1994 (3) TMI 139 - AT - Income Tax

Issues Involved:
1. Allowance of expenditure related to debenture shares.
2. Allowance of expenditure for maintenance of Transit Houses.
3. Excess deduction under section 80-O.
4. Excess deduction under section 35B.
5. Deduction under section 43(1).
6. Wrong computation under section 80J.
7. Incorrect computation of profit under section 80HH.
8. Non-deduction of tax at source for power bills and failure to charge penal interest under section 201(1A).

Detailed Analysis:

1. Allowance of Expenditure Related to Debenture Shares:
The CIT identified an error in the allowance of Rs. 75,000 and Rs. 2,34,612 related to debenture shares. The assessee argued that the payment to Andrew Yule & Co. for acting as share transfer agent is allowable as revenue expenditure per CBDT Circular No. 10/25/63-IT(A-I). Additionally, the expenditure for debenture issues was claimed as revenue expenditure based on the Supreme Court's decision in Indian Cements Ltd. vs. CIT and CBDT Circular No. 56. The Tribunal found no error in the Assessing Officer's (AO) allowance, deeming the CIT's reliance on Union Carbide irrelevant.

2. Allowance of Expenditure for Maintenance of Transit Houses:
The CIT disallowed Rs. 7,93,334 spent on transit houses, citing Section 37(4). The assessee referenced decisions in CIT vs. Parshva Properties Ltd. and CIT vs. Orient Paper Mills Ltd., arguing that such expenses are allowable. The Tribunal noted that the CIT did not provide a specific finding on disallowable items and ruled that the AO's allowance was consistent with prior judgments, including the Hon'ble Calcutta High Court's decision in Tungabhadra Industries.

3. Excess Deduction Under Section 80-O:
The CIT questioned the deduction of Rs. 21,80,373 under section 80-O, suggesting insufficient inquiry by the AO. The assessee contended that the deduction was based on CBDT-approved agreements and supported by the Tribunal's decision in M.N. Dastur & Co. Ltd. The Tribunal found that the AO had examined the agreements and allowed the deduction correctly, thus no error existed.

4. Excess Deduction Under Section 35B:
The CIT objected to the weighted deduction on foreign travel expenses, including salaries of employees abroad. The assessee argued that the AO considered the amended Section 35B and the salary of employees on foreign tours is allowable per Section 40A(5)(b). The Tribunal agreed with the assessee, noting that the AO's allowance was not erroneous.

5. Deduction Under Section 43(1):
The CIT challenged the deduction of Rs. 1,72,53,457 related to interest on borrowed funds for modernizing Belur Mill and expanding the Rolling Mill at Taloja. The assessee cited various judicial decisions supporting the deduction of interest as revenue expenditure for ongoing business. The Tribunal upheld the AO's allowance, finding no error.

6. Wrong Computation Under Section 80J:
The CIT found errors in computing the capital employed for Section 80J, suggesting borrowed funds were not properly deducted. The assessee clarified that the capital employed was financed internally, with no borrowed funds. The Tribunal noted that the AO's computation was consistent with prior years and found no error.

7. Incorrect Computation of Profit Under Section 80HH:
The CIT alleged improper allocation of overhead expenses in computing deductions under Section 80HH. The assessee argued that the expenses did not relate to the specific units and the AO's computation was consistent with prior years. The Tribunal found no error in the AO's computation.

8. Non-Deduction of Tax at Source for Power Bills and Failure to Charge Penal Interest Under Section 201(1A):
The CIT questioned the non-deduction of tax on interest paid to the Karnataka State Electricity Board. The assessee argued that the interest was part of electricity dues, exempt under CBDT notification. The Tribunal agreed, citing the Supreme Court's decision in Mahalakshmi Sugar Mills Ltd. and relevant notifications, finding no error in the AO's allowance.

Conclusion:
The Tribunal concluded that the CIT did not provide clear findings of errors prejudicial to the Revenue's interests. The CIT's order was set aside, and the appeal was allowed.

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