2014 (5) TMI 956 - AT - Income Tax

Disallowance of Guest House expenses u/s. 37(4) of the Act Held that - Tata Chemicals Limited Versus The ACIT Cir 2(2), Mumbai & Others 2012 (10) TMI 46 - ITAT MUMBAI these are not allowable in view of the decision of the Hon ble Supreme Court in the case of Britannia Industries Ltd. vs. CIT (2005 (10) TMI 30 - SUPREME COURT) and accordingly the disallowance made by the A.O. upheld - With regard to the food expenses, the matter is remitted back to the AO for fresh adjudication Decided partly in favour of Assessee. Disallowance of payment paid to ROC - Increase in Authorised Share capital Held that - Following CIT Vs General Insurance Corporation of India 2006 (9) TMI 116 - SUPREME Court - expenditure incurred in connection with issuance of bonus shares is Revenue expenditure as issuance of bonus shares does not result any inflow of fresh funds or increase in the capital employed, the capital employed remains the same - Issue of bonus shares does not result in the expansion of the capital base of the company - the expenditure incurred in connection with issuance of bonus shares is Revenue expenditure - the assessee has made payment to the ROC in relation to issue of bonus shares thus, the AO is directed to allow the expenses Decided in favour of Assessee. Disallowance of foreign travel expenses - Preliminary studies for implementation of Fertilizer Project Disallowance of Sundry contributions u/s. 40A(9) of the Act - Held that - As decided in assessee s own case for the earlier year, the matter is remitted back to the AO to allow depreciation on the foreign travel expenses added to the cost of the machinery Decided in favour of Assessee. Disallowance of foreign exchange fluctuation loss - Disallowance of investment allowance on increase in liability on account of foreign exchange fluctuation loss Disallowance of expense on fish and prawn culture Part disallowance of Delhi expenses - Held that - As decided in assessee s own case for the earlier year, it has been held that the assessee has been allowed depreciation on foreign exchange fluctuation loss thus, the AO is directed to allow depreciation as per law also the AO is directed to allow the investment allowance on exchange loss treated as capital expenditure thus, the matter is remitted back to the AO Decided in favour of Assessee Disallowance of expenditure treating them as expenses of earlier year Disallowance of premium on redemption of debentures - Held that - Following Saurashtra Cement and Chemical Industries Ltd. Vs CIT 1994 (10) TMI 30 - GUJARAT High Court - merely because an expense relates to a transaction of an earlier year, it does not become a liability payable in the earlier year unless it can be said that the liability is determined and crystallized in the year in question on the basis of maintaining account on the mercantile basis - In each case, when the accounts are maintained on mercantile basis, it has to be found in respect of any claim whether such liability was crystallized and quantified during the previous year as required to be adjusted in the books of account of that previous year - the liabilities under the heads have crystallized during the year under consideration - These expenses cannot be disallowed as deduction merely on the basis that accounts are maintained on mercantile basis and that it relates to a transaction of the previous year - the liabilities have been accepted by the assessee and have been actually claimed and paid in the year under consideration thus, the AO is directed to allow the expenses Decided in favour of Assessee. Addition of interest on advance to WOS Company - Held that - Following The Commissioner of Income Tax Versus Reliance Utilities & Power Ltd. 2009 (1) TMI 4 - HIGH COURT BOMBAY - CIT(A) was not justified in sustaining the disallowance of interest Decided in favour of Assessee. Disallowance made u/s. 43B of the Act - Royalty on limestone - Interest on outstanding electricity duty - Held that - The matter travelled upto Tribunal and the Tribunal has restored back the issue to the file of the AO to verify the payment and allow deduction as per law if the payments have already been made thus, following the assessee s own case the matter is remitted back to the AO for verification of the payments as per the provisions of Sec. 43B Decided in favour of Assessee. Disallowance of Mineral Rights Tax Held that - by not paying the said amount to the Government, the assessee has retained public fund with itself - the assessee itself has agreed to pay the MRT on the limestone purchased by it and as it has not discharged the liability till the end of the accounting year thus, there was no reason to interfere in the order of the CIT(A) Decided against Assessee. Disallowance of Customs fine - Imported spares from customs Held that - If the amount so paid is found to be not a penalty or something akin to penalty due to the fact that the amount paid by the assessee was in exercise of the option conferred upon him under the very law or scheme concerned then one has to regard such payment as business expenditure of the assessee, allowable u/s. 37 of the Act Relying upon CIT Vs Ahmedabad Cotton Mfg. Co. Ltd 1993 (10) TMI 1 - SUPREME Court vis- -vis Sec. 125 of the Customs Act - what has been paid by the assessee is a fine to prevent confiscation of its spare parts which were required for its business thus, the payment deserves to be allowed as deduction u/s. 37(1) of the Act thus, the AO is directed to allow the deduction. Disallowance of depreciation and extra shift allowance Disallowance of expenses Expenses treated as capital expenses Disallowance of expenses on soil investigation and effluent outfall - Held that - Following the assessee s own case of the earlier assessment year, it has been held that, as regards extra shift allowance, the matter is to be remitted back to the AO to consider the claim of the assessee after taking into consideration the I.T. Rule-5 of 1984-85 with regard to the depreciation , the AO is directed to allow depreciation the AO is also directed to allow the depreciation on items of expenditure treated as capital expenditure - Decided in favour of Assessee. Employees entertainment expenses u/s 37(2) r.w. Explanation III - Subsidized lunch coupons - Payments made to Tata Services Ltd. incentive bonus to workers Issue of bonus shares treated as revenue expenses Held that - As decided in assessee s own case for the earlier assessment year, it has been already decided in favour of assessee thus, there is no need for interference Decided against Revenue.

Summary

Issues Involved:
1. Disallowance of Guest House expenses under Section 37(4) of the Act.
2. Disallowance of payment to Registrar of Companies for increase in Authorised Share capital.
3. Disallowance of foreign travel expenses.
4. Disallowance of Bhanwad prospecting & survey expenses.
5. Disallowance of foreign exchange fluctuation loss and investment allowance.
6. Disallowance of expenses on issue of convertible bonds/debentures.
7. Disallowance of expenses on fish and prawn culture.
8. Disallowance of Delhi expenses.
9. Disallowance of expenditure treating them as expenses of earlier year.
10. Addition of interest on advance to wholly owned subsidiary company.
11. Disallowance under Section 43B of the Act.
12. Disallowance of premium on redemption of debentures.
13. Disallowance of Customs fine paid by the assessee.
14. Disallowance of Sundry contributions under Section 40A(9).
15. Disallowance under Section 40A(5).
16. Disallowance of depreciation and extra shift allowance.
17. Disallowance of expenses treating the same as capital expenditure.
18. Disallowance of expenses incurred for soil investigation and effluent outfall.
19. Treatment of subsidized lunch coupons as entertainment expenditure.
20. Disallowance of expenses reimbursed to Tata Services Ltd.
21. Allowance of expenditure on incentive bonus to workers.
22. Treatment of expenditure incurred upon the issue of bonus shares as revenue expenditure.

Issue-wise Detailed Analysis:

1. Disallowance of Guest House expenses under Section 37(4) of the Act:
The Tribunal confirmed the disallowance of salaries and wages to staff (Rs. 4,77,809/-) and repairs and renovation charges (Rs. 2,37,017/-). However, for food expenses (Rs. 8,31,941/-), the issue was set aside to the AO for fresh consideration in light of the Tribunal's decision in the case of TELCO. This ground was partly allowed for statistical purposes.

2. Disallowance of payment to Registrar of Companies for increase in Authorised Share capital:
The Tribunal directed the AO to allow the expenses of Rs. 1,12,500/- following the Supreme Court's decision in CIT Vs General Insurance Corporation of India, which held such expenses as Revenue expenditure. This ground was allowed.

3. Disallowance of foreign travel expenses:
The Tribunal directed the AO to allow depreciation on the foreign travel expenses as per law, following its decision in the assessee's own case for A.Y. 1992-93. This ground was allowed.

4. Disallowance of Bhanwad prospecting & survey expenses:
The Tribunal noted that the assessee had been allowed deduction under Section 35(E) of the Act, making the grievance otiose. This ground was dismissed.

5. Disallowance of foreign exchange fluctuation loss and investment allowance:
The Tribunal directed the AO to allow depreciation on foreign exchange fluctuation loss and to allow the investment allowance on exchange loss treated as capital expenditure, following its previous decisions in the assessee's own case. This ground was allowed.

6. Disallowance of expenses on issue of convertible bonds/debentures:
The Tribunal directed the AO to allow the expenses on issue of debentures, following its decision in the assessee's own case for A.Y. 1992-93. This ground was allowed.

7. Disallowance of expenses on fish and prawn culture:
The Tribunal directed the AO to allow the expenses of Rs. 2,22,508/-, following its previous decisions in the assessee's own case. This ground was allowed.

8. Disallowance of Delhi expenses:
The Tribunal directed the AO to allow the Revenue expenditure of Rs. 75,000/-, following its previous decisions in the assessee's own case. This ground was allowed.

9. Disallowance of expenditure treating them as expenses of earlier year:
The Tribunal directed the AO to allow the expenses as claimed by the assessee, finding that the liabilities had crystallized during the year under consideration. This ground was allowed.

10. Addition of interest on advance to wholly owned subsidiary company:
The Tribunal deleted the disallowance of interest of Rs. 97,00,957/-, following its previous decisions in the assessee's own case. This ground was allowed.

11. Disallowance under Section 43B of the Act:
- Royalty on limestone (Rs. 1,71,003/-): The issue was restored to the AO to verify the payments as per Section 43B.
- Interest on electricity duty (Rs. 11,55,597/-): The Tribunal directed the AO to delete the addition, as it is neither duty nor tax.
- Mineral Rights Tax (Rs. 55,55,738/-): The Tribunal confirmed the disallowance, finding that the assessee retained public funds by not paying the amount to the Government. This ground was partly allowed for statistical purposes.

12. Disallowance of premium on redemption of debentures:
The Tribunal directed the AO to allow the provision for premium on redemption of debentures of Rs. 9,64,286/-, following the decision of the Hon'ble Gujarat High Court. This ground was allowed.

13. Disallowance of Customs fine paid by the assessee:
The Tribunal directed the AO to allow the deduction of Rs. 2,00,000/-, finding that the fine was paid to prevent confiscation of spare parts urgently needed for business. This ground was allowed.

14. Disallowance of Sundry contributions under Section 40A(9):
The Tribunal directed the AO to allow the expenses as claimed by the assessee, following its previous decisions in the assessee's own case. This ground was allowed.

15. Disallowance under Section 40A(5):
The ground was dismissed as not pressed by the Senior Counsel.

16. Disallowance of depreciation and extra shift allowance:
- Extra shift allowance: The issue was restored to the AO to consider the claim afresh, following the Tribunal's decision in the assessee's own case for A.Y. 1984-85.
- Depreciation on ship Veer Varuna: The Tribunal directed the AO to allow depreciation, following its previous decisions in the assessee's own case. This ground was partly allowed for statistical purposes.

17. Disallowance of expenses treating the same as capital expenditure:
The Tribunal directed the AO to allow depreciation on items of expenditure treated as capital expenditure, following its previous decisions in the assessee's own case. This ground was partly allowed for statistical purposes.

18. Disallowance of expenses incurred for soil investigation and effluent outfall:
The Tribunal directed the AO to allow depreciation on the disallowance of Rs. 11,10,699/-, following its decision in ground No. 17. This ground was partly allowed for statistical purposes.

19. Treatment of subsidized lunch coupons as entertainment expenditure:
The Tribunal confirmed the findings of the Ld. CIT(A) and dismissed the Revenue's ground, following its previous decisions in the assessee's own case.

20. Disallowance of expenses reimbursed to Tata Services Ltd.:
The Tribunal dismissed the Revenue's ground, as this issue was already discussed in the assessee's appeal.

21. Allowance of expenditure on incentive bonus to workers:
The Tribunal confirmed the findings of the Ld. CIT(A) and dismissed the Revenue's ground, following its previous decisions in the assessee's own case.

22. Treatment of expenditure incurred upon the issue of bonus shares as revenue expenditure:
The Tribunal dismissed the Revenue's ground, following the decision of the Hon'ble Supreme Court in the case of General Insurance Corpn.

Conclusion:
The appeal filed by the assessee was partly allowed, and the appeal filed by the Revenue was dismissed.