2001 (11) TMI 245 - AT - Income Tax

Issues Involved:
1. Disallowance of welfare payments under Section 40A(9).
2. Disallowance of depreciation on guest-house.
3. Disallowance of interest on bonds as capital expenditure.
4. Disallowance of prior period expenses.
5. Disallowance of technology alteration expenses.
6. Disallowance of repairs and maintenance expenses treating them as capital expenditure.
7. Disallowance of entertainment expenses.
8. Allowance of bad and doubtful debts.
9. Adjustment of profit on sale of fixed assets.
10. Setting aside various additions/disallowances for fresh consideration.
11. Levy of additional tax, interest under Section 234B, and interest under Section 220(2).

Detailed Analysis:

1. Disallowance of Welfare Payments under Section 40A(9):
The assessee disputed the disallowance of Rs. 1,77,16,044 for contributions to various welfare measures for employees. The Tribunal found the issue covered by a previous order in the assessee's own case for the assessment year 1990-91, where such expenses were deemed allowable. Consequently, the Tribunal deleted the addition.

2. Disallowance of Depreciation on Guest-House:
The assessee contested the disallowance of Rs. 9,32,570 on account of depreciation on a guest-house. The Tribunal noted that the issue was not pressed before the CIT(A) but was raised again before the Tribunal. The Tribunal decided to restore the issue to the CIT(A) for a decision on merits.

3. Disallowance of Interest on Bonds as Capital Expenditure:
The assessee challenged the disallowance of Rs. 12,86,75,345 claimed as interest on bonds. The Tribunal found the issue covered by a prior decision in the assessee's favor, where similar interest was allowed as revenue expenditure. The Tribunal deleted the disallowance.

4. Disallowance of Prior Period Expenses:
The assessee requested re-examination of the disallowance of Rs. 1,42,529 representing prior period expenses due to ambiguity in the figures. The Tribunal set aside this issue to the AO for fresh examination and decision after hearing the assessee.

5. Disallowance of Technology Alteration Expenses:
The assessee disputed the disallowance of Rs. 1,58,77,000 under "Technology Alteration Expenses." The Tribunal noted that the expenses were related to a running business and not for establishing a new business. The Tribunal directed the AO to treat the expenditure as revenue in nature after verifying the details.

6. Disallowance of Repairs and Maintenance Expenses:
The assessee contested the disallowance of Rs. 6,33,878 and Rs. 7,15,708, treating them as capital expenditure. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in treating the expenditures on platforms, water coolers, and wash basins as capital in nature.

7. Disallowance of Entertainment Expenses:
The assessee argued that entertainment expenses incurred on staff should not be disallowed. The Tribunal restricted the disallowance to 2/3rd of the claimed amount, allowing 1/3rd as expenditure incurred on staff.

8. Allowance of Bad and Doubtful Debts:
The assessee raised the issue of bad debts written off and additional tax levied by the AO. The Tribunal restored these issues to the AO for verification and decision, considering the assessee's contention and the need to tax the correct income.

9. Adjustment of Profit on Sale of Fixed Assets:
The assessee disputed the CIT(A)'s direction for making necessary adjustments of Rs. 11.98 lacs on account of profit on sale of fixed assets. The Tribunal found no fault with the CIT(A)'s order and made no interference.

10. Setting Aside Various Additions/Disallowances for Fresh Consideration:
The Tribunal found no merit in the ground disputing the CIT(A)'s order in setting aside various additions/disallowances for fresh consideration and declined to interfere.

11. Levy of Additional Tax, Interest under Section 234B, and Interest under Section 220(2):
The Tribunal set aside the orders regarding the levy of interest under Section 234B for fresh consideration by the AO in accordance with the recent amendments. The Tribunal rejected the ground regarding interest under Section 220(2) as it was not raised before the CIT(A) and is not maintainable in appeal against the assessment order.

Conclusion:
The appeal was allowed in part, with several issues being restored to the AO or CIT(A) for fresh consideration, and some disallowances being deleted based on previous Tribunal decisions. The Tribunal upheld certain disallowances as capital expenditure, and restricted the disallowance of entertainment expenses.

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