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TMI Blog2011 (7) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to improve its business relations and prospects, thus must be allowed as business expenditure. We have examined if the payment made by the company for want of club membership in the name of the executives is allowable as business and revenue expenditure. In our opinion, the existence of the membership in the names of the employees should not make any difference on taxability so long as they were used for the employer s business purposes and the company has paid the FBT as per the law. Thus, impugned issue is settled in favour of the assessee - Decision in favour of Assessee. Miscellaneous expenses - Allowed Expenditure u/s 37(1) or Not? - Disallowance of 10% of the miscellaneous expenses was made on the ground that it is a not an allowable expenditure u/s 37(1) - CIT(A) restricted the disallowance to 5% - HELD THAT:- The decision of CIT(A) is affirmed by us in assessee own case, therefore, we are of the opinion, the decision of the CIT(A) does not call for any interference. Disallowance on Expenditure on Running and Maintenance of Aircraft and Aviation Vehicles u/s 38(2) - Disallowance was made on total expenditue on running and maintenance of aircraft on the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these cash discount receipts vis a vis purchases or to the payments to the suppliers of the raw materials purchased by the assessee. Carry Forward of Unabsorbed Depreciation of Amalgamating Co - Charging of MAT u/s 115JB - A company has been amalgamated with assessee co - Issue is whether the Unabsorbed depreciation of amalgamating company is eligible for reduction from the book profit of the assessee as per (iii) to Explanation (1) of 115JB - AO, further observed that provision of 72A are not followed. HELD THAT:- After going through the provisions of sec. 115JB, it is clear that the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account is entitled for reduction out of the net profit adjustment as per said Explanation I. In our opinion, once amalgamation is legally and validly done, the impugned loss or unabsorbed depreciation looses its earstwhile identity and practically it shall be loss and unabsorbed depreciation of the assessee company unless the principle of tax neutrality, which is the core principle for the business reengineering provisions, is violated. Nothing is brought our notice by the revenue to demonstrate an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Bapat and Shri R.D. Onkar For the Respondent : Shri Hareshwar Sharma CIT DR and Shri Sanjay Singh Sr AR ORDER Per D. KARUNAKARA RAO AM These cross appeals by the Assessee and Revenue are directed against separate orders of the CIT(A) III Pune identically dated 26-10-2006 for A.Y. 2000-01 to 2002-03. Since the issues involved in these appeals are interconnected, all these appeals were heard together and are being disposed off by this consolidated order for the sake of convenience. ITA No. 102/PN/2007 for A.Y. 2002-03 (Assessee s appeal) 2. Ground no. 1 relates disallowance of ₹ 14,36,972/- representing incremental provision on account of Leave Encashment quantified/ascertained on the basis of actuarial valuation. At the time of hearing, this ground was not pressed by the learned counsel for the assessee. Hence the same is dismissed as not pressed. 3. Ground no. 2 relates to disallowance of ₹ 50,000/- made u/s 14A of the Act stating that part of administration/office/personnel cost is attributable to tax free income. The parties mentioned that the issue has to be referred to the files of the A.O for deciding the issue afresh in the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Otis Elevators (India) Ltd (195 ITR 682) (Bom), Ld Counsel attempted to impress upon us the need for allowing such expenditure as business expenditure. On the other hand, Ld DR for the revenue is on different wavelength and explained that the impugned expenditure is one time expenditure and such expenditure should be held capital in nature as they have in built enduring nature. 5. We have heard both the parties. We have perused the cited decision on the topic. In our opinion, the issue is covered in favour of the assessee vide the said citation. For the sake completeness, relevant portion from page 686 of 195 vol of the ITR is reproduced here and the same reads as under: The AAC categorically found that the payments of club fees (one time and initial payments) were made with a view to enable the assessee to improve its business relations and prospects. The Tribunal, without recording a contrary finding on this crucial aspect of the matter, restored the order of the ITO. In our judgment, considering the clear finding given by the AAC, without a contrary finding thereto by the Tribunal, we must accept the facts as found by the AAC Consequently, the payments must be al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AYs vide ITA NO 1440/PN/1994 dt 24.6.11. In this regard, the assessee s counsel relied on para 6 of the said order. For the sake completeness of this order, we proceed to import the same here as under. 6. Ground 4 relates to restriction of disallowance made on account of gifts and presentations. CIT(A) confirmed ₹ 75,000/- against the disallowance of ₹ 2,41,799/-. In this regard, Ld Counsel for the assessee mentioned the issue has to be in line with the order of the Tribunal vide ITO 1014-1438/Pn/2000 for the AY 1997-98 (para 10 is the relevant one), where the Tribunal allowed the claim of the assessee. Considering the set position in the matter, we dismiss the ground of the appeal. Accordingly, the ground is allowed. The facts remain the same and assessee has not brought forth any special reason for reversing the order of the CIT(A). Therefore, we are of the opinion, the decision of the CIT(A) does not call for any interference. Accordingly, the ground is dismissed. 8. Grounds No. 6 and 8 relate to confirmation of the disallowance of ₹ 4,08,697/-and ₹ 18,18,129/.- respectively out of the total expenditure on running and maintenance of aircraft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purposes of the business or profession . 12. In this regard, we have perused existing judicial pronouncements and found that the special bench decision in the case of Gulathi Saree Centre (71 ITD 73)(Chd)(SB) was in favour of 1/5th disallowance in respect of the car and coordinate bench decision in the case of Mayur Kothari (10 SOT 338)(Mum) is in favour of 1/6th again in the context of a car as discussed in para 8 of the decision and relevant Para 8 of the decision in the case of Mayur Kothari (supra) reads as under:- We have considered the submissions of both sides, material on record and orders of authorities below. Admittedly, the assessee has not maintained the log book. The possibility of personal user of the car cannot be ruled out. In the case of Gulati Saree Centre vs Asstt CIT [1999] 71 ITD 73 (Chd)(SB) [ITAT Chandigarh Bench], the Tribunal held that even after the incorporation of the concept of block asset, the provisions of section 38(2) were applicable and the Assessing Officer was empowered to restrict the depreciation to a fair part thereof having regard to the user of asset for the purposes of business. In this view of the matter, we hold that order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the case of Gulathi Saree Centre (supra) or the decision in the case of Mayur Kothari (supra) are in the context of the personal cars; whereas the pune bench decision in the case of M/s Kirloskar Oil Engines Ltd (supra) relates to the aviation vehicles, which is also the case of the assessee an whether it is the case of a Helicopter or Aircraft should not make any difference. Thus, the decision in the case of Gulathi Saree Centre (supra) or the decision in the case of Mayur Kothari (supra) are distinguishable as the subject matter of these appeals are the disallowance out of the claims involving the personal cars. Further, we may mentioned that the revenue is no fair in adopting 20% (1/5th of the claim) in respect of the Bell Helicoptor and in adopting 30% (nearly 1/3th of the claim) in respect of the Cessna Aircraft and in our opinion, it constitutes an artificial difference. It is also relevant to mention that the section 38(2) refers to the expression fair and neither of the IT authorities ie AO or CIT(A) have undertaken any exercise to establish the said fairness in adopting the said percentages. It is true that the onus is on the assessee to substantiate the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead as under: 9(a) directing the AO to follow the guidelines contained in the appellate order for A.Y. 2001-02 in the matter of allocation of expenses for determination of profits u/s 80-IA in respect of Urse Unit II and Pimpri Unit II which would result in adhoc allocation of expenses unrelated to the activities of these undertakings. 9(b) denying the deduction u/s 80-IB in respect of miscellaneous income of ₹ 56,32,480/- of the new industrial undertaking at Goa on the ground that the said income is not derived from the new industrial undertaking. 12. As regards ground No. 9(a) is concerned, at the very outset, Ld Counsel stated that this issue is identical to the one pending adjudication before the AO in the set aside proceedings vide direction of the Tribunal in ITA No. 1014/PN/2000 dt 30.3.2010 for the AY 1997-98. This decision of the CIT(A) was set aside by us in the assessee own case for the said AYs vide ITA NO 1440/PN/1994 dt 24.6.11. In this regard, the assessee s counsel relied on para 19 of the said order. For the sake completeness of this order, we proceed to import the same here as under. 19. Ground 11 relates to deduction u/s 80IA with refere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in the case of Pandian Chemicals (233 ITR 497)and Sterling Foods Ltd. (236 ITR 529). On the other hand, the CIT(A) has mentioned in para 24.3(c) that the assessee s submissions are very general without establishing as to how the receipts shown under this head are inextricably connected with the manufacturing business of the assessee. Thus, he confirmed the order of the A.O. 14. We have considered the facts of the case available before us and find that undisputedly the said amount of ₹ 44,24,715/- is cash discount received by the assessee. Nothing is available before us to establish that this cash discount is in connection with the earlier payments by the assessee to the suppliers who sold the material to the assessee. Regarding accounting method also, there is no material available before us to know as to how the said discount amount was maintained by the assessee in its ledger. Further, we find that the supreme Court in the case of Liberty India reported in 317 AITR 218 (SC) has confirmed the ratio relied upon by the A.O in the cases of Pandiyan Chemicals (supra) and Sterling Foods Ltd. (supra). In our opinion, for the sake clarity of the facts, we find that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y made for general computation of income. On the other hand, learned CIT DR for the Revenue argued stating that the amounts mentioned in clause (iii) above, relates to the loss or unabsorbed depreciation pertaining to assessee M/s. Finolex Cables Ltd and not that of the amalgamated company viz. Finolex Technologies Ltd. The unabsorbed depreciation emerged by virtue of amalgamation should not be considered for reducing from the book profit and allow to reduce the book profits of the assessee. Taking into consideration the provisions of 72A relating to accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, the learned DR stated that for claim of unabsorbed depreciation of amalgamated company the amalgamating company has to establish and fulfill certain conditions enlisted in said section 72A of the Act and nobody has gone into this issue whether the said conditions are fulfilled or otherwise. For this purpose, as per the DR, fairly, the issue must go to the file of the A.O for examining the fulfillment of the said conditions for both Finolex Cables Ltd and Finolex Technologies Ltd. In this regard, the Ld counsel for the assessee rebutted by saying that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought our notice by the revenue to demonstrate any such violation. In such circumstances, where the loss or unabsorbed depreciation has become that of the assessee, the arguments of the DR that the provisions of clause (iii) of the said Explanation 1 is inapplicable to the impugned unabsorbed depreciation have to be dismissed. In effect, the unabsorbed depreciation of Finolex Technologies Ltd. , has become the unabsorbed depreciation of the assessee. Therefore, the impugned unabsorbed depreciation is the unabsorbed depreciation of the assessee by virtue of amalgamation and it can no longer be considered as unabsorbed depreciation of the amalgamated company Finolex Technologies Ltd. Therefore, clause (iii) of Explanation (1) to section 115JB of the Act definitely covers the impugned unabsorbed depreciation and the same has to be considered in favour of the assessee. Eventually, the AO cannot impose the MAT on the book profit equalant of the unabsorbed depreciation of ₹ 1,85,52,844/-. Considering these, to be harmonious, we find that the provisions of section 72A certainly are applicable to the impugned unabsorbed depreciation and conditions have to be fulfilled. So far as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dt 30.3.2010 for the AY 1997-98. Considering the linkage of the issue, we proceed to set aside this issue too to the files of the AO with identical directions. Assessee is directed filed relevant orders of the Tribunal before the AO during the set aside proceedings. Accordingly, the grounds are set aside. 24. Ground no. 4 relates to allowability of deduction u/s 80-IA on interest received/receivable on sale of jelly filled telephone cable to DOT on deferred payment terms. The Assessing Officer was of the view that the interest received is nothing but a period cost. Considering the fact that the assessee has not considered this amount as sales for the purpose of payment of sales had, the A.O held that this amount is not income derived by the assessee from manufacturing activity. He accordingly excluded the amount of ₹ 2,90,80,839/- while computing deduction u/s 80-IA of the Act. On appeal, the CIT(A) allowed the claim of the assessee. 25. On hearing the parties we find that this issue has to be reexamined in the light of recent judgment by the Bombay High Court in the case of CIT Vs. Vidyut Corporation (2010) 324 ITR 221 (Bom). Therefore, we set aside this issue to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should succeed in this regard also. Accordingly, ground 3 of the revenue s appeal is dismissed. ITA No. 100 101/PN/2007 for A.Y. 2000-01 2001-02 (Assessee s appeals) 29. At the time of hearing, the learned counsel for the assessee did not press any of the grounds taken by the assessee in these appeals. We therefore, dismiss these appeals as not pressed. ITA No. 103 104/PN/2007 for A.Y. 2000-01 2001-02 (Department s appeal) 30. The only issue raised by the Revenue in both these appeals relates to CIT(A) direction to the A.O to allow deduction u/s 80-IA on the amount of sale of scrap generated out of manufacturing process. We find that on an identical issue raised by the Revenue for A.Y. 2002-03 (Ground-6 of ITA No 105/PN/2007 for A.Y. 2002-03 (Department s appeal) and adjudicated by us in the preceding paragraphs of this order. For the same reasons, we dismiss the relevant ground this appeal by the revenue. Accordingly, the grounds raised in these two appeals are dismissed. 31. In the result, assessee s appeal for vide ITA NO 102/PN/2007 is partly allowed pro-tanto. Assessee s appeals for vide ITA NO 100 101/PN/2007 is dismissed. Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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