2009 (5) TMI 1013 - AT - Income Tax

Issues Involved:
1. Disallowance of deductions under Section 43B.
2. Disallowance of software expenses as capital expenditure.
3. Disallowance of bad debts under Section 36(1)(vii) read with Section 36(2).
4. Addition to WDV of assets due to foreign exchange fluctuation.
5. Allowance of customs duty paid on goods imported for export.
6. Allowance of excise duty on inputs in closing stock.
7. Allowance of customs duty on closing inventory with vendors.
8. Allowance of CST and LST paid under protest.
9. Allowance of excise duty paid under protest.
10. Excess claim of consumption of stock.
11. Loss on account of foreign exchange fluctuation.
12. Depreciation on enhanced liability due to customs duty.
13. Deletion of addition under Section 14A.
14. Allowance of legal expenses.
15. Disallowance under Section 40(a)(i).
16. Loss on sale of shares treated as long-term capital loss.
17. Depreciation on foreign exchange fluctuation.
18. Membership fees as business expenditure.

Detailed Analysis:

1. Disallowance of Deductions under Section 43B:
- Excise Duty Paid: The Tribunal dismissed the assessee's grounds (1.1 and 1.2) based on the Special Bench decision in *Glaxo Smithkline Consumer Healthcare Ltd.*, which held that unutilized MODVAT credit is not an allowable deduction.
- Sales Tax Paid: The Tribunal dismissed the assessee's ground (1.3) following the decision in the assessee's own case for AY 1999-2000, which held that the sum paid for the purchase of inputs is allowable in the year of adjustment on the sale of finished stock.
- Sales Tax Recoverable: Similar to ground 1.3, the Tribunal dismissed ground 1.4 following the same rationale.

2. Disallowance of Software Expenses as Capital Expenditure:
- The Tribunal restored the issue to the AO for reconsideration in line with the Special Bench decision in *Amway India Enterprises*, which requires detailed verification.

3. Disallowance of Bad Debts under Section 36(1)(vii) read with Section 36(2):
- The Tribunal allowed the assessee's grounds (3 to 3.4) following the Delhi High Court decisions in *Autometers Ltd.* and *Morgan Securities and Credits Pvt. Ltd.*, which held that bad debts written off in accounts are deductible.

4. Addition to WDV of Assets due to Foreign Exchange Fluctuation:
- The assessee did not press this ground, and it was dismissed as 'not pressed.'

5. Allowance of Customs Duty Paid on Goods Imported for Export:
- The Tribunal dismissed the Revenue's ground 1, following the decision in the assessee's own case for AY 1999-2000, which allowed the deduction under Section 43B.

6. Allowance of Excise Duty on Inputs in Closing Stock:
- The Tribunal allowed the Revenue's ground 2 based on the Special Bench decision in *Glaxo Smithkline Consumer Healthcare Ltd.*, which disallowed unutilized MODVAT credit.

7. Allowance of Customs Duty on Closing Inventory with Vendors:
- The Tribunal dismissed the Revenue's ground 3, following the decision in the assessee's own case for AY 1999-2000, which allowed the deduction under Section 43B.

8. Allowance of CST and LST Paid under Protest:
- The Tribunal dismissed the Revenue's grounds 5 and 6, following the decisions in the assessee's own case for AY 2000-01, which allowed the deductions under Section 43B.

9. Allowance of Excise Duty Paid under Protest:
- The Tribunal dismissed the Revenue's ground 7, following the decision in the assessee's own case for AY 2000-01, which allowed the deduction under Section 43B.

10. Excess Claim of Consumption of Stock:
- The Tribunal dismissed the Revenue's ground 8, following the decision in the assessee's own case for AY 2000-01 and 2004-05, which upheld the assessee's claim.

11. Loss on Account of Foreign Exchange Fluctuation:
- The Tribunal dismissed the Revenue's ground 10, following the Delhi High Court decision in *Woodward Governor India Pvt. Ltd.* and the Tribunal's decision in the assessee's own case for AY 1999-2000.

12. Depreciation on Enhanced Liability due to Customs Duty:
- The Tribunal dismissed the Revenue's ground 11, following the decisions in the assessee's own case for AY 1999-2000 and 1998-99, which upheld the allowance of depreciation.

13. Deletion of Addition under Section 14A:
- The Tribunal restored the issue to the AO for re-adjudication in line with the Special Bench decision in *Daga Capital Management Pvt. Ltd.*, which requires quantification under Rule 8-D.

14. Allowance of Legal Expenses:
- The Tribunal dismissed the Revenue's ground 13, following the decision in the assessee's own case for AY 1999-2000, which allowed the deduction.

15. Disallowance under Section 40(a)(i):
- The Tribunal dismissed the Revenue's ground 14, holding that the commission paid to non-resident agents for services rendered outside India is not chargeable to tax in India, and thus, Section 195 does not apply.

16. Loss on Sale of Shares Treated as Long-term Capital Loss:
- The Tribunal dismissed the Revenue's ground 15, holding that the redemption of preference shares does not constitute a sale and thus cannot be treated as speculative loss, following the Delhi High Court decision in *Sahara India Financial Corporation*.

17. Depreciation on Foreign Exchange Fluctuation:
- The Tribunal dismissed the Revenue's ground 16, following the Delhi High Court decision in *Woodward Governor India Pvt. Ltd.* and the Tribunal's decision in the assessee's own case for AY 1999-2000.

18. Membership Fees as Business Expenditure:
- The Tribunal dismissed the Revenue's ground 17, holding that club membership fees incurred by directors and senior officials for business reasons are allowable, following the Bombay High Court decisions in *Otis Elevators* and *American Express International Banking Corporation*.

Conclusion:
- The appeal of the assessee is partly allowed for statistical purposes.
- The appeal of the revenue is partly allowed for statistical purposes.

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