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TMI Blog2014 (10) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant that certain buildings were maintained at far flung places due to business expediency and as hotels were not available in these places, expenditure on the same is allowable as revenue expenditure. The learned CIT (A) further erred in not accepting appellant's contention that expenses specifically allowable uls,30 to 36 cannot be disallowed as per provisions of Section 37(4) as well as that Section 37(4) is limited to disallow maintenance expenses and not the running expenses. Ground of Appeal No.3 Pages 4-6, Paras 6.6.3 of CIT (A)'s Order Recovery of Guest House Expenses Rs. 72,30,225 The learned CIT (A) erred in rejecting appellant's claim that recoveries made in respect of Guest House expenses, on which Rule 6D should apply and expenses proportionately disallowed and not the entire amount as 'Guest House Expenses.' Ground of Appeal No.4 Pages 6-7, Paras 7.7.2 of CIT (A)'s Order Expenses incurred on Darjeeling Home Rs. 2,75,750 The learned CIT (A) erred treating Darjeeling Holiday Home as Guest House and rejecting appellant's contention that the same is covered by the second proviso to Section 37(4) hence not to be treated as Guest House. Ground of Appeal N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Liability under Employee Separation Schemes initiated during the year. Rs. 290,70,50,553 The learned CIT(A) erred in not coming to conclusion that the liability of ESS pensions crystallizes during the year employee opts for the Scheme. The learned CIT(A) erred in not realizing that there is no uncertainty in making payments to such employees as Company is contractually bound to make monthly pensions till the age of superannuation. The learned CIT(A) erred in treating ESS payments similar to contributions made to Superannuation Fund where deduction is allowed on payment basis u/s.43B. Ground of Appeal No.13 Pages 28-29, Paras 21-21.2 of CIT(A)'s Order Contribution to approved Superannuation Fund- Rs. 62,27,508 The learned CIT(A) erred in not condoning delay in making contribution as per the facts of the case. The Appellant craves leave to add to, alter or amend the above grounds of appeal. AO has filed following grounds of appeal: 1. The ld. CIT(A) erred in allowing relining expenditure of Rs. 20,25,71,077/- as revenue in nature without appreciating the fact that it gives the assessee advantage of enduring nature. During the course of hearing before us,Authrorised Representa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouse of the company in that place, then, such employees would have stayed in a hotel or guest house run by third parties and made payments to them for use of their facilities and accordingly payments made to outside parties would have been treated as travelling expenses incurred by the company for its business. Therefore, the user of guest house facilities provided by the company to the employees of the company in connection with discharge of their official duties does not alter the basic character of the expenditure.Ultimately such expenses are connected with the travelling by such employees and, therefore, should be treated accordingly, irrespective of the fact that such employees stayed in the guest house of the company.In view of the above facts and circumstances,we direct the AO to allow the deduction of amount received from parent departments as expenditure in the nature of travelling expenses ;and in accordance with Rule 6D of the IT Rules.Thus this ground of the assessee is accepted.' 13.In view of the above, we direct that the addition to the extent of recoveries made by the assessee be allowed as a deduction. Ground No. 4 of the assessee is allowed.' Respectfully,followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation 2 is as follows: "For the removal of doubts it is hereby declared that for the purpose of this subsection ... entertainment expenditure includes expenditure on provision of hospitality of every kind by the assessee to any person but does not include expenditure on food or beverages provided by the assessee to his employees in office, factory or other place of their work." It is clear from the above Explanation 2 to section 37(2A)/37(2) that the expenditure incurred on the hospitality of employees gets excluded from the definition of the entertainment expenditure provided the expenditure is incurred in office, factory or other place of their work. In the present case,it is an accepted position that the expenditure was incurred in the hotels.The assessee's contention is iotels fall within the meaning of "other place of their work".I am unble to agree with the interpretation given by the appellant. Explanation 1 and 2 to section 37(2A) it can be seen that the expenditure incurred by the employees forms part to definition of entertainment expenditure.Explanation 2 does not treat expenditure on food or beverages provided by the assessee to the employees in office, factory or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he halls in the hotels.In the absence of evidence,I refrain myself from giving any finding on this argument. However, keeping in mind ;the principles of natural justice, the A.O. is directed to examine and allow if the assessee is able to furnish the evidence of rent paid to the hotels or restaurants which was included in the business meetings and conferences expenditure.To sum up, the expenditure incurred on the business meetings and conferences at the hotels falls within the definition of entertainment expenditure.The additions made by the AO are sustained subject to submission and verification of evidence of rent paid." 28.We agree with the reasoning given by the CIT(A) in the light of the provisions of Explanation 2 to section 37(2A) of the Act. We have also considered the decisions relied upon by the learned counsel for the assessee.The decision of Hon'ble Calcutta High Court in the case of Chemcrown (I) Ltd. (supra) is distinguishable as follows:The employees and customers participated in the entertainment whereas in the case of the assessee the employees alone participated. 29.The decision in the case of Expo Machinery Ltd. (supra) by Hon'ble Delhi High Court is also disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. Mysore Minerals Ltd.,126 ITR 437(Kar). The learned CIT(A)has,however, distinguished the decision in the case of Mysore Minerals Ltd. (supra) as follows: - ' The definition of entertainment expenditure was inserted by the Finance Act,1983 with retrospective effect from 1.4.1976. In my view, the expenditure incurred on serving tea, coffee and soft drinks is covered by the Explanation 2 to section 37(2A)/(37(2). In the Explanation 2 it is stipulated that the expenditure on provision of hospitality of every kind by the assessee to any person whether by way of provision of food or beverages or in any other manner, whatsoever, would be entertainment expenditure.The sweep of the words entertainment expenditure found in the Explanation 2 to section 37(2A)is wide and broad to cover every expenditure on provision of hospitality of every kind to any person other than the employees at the place of their work The appellant relied on the judgment of the Karnataka High Court in the case of Bangalore Turf Club Ltd 126 ITR 430.The Hon'ble Karnataka High Court in a later judgment in the case of Mysore Minerals Ltd 162 ITR 562 did not approve the ratio laid down in Bangalore Turf Club on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed by the Tribunal,wherein FAA had confirmed the additions made by the AO in similar fashion.DR left the issue to the discretion of the Bench.We find the in the earlier AY.s.,we have dealt the issue as under: "9.Next common ground of appeal(G.12-1991-92,G.9-1994-95)is about Fees paid to Consultants for Feasibility Studies.AO.s found that the assessee had paid Rs. 4.83 lakhs and Rs. 24.94 lakhs to the consultants for conducting feasibility studies for the years under appeal.AO.s were of the opinion that the expenditure was incurred in connection with the expansion of the industrial undertaking, that same was capital expenditure,that the expenditure incurred on preparation of feasibility/ project reports in connection with the expansion of industrial undertakings or in connection with the setting up of a new units was an admissible deduction u/s.35D of the Act. 9.1.In the appellate proceedings,upholding the order of the AO.s,FAA held that the expenditure incurred was in the capital field.We find that identical issue has been decided by us,while adjudicating the appeals for the earlier three AY.s.i.e.-AY.s.1987-88,1989-09 and 1990- 91(supra)in the following manner: Before us,A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.Before us,AR contended that issue had arisen in earlier AY.s.also and was decided in favour of the assessee.We find that in our order dated (supra)for the AY.s.1990-91,1994-95 and 1995-96 we have decided the issue as under 6.Disallowance of Tata Steel Rural Development Society Expenditure(TSRDS)-G.9-1991-92,G.5- 1994-95,G.4-1995-96)is the next common ground of appeal for the years under consideration.As per the AO.s,assessee had claimed expenditure on rural development in the assessment years under consideration,as business expenditure u/s. 37(1) of the Act,that the assessee had claimed that it had incurred expenditure on payment to TSRDS amounting to Rs. 2Crores,Rs.2.93Crores and Rs. 2.99 Crores respectively for the years under appeal.AO.s were of the opinion that payments made to TSRDS were not admissible as same were not incurred wholly and exclusively for the purpose of business of the assessee,that the expenditure incurred on various activities like village link road, drinking water project, irrigation facilities, vocational training etc.had no nexus with the business carried on by the assessee. 6.1.Against the order of the AO.s,assessee preferred an appeal before the FAA. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred by the assessee is as follows: 42.The assessee had set up its Works in 1907 in the virgin forest areas of the Singhbhum-District, had to develop the township over a period of years on land of about 25 sq. km. leased to it on a long term basis by the Government of Bihar. As all the facilities of the Works, sites for the associate companies, residence sites for its own employees and their dependents and sites for the business community were to be located on its own land, the assessee had to provide all the facilities of a Municipalitylike,power,water,sanitation,hospitals, playgrounds, clubs, reading rooms, dispensaries, community welfare centres, cultural assistance, etc. In the Lease Agreement finalised with the Bihar Government the assessee was under an obligation to provide aji the civic amenities in Jamshedpur and, therefore, the assessee had to continue these obligations which it had undertaken earlier on its own, in the absence of a Municipality in a large township like Steel City of Jamshedpur. With the increase in the number of people residing in Jamshedpur, the assessee found it difficult to cope with all the services of civic amenities and it has, therefore, encourag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee be allowed, Ground No. 14 is allowed." We have perused the MOU signed by the assessee with the workers' union.Considering the terms and conditions of the MOU we are of the opinion that orders of the Tribunal delivered in the case of the assessee as well as TELCO should be followed.In our views,MOU makes the facts and circumstances of the case peculiar. We find that Hon'ble jurisdictional High Court has,in its order dated 26.12.2012, dismissed the appeal filed by the department filed for AY.1985-86(IT Appeal No.3176 of 2010) where similar issue of contribution to various institutions was decided in favour of the assessee by the Tribunal.(Ground no.B and F).As far as discharging of social responsibility is concerned Voltas Ltd.had to be considered the guiding case.As in that case there was no MOU with the workers, so, considering the peculiarity of facts of the case,as against the matter of Voltas,we decide the issue in favour of the assessee." Following the order for the AY.1986-87 we decide the issue of payments to TSRDC in favour of the assessee for all the three AY.s Considering the orders for the earlier years(supra),issue of payment to TSRDC is decided in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of and to the extent required by or under any other law,that the contributions were given to Tata Sports Club in the capacity of an employer for the benefit of the employees as well as others,that the annual contribution to Steel Plants Sports Board was an independent organisation managing the affairs of the board 'with its own budget, that the purpose of creation of the association was to create and train athletes of national standard,that the objective had no relevance in carrying on the business of the assessee,that the contribution made by the it was an application of income.Finally,he confirmed the disallowance made by the AO.Before us,AR submitted that similar issue was decided in favour of the assessee ,by the Tribunal,in the appeal for the earlier three assessment years i.e.1987-88,1989-90 and 1990-91.DR also consented that the issue is decided by the Tribunal for earlier years.We find that in the earlier years' order(supra),issue is decided as under: 12.2.We find that,following the order for allowing expenditure to TSRDC,Tribunal had decided the issue of payment to Steel Plants'Sport Board and Tata Sports Board in favour of assessee, while adjudicating ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities to the city of Jamshedpur then also the contributions would be liable for disallowance because the employees were major beneficiaries of the contributions,that if the benefit of the contri -butions was for the city of Jamshedpur at large then these contribution were in the nature of charity.They disallowed the claim made by the assessee. 8.1.Deciding the appeal filed by the assessee,FAA held that that significant contributions made by the were to Jamshedpur Notified area Committee,Merry Hospital,Jamshedpur,Trade Workers' Union,Loyola School,All India Football Association,that on a perusal of the above contributions it was evident that the assessee had given a general and vague explanation about the issue before him,that it did not establish the direct nexus between the contributions and the business,that in the absence of such a nexus, it could not be presumed that the contributions were made for the purpose of the business, that the contributions made by the assessee were on the nature of application of income,that the contributions were hit by the provisions of section 40A (9) of the Act.FAA upheld the order of the AO.s.Before us,AR argued that issue is covered in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de ground no.11 in favour of the assessee. 10.Liability under Employee Separation Schemes(Rs. 2,90,70,50,553/-)initiated during the year is the next ground of appeal.Before us,AR submitted as under : "Since the deduction in respect of pension to employees is being allowed on payment basis in subsequent assessment years,this ground of appeal is otiose with the passage of time" Considering the above ground no.12 is dismissed treating it as infructuous. 11.Last ground of appeal filed by the assessee-company is about disallowance made on account of delayed contribution to approved superannuation fund,amounting to Rs. 62,27,508/-.During the assessment proceedings,AO found that the assessee had deposited the PF contribution in the month of April and May 1996,whereas same was to be deposited on 1st April,1996.Invoking the provisions of section 43(B)(b)of the Act,he disallowed the expenditure amounting to Rs. 62.27 lakhs.In the appellate proceedings FAA confirmed the order of the AO. Before us,AR argued that issue of deposit of employer's contribution of PF on a particular date has been finally decided by the Hon'ble Apex Court in the matter of Alom Extrusion(319ITR306).DR left the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere made of steel walls which could melt at high temperatures,that the furnace inside would be insulated by refractory bricks,that the relining the walls of the blast furnaces had a short life,that the expenditure was of revenue nature.After considering the submissions of the assessee and the assessment order,FAA held that by incurring the expenditure the assessee had not acquired any new capital asset and there was no addition to or expansion of the profit making apparatus of the company,the incurring of expenditure did not add to the fixed capital of the assessee,that it did not acquire a source of profit or income,that the expenditure was primarily related to the efficient functioning of the furnaces and was therefore incurred in the process of carrying on business of manufacturing steel.Relying upon the decisions of Sri Rama Sugar Mills Ltd. (21ITR191),Dyer's Stone Lime Company (P) Ltd.(136ITR8),Empire Jute Co. Ltd. (124ITR1),FAA held that the expenditure had not brought in to existence any new capital asset,that the benefit obtained by the assessee was only in the revenue field for efficiently carrying on the business of manufacturing steel,that the expenditure had to be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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