2012 (12) TMI 208 - AT - Income Tax

Sales Tax Incentive Capital vs Revenue - Following the decision of Hon ble Apex Court in the case of Sahney Steel and Press Works Ltd. And Others Vs. Commissioner of Income Tax 1997 (9) TMI 3 - SUPREME COURT held that -. Under the Incentive Scheme of the Government, assessee is only entitled to deferment of sales-tax payment, calculated at a percentage of fixed capital investment. In fact, according to him, the sales-tax incentive will be treated as a deferred loan and the assessee is required to reimburse the said loan to the government - amounts in question are to be treated as capital receipt - Since the facts of the year under consideration are identical, respectfully following the above decision of the Tribunal in assessee s own case for AY 2006-07, assessee s appeal is allowed. Gratuity to book profit for computation of MAT liability u/s 115 JB - When the assessee has a defined gratuity plan and the liability of the gratuity has been ascertained on the basis of actuarial valuation as per the assessee s gratuity plan, it cannot be said that the liability of the gratuity is unascertained liability. Therefore, the addition of the provision for gratuity while computing the book profit is uncalled for. The same is deleted - assessee s appeal is allowed. Expense on foreign travel of Directors held that - Burden is upon the assessee to establish that the expenditure was incurred wholly and exclusively for the purpose of business. In respect of foreign travel, the only explanation given by the learned counsel was that the directors foreign traveling was for exploring the business opportunities abroad. However, this explanation was too vague and also unsubstantiated - no justification to interfere with the orders of lower authorities in this regard - assessee s appeal is rejected - In the result, appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Nature of sales tax subsidy (capital receipt vs. revenue receipt)
2. Addition of provision for gratuity to book profit for MAT liability
3. Disallowance of foreign travel expenditure of directors

Issue-wise Analysis:

1. Nature of Sales Tax Subsidy:
The primary issue was whether the sales tax subsidy granted by the State of Punjab should be treated as a capital receipt or a revenue receipt. The assessee contended that the subsidy was a capital receipt, while the Assessing Officer (AO) treated it as a revenue receipt. The ITAT referred to its earlier decision in the assessee's own case for AY 2006-07, where it was held that the sales tax subsidy was a capital receipt. The ITAT noted that the subsidy was granted to encourage the setting up or expansion of industrial units and was directly linked to the fixed capital investment. The Tribunal emphasized that the subsidy was not for assisting the assessee in carrying out its business operations more profitably but for setting up or expanding production units. Consequently, the ITAT followed its previous decision and allowed the assessee's appeal, treating the subsidy as a capital receipt.

2. Addition of Provision for Gratuity to Book Profit for MAT Liability:
The second issue was the addition of Rs.4,86,889/- representing provision for gratuity to the book profit for computation of MAT liability under Section 115JB. The AO added this amount on the grounds that the provision for gratuity was not an ascertained liability. The assessee argued that the provision was based on actuarial valuation as per its defined gratuity plan. The ITAT agreed with the assessee, stating that when the liability is ascertained based on actuarial valuation, it cannot be considered unascertained. Therefore, the addition made by the AO was deleted, and the assessee's appeal was allowed on this ground.

3. Disallowance of Foreign Travel Expenditure of Directors:
The third issue involved the disallowance of Rs.2,98,080/- incurred on foreign travel of directors. The AO disallowed the expenditure as the assessee could not justify the business connection of the foreign travel. The assessee claimed that the travel was for exploring business opportunities abroad. However, the ITAT noted that the assessee failed to provide specific details about the places visited, persons met, or any resultant business transactions. The ITAT held that the burden of proof was on the assessee to establish that the expenditure was incurred wholly and exclusively for business purposes, which was not satisfactorily done. Therefore, the disallowance by the AO was upheld, and the assessee's appeal on this ground was rejected.

Conclusion:
The appeal of the assessee was partly allowed. The ITAT ruled in favor of the assessee on the issues of the nature of the sales tax subsidy and the provision for gratuity but upheld the disallowance of foreign travel expenditure of directors.