2016 (1) TMI 1491 - AT - Income Tax

Calculation of liability - Incremental liability for payment of pension under the Voluntary retirement scheme (VRS) created on an actuarial basis in computing the assessee s total income - HELD THAT - Tribunal in assessee s own case for A.Y. 1994-95 2013 (2) TMI 95 - ITAT MUMBAI followed the findings given by the Tribunal in A.Y. 1993-94 2012 (8) TMI 492 - ITAT MUMBAI and has restored this issue back to the file of AO to examine and verify the actuary valuation certificate and the agreement with the company and the employee and if he finds that the liability has been calculated on a scientific basis may allow the claim of the assessee - Ground of appeal No.1 is decided in favour of the assessee. Nature of expenses - disallowance of 20% of foreign traveling expenses - revenue or capital expenditure - HELD THAT - As decided in own case disallowance has been made on assumptions and presumptions. The very basis on which the disallowance has been made is found to be not correct. In fact in AY 74-75 64-65 76-77 and 77-78 similar disallowance of expenses has been deleted by the Tribunal. Ground of appeal No.2 is decided in favour of the assessee. Disallowance of entertainment expenses - HELD THAT - Tribunal had dealt with the said issue in the assessee s own case for the AY.1995-96 2013 (10) TMI 1039 - ITAT MUMBAI . we direct the AO to allow the lunch expenses on employees during the outdoor duty business meeting expenses expenses on AGM fully and we confirmed disallowance out of the total canteen expenses - Ground No.3, raised by the assessee is partly allowed. Disallowance of hotel expenses and air fares of foreign visitors coming/visiting to India - HELD THAT - As decided in own case as held foreign victors came to India for purposes of attending the board meetings general discussion finance reporting etc. It is considered that the expenditure represented predominantly business expenditure. Deduction u/s 80HHC - reducing the loss on export of trading goods from deduction computed under section 80HHC(3) in respect of manufactured goods - HELD THAT - As decided in own case in reducing the loss on export of trading goods from the deduction computed u/s.80HHC(3)of the Act in respect of manufactured goods. AR fairly conceded that issue is decided in favour of the department in view of the judgment of Hon ble Apex Court delivered in the case of Ipca Laboratories Deduction u/s.80O on net research income earned after deducting expenses - HELD THAT - Representatives of both the sides agreed before us that the issue stands covered against the assessee by the orders of Asian Cable 2003 (3) TMI 87 - BOMBAY HIGH COURT Petroleum India International 1999 (6) TMI 458 - ITAT MUMBAI and M.N. Dastur Co. 2000 (1) TMI 29 - CALCUTTA HIGH COURT . Respectfully following the above orders we decide the issue against the assessee. Entitlement of the assessee to interest u/s.244A on the amount of Self Assessment (SA)tax paid by it - Decided in favour of assessee. Eligibility of the assessee for depreciation on assets that stood vested in Ciba Speciality Chemicals (India) Ltd.(CSCIL) - demerger of company - AO came to the conclusion that the book value of the transferred assets shall be adopted from block of assets for the purpose of depreciation and since consideration had flowed to the assessee for the transfer of assets to CSCIL the assessee was not entitled to claim of depreciation - HELD THAT - As relying on Kasturi Sons 1999 (3) TMI 6 - SUPREME COURT . we find that what was transferred in the transaction in question was not money. In our opinion facts of the above case are quite similar to the case under appeal.We have also taken note of fact that it is a case of demerger, not of sale or exchange.Last ground of appeal, raised by the assessee is decided in its favour. Nature of expenses - Disallowance of expenses incurred on amalgamation/demerger and in holding that the expenditure was of revenue nature - HELD THAT - As decided in Bombay Dyeing Mfg. Co. Ltd 1996 (2) TMI 8 - SUPREME COURT expenditure incurred towards professional charges of the solicitors firm for the services rendered in connection with the said amalgamation was in the course of carrying on of the assessee s business and therefore deductible as a revenue expenditure - Decided in favour of assessee. Expenditure incurred on computer software - HELD THAT - As application software are of revenue in nature as the AO has not doubted that the expenses were on application software. See Asahi Safety Glass ltd. 2011 (11) TMI 2 - DELHI HIGH COURT Estimated freight components in the closing stock - HELD THAT - As decided in own case 1996-97 there is no impediment to the deduction of true profits and gains of the business because of the method of valuation followed by the assessee consistently and which has also been accepted by the departmental authorities. A stray departure just for one year tends to upset the calculations. When the method has not been found fault with for a long period of years. It acquires fundamental character and forms a sound basis for the assessment of the profits especially when the method followed is not patently false or unacceptable and any accepted fundamental feature of an assessment cannot be lightly tinkered with as held by the Supreme Court in the case of Radhasaomi Satsang Sabha 1991 (11) TMI 2 - SUPREME COURT Exclude the sales tax and excise duty for the purpose of computing deduction u/s. 80HHC - HELD THAT - .The Hon ble Apex Court and the Jurisdictional High Court have in the cases of Laxmi Machine Works 2007 (4) TMI 202 - SUPREME COURT and Sudershan Chemical Industries Ltd. 2000 (8) TMI 73 - BOMBAY HIGH COURT held that sales tax and excise duty cannot be included for the purpose of computing the 80HHC deduction. Disallowance u/s 14A - HELD THAT - We restrict disallowance to 0.05% of the exempt income. Deduction u/s.43B on delayed payment of ESIC - HELD THAT - We find that the assessee had paid the dues before the due date of filing of return and there was only delay of one day in depositing the amount.In our opinion, there is no need to interfere with the order of the FAA.Confirming the same, Ground No.8 is decided against the AO.

Summary

Issues Involved:
1. Disallowance on account of incremental liability for payment of pension.
2. Disallowance of foreign travelling expenses.
3. Disallowance of entertainment expenses.
4. Disallowance of hotel expenses and airfares of foreign visitors.
5. Reduction of loss on export of trading goods from deduction under section 80HHC.
6. Deduction under section 80-O on net research income.
7. Entitlement to interest under section 244A on Self Assessment tax.
8. Depreciation on assets transferred during demerger.
9. Expenditure incurred on amalgamation/demerger.
10. Disallowance of advertisement and publicity expenses.
11. Expenditure on computer software.
12. Addition on account of estimated freight components in closing stock.
13. Expenditure on transit houses.
14. Exclusion of sales tax and excise duty for computing deduction under section 80HHC.
15. Disallowance on account of expenditure incurred in connection with earning of interest income exempt under section 10(15).
16. Deduction under section 43B on delayed payment of ESIC.

Detailed Analysis:

1. Disallowance on Account of Incremental Liability for Payment of Pension:
The Tribunal referenced its previous decision for AY 1995-96, where it restored the issue back to the AO to verify the actuarial valuation certificate and agreement with the company and employee. The Tribunal directed the AO to allow the claim if the liability was calculated on a scientific basis. Following this precedent, the Tribunal decided the issue in favor of the assessee.

2. Disallowance of Foreign Travelling Expenses:
The Tribunal referred to its decisions for AYs 1991-92 to 1996-97, where it had allowed similar claims. The Tribunal found that the disallowance was made on assumptions and presumptions and directed that the disallowance sustained by the CIT(A) be deleted. Consequently, the Tribunal decided this issue in favor of the assessee.

3. Disallowance of Entertainment Expenses:
The Tribunal followed its previous decision for AY 1995-96, where it had allowed lunch expenses on employees during outdoor duty and business meeting expenses, while confirming a partial disallowance of canteen expenses. The Tribunal directed the AO to allow lunch expenses, business meeting expenses, and AGM expenses fully, while confirming a partial disallowance of canteen expenses. This issue was partly allowed in favor of the assessee.

4. Disallowance of Hotel Expenses and Airfares of Foreign Visitors:
The Tribunal referenced its decision for AY 1996-97, where it had allowed similar claims, stating that the expenses were wholly and exclusively for business purposes. Following this precedent, the Tribunal decided the issue in favor of the assessee.

5. Reduction of Loss on Export of Trading Goods from Deduction under Section 80HHC:
The Tribunal followed the Supreme Court judgment in Ipca Laboratories, which decided the issue in favor of the department. Consequently, the Tribunal decided this issue against the assessee.

6. Deduction under Section 80-O on Net Research Income:
The Tribunal noted that the issue was covered against the assessee by previous decisions, including those of Asian Cable, Petroleum India International, and M.N. Dastur & Co. Thus, the Tribunal decided this issue against the assessee.

7. Entitlement to Interest under Section 244A on Self Assessment Tax:
The Tribunal referenced its decision for AY 1998-99, where it had allowed interest under section 244A on self-assessment tax, following previous Tribunal orders. Consequently, the Tribunal decided this issue in favor of the assessee.

8. Depreciation on Assets Transferred During Demerger:
The Tribunal noted that the assessee did not receive any money from the demerger, and the shareholders received shares in pursuance of the merger. The Tribunal found that the assets were not sold or discarded and reversed the FAA's order, deciding the issue in favor of the assessee.

9. Expenditure Incurred on Amalgamation/Demerger:
The Tribunal referenced the Supreme Court decision in Bombay Dyeing & Mfg. Co. Ltd., which held that such expenditure was revenue in nature and deductible. Respectfully following this decision, the Tribunal decided this issue against the AO.

10. Disallowance of Advertisement and Publicity Expenses:
The Tribunal noted that the issue had been consistently decided in favor of the assessee in previous years and upheld by the Bombay High Court. Consequently, the Tribunal dismissed the AO's ground.

11. Expenditure on Computer Software:
The Tribunal referenced its previous decisions for AYs 1991-92, 1995-96, and 1996-97, where it had treated such expenditure as revenue in nature. Following these precedents, the Tribunal decided this issue against the AO.

12. Addition on Account of Estimated Freight Components in Closing Stock:
The Tribunal followed its previous decisions for AYs 1992-93 to 1996-97, where it had consistently decided the issue in favor of the assessee. Respectfully following these orders, the Tribunal dismissed the AO's ground.

13. Expenditure on Transit Houses:
The Tribunal referenced its decisions for AYs 1991-92 to 1996-97, where it had partly allowed the expenditure on food and beverages while disallowing other expenses. The Tribunal remitted the issue back to the AO for fresh adjudication regarding food and beverages expenses. This issue was partly allowed in favor of the AO.

14. Exclusion of Sales Tax and Excise Duty for Computing Deduction under Section 80HHC:
The Tribunal followed the Supreme Court and Jurisdictional High Court judgments in Sudershan Chemicals Industries Ltd. and Laxmi Machine Works, which held that sales tax and excise duty cannot be included for computing the 80HHC deduction. Respectfully following these judgments, the Tribunal dismissed the AO's ground.

15. Disallowance on Account of Expenditure Incurred in Connection with Earning of Interest Income Exempt under Section 10(15):
The Tribunal noted that the FAA had referred to a previous order for AY 1995-96, where the issue was of deduction under section 80M. The Tribunal decided to restrict the disallowance to 0.05% of the exempt income, deciding the issue partly in favor of the AO.

16. Deduction under Section 43B on Delayed Payment of ESIC:
The Tribunal found that the assessee had paid the dues before the due date of filing the return, with only a one-day delay. The Tribunal saw no need to interfere with the FAA's order, deciding the issue against the AO.

Conclusion:
The appeals filed by the AO and the assessee for AY 1997-98 were partly allowed. The appeals of the assessee for AYs 1998-99 and 1999-00 were allowed, and the appeals of the AO for those years were partly allowed. The COs filed by the assessee for all three AYs were allowed for statistical purposes.