2015 (7) TMI 163 - AT - Income Tax

Addition on account of Proportionate premium on redemption of debenture - CIT(A) deleted the adition - whether no premium was payable before expiry of 7 years? - Held that - The issue in the present year in respect of proportionate premium on redemption of debenture is squarely covered in favour of the assessee by the judgment of Madras Industrial Development Corpn. Ltd. vs. CIT 1997 (4) TMI 5 - SUPREME Court wherein it was held that discount of debentures is revenue expenditure allowable proportionately over the period of debentures. - Decided in favour of assessee. Disallowance on prospecting expenditure under section 35E - CIT(A) deleted the addition - Held that - It is admitted position that the issue in dispute is covered in favour of the assessee by the Tribunal order in earlier year and since no difference in facts could be pointed out by Learned D.R. of the Revenue, we do not find any reason to take a contrary view in the present year.- Decided in favour of assessee. Disallowance of debentures issue expenditure - CIT(A) deleted the addition - Held that - the issue is covered in favour of the assessee by the judgment of Hon ble Supreme Court in the case of India Cements Ltd. vs. CIT (1965 (12) TMI 22 - SUPREME Court). Respectfully following the same, we decline to interfere in the order of CIT(A) on this issue.- Decided in favour of assessee. Disallowance of 100% equity issue expenses - CIT(A) allowed claim - Held that - This issue is now squarely covered against the assessee and in favour of the Revenue by the judgment of Hon ble Supreme Court rendered in the case of Brooke Bond India Ltd. vs. CIT 1997 (2) TMI 11 - SUPREME Court - Decided in favour of revenue. Disallowance of foreign tour expenses - CIT(A) allowed claim - Held that - his issue is covered in favour of the assessee by the Tribunal order in assessee s own case for assessment year 1985-86 and Learned D.R. of the Revenue could not point out any difference in facts in the present year and therefore, we do not find any reason to take a contrary view - Decided in favour of assessee. Addition of expenses report at capital expenditure by the special tax auditors - CIT(A) deleted the addition - Held that - Out of total expenses of ₹ 2,38,09,910/-, the relief was allowed by the CIT(A) for ₹ 1,04,80,843/-. The nature of expenses for which relief was allowed by CIT(A) is telephone expenses, repairs/renovation of building, staff training expenses, freight and handling, transport expenses, insurance premium, office maintenance etc. and a clear finding has been given by learned CIT(A) that these expenses are of revenue in nature. Considering the nature of expenses, we are of the considered opinion that no interference is called for in the order of CIT(A) on this issue because these expenses cannot be stated to be capital expenditure - Decided against revenue. Enhancement of Opening Stock because of closing stock enhanced in A.Y. 1989-90 - Held that - The claim of the assessee for enhancement in opening stock in the present year is on the basis that in assessment year 1989-90, the closing stock was enhanced by the Assessing Officer. It is also noted by CIT(A) that the addition in that year has been upheld by learned CIT(A) in that year but it is not known as to whether such addition in assessment year 1989-90 was upheld by the Tribunal or not. Therefore, we feel it proper that this aspect has to be ascertained as to whether the addition was ultimately upheld by the Tribunal or not. Hence, we set aside the order of CIT(A) and restore the matter to the file of Assessing Officer for fresh decision. The assessee should submit copy of the Tribunal order for assessment year 1989-90 and if it is found that the addition in closing stock was upheld by the Tribunal then the assessee deserves relief in the present year but if the addition in assessment year 1989-90 has been deleted by the Tribunal then no relief is called for in the present year as has been claimed. CIT(A) Deleting the addition on account of presentation of articles even though the expenditure hit by section 37(2A) - Held that - in the present year, the CIT(A) has deleted the entire disallowance made by the Assessing Officer on account of presentation articles whereas in assessment year 1993-94 to 1995-96, disallowance was confirmed by the Tribunal to the extent of 30% of such expenses. Accordingly, in the present year also, we hold that the disallowance to the extent of 70% of the expenses should be deleted and in this manner, we confirm the disallowance to the extent of 30% of the expenses Disallowance of In-land Traveling Expenses - expenses relating to the wives of the Directors/employees - Held that - Out of foreign travelling expenses in respect of four spouses of directors of the assessee company, the expenses of ₹ 17,301/- regarding Mrs. R. Singhania is allowable otherwise also because she is a qualified Doctor and was looking after the hospital for employees at Kota plant of the assessee company. The CIT(A) has confirmed this disallowance in respect of expenses of Mrs. R. Singhania also but in our considered opinion, apart from being spouse of the director, Mrs. R. Singhania is an employee of the assessee company also and moreover while deciding the similar issue in assessment year 1987-88, it is held by the Tribunal in that year as per Para 216 of its order that this issue regarding travelling expenses of spouse of the directors is covered in favour of the assessee by the Tribunal order for assessment year 1983-84 and 1984-85. Since no difference in facts could be pointed out by Learned D.R. of the Revenue, we delete this disallowance by respectfully following the Tribunal order. - Decided in favour of assessee. Disallowance of traveling expenses on guest as reported by Special Tax Auditors - Held that -This is the claim of the assessee that this is not the finding of the special tax auditors that this much expenses of ₹ 7,40,300/- is of disallowable nature and therefore, without pointing out any single reason for making disallowance, the disallowance made by the Assessing Officer on this basis alone that this is reported by special tax auditors that this much expenditure is incurred on guests is not justified and therefore, we delete this disallowance - Decided in favour of assessee. Disallowance of Kamla Retreat Expenses - Held that - In assessment year 1987-88, this issue was decided by the Tribunal as per Para 223 of its order against the assessee by following the judgment of Hon ble Apex Court rendered in the case of Britannia Industries Ltd. vs. CIT 2005 (10) TMI 30 - SUPREME Court and therefore, by respectfully following this judgment of Hon ble Apex Court, this issue is decided against the assessee. - Decided against assessee. Disallowance of depreciation on WDV of the expenses offered as being capital expenditure under the head Licence Fee in earlier year - Held that - In the assessment order, it is noted by the Assessing Officer in assessment year 1989-90, the CIT(A) has confirmed the disallowance of depreciation on such capital expenditure. We are of the considered opinion that merely because the assessee has incurred a capital expenditure, the depreciation cannot be allowed unless the assessee is able to establish that such capital expenditure has resulted into creation of a capital asset and what is the nature of such capital asset such as land, building, plant & machinery, furniture etc. and whether capital asset was put into use for business purpose in the relevant year. Unless the assessee is able to establish that the capital expenditure has resulted into creation of capital asset and such asset was put to use for business purposes, depreciation cannot be allowed. We do not find any reason to interfere in the order of CIT(A) on this issue because the assessee has not established these aspects. - Decided against assessee. Disallowance of capital Expenditure debited to Profit & Loss A/c - Held that - We find that in assessment year 1987-88, the issue in dispute was regarding disallowance without appreciating that the expenditure was allowable u/s 37(1). In that year, this issue was decided by the Tribunal against the assessee by following the judgment of Hon ble Apex Court rendered in the case of CIT vs. Sri Mangayarkarasi Mills P. Ltd. 2009 (7) TMI 17 - SUPREME COURT . Accordingly, in the present year also, this issue is decided against the assessee.

Summary

Issues Involved:

1. Proportionate premium on redemption of debenture.
2. Prospecting expenditure under section 35E.
3. Debentures issue expenditure.
4. 100% equity issue expenses.
5. Foreign tour expenses.
6. Depreciation on assets at guest houses.
7. Maintenance expenses of guest houses.
8. Mess expenses.
9. Entertainment expenditure under section 37(2A).
10. Proportionate interest on interest-free loans.
11. Know-how fee as revenue expenditure.
12. Kamla Retreat expenses.
13. Surplus receipts over refunds in the cops deposits account.
14. Aircraft expenses.
15. Guest house expenses in Kamla Castle.
16. Capital expenditure debited to Profit & Loss A/c.
17. Articles intended for presentation.
18. Depreciation on Railway Siding.
19. Depreciation on Machinery for energy conservation.
20. Depreciation on Foreign exchange rate fluctuation.
21. Entertainment expenses on customary presentation.
22. Presentation articles expenses.
23. Other expenses not wholly and exclusively for business purposes.
24. General Charges.
25. Closing stock of spare parts.
26. Expenses not related to the business of the assessee.
27. Foreign Travelling Expenses.
28. In-land Travelling Expenses.
29. Interest payable on additional retention price of Cement.
30. Depreciation on WDV of expenses under "Licence Fee".
31. Interest Paid.
32. Cash payment in excess of Rs. 10,000.
33. Employees Welfare Expenses.
34. Sales Promotion Expenses.
35. Product Development Expenses.
36. Know-how / Technical Services Fee.

Detailed Analysis:

1. Proportionate premium on redemption of debenture:
The Tribunal found the issue in favor of the assessee, citing the Supreme Court judgment in Madras Industrial Development Corpn. Ltd. vs. CIT, which held that the discount on debentures is revenue expenditure allowable proportionately over the period of debentures. Ground No. 1 was rejected.

2. Prospecting expenditure under section 35E:
The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by earlier Tribunal orders in the assessee's favor. Ground No. 2 was rejected.

3. Debentures issue expenditure:
The Tribunal found the issue in favor of the assessee, referencing the Supreme Court judgment in India Cements Ltd. vs. CIT. Ground No. 3 was rejected.

4. 100% equity issue expenses:
The Tribunal reversed the CIT(A)'s order, citing the Supreme Court judgment in Brooke Bond India Ltd. vs. CIT, which held the matter against the assessee. Ground No. 4 was allowed.

5. Foreign tour expenses:
The Tribunal found the issue in favor of the assessee, referencing earlier Tribunal orders. Ground No. 5 was rejected.

6. Depreciation on assets at guest houses:
The Tribunal reversed the CIT(A)'s order, noting that the issue was covered in favor of the Revenue in the assessee's own case. Ground No. 6(a) was allowed.

7. Maintenance expenses of guest houses:
The Tribunal upheld the CIT(A)'s decision, referencing earlier Tribunal orders in favor of the assessee. Ground No. 6(b) was rejected.

8. Mess expenses:
The Tribunal found the issue in favor of the assessee, citing earlier Tribunal orders. Ground No. 6(c) was rejected.

9. Entertainment expenditure under section 37(2A):
The Tribunal upheld the CIT(A)'s decision, noting that the relief was allowed by following a Tribunal decision in the assessee's own case. Ground No. 7 was rejected.

10. Proportionate interest on interest-free loans:
The Tribunal found the issue in favor of the assessee, referencing earlier Tribunal orders. Ground No. 8 was rejected.

11. Know-how fee as revenue expenditure:
The Tribunal restored the matter to the Assessing Officer for fresh decision, with directions similar to those given in the earlier year. Ground No. 9 was allowed for statistical purposes.

12. Kamla Retreat expenses:
The Tribunal upheld the CIT(A)'s decision, noting that the relief was allowed by following earlier Tribunal orders. Ground No. 10(a) and 10(b) were rejected.

13. Surplus receipts over refunds in the cops deposits account:
The Tribunal found the issue in favor of the assessee, referencing earlier Tribunal orders. Ground No. 11 was rejected.

14. Aircraft expenses:
The Tribunal found the issue in favor of the assessee, citing earlier Tribunal orders. Ground No. 12 was rejected.

15. Guest house expenses in Kamla Castle:
The Tribunal found the issue in favor of the assessee, referencing earlier Tribunal orders. Ground No. 13 was rejected.

16. Capital expenditure debited to Profit & Loss A/c:
The Tribunal upheld the CIT(A)'s decision, noting that the expenses were of revenue nature. Ground No. 14 was rejected.

17. Articles intended for presentation:
The Tribunal found the issue in favor of the assessee, referencing earlier Tribunal orders. Ground No. 15 was rejected.

18. Depreciation on Railway Siding:
The Tribunal found the issue in favor of the assessee, citing earlier Tribunal orders. Ground No. 16 was rejected.

19. Depreciation on Machinery for energy conservation:
The Tribunal restored the matter to the Assessing Officer for fresh decision, with directions similar to those given in the earlier year. Ground No. 17(a) was allowed for statistical purposes.

20. Depreciation on Foreign exchange rate fluctuation:
The Tribunal found the issue in favor of the assessee, referencing earlier Tribunal orders. Ground No. 17(b) was rejected.

21. Entertainment expenses on customary presentation:
The Tribunal found the issue in favor of the assessee, referencing earlier Tribunal orders. Ground No. 18(a) was rejected.

22. Presentation articles expenses:
The Tribunal found the issue in favor of the assessee, referencing earlier Tribunal orders. Ground No. 18(b) was rejected.

23. Other expenses not wholly and exclusively for business purposes:
The Tribunal found the issue in favor of the assessee, referencing earlier Tribunal orders. Ground No. 18(c) and 18(d) were rejected.

24. General Charges:
The Tribunal found the issue in favor of the assessee, referencing earlier Tribunal orders. Ground No. 19 was rejected.

25. Closing stock of spare parts:
The Tribunal found the issue in favor of the assessee, citing earlier Tribunal orders. Ground No. 26 was rejected.

26. Expenses not related to the business of the assessee:
The Tribunal found the issue in favor of the assessee, referencing earlier Tribunal orders. Ground No. 27 was rejected.

27. Foreign Travelling Expenses:
The Tribunal found the issue in favor of the assessee, citing earlier Tribunal orders. Ground No. 1 was allowed.

28. In-land Travelling Expenses:
The Tribunal found the issue in favor of the assessee, referencing earlier Tribunal orders. Ground No. 2(a) and 2(b) were allowed.

29. Interest payable on additional retention price of Cement:
The Tribunal gave similar directions as in the earlier year, confirming the disallowance with observations. Ground No. 6 was rejected with observations.

30. Depreciation on WDV of expenses under "Licence Fee":
The Tribunal upheld the CIT(A)'s decision, noting that the assessee had not established the necessary aspects. Ground No. 7 was rejected.

31. Interest Paid:
The Tribunal found the issue in favor of the Revenue, referencing earlier Tribunal orders. Ground No. 8 was rejected.

32. Cash payment in excess of Rs. 10,000:
The Tribunal found the issue in favor of the Revenue, referencing earlier Tribunal orders. Ground No. 10 was rejected.

33. Employees Welfare Expenses:
The Tribunal found the issue in favor of the Revenue, referencing earlier Tribunal orders. Ground No. 11 was rejected.

34. Sales Promotion Expenses:
The Tribunal found the issue in favor of the assessee for part (a) and against the assessee for part (b), referencing earlier Tribunal orders. Ground No. 13(a) was allowed, and 13(b) was rejected.

35. Product Development Expenses:
The Tribunal found the issue in favor of the Revenue, referencing earlier Tribunal orders. Ground No. 14 was rejected.

36. Know-how / Technical Services Fee:
The Tribunal found the issue in favor of the Revenue, referencing earlier Tribunal orders. Ground No. 15 was rejected.

Combined Result:
Both the appeals were partly allowed.