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2021 (11) TMI 374 - AT - Income TaxDeduction u/s 80IA - AO rejected the claim of the assessee u/s 80IA of the Act with the observation that generation of steam is not a form of power eligible for deduction, no separate undertaking was set up for production of instant dry seized and it is manufactured in an undertaking which already existing prior to 01.10.1994 and according to AO, the undertaking is established by stipulating the old existing business for the purpose of section 80IA - HELD THAT - As decided in own case 2017 (11) TMI 1480 - ITAT MUMBAI allowed claim of deduction to assessee as held neither Section 80HH nor Section 80I of the Act statutorily obliged the assessee to maintain its accounts unit-wise and that it was open to maintain its accounts in a consolidated form and that unit-wise net profits could be prepared by the Auditors from the Consolidated Books of Accounts and on that basis compute deduction under Section 80HH / 80I - Decided against revenue. Disallowance u/s 43B - liability incurred during the previous year but not paid on or before due date of filing return of income - CIT(A) observed that it is evident that the claim of the assessee is not a fresh claim but a revised claim and he has also considered the judicial pronouncement relied by the assessee and in view of above discussions, he is of the considered view that claim of the assessee required consideration in impugned assessment order. Accordingly, he allowed the deduction claimed by the assessee - HELD THAT - Claim of the assessee is legitimate claim and such revised claim can be entertained by the first appellate authority and accordingly Ld. CIT(A) has allowed the claim of the assessee by relying on decision of GOETZE (INDIA) LIMITED 2006 (3) TMI 75 - SUPREME COURT and the claim of the assessee is legitimate. Therefore, we do not see any reason to interfere with the findings of the Ld. CIT(A). Accordingly, ground raised by the Revenue is dismissed. Disallowance of expenses incurred by the employees of the assessee in the clubs - HELD THAT - It is normal practice to allow the employees to use the facilities in the club and also it is part of the business to entertain the visitors as part of business promotion. The Courts have held that club membership fees for employees incurred by the assessee is business expenses allowable u/s 37 of the Act. Therefore, we are in agreement with the above propositions and accordingly, we set aside the order passed by the Ld. CIT(A) and direct the AO to allow the club membership fees claimed by the assessee.
Issues Involved:
1. Deduction under Section 80IA of the Income Tax Act. 2. Disallowance under Section 43B of the Income Tax Act. 3. Quantum of deduction under Section 80IA. 4. Disallowance of club expenses. Detailed Analysis: 1. Deduction under Section 80IA of the Income Tax Act: The assessee, engaged in manufacturing Baker’s Yeast, claimed deductions under Section 80IA for generating steam and cooling power at its Sandila and Chiplun plants. The Assessing Officer (AO) rejected the claim, arguing that steam is not a form of power eligible for deduction and that no separate undertaking was set up for the production of instant dry yeast. The assessee contended that the same issues were raised and resolved in their favor in earlier assessment years by the Tribunal. The Tribunal noted that the assessee had separate and distinct power generation undertakings, supported by Factory Inspector’s Certificates and separate audited financial statements. The Tribunal upheld the CIT(A)’s decision allowing the deduction, citing that the power generation units were independent and met the criteria for a new industrial undertaking under Section 80IA. 2. Disallowance under Section 43B of the Income Tax Act: The AO disallowed ?1,27,63,330/- under Section 43B, which included a legitimate claim for bonus ex-gratia of ?34,52,000/-, arguing that it should have been claimed through a revised return. The CIT(A) allowed the deduction, referencing the Supreme Court decision in Goetze (India) Limited v. CIT, which permits legitimate claims to be entertained during appellate proceedings. The Tribunal agreed, affirming that the CIT(A) correctly allowed the claim. 3. Quantum of Deduction under Section 80IA: The AO computed the deduction based on a notional sale price of the power generated, applying the net profit percentage of the yeast manufacturing business to the power generation undertakings. The CIT(A) directed the AO to re-compute the deduction following the principles laid down for the previous assessment year. The Tribunal reiterated the need to follow the directions of the earlier Tribunal orders, emphasizing that the profits of the eligible business must be worked out as if it were the only source of income, and directed the AO to re-compute the deduction accordingly. 4. Disallowance of Club Expenses: The AO disallowed ?1,02,051/- incurred on club expenses, considering them personal in nature. The CIT(A) upheld the disallowance, noting that the auditor flagged these as personal expenses and the assessee failed to establish their business relevance. The Tribunal, however, noted that club expenses are generally allowable as business expenses under Section 37(1) if incurred for business purposes, citing various judicial precedents. The Tribunal set aside the CIT(A)’s order and directed the AO to allow the club membership fees claimed by the assessee. Conclusion: The Tribunal dismissed the Revenue’s appeal for AY 2013-14 and allowed the assessee’s appeal for the same year. For AY 2014-15, the Tribunal partly allowed the assessee’s appeal, specifically allowing the club expenses while dismissing other grounds. The orders were pronounced on 25/10/2021.
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