrowed funds. Further the AO is also directed to reduce the actual expenditure incurred and tax only the net income under the head of Income from Other Sources . Non allowance of exclusion of the profits of Himachal unit as per the books in computing the Book Profit u/s 115JA - HELD THAT - This issue is covered in favour of the assessee by the decision of the Tribunal in case of Tushako Pump Ltd. 2005 (1) TMI 586 - ITAT MUMBAI in which it has been held that for the purpose of computing book profit under section 115JA, the profit of industrial undertaking eligible for deduction under section 80IA must be computed as per the books of accounts and not as per the provision of the Act. Respectfully following the said decision we held that the profit of the Himachal unit computed as per the books and after making adjustments as permissible under section 115JA will only be excluded while computing the book profit Non-exclusion of profit on sale of investment in computing Book Profit u/s 115JA - HELD THAT - Provision of Sec.115JA specifies the items to be added back and to be deducted. In the said section there is no provision of deduction of capital profit in computing book profit. Thus, following the provisions of the act, the ground is decided against the appellant. Interest u/s 234C - HELD THAT - After perusal of all the facts of the case laws we are of the considering view that the interest is u/s 234C to be levied as interest income therefore we direct the AO to recalculate the interest as per the return income. This ground of appeal is allowed in terms of above direction. Withdrawal of claim of deduction u/s 80-IA in respect of unit engaged in the business of generation of power under the normal computation - HELD THAT - The assessee could not be denied the benefit of amended provision once it fulfill the conditions stipulated in the relevant provision and therefore in view of section 80IA (2) the assesse is entitled to view the option of claiming deduction u/s 80IA on generation of power for assessment year 1999-2000 onwards. However the issue on merits needs to be considered by the AO, accordingly we set aside this issue to the file of the AO. Disallowances of Foreign Exchange Loss - HELD THAT - Since the assessee has submitted that the additional grounds raised in view of amendment in Finance Act, 1999 and as per amended provisions of section 80IA, the assessee has the option of claiming deduction for a period of ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking begins to generate power in respect of the units set up on or after 01.04.1993.

Summary

Issues Involved:
1. Disallowance of expenditure for Pooja function expenses.
2. Disallowance of Consultancy Charges.
3. Disallowance of charges for service.
4. Disallowance of non-compete fees.
5. Non-exclusion of interest u/s 244A.
6. Disallowance of premium on leasehold land.
7. Deduction u/s 80-IA for Unit Gaj-1.
8. Classification of income from interest, bill discounting, and truck hire charges.
9. Exclusion of profits of Himachal Unit in computing book profits u/s 115JA.
10. Exclusion of deduction u/s 80HHC in computing book profits u/s 115JA.
11. Non-exclusion of capital profit on sale of investment in computing book profits u/s 115JA.
12. Imposition of interest u/s 234C.
13. Withdrawal of claim for deduction u/s 80-IA for power generating unit.
14. Deletion of disallowance of community welfare expenses.
15. Deletion of disallowance of temple expenses.
16. Deletion of disallowance of mines prospecting charges.
17. Deletion of disallowance of foreign exchange loss.

Detailed Analysis:

1. Disallowance of expenditure for Pooja function expenses:
The assessee argued that the expenses were incurred for daily Pooja in plants and celebration of national events, claiming them as business expenses. The AO disallowed these expenses, considering them non-business in nature. The ITAT referenced previous decisions in the assessee's favor, particularly ITA No.3733/Mum/96, and allowed the expenses, adhering to judicial consistency.

2. Disallowance of Consultancy Charges:
The assessee incurred consultancy charges for advice in civil construction and maintenance. The AO treated these as capital expenditure. The ITAT, referencing past decisions in the assessee's favor, particularly ITA No.2292/M/94, held the consultancy charges as revenue expenditure and allowed the appeal.

3. Disallowance of charges for service:
Similar to consultancy charges, the AO treated service charges as capital in nature. The ITAT, following previous decisions, particularly ITA No.4032/M/99, held these as revenue expenditure and allowed the appeal.

4. Disallowance of non-compete fees:
The assessee paid non-compete fees to Mr. D.K. Modi, which the AO treated as capital expenditure. The ITAT referenced judgments like Carborandum vs. JCIT and CIT vs. Eicher Ltd., which treated non-compete fees as revenue expenditure, and allowed the appeal.

5. Non-exclusion of interest u/s 244A:
The AO included interest received u/s 244A as taxable income. The ITAT upheld this decision, referencing the case of Saffron Trading Co. (P) Ltd. vs. ACIT, and dismissed the appeal.

6. Disallowance of premium on leasehold land:
The AO treated the premium paid for leasehold land as capital expenditure. The ITAT upheld this view, referencing the Special Bench decision in JCIT Vs. Mukund Ltd., and dismissed the appeal.

7. Deduction u/s 80-IA for Unit Gaj-1:
This ground was not pressed by the assessee and was dismissed as not pressed.

8. Classification of income from interest, bill discounting, and truck hire charges:
The AO classified these incomes as "Income from Other Sources." The ITAT set aside the issue for fresh decision by the AO, directing to verify the nexus between the earnings and actual expenditure incurred.

9. Exclusion of profits of Himachal Unit in computing book profits u/s 115JA:
The AO allowed exclusion only of profit computed u/s 80IA. The ITAT referenced the decision in Tushako Pump Ltd., holding that profits as per books should be excluded, and allowed the appeal.

10. Exclusion of deduction u/s 80HHC in computing book profits u/s 115JA:
The AO computed deduction based on the Act's provisions. The ITAT referenced the decision in the assessee's own case for A.Y. 1997-98, allowing deduction based on profit as per books, and allowed the appeal.

11. Non-exclusion of capital profit on sale of investment in computing book profits u/s 115JA:
The AO included capital profit in book profits. The ITAT upheld this decision, referencing the decision in CIT vs. Veekaylal Investments Co. (P) Ltd., and dismissed the appeal.

12. Imposition of interest u/s 234C:
The AO imposed interest u/s 234C. The ITAT directed the AO to recalculate interest based on returned income, referencing Bombay Gymkhana Ltd vs. ITO, and allowed the appeal.

13. Withdrawal of claim for deduction u/s 80-IA for power generating unit:
The ITAT allowed the withdrawal, referencing the amendment in the Finance Act, 1999, and the case of ACIT vs. Vodafone Essar Gujarat Ltd., and set aside the issue to the AO for consideration on merits.

14. Deletion of disallowance of community welfare expenses:
The AO disallowed these expenses. The ITAT referenced past decisions in the assessee's favor, particularly ITA No. 3733/Mum/96, and upheld the CIT(A)'s deletion of the disallowance.

15. Deletion of disallowance of temple expenses:
The AO disallowed these expenses. The ITAT referenced past decisions in the assessee's favor, particularly ITA No. 2690/Mum/1993, and upheld the CIT(A)'s deletion of the disallowance.

16. Deletion of disallowance of mines prospecting charges:
The AO treated these expenses as capital in nature. The ITAT referenced past decisions in the assessee's favor, particularly ITA No. 3733/Mum/1996, and upheld the CIT(A)'s deletion of the disallowance.

17. Deletion of disallowance of foreign exchange loss:
The AO disallowed the foreign exchange loss as notional. The ITAT referenced the decision in CIT vs. Woodward Governor India Pvt. Ltd., treating the loss as revenue expenditure, and upheld the CIT(A)'s deletion of the disallowance.

Conclusion:
The appeal filed by the assessee is partly allowed, and the appeal filed by the revenue is dismissed.