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Issues Involved:
1. Deduction under section 36(1)(iii) of the I.T. Act for interest on loans. 2. Deduction for expenses incurred on Sea-Rock Hotel due to bomb blast. 3. Deduction for expenses on garden upkeep in factory premises. 4. Deduction for expenses on maintaining residential premises for employees. 5. Disallowance of provision for damaged stock of cigarettes. 6. Classification of capital gains on the sale of undivided shares in land and building. 7. Short-term capital loss on renunciation of rights entitlements. 8. Disallowance under section 43B for contributions to provident and other funds. 9. Deduction for registration of trademarks in foreign countries. 10. Addition of notional amounts based on FERA show-cause notices. 11. Computation of deduction under section 80HHC. Detailed Analysis: 1. Deduction under Section 36(1)(iii) of the I.T. Act for Interest on Loans The assessee claimed a deduction of Rs. 8,25,01,104 for interest on loans taken for acquiring fixed assets. The Assessing Officer disallowed the claim, treating the interest as preoperative expenditure and relying on CBDT Circular No. 461. The CIT(A) upheld this view. The Tribunal, however, allowed the deduction, citing the Gujarat High Court's decision in Core Healthcare Ltd., which stated that interest on borrowings for existing business is deductible under section 36(1)(iii) regardless of whether the borrowed capital is used for acquiring a capital asset or a revenue asset. 2. Deduction for Expenses Incurred on Sea-Rock Hotel Due to Bomb Blast The assessee claimed Rs. 6,65,95,198 as a deduction for expenses incurred on Sea-Rock Hotel, which was damaged due to a bomb blast. The Assessing Officer disallowed the claim, treating the expenses as capital in nature. The CIT(A) confirmed this view. The Tribunal allowed the claim, stating that the expenses were revenue in nature and deductible under section 37(1) of the Act, noting that any insurance salvage received later would be taxable under section 41(1). 3. Deduction for Expenses on Garden Upkeep in Factory Premises The assessee claimed Rs. 5,00,000 for garden upkeep. The Assessing Officer disallowed the claim, considering it non-incidental to business. The CIT(A) upheld this view. The Tribunal allowed the deduction, citing the Madhya Pradesh High Court's judgment in Hindustan Electro Graphites Ltd., which allowed gardening expenses under section 37(1). 4. Deduction for Expenses on Maintaining Residential Premises for Employees The assessee claimed Rs. 3.01 crores for maintaining residential premises for employees. The Assessing Officer disallowed 1/4th of the expenditure as personal in nature. The CIT(A) confirmed this view, suggesting that major expenses were for guest houses and holiday homes. The Tribunal allowed the entire expenditure, noting the absence of any finding that expenses were for guest houses or holiday homes and emphasizing that expenses for employee benefits are not personal expenses. 5. Disallowance of Provision for Damaged Stock of Cigarettes The assessee claimed Rs. 1,60,12,402 for damaged stock of cigarettes. The Assessing Officer disallowed the claim, stating that the stock was destroyed after the relevant previous year. The CIT(A) confirmed this view. The Tribunal allowed the claim, following its earlier decision in the assessee's case for the assessment years 1988-89 and 1989-90. 6. Classification of Capital Gains on the Sale of Undivided Shares in Land and Building The assessee claimed bifurcation of capital gains into long-term for land and short-term for the building. The Assessing Officer treated the entire gain as short-term. The CIT(A) confirmed this view. The Tribunal upheld the bifurcation, directing the Assessing Officer to re-compute the capital gains separately for land and building, citing the Rajasthan High Court's decision in Vimal Chand Golecha. 7. Short-Term Capital Loss on Renunciation of Rights Entitlements The assessee claimed a short-term capital loss of Rs. 13,99,48,746 on renunciation of rights entitlements. The Assessing Officer disallowed the claim, citing lack of details. The CIT(A) confirmed this view, terming the transaction as a colorable device. The Tribunal restored the matter to the Assessing Officer for fresh adjudication, following the Supreme Court's decision in Ms. Dhun Dadabhoy Kapadia, which allowed deduction for the fall in value of shares due to rights issue. 8. Disallowance under Section 43B for Contributions to Provident and Other Funds The assessee claimed Rs. 6,65,438 for contributions to provident and other funds. The Assessing Officer disallowed the claim for lack of evidence. The Tribunal restored the matter to the Assessing Officer for verification, noting that the assessee had submitted an auditor's certificate fortifying the payment. 9. Deduction for Registration of Trademarks in Foreign Countries The assessee claimed Rs. 13,00,000 for trademark registration in foreign countries. The Assessing Officer disallowed the claim. The Tribunal allowed the deduction, following the Supreme Court's decision in Finlay Mills Ltd., which allowed such expenses as revenue expenditure. 10. Addition of Notional Amounts Based on FERA Show-Cause Notices The Assessing Officer added Rs. 7,16,00,000 and Rs. 88,44,500 based on FERA show-cause notices. The CIT(A) confirmed the additions. The Tribunal restored the matter to the Assessing Officer, directing him to procure the latest findings from the enforcement directorate and make a fresh assessment. 11. Computation of Deduction under Section 80HHC The assessee contested the set-off of export trading losses against profits from export of manufactured goods and the inclusion of excise duty in total turnover. The Tribunal upheld the CIT(A)'s order based on the Bombay High Court's decision in IPCA Laboratories Ltd. but noted the issue should remain open until settled by higher courts. Summary: The Tribunal allowed the assessee's claims for interest on loans, expenses on Sea-Rock Hotel, garden upkeep, maintenance of residential premises, and trademark registration. It restored the matters of contributions to provident funds and FERA-based additions to the Assessing Officer for verification. It upheld the bifurcation of capital gains and directed the Assessing Officer to re-compute the gains separately for land and building. It restored the issue of short-term capital loss on renunciation of rights to the Assessing Officer for fresh adjudication. The Tribunal upheld the CIT(A)'s order on the computation of deduction under section 80HHC.
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