2003 (10) TMI 268 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of rural development expenses.
2. Claim under section 80-I.
3. Disallowance of expenditure on Rights Issue of debentures.
4. Computation of deduction under section 80HHC.
5. Disallowance of expenditure on issue of Global Depository Shares (GDS).

Detailed Analysis:

1. Disallowance of Rural Development Expenses:
The assessee claimed deductions for rural development expenses, which were disallowed by the Assessing Officer (AO) as they were previously disallowed in earlier years. The CIT(A) allowed the deductions, considering them as revenue expenditures in line with the jurisdictional High Court judgment in Addl. CIT v. Delhi Cloth & General Mills Co. Ltd. The Tribunal upheld the CIT(A)'s decision, referencing its own earlier decision that treated such expenses as sales promotion and advertisement expenses, allowable under section 37.

2. Claim Under Section 80-I:
The assessee claimed deductions under section 80-I for income derived from goods manufactured by other concerns. The AO rejected the claim, stating that the assessee did not own the manufacturing units. The CIT(A) directed the AO to reconsider the claim in light of relevant Bombay High Court decisions. The Tribunal upheld the CIT(A)'s directive, finding no infirmity in the order.

3. Disallowance of Expenditure on Rights Issue of Debentures:
For assessment years 1992-93 and 1994-95, the assessee claimed the entire expenditure on Rights Issue of debentures as revenue expenditure. The AO partially disallowed these claims, treating portions as capital expenditure. The CIT(A) reversed the AO's decision, treating the entire expenditure as revenue expenditure based on earlier Tribunal decisions. However, the Tribunal set aside the CIT(A)'s orders, emphasizing the need to ascertain the real intent behind the transactions, citing Supreme Court judgments that allow authorities to look beyond the nomenclature of transactions to their true nature. The Tribunal restored the AO's orders, treating the expenditures as partly capital in nature.

4. Computation of Deduction Under Section 80HHC:
The assessee contended that the AO failed to exclude excise duty, taxes, cash discounts, and commissions from the gross turnover while computing deductions under section 80HHC. The Tribunal acknowledged the legal position favoring the exclusion of excise duty and taxes, citing relevant High Court decisions. However, it noted that the AO had not considered the issues of cash discounts and commissions. The Tribunal remanded the matter to the AO for fresh consideration, directing a detailed examination of these aspects.

5. Disallowance of Expenditure on Issue of Global Depository Shares (GDS):
The assessee incurred substantial expenditure on issuing GDS and claimed it as revenue expenditure under section 37 or alternatively under section 35D. The AO did not consider the claim, and the CIT(A) rejected it, treating the expenditure as capital in nature. The Tribunal upheld the CIT(A)'s decision, noting that the expenditure did not meet the criteria for deduction under section 35D, which requires the expenditure to be incurred for the extension of an industrial undertaking or setting up a new one. The Tribunal found no evidence that the funds raised were used for such purposes.

Conclusion:
The Tribunal's judgment addressed multiple issues, resulting in partial allowance of appeals. It upheld the CIT(A)'s decisions on rural development expenses and section 80-I claims but reversed the decisions on debenture issue expenditures. The Tribunal remanded the section 80HHC deduction computation issue for fresh consideration and upheld the disallowance of GDS issuance expenditure.