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2012 (8) TMI 492 - AT - Income TaxDisallowance on account of Voluntary Retirement Scheme (VRS) - Held that - The assessee has come out with VRS forced by commercial reasons and the liability is well supported by the actuary valuation the right of employees are supported by the agreement with the company and employee as the actual valuation certificate and the agreements between the company and the employees - as all the documents were not examined by the AO in the interest of justice and fair play this matter is restored back to the file of AO - in favour of assessee for statistical purposes. Disallowance of provisions of expenses made at year end - Held that - CIT(A) has rightfully directed the AO to look into the contention of the assessee that in view of the method of accounting followed by them in which provision for expenses made at the end of the year are credited to the respective expenses heads in the subsequent year ought to be reduced to that extent and see that the same amount is not doubly taxed and has rightly confirmed the addition of Rs. 40,90,453 - against assessee. Disallowance of expenses as being in the nature of capital expenditure - Held that - As decided in CIT Versus M/s. Geoffrey Manners & Co. Ltd. (Now known as Wyeth Limited) 2009 (2) TMI 13 - BOMBAY HIGH COURT the claim of the assessee to treat the expenditure on production of films as revenue expenditure - in favour of assessee. Disallowance being the depreciation on Kandla plant - Held that - Depreciation is allowed if the plant was actually in operation and which fact has not been brought on record, the issue deserves to be restored back to the file of AO to verify whether the plant was actually in use during the year under consideration and if satisfied the depreciation may be allowed - in favour of assessee for statistical purposes. Disallowance of 20% on foreign travel expenses - Held that - As on identical facts the Tribunal has deleted the disallowance sustained by CIT(A) no point to disallow the claim in period under question - in favour of assessee. Disallowance of expenses for impending union settlement - Held that - When there was a memorandum of settlement dt. 29.2.1988 and thereafter dt. 7.1.1991 why the assessee had not made any provision either on the basis of MOS dt. 29.2.1988 or on the basis of charter of demand dt. 7.1.1991 - as the facts being identical of AY 1992-93 with the current year and also considering the settlement which is executed on 23.8.1993 relates to A.Y. 1994-95 and the Ld. CIT(A) has rightly held that deduction in the year under consideration does not arise - against assessee. Disallowance of hotel expenses and air fare on foreign visitors coming to India - Held that - Considering the details of foreign travel expenses submitted by the assessee and respectfully following the decision of the Tribunal in assessee s own case for A.YT. 1992-93 no dissallowance of the claim of expenses incurred by the assessee for the purpose of business is warranted - against revenue. Disallowance for expenditure incurred on transit houses maintained at Goregaon and Goa - Held that - Considering the decision of Tribunal in assessee s own case in AY 1991-92 wherein Tribunal has held that expenditure of food and beverages have to be allowed - thus as in the year in question AO is directed to consider the details filed by the assessee giving break-up of expenses incurred on guest house maintenance and allow the expenses incurred on food and beverages - in favour of assessee for statistical purposes. Apportionment of expenses - Lunch expenses, canteen expenses, business meeting expenses and expenses on AGM - Held that - Considering the assessee s submission direct the AO to allow the business meeting expenses and expenses on AGM which expenses cannot come under the category of entertainment expenses and to add only Rs. 2,00,000/- out of total canteen expenses which is in the line of the finding of the Tribunal in assessee s own case for assessment year 1992-93 - partly in favour of assessee. Inclusion of sales tax and trade discount from the figure of total turnover for the purpose of computing deduction u/s. 80HHC - assessee also took an additional ground by which asked to exclude excise duty element - Held that - As decided in CIT Versus Lakshmi Machine Works 2007 (4) TMI 202 - SUPREME COURT excise duty and sales tax were includible in the total turnover , which was the denominator in the formula contained in section 80HHC(3) as it stood in the material time - in favour of assessee. Disallowance of expenses for the A.Y. 1992-93 - Held that - Considering the submissions of the assessee it can be concluded that as this liability was incurred for earning the profits and gains for the A.Y. 1992-93, therefore the same is allowable against the profits and gains for A.Y. 1992-93 and confirm the disallowance made by AO - against assessee. Disallowance of deduction u/s. 80HH - Organic Phosphates and Phosphites unit situated at Goa - Held that - On submissions of assessee that there are no brought forward losses available as they have been set off from the profit of other units of the assessee need to be verified, it is desirable to restore this matter back to the file of AO - in favour of assessee for statistical purposes.
Issues Involved:
1. Disallowance of Rs. 30,39,70,700/- on account of Voluntary Retirement Scheme (VRS). 2. Disallowance of provisions of expenses made at the year-end amounting to Rs. 40,90,453/-. 3. Disallowance of expenses totaling Rs. 65,29,929/- as capital expenditure. 4. Disallowance of Rs. 11,39,876/- being the depreciation on Kandla plant. 5. Disallowance of 20% on foreign travel expenses. 6. Disallowance of Rs. 38,59,200/- for impending union settlement. 7. Disallowance of Rs. 11,80,282/- towards hotel expenses and airfare on foreign visitors. 8. Disallowance of Rs. 5,72,316/- u/s. 37(4) of the Act for expenditure on transit houses. 9. Disallowance of expenses under various heads as entertainment expenses for Sec. 37(2) purposes. 10. Inclusion of sales tax and trade discount from the figure of total turnover for computing deduction u/s. 80HHC. 11. Disallowance of Rs. 4,28,000/- on account of prior period expenses. 12. Disallowance of deduction of Rs. 2,08,378/- u/s. 80HH. Detailed Analysis: 1. Disallowance of Rs. 30,39,70,700/- on account of Voluntary Retirement Scheme (VRS): The AO disallowed the VRS liability, stating it was not payable as of 31.3.1993 and was not scientifically substantiated. The CIT(A) upheld this, noting the liability was contingent. The Tribunal found the liability supported by actuarial valuation and agreements with employees and remanded the matter to the AO for verification. The assessee must provide all related documents to substantiate the claim. 2. Disallowance of provisions of expenses made at the year-end amounting to Rs. 40,90,453/-: The AO disallowed the provision as it lacked basis. The CIT(A) confirmed the disallowance but directed the AO to ensure no double taxation. The Tribunal upheld the CIT(A)'s decision, referencing a similar case from the previous year. 3. Disallowance of expenses totaling Rs. 65,29,929/- as capital expenditure: The AO and CIT(A) treated the expenses on film production as capital in nature. The Tribunal, referencing a previous decision and a high court ruling, treated these as revenue expenses and allowed the claim. 4. Disallowance of Rs. 11,39,876/- being the depreciation on Kandla plant: The AO disallowed the depreciation, stating the plant was not operational. The CIT(A) agreed. The Tribunal remanded the issue to the AO for verification of the plant's operational status during the year. 5. Disallowance of 20% on foreign travel expenses: The AO disallowed 25% of foreign travel expenses, which the CIT(A) reduced to 20%. The Tribunal, referencing earlier decisions, deleted the disallowance, allowing the expenses as business-related. 6. Disallowance of Rs. 38,59,200/- for impending union settlement: The AO and CIT(A) disallowed the provision, treating it as contingent and relevant to the next assessment year. The Tribunal upheld this, noting the settlement was signed in the subsequent year. 7. Disallowance of Rs. 11,80,282/- towards hotel expenses and airfare on foreign visitors: The AO and CIT(A) disallowed the expenses, deeming them non-business-related. The Tribunal, referencing a previous decision, allowed the expenses as business-related. 8. Disallowance of Rs. 5,72,316/- u/s. 37(4) of the Act for expenditure on transit houses: The AO disallowed additional expenses on transit houses. The CIT(A) upheld this. The Tribunal directed the AO to allow expenses on food and beverages, restoring the matter for detailed examination. 9. Disallowance of expenses under various heads as entertainment expenses for Sec. 37(2) purposes: The AO categorized several expenses as entertainment. The CIT(A) upheld this. The Tribunal directed the AO to allow business meeting and AGM expenses and limit canteen expenses disallowance to Rs. 2,00,000/-. 10. Inclusion of sales tax and trade discount from the figure of total turnover for computing deduction u/s. 80HHC: The AO included these in the total turnover. The CIT(A) upheld this. The Tribunal, referencing higher court decisions, excluded these from the turnover for deduction purposes. 11. Disallowance of Rs. 4,28,000/- on account of prior period expenses: The AO disallowed the expense as it related to a prior year. The CIT(A) upheld this. The Tribunal confirmed the disallowance, treating it as a prior period expense. 12. Disallowance of deduction of Rs. 2,08,378/- u/s. 80HH: The AO denied the deduction, stating past losses were not considered. The CIT(A) agreed. The Tribunal remanded the issue to the AO to verify if there were any brought forward losses to set off. Conclusion: The appeal was partly allowed, with several issues remanded for verification and others decided in favor of the assessee based on previous rulings and higher court decisions. The Tribunal emphasized the need for detailed examination and verification of claims by the AO.
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