2008 (11) TMI 737 - AT - Income Tax

2015 (9) TMI 1695 - AT

Issues Involved:
1. Deletion of disallowance under Rule 6B.
2. Deletion of disallowance on account of Modvat credit.
3. Capital gains on sale of the fibre glass division.
4. Classification of loss on sale of units of Unit Trust of India.
5. Disallowance of earlier years' expenses.
6. Disallowance of travelling expenses.
7. Disallowance of guest house expenses.
8. Disallowance of entertainment expenses.
9. Write-off of leasehold land.
10. Taxing of notional interest on delayed sales proceeds.
11. Disallowance of bad debts/advances/interest written off.
12. Taxing of notional interest on inter-corporate deposits.
13. Taxing of notional interest on advances given to a subsidiary company.
14. Disallowance of debenture issue expenses.
15. Disallowance of penalty paid under the Income Tax Act.
16. Taxability of profit on sale of undertaking.
17. Deduction of lease rent.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance Under Rule 6B:
The Tribunal upheld the Commissioner (Appeals)' decision to delete the disallowance of Rs. 1,91,489 under Rule 6B for articles presented without the company's name and logo. The Tribunal followed its own decision in the assessee's case for the assessment year 1991-92 and the Bombay High Court's ruling in CIT v. Allana Sons (P) Ltd. (1995) 216 ITR 690 (Bom), which clarified that complimentary notes do not equate to advertising the company's wares.

2. Deletion of Disallowance on Account of Modvat Credit:
The Tribunal upheld the Commissioner (Appeals)' decision to delete the disallowance of Rs. 4,32,22,911 related to Modvat credit on raw materials in closing stock. This issue was previously decided in favor of the assessee for the assessment year 1991-92, following the Supreme Court's decision in CIT v. Indo Nippon Chemicals Co. Ltd. (2003) 261 ITR 275 (SC).

3. Capital Gains on Sale of Fibre Glass Division:
The Tribunal addressed the computation of capital gains on the sale of the fibre glass division as a slump sale. The Commissioner (Appeals) directed the assessing officer to work out the capital gains after allowing indexation. The Tribunal upheld this direction, noting that the cost of acquisition was ascertainable and that the benefit of indexation should be allowed.

4. Classification of Loss on Sale of Units of Unit Trust of India:
The Tribunal upheld the Commissioner (Appeals)' decision to treat the loss of Rs. 14,05,620 from the sale of units of Unit Trust of India as a business loss rather than a speculation loss. This decision was in line with the Supreme Court's ruling in Apollo Tyres Ltd. v. CIT (2002) 255 ITR 273 (SC).

5. Disallowance of Earlier Years' Expenses:
The Tribunal upheld the Commissioner (Appeals)' decision to delete the disallowance of Rs. 2,46,28,814 for earlier years' expenses. The Commissioner (Appeals) reasoned that large companies often face delays in accounting for expenses, and such expenses should be allowed in the year they are accounted for.

6. Disallowance of Travelling Expenses:
The Tribunal upheld the disallowance of Rs. 1,50,000 for travelling expenses, as the assessing officer's method of disallowance on a totality basis was supported by the Bombay High Court's decision in CIT v. Aorow India Ltd. (1998) 229 ITR 325 (Bom).

7. Disallowance of Guest House Expenses:
The Tribunal partly allowed the assessee's appeal, deleting the disallowance of Rs. 7,79,794 related to food expenses provided to staff in guest houses, following its own decision in the assessee's case for the assessment year 1988-89 and the Special Bench decision in Eicher Tractors Ltd. v. Dy. CIT (2003) 84 ITD 49 (Del)(SB).

8. Disallowance of Entertainment Expenses:
The Tribunal upheld the disallowance of Rs. 75,000 for food and tea expenses incurred on outsiders but allowed partial relief for expenses on employees during conferences, restricting the disallowance to 40% of the total.

9. Write-off of Leasehold Land:
The Tribunal upheld the disallowance of the write-off of leasehold land, following its own decision in the assessee's case for the assessment year 1988-89.

10. Taxing of Notional Interest on Delayed Sales Proceeds:
The Tribunal dismissed the ground as not pressed.

11. Disallowance of Bad Debts/Advances/Interest Written Off:
The Tribunal restored the issue to the assessing officer for verification of whether the interest income from inter-corporate deposits was assessed under "Profits and gains of business." If verified, the assessee would be entitled to deduction under Section 36(1)(vii).

12. Taxing of Notional Interest on Inter-Corporate Deposits:
The Tribunal restored the issue to the assessing officer to verify the assessee's claim that the recovery from certain companies was highly doubtful, justifying the non-provision of interest.

13. Taxing of Notional Interest on Advances Given to Subsidiary Company:
The Tribunal restored the issue to the assessing officer to determine if the loan to the subsidiary company was given for commercial expediency, following the Supreme Court's decision in S.A. Builders Ltd. v. CIT (2007) 288 ITR 1 (SC).

14. Disallowance of Debenture Issue Expenses:
The Tribunal dismissed the ground as not pressed.

15. Disallowance of Penalty Paid Under the Income Tax Act:
The Tribunal dismissed the ground as not pressed.

16. Taxability of Profit on Sale of Undertaking:
The Tribunal upheld the Commissioner (Appeals)' decision that the sale of the fibre glass division was a slump sale, and the capital gains were taxable. The benefit of indexation was allowed as Section 50B was not applicable for the year under appeal.

17. Deduction of Lease Rent:
The Tribunal upheld the disallowance of Rs. 1,68,09,722 for lease rent, treating the transaction as a finance lease. However, the issue of adjusting the block of assets was restored to the assessing officer for determination.

Conclusion:
The Tribunal's consolidated order addressed various grounds of appeal raised by both the assessee and the revenue, providing detailed reasoning for upholding, dismissing, or restoring issues for further verification. The decisions were based on precedents, legal principles, and the specifics of each case, ensuring a thorough and fair adjudication.

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