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Issues Involved:
1. Nature of expenditure on construction of Ghosunda Dam. 2. Disallowance of guest-house expenses. 3. Disallowance under Section 43B on account of unpaid royalties. 4. Exclusion of interest on Government loan and head office expenses. 5. Addition on account of provisions for losses in stores, stock, raw material, and finished goods. Issue-wise Detailed Analysis: 1. Nature of Expenditure on Construction of Ghosunda Dam: The primary issue was whether the expenditure of Rs. 15,21,30,864 on the construction of Ghosunda Dam was of a capital or revenue nature. The CIT(A) held that the expenditure was of a revenue nature, facilitating the business without creating any capital asset or enduring benefit. The dam was owned by the State Government, and the assessee had no ownership rights over it. The expenditure helped in the efficient running of the smelter, thus qualifying as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, emphasizing that the advantage was in facilitating trading operations and not in the capital field. 2. Disallowance of Guest-house Expenses: The CIT(A) reduced the disallowance of Rs. 15,40,677 to Rs. 11,33,155, allowing Rs. 4,07,522 as rent expenditure under Section 30. The CIT(A) relied on the decision for the assessment year 1990-91, which allowed such expenses. The Tribunal upheld this view, noting that there was no consensus among various High Courts on the disallowance of guest-house expenses and that the interpretation favorable to the assessee should be accepted. 3. Disallowance under Section 43B on Account of Unpaid Royalties: The CIT(A) had allowed the relief on the ground that royalties were neither tax nor duty and hence not covered under Section 43B. However, the Tribunal, referring to the Supreme Court judgment in India Cement Ltd. vs. State of Tamil Nadu and CIT vs. Gorelal Dubey, held that royalty on mineral rights is a tax and falls under the prohibition of Section 43B. Thus, the Tribunal reversed the CIT(A)'s decision and sustained the AO's order. 4. Exclusion of Interest on Government Loan and Head Office Expenses: The CIT(A) deleted the addition of Rs. 1,24,36,000, noting that the system of inventory valuation had been approved in the past and there were no distinguishing facts for the current year. The Tribunal agreed with the CIT(A), emphasizing that the assessee followed the guidelines issued by the Institute of Chartered Accountants of India and that the AO had not provided sufficient reasons to adopt a different method. 5. Addition on Account of Provisions for Losses in Stores, Stock, Raw Material, and Finished Goods: The CIT(A) deleted the addition of Rs. 5,16,06,000, relying on the consistent practice of the assessee in valuation, which had been approved by auditors and the C&AG. The Tribunal upheld the CIT(A)'s decision, noting that the empirical method of valuation was a regular and accepted practice. Conclusion: The appeal was partly allowed, with the Tribunal upholding the CIT(A)'s decisions on the nature of expenditure on the Ghosunda Dam, guest-house expenses, interest on Government loans, and provisions for losses. However, it reversed the CIT(A)'s decision on the disallowance under Section 43B for unpaid royalties, sustaining the AO's order on that ground.
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