1995 (7) TMI 129 - AT - Income Tax

Summary

Issues:
1. Disallowance of cost of T.V. installed at the club for staff and workers.
2. Disallowance of consultancy fees for renewal of mining lease.
3. Disallowance of electricity charges by the Rajasthan State Electricity Board (RSEB).
4. Computation of profits under section 80HHC.
5. Deletion of addition for the cost of new electric motors.
6. Disallowance of advocate's fees for consultation about mining lease.
7. Computation of deduction under section 80HHC.
8. Treatment of subsidy in the cost of plant and machinery for depreciation and investment allowance.

Issue 1: Disallowance of T.V. installation cost:
The appeal concerned the disallowance of the cost of a T.V. installed at a club for staff and workers. The Assessing Officer treated it as a capital expenditure, but the ITAT Jaipur held that the expenses were legitimate business expenses and should be allowed. The ITAT emphasized that the T.V. installation was a staff welfare measure and not a capital asset acquisition, thus directing the disallowance to be deleted.

Issue 2: Disallowance of consultancy fees for lease renewal:
The dispute revolved around consultancy fees paid for the renewal of a mining lease. The AO treated the expenditure as of a capital nature, but the ITAT disagreed. Citing various legal precedents, the ITAT concluded that the expenses were on revenue account and allowed the deduction of Rs. 1,00,000 incurred for lease renewal.

Issue 3: Disallowance of electricity charges by RSEB:
The disallowance of additional electricity charges by the RSEB under section 43B of the IT Act was challenged. The ITAT held that the liability accrued when the bills were raised and was ascertainable, thus allowing the deduction in the relevant year, rejecting the AO and CIT(A)'s reasoning.

Issue 4: Computation of profits under section 80HHC:
The ITAT dismissed the contention that depreciation should not be deducted while computing profits for section 80HHC deduction. The ITAT upheld that the liability in respect of electricity charges accrued when bills were raised, allowing it as a deduction in the relevant year.

Issue 5: Deletion of addition for new electric motors:
The ITAT confirmed the deletion of the addition made by the CIT(A) for the cost of new electric motors, emphasizing that replacing old motors with new ones did not constitute substantial replacement of equipment, thus allowing it as a revenue expenditure.

Issue 6: Disallowance of advocate's fees for lease consultation:
The ITAT upheld the deletion of Rs. 3,250 paid to an advocate for consultation about a mining lease. The ITAT reasoned that the expenses facilitated the business and did not bring about an enduring advantage, aligning with previous decisions on similar expenses.

Issue 7: Computation of deduction under section 80HHC:
The ITAT directed the computation of profit before allowing investment allowance, as conceded by the assessee in line with Tribunal decisions, ensuring the profit for section 80HHC deduction is calculated after deducting investment allowance.

Issue 8: Treatment of subsidy in the cost of plant and machinery:
The ITAT dismissed the contention regarding the reduction of subsidy from the cost of plant and machinery for depreciation and investment allowance. Referring to legal precedent, the ITAT confirmed the direction not to reduce the cost by the amount of subsidy, settling the issue in favor of the assessee.

In conclusion, the ITAT partially allowed all three appeals, addressing various disallowances and computations in favor of the assessee based on legal interpretations and precedents.