2022 (2) TMI 376 - AT - Income Tax

Alternate claim to allow deduction u/s. 43B clause (C), (d) and (e) - royalty was an allowable deduction when computing the assessee s income chargeable to tax - HELD THAT - As identical issue is decided in favour of the assessee for the A.Y. 2001-02. While deciding the issue, the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI held that as the facts and circumstances during the year under consideration are para materia wherein appeal of department in earlier year was dismissed by the Tribunal, therefore, ground taken by assessee for disallowance during the year has become infructuous. Write off of Bad and Doubtful Debt - HELD THAT - We observe from the record that on identical facts the Hon'ble Supreme Court in the case of Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT held that the assessee debits to Profit and Loss Account and reduces from debtors/loans and advances on the asset side of the balance sheet amounts to write off and deduction u/s. 36(i)(vii) is available - we notice that assessee has charged the unrecovered portion to the profit and loss account and reduced the amount in the debtors balances, therefore the facts are exactly similar to the facts in the above case, accordingly, we allow the claim of the assessee. Disallowance of club membership fees - HELD THAT - Aforesaid issue raised in the assessment year 1993-94 is covered in favour of the assessee by the decision of the jurisdictional High Court in Otis Elevator CO. (India) Ltd., 1991 (4) TMI 53 - BOMBAY HIGH COURT Respectfully following the same, we dismiss the ground raised by the department. Interest received from the Income-tax Department - HELD THAT - As in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI issue decided in favour of assessee. Deduction u/s. 80HHC as claimed, interest received cannot be reduced from business profits as interest paid is higher than interest received - HELD THAT - We observe from the record that identical issue in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI decided in favour of the assessee as direct the A.O. to exclude the excess of interest income over interest expenditure from the eligible profit of the company while computing deduction u/s 80HHC. Rent should not be reduced from the profits of business for computing deduction u/s.80HHC - HELD THAT - We observe from the record that identical issue in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI as held net rent expenditure and net commission expenditure is required to be reduced from eligible profit rather than the gross rent and gross commission for the computation of deduction u/s 80HHC - decided in favour of the assessee. Loss on export of traded goods not to be adjusted against profit on export of manufactured goods - HELD THAT - As in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI as find no infirmity in the order of the lower authorities adjusting the loss on export of traded goods against profit on export of manufactured goods for computing deduction u/s 80HHC. Appropriation of HO expenses in computing deduction u/s. 80-O - HELD THAT - As in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI held that AO has only allocated the expenses but no income was allocated - there is no need for allocation of any expenses when the expenses are directly connected with periods - we are of the considered opinion that there is no necessity for allocating the head office expenses to the units claiming deduction u/s. 8OHH, 801, 80M and 80-0. The order of the CIT(A) on this issue is accordingly set aside and the grounds raised by the assessee are allowed. Deduction u/s. 80-IA on gain arising on sale of machinery - HELD THAT - We observe from the record that identical issue is decided in favour of the assessee by the Hon ble Bombay High Court by relying on the decision of Hon ble Delhi high Court in the case of CIT v. Eltek SGS P Ltd 2008 (2) TMI 17 - DELHI HIGH COURT . Sales tax exemption benefit being capital receipt not chargeable to tax - HELD THAT - As in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI remit this issue back to the file of AO for deciding the issue afresh after proper verification. It is needless to say that assessee may be given proper opportunity of being heard. Royalty and interest on royalty u/s. 43B, contribution to various organizations - HELD THAT - As in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI decide this issue in favour of the assessee. Disallowance of tax exempt dividend received - HELD THAT - As in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI wherein the disallowance was restricted to 1.5% of the exempt income. As the facts and circumstances during the year under consideration are same, we direct the A.O. to restrict the disallowance to 1.5% of the exempt income Expenses towards family welfare activities, sewing centre, supply of seeds, teachers training, Agarbatti making, temple expenses, drama expenses, taxi hire for pulse polio, well dipping expenses, electrification of Gram Panchayat, distribution of material to children and rural sports, leprosy camp expenses, medical camps, balwadis, carpet weaving training, farmers training programme etc . - HELD THAT - As in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI decided issue in favour of assessee. Exchange fluctuation loss - HELD THAT - As in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI decided issue in favour of assessee. Capitalized in its books of account debenture interest in respect of amount borrowed for setting up of grinding unit at Bhatinda - HELD THAT - As in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI decided issue in favour of assessee allowing debenture interest as business expenditure under section 36(1)(iii) Debenture issue expenses - HELD THAT - As in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI decided issue in favour of assessee. Payment towards PF and ESIS contribution after the normal due date but within the grace period allowed by the relevant Statute / Authorities - CIT-A allowed the claim of assessee - HELD THAT - As decided in FLUID AIR (INDIA) LTD. 1997 (2) TMI 557 - ITAT MUMBAI none of the payments in question were hit by the provisions of section 43B or section 2(24)(x) read with section 36(1)(va), as the case may be, and the additions made by invoking these provisions are hereby deleted. Provisions of section 43B should be construed in a liberal way keeping in view the Legislative intention so that absurdity and the interpretation which leads to injustice may be avoided. Thus, we do not find any reason to interfere with the order of the Ld.CIT(A) and dismiss the ground raised by the revenue. Allowable revenue expenditure - Payment made for earning an income assessable during the year - HELD THAT - As assessee has to let go the huge labour force and their huge liability of employee accumulation of their services, it has the option to settle directly to the employees or select the indirect settlement through the acquiring company. It is wrong to say that this liability is not ascertained, it is mutually agreed liability that the assessee will compensate certain amount of liability and accordingly, it has made provision to settle the liability. On a perusal of the Ld.CIT(A) order, we do not find any infirmity in the order of the Ld.CIT(A) in allowing the claim of the assessee. Ground raised by the revenue are dismissed. Expenses on production of film to be used for advertisement purposes - HELD THAT - As in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI find no infirmity in the order of the ld. CIT(A) deleting the disallowance by observing that advertisement film was made only for advertisement and its useful life is very short and such films do not add to the capital structure of the company. Expense incurred on implementation of software and ERP - HELD THAT - We observe that this issue is dealt by the Hon'ble Jurisdictional High Court in the case Raychem RPG Ltd 2011 (7) TMI 953 - BOMBAY HIGH COURT - thus we do not find any infirmity in the order of the Ld.CIT(A) in allowing the claim of the assessee. Ground raised by the revenue are dismissed. We order accordingly. Excluding the excise duty and sales tax in the total turnover for computing the deduction u/s 80HHC - HELD THAT - As decided in own case 2014 (10) TMI 994 - ITAT MUMBAI no infirmity in the order of the ld. CIT(A) in directing the A.O. to exclude the amount of excise duty and sales tax from the total turnover of the assessee while computing deduction u/s 80HHC. Appropriated gross expenses of Head Office on an estimate basis and reduced the amount of eligible deduction u/s 80IA - HELD THAT -As in own case the Coordinate Bench of the Tribunal 2014 (10) TMI 994 - ITAT MUMBAI decided issue in favour of assessee. Deduction u/s 80IA in respect of profit of Vikram Power Unit allowed. Levy interest u/s 234D - HELD THAT - Considered the submissions and material placed on record, we observe that this issue is considered by the Hon ble jurisdictional high court and decided against the assessee.

Summary

Issues Involved:

1. Disallowance under Section 43B.
2. Provision for bad and doubtful debts.
3. Disallowance of club membership fees.
4. Taxation of interest received from the Income Tax Department.
5. Deduction under Section 80 HHC.
6. Appropriation of Head Office expenses.
7. Deduction under Section 80 IA.
8. Sales tax exemption benefit as capital receipt.
9. Deduction of royalty under Section 43B.
10. Contribution to local organizations.
11. Expenditure incurred for earning exempted income.
12. Rural development expenses.
13. Exchange rate fluctuation loss.
14. Interest expenditure under Section 36(1)(iii).
15. Debenture issue expenses.
16. Payments on account of PF/ESIC made after the due date but within the grace period.
17. Payment towards transfer of liability of employees as revenue expenditure.
18. Expenses for making advertisement films.
19. Professional fees for software development and implementation of ERP.
20. Exclusion of sales tax and excise duty from total turnover for Section 80HHC.
21. Net interest for Section 80HHC.
22. Head office expenses for Section 80-IA.
23. Deduction under Section 80-IA for Vikram Power Unit.
24. Interest charged under Section 234D.

Detailed Analysis:

1. Disallowance under Section 43B:
The Tribunal observed that the identical issue was decided in favor of the assessee for the A.Y. 2001-02. The Tribunal upheld the CIT(A)'s order allowing the claim of the assessee, following the principle of consistency.

2. Provision for Bad and Doubtful Debts:
The Tribunal relied on the Supreme Court's decision in Vijaya Bank and other cases, holding that the assessee's claim for bad debts was allowable as the amounts were written off in the books of accounts.

3. Disallowance of Club Membership Fees:
The Tribunal followed its earlier decision in ITA.No. 2944/Mum/1997 and allowed the deduction for club membership fees, following the principle of consistency.

4. Taxation of Interest Received from the Income Tax Department:
The Tribunal held that the interest received from the Income Tax Department should be taxed in the year it is received, but if subsequently withdrawn, it should not be taxed. This was in line with the Tribunal's earlier decision in the assessee's own case.

5. Deduction under Section 80 HHC:
The Tribunal directed the AO to exclude net interest income from the eligible profit for computing deduction under Section 80HHC, following the Supreme Court's decision in ACG Associated Capsules Pvt. Ltd. The Tribunal also directed that net rent and commission should be considered rather than gross amounts.

6. Appropriation of Head Office Expenses:
The Tribunal upheld the CIT(A)'s order that head office expenses should not be reduced from the receipts while computing allowable deduction under Section 80 O, following earlier Tribunal decisions.

7. Deduction under Section 80 IA:
The Tribunal allowed the deduction under Section 80 IA on gain arising on the sale of machinery, following the Delhi High Court's decision in CIT v. Eltek SGS P Ltd.

8. Sales Tax Exemption Benefit as Capital Receipt:
The Tribunal remitted the issue back to the AO for proper verification, following its earlier decision in the assessee's own case.

9. Deduction of Royalty under Section 43B:
The Tribunal allowed the deduction of royalty and interest on royalty under Section 43B, following earlier Tribunal decisions in the assessee's own case.

10. Contribution to Local Organizations:
The Tribunal upheld the CIT(A)'s order allowing the deduction for contributions to local organizations, following earlier Tribunal and High Court decisions in the assessee's own case.

11. Expenditure Incurred for Earning Exempted Income:
The Tribunal directed the AO to restrict the disallowance to 1.5% of the exempt income, following its earlier decision in the assessee's own case.

12. Rural Development Expenses:
The Tribunal upheld the CIT(A)'s order allowing the deduction for rural development expenses, following earlier Tribunal decisions in the assessee's own case.

13. Exchange Rate Fluctuation Loss:
The Tribunal upheld the CIT(A)'s order allowing the deduction for exchange rate fluctuation loss, following earlier Tribunal decisions and the Supreme Court's decision in Woodward Governor India Pvt. Ltd.

14. Interest Expenditure under Section 36(1)(iii):
The Tribunal upheld the CIT(A)'s order allowing the deduction for interest expenditure, following earlier Tribunal decisions in the assessee's own case.

15. Debenture Issue Expenses:
The Tribunal upheld the CIT(A)'s order allowing the deduction for debenture issue expenses, following earlier Tribunal decisions in the assessee's own case.

16. Payments on Account of PF/ESIC Made After the Due Date but Within the Grace Period:
The Tribunal upheld the CIT(A)'s order allowing the deduction for PF/ESIC payments made within the grace period, following various judicial precedents.

17. Payment Towards Transfer of Liability of Employees as Revenue Expenditure:
The Tribunal upheld the CIT(A)'s order allowing the deduction for the payment towards the transfer of liability of employees, following various judicial precedents.

18. Expenses for Making Advertisement Films:
The Tribunal upheld the CIT(A)'s order allowing the deduction for expenses incurred for making advertisement films, following earlier Tribunal decisions and the Supreme Court's decision in Empire Jute Co. Ltd.

19. Professional Fees for Software Development and Implementation of ERP:
The Tribunal upheld the CIT(A)'s order allowing the deduction for professional fees for software development and implementation of ERP, following the Bombay High Court's decision in Raychem RPG Ltd.

20. Exclusion of Sales Tax and Excise Duty from Total Turnover for Section 80HHC:
The Tribunal upheld the CIT(A)'s order directing the AO to exclude sales tax and excise duty from the total turnover for computing deduction under Section 80HHC, following the Supreme Court's decision in Lakshmi Machine Works.

21. Net Interest for Section 80HHC:
The Tribunal directed the AO to apply clause (baa) in respect of interest receipt by following the Supreme Court's decision in ACG Associated Capsules Pvt. Ltd.

22. Head Office Expenses for Section 80-IA:
The Tribunal upheld the CIT(A)'s order that no amount of head office expenses can be apportioned to the units eligible for deduction under Section 80-IA, following earlier Tribunal decisions in the assessee's own case.

23. Deduction under Section 80-IA for Vikram Power Unit:
The Tribunal upheld the CIT(A)'s order allowing the deduction under Section 80-IA for Vikram Power Unit, following earlier Tribunal decisions in the assessee's own case.

24. Interest Charged under Section 234D:
The Tribunal allowed the revenue's appeal on this issue, following the jurisdictional High Court's decision that Section 234D would be applicable to pending proceedings where assessments were not completed on 1/6/2003.