2014 (6) TMI 146 - AT - Income Tax

Taxing of interest received on application money Purchase of tax free bonds Held that - Following CIT vs. Bharat Heavy Electricals Ltd. 2012 (9) TMI 515 - DELHI HIGH COURT - interest for the brief period between the date of application and allotment of bonds could not be taxed Revenue could not bring any contrary fact or case law Decided in favour of Assessee. Disallowance of foreign exchange fluctuation loss - Revenue expenditure or not - Disallowance of investment allowance on increase in liability on account of foreign exchange fluctuation loss Expenses on AGM of shareholders Disallowance of guest house expenses u/s 37(4) of the Act Held that - Following M/s. Tata Chemicals Ltd. Versus The DCIT, Special Range-1, Mumbai 2014 (5) TMI 956 - ITAT MUMBAI - 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. Expenses on issue of debentures and bonds Held that - Following M/s. Tata Chemicals Ltd. Versus The DCIT, Special Range-1, Mumbai 2014 (5) TMI 956 - ITAT MUMBAI - the Tribunal has allowed the debenture expenses thus, the AO is directed to allow the expenses on issue of debenture Decided in favour of assessee. Disallowance of sundry contributors u/s 40A(9) of the Act Staff welfare expenses Held that - As it has been already decided by the Tribunal in the earlier assessment years, the AO is directed to allow the expenses - So far the payments to schools (staff welfare expenses) is concerned, the matter is remitted back to the AO for adjudication Decided in favour of Assessee. Family planning expenses Held that - Following Atlas Cycle Industries Ltd. 1980 (3) TMI 43 - PUNJAB AND HARYANA High Court - the disallowance of 50% made by the Income Tax Authorities for such type of expenditures incurred on an Eye Camp for the workers of the assessee company is upheld - The 50% of the expenditure was disallowed in the case on the ground that the benefit was also derived by the outsiders - thus, the disallowance on the issue is restricted to 50% of the expenditure incurred Decided partly in favour of Assessee. Interest of advance to subsidiary companies Held that - The Commissioner of Income Tax Versus Reliance Utilities & Power Ltd. 2009 (1) TMI 4 - HIGH COURT BOMBAY the AO is directed to decide the issue as per the decision Decided in favour of Assessee. Disallowance of extra shift depreciation Various additions on plant and machinery Held that - Following M/s. Tata Chemicals Ltd. Versus The DCIT, Special Range-1, Mumbai 2014 (5) TMI 956 - ITAT MUMBAI - the Tribunal has restored back the issue to the files of the AO to consider the claim of the assessee after taking into consideration the I.T. Rule-5 of 1984-85 thus, the AO is directed to decide the issue afresh Decided in favour of Assessee. Disallowance of investment allowance Disallowance of investment allowance on increase in liability on account of foreign exchange fluctuation loss - Held that - Tata Chemicals Limited Versus The ACIT Cir 2(2), Mumbai & Others 2012 (10) TMI 46 - ITAT MUMBAI - the disallowance of investment allowance on certain items treated in the nature of civil work and not integral part of the plant and machinery there was merit in the contention of the assessee that the Tribunal on the similar issue has upheld the order of the CIT(A) who set aside the issue to the file of the AO thus, the matter is remitted back to the AO for fresh adjudication Decided partly in favour of Assessee. Disallowance u/s 43B of the Act Royalty on limestone and mineral rights tax - Held that - The AO has disallowed Royalty of Limestone following the assessment - 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 this, as far as royalty of limestone is concerned, the matter is remitted back to the AO for verification of the payments as per the provisions of Sec. 43B - So far the disallowance relating to mineral rights tax is concerned - the assessee has retained the money from the suppliers on the pretext that it will make the payment to the Government - as 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, there was no reason to interfere in the order of the CIT(A) Decided against 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 - 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:

1. Taxability of interest on application money for tax-free bonds.
2. Disallowance of Bhanwad Prospecting & Survey Expenses.
3. Disallowance of foreign exchange fluctuation loss and investment allowance.
4. Expenses on issue of debentures and bonds.
5. Expenditure on foreign personnel.
6. Expenses incurred on the annual general meeting of shareholders.
7. Disallowance of sundry contributions and payments to schools.
8. Provision for interest on electricity duty.
9. Earlier year's expenses.
10. Delhi office expenses.
11. Family planning expenses.
12. Foreign travel expenses for a new project.
13. Addition of interest on advances to a subsidiary company.
14. Disallowance under section 40A(5)/40(c).
15. Disallowance of guest house expenses under section 37(4).
16. Disallowance of extra shift depreciation on plant and machinery.
17. Disallowance of investment allowance on items of plant and machinery.
18. Disallowance under section 43B for royalty on limestone and mineral rights tax.
19. Subsidized lunch coupons as entertainment expenditure.
20. Payments made to Tata Services Ltd.
21. Incentive bonus to workers.

Detailed Analysis:

1. Taxability of Interest on Application Money for Tax-Free Bonds:
The assessee argued that interest on application money for tax-free bonds should be exempt under section 10(15)(iv)(h). The Tribunal accepted this argument, citing the decision of the Hon'ble Delhi High Court in 'CIT vs. Bharat Heavy Electricals Ltd.' which held that interest for the period between application and allotment of bonds is not taxable. Hence, this ground was allowed in favor of the assessee.

2. Disallowance of Bhanwad Prospecting & Survey Expenses:
The Tribunal found that this issue was covered by its decision for the assessment year 1986-87, where it was held that since the assessee had been allowed deduction under section 35(E), the grievance became otiose. Therefore, the ground was dismissed.

3. Disallowance of Foreign Exchange Fluctuation Loss and Investment Allowance:
The Tribunal referred to its previous decisions for assessment years 1984-85 and 1985-86, where it allowed depreciation on foreign exchange fluctuation loss and investment allowance on exchange loss treated as capital expenditure. The issue was restored to the AO for a fresh decision.

4. Expenses on Issue of Debentures and Bonds:
Following its decision for the assessment year 1986-87, the Tribunal directed the AO to allow the expenses on the issue of debentures, thus allowing this ground in favor of the assessee.

5. Expenditure on Foreign Personnel:
The assessee did not press this ground, leading to its dismissal.

6. Expenses Incurred on Annual General Meeting of Shareholders:
The Tribunal remanded this issue back to the AO for a fresh decision, consistent with its decisions for assessment years 1995-96 and 1996-97.

7. Disallowance of Sundry Contributions and Payments to Schools:
The Tribunal directed the AO to allow the expenses following its decisions for earlier assessment years, where such expenses were allowed as welfare expenses.

8. Provision for Interest on Electricity Duty:
This issue was referred back to the AO for a fresh decision, consistent with the Tribunal's decisions for earlier assessment years.

9. Earlier Year's Expenses:
The Tribunal upheld the CIT(A)'s decision that the liability did not accrue during the previous year, nor was the payment made during the previous year, and thus dismissed this ground.

10. Delhi Office Expenses:
The Tribunal directed the AO to decide this issue in light of its decisions for earlier assessment years, where such expenses were allowed.

11. Family Planning Expenses:
The Tribunal allowed 50% of the expenses, following the decision of the Hon'ble Punjab & Haryana High Court in 'Atlas Cycle Industries Ltd.', which allowed partial disallowance for similar expenditures.

12. Foreign Travel Expenses for a New Project:
The Tribunal followed its decision for the assessment year 1985-86, treating the expenditure as capital in nature and allowing depreciation.

13. Addition of Interest on Advances to Subsidiary Company:
The Tribunal directed the AO to decide this issue in light of its earlier decisions, where such additions were not upheld.

14. Disallowance under Section 40A(5)/40(c):
The assessee did not press this ground, leading to its dismissal.

15. Disallowance of Guest House Expenses under Section 37(4):
The Tribunal restored the issue of food expenses to the AO for a fresh decision, consistent with its decision for the assessment year 1986-87.

16. Disallowance of Extra Shift Depreciation on Plant and Machinery:
The Tribunal restored this issue to the AO for a fresh decision, following its decision for the assessment year 1984-85.

17. Disallowance of Investment Allowance on Items of Plant and Machinery:
The Tribunal restored this issue to the AO for a fresh decision, consistent with its decision for the assessment year 1985-86.

18. Disallowance under Section 43B for Royalty on Limestone and Mineral Rights Tax:
The Tribunal restored the issue of royalty on limestone to the AO for verification of payments. However, it upheld the disallowance of mineral rights tax, consistent with its decision for the assessment year 1986-87.

19. Subsidized Lunch Coupons as Entertainment Expenditure:
The Tribunal decided this issue in favor of the assessee, following its decision for the assessment year 1995-96.

20. Payments Made to Tata Services Ltd.:
The Tribunal decided this issue in favor of the assessee, consistent with its decisions for earlier assessment years.

21. Incentive Bonus to Workers:
The Tribunal decided this issue in favor of the assessee, following its decisions for earlier assessment years.

Conclusion:
The Tribunal's decisions were largely consistent with its earlier rulings on similar issues. The appeal of the assessee was partly allowed for statistical purposes, while the appeal of the Revenue was dismissed. The Tribunal directed the AO to follow its earlier decisions and provided specific directions for fresh adjudication on several issues.