2001 (12) TMI 199 - AT - Income Tax

Summary

Issues Involved:

1. Valuation of closing stock including MODVAT.
2. Deduction of royalty payments under s. 35AB.
3. Disallowance of guest house maintenance expenditure under s. 37(4).

Summary:

Issue 1: Valuation of Closing Stock Including MODVAT

The Revenue contended that the closing stock should include the amount of MODVAT, contrary to the assessee's valuation excluding MODVAT. The learned CIT(A) deleted the additions made by the AO on account of MODVAT. The Tribunal noted that a similar issue had been decided in favor of the assessee in the case of Dy. CIT vs. Swaraj Engines, ITA No. 2158/Chd/1992. The Departmental Representative conceded that the issue was covered in favor of the assessee by the said decision. Consequently, the Tribunal rejected ground No. 1 in both appeals, deciding in favor of the assessee.

Issue 2: Deduction of Royalty Payments under s. 35AB

The AO treated the royalty payments to M/s Kirloskar Oil Engine Ltd. as lump sum payments under s. 35AB, allowing only 1/6th of the amount as a deduction. The CIT(A) allowed the deduction of the royalty payments as revenue expenditure, except for a lump sum payment of Rs. 2 lakhs for obtaining technical know-how which was treated under s. 35AB. The Tribunal upheld the CIT(A)'s order, noting that the royalty was paid based on sales and was directly related to production, thus qualifying as revenue expenditure. The Tribunal also considered past assessments where similar deductions were allowed, applying the principle of res judicata. Consequently, ground No. 2 in both appeals was rejected.

Issue 3: Disallowance of Guest House Maintenance Expenditure under s. 37(4)

The AO had disallowed guest house maintenance expenditure claimed by the assessee. The CIT(A) deleted this disallowance. The Tribunal referenced prior decisions where similar issues were decided against the Revenue and in favor of the assessee. The Departmental Representative conceded on this point. Therefore, the Tribunal upheld the CIT(A)'s order, rejecting ground No. 3 of the Revenue's appeal.

Conclusion:

Both appeals filed by the Revenue were dismissed, with the Tribunal upholding the CIT(A)'s orders on all contested grounds.