2015 (11) TMI 1844 - HC - Income Tax

Closing stock estimation - value of scrap items lying on the shop floor at the end of relevant year - insurance premium paid at the time of purchase of car - provision for head office expenses - Mark to market loss in respect of outstanding option contracts - disallowance of deduction claimed under section 80IA in respect of profit derived from captive power generating unit, on the ground that profit of the said unit was to be computed by adopting the transfer price of power as the rate at which power was supplied by local State Electricity Board/ Haryana State Electricity Board ( HSEB ) to the Dharuhera unit - disallowance of provision for advertisement expenses under section 40(a)(ia) of the Act for alleged failure to deduct tax at source - disallowance of expenditure incurred on account of rental charges paid towards cars taken on lease under section 40(a)(ia) on the ground that the appellant failed to deduct tax at source therefrom under section 194-I - Disallowance of expenditure incurred towards distribution of motor vehicles to winners of game shows organized by TV channels under section 40(a)(ia) on the ground that the appellant failed to deduct tax at source therefrom under section 194B - disallowance of aggregate expenditure incurred on account of (i) booking of banquet halls/space in hotel to convene various meetings/training courses andmeal expenses incurred at the time of such meetings/conferences room on the ground that appellant failed to deduct tax at source from such payments under section 194I/194C, invoking provisions of section 40(a)(ia) of the Act - disallowance made by the assessing officer under section 40(a)(ia) by holding that the appellant was liable to deduct tax at source from hire charges of generator used at the corporate office under section 1941 of the Act - disallowance of additional depreciation claimed under section 32(1)(iia) of the Act on computers installed at supervisory offices located in the compound of manufacturing plants located at Gurgaon and Dharuhera, on the ground that the appellant failed to prove with evidence that the aforesaid computers were installed at the said premises, without appreciating that the aforesaid fact was admitted and not disputed by the lower authorities - assets used for purposes of testing were used for scientific research and, therefore, entire cost thereof was eligible for deduction under section 35(1)(iv) of the Act - HELD THAT - Questions are framed for determination - Learned counsel for the parties are permitted to file additional documents/papers which are part of the assessment record or were filed before the ITAT within eight weeks.

Summary

Issues Involved:
1) Valuation of scrap items in closing stock
2) Treatment of first insurance premium on a car as capital expenditure
3) Provision for head office expenses reversal
4) Mark to market loss on outstanding option contracts
5) Disallowance of deduction under section 80IA for profit from captive power unit
6) Disallowance of provision for advertisement expenses under section 40(a)(ia)
7) Disallowance of rental charges paid for leased cars under section 40(a)(ia)
8) Disallowance of expenditure on distribution of motor vehicles as game show prizes under section 40(a)(ia)
9) Disallowance of banquet halls/space booking and meal expenses under section 40(a)(ia)
10) Disallowance of tax at source from hire charges of generator
11) Disallowance of additional depreciation on computers at supervisory offices
12) Eligibility of assets used for testing for deduction under section 35(1)(iv)

Analysis:
1) The first issue pertains to the valuation of scrap items in the closing stock. The Tribunal had to determine whether the value of scrap items could be added to the closing stock on an estimate basis despite the consistent accounting system followed by the appellant. The Tribunal upheld this addition, leading to a question of law regarding the correctness of this decision.

2) The second issue involves the treatment of the first insurance premium paid on a car as capital expenditure. The Tribunal considered the premium as part of the purchase cost of the vehicle, leading to a dispute over whether it should be treated as capital expenditure or not. The question arises whether the Tribunal erred in its decision regarding the treatment of this expense.

3) The third issue concerns the provision for head office expenses that were reversed in the succeeding year. The Tribunal's decision not to allow this provision raises a legal question regarding the treatment of such reversals and their impact on the appellant's tax liability.

4) The fourth issue revolves around the mark to market loss on outstanding option contracts. The Tribunal's decision to not allow this loss raises a question of law regarding the treatment of such losses for tax purposes.

5) The fifth issue relates to the disallowance of deduction claimed under section 80IA for profit from a captive power unit. The dispute arises from the computation of profit derived from the unit and the method used to determine the transfer price of power supplied, leading to a legal question on the correctness of the disallowance.

6) The sixth issue involves the disallowance of provision for advertisement expenses under section 40(a)(ia) for alleged failure to deduct tax at source. The Tribunal upheld this disallowance, raising a question of law regarding the applicability of tax deduction in such cases.

7) The seventh issue pertains to the disallowance of rental charges paid for leased cars under section 40(a)(ia) due to the failure to deduct tax at source. The correctness of this disallowance is in question, highlighting a legal issue regarding tax deduction obligations.

8) The eighth issue concerns the disallowance of expenditure on the distribution of motor vehicles as game show prizes under section 40(a)(ia) for failure to deduct tax at source. The Tribunal's decision raises a legal question on the applicability of tax deduction requirements in such scenarios.

9) The ninth issue involves the disallowance of expenses related to banquet halls/space booking and meal expenses under section 40(a)(ia) for failure to deduct tax at source. The dispute over the applicability of tax deduction obligations in these circumstances raises a legal question regarding the correctness of the disallowance.

10) The tenth issue pertains to the disallowance of tax at source from hire charges of a generator. The Tribunal's decision to uphold this disallowance raises a legal question on the obligation to deduct tax at source in such transactions.

11) The eleventh issue involves the disallowance of additional depreciation claimed on computers at supervisory offices. The dispute arises from the failure to provide evidence of installation at specific premises, leading to a legal question on the substantiation of such claims.

12) The twelfth issue concerns the eligibility of assets used for testing for deduction under section 35(1)(iv) for scientific research. The Tribunal's decision not to allow the deduction raises a legal question on the interpretation of the provisions and the eligibility criteria for such deductions.