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TMI Blog2012 (2) TMI 571X X X X Extracts X X X X X X X X Extracts X X X X ..... o appreciate and ought to have held that the disallowance u/s 37(3) r.w.r 6D ought to be computed by clubbing all the trips undertaken by an individual during the previous year. 3.1 He has also erred in holding that travelling expenditure incurred on research scientist is disallowable u/r 6D r.w.s 37(3) of the Act and he failed to appreciate that the travelling expenditure incurred on research scientist is specifically allowable u/s 35(1)(i) of the Act. 4.The ld CIT(A) erred in holding that following expenses are disallowable u/s 37(4) whereas these are allowed to be deducted u/s 30,32 & 35 of the I T Act.: i) Rent ₹ 12,35,482/- ii) rates & Taxes ₹ 1,03,638/- iii) Repairs ₹ 4,55,035/- 5. The ld CIT(A) erred in not allowing expenditure of ₹ 1,11,283/- being estimated expenditure towards food and beverages incurred on employees of the company. He failed to appreciate that expenditure on employees is excluded from disallowance under Explanation to sec. 37(2). 5.1 The ld CIT(A) erred in not directing the Assessing Officer to allow expenditure of ₹ 36,266/- incurred by Research Scientist, which are deductible u/s 35(1)(i) and he has fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of a sum of ₹ 7,77,60,972/- being provision for retirement pension payable by the appellant to its employees including ₹ 6,77,00,000 relating to earlier years. 3 Ground no.1 is regarding disallowance of sales tax collection u/s 43B. 3.1 The Assessing Officer noted that while working out the disallowance u/s 43B, the assessee has not considered the amount of ₹ 17,350/- on account of unpaid sales tax. The assessee contended before the Assessing Officer that as per the method of accounting followed by the assessee, the collection of sales tax has been considered as liability and not included in the P&L account and the payments are routed through separate accounts and there is no separate deduction claimed in respect of the payments made or remained unpaid. The Assessing Officer was of the view that since the sales tax collection is a revenue receipt; therefore, it is part of the trading account. Accordingly, he has disallowed the said sum u/s 43B. On appeal, the CIT(A) confirmed the action of the Assessing Officer. 3.2 Before us, the Ld Sr. counsel for the assessee has submitted that the assessee neither credited nor debited to the P&L account the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him : [Provided that nothing contained in this section shall apply in relation to any sum [***] which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under subsection (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return ." 4.1 It is clear from the plain reading of the provisions that deduction of such liability is allowable only in the year in which it is paid within the time stipulated under the section. If the said sum payable is not included in the sale turnover figure taken into P&L account, then the object and purpose of this provision would be defeated as it will amount to avail the deduction by adopting modus operandi of not offering the said amount to tax being not part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Sinclaire & Marray reported in 97 ITR 650. In our humble view the decision of the Hon'ble Gujarat High Court (supra) would not help the case of the assessee when the Assessing Officer has adjudicated the issue regarding the tax collection is the income of the assessee, being trading receipt. Therefore, the tax collected by the assessee has to be included in the sale receipts so that to form the part of the P&L Account and then only the question of allowability of deduction u/s 43B arises. By excluding the amount of sales tax from the sales receipt and not taking into the P&L account, would defeat the very object of sec. 43B because in such a case the assessee, without paying the sales tax to the authorities escaped the income tax liability on the said amount. Therefore, this ground of the assessee is devoid of any merit and accordingly dismissed. 6 Ground no.2 is regarding depreciation on new plant & machinery reduced by capital subsidy. 6.1 The assessee has made a provision for depreciation amounting to ₹ 17,78,46,391/- in the P&L account. The Assessing Officer noted that the assessee company received capital subsidy of ₹ 4.30 lacs which he considered to be w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: "72. The last ground in the revenue's appeal is that the CIT(A) erred in holding that capital subsidy should not be reduced from the value of the plant and machinery for working out depreciation allowance. After hearing the parties, we find that the issue is directly covered in favour of the assessee by the decision of the Supreme /Court in the case of P J Chemicals Ltd (210 ITR 830). We therefore, decline to interfere with the order of the CIT(A) on this issue." 7.1 Further, the CIT(A) for the AY 1992-93 has decided the issue in favour of the assessee and the department has not filed any appeal against the order of the CIT(A). Therefore, following the order of the Tribunal for the AY 1985-86, we decide this issue in favour of the assessee and against the revenue. 8 Ground no.3 regarding disallowance of travelling expenses under Rule 6D r.w.s 37(3) of the Act. 9 We have heard the Ld Sr. counsel for the assessee as well as the ld DR and considered the relevant material on record. At the outset, we note that this issue has been decided by the Tribunal against the assessee for the AY 1985-86 to 1989-90 by following the decision of the Hon'ble Jurisdictional High Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s own case for the AY 1986-87 in ITA No.5067/B/90 vide order dated 3.7.2008 decided the issue in para 6.3 as under: "As contended by the assessee the issue is not about disallowance u/r 6D per se but including the trips pertaining to research scientists, the expenditure of which is fully allowable u/s 35 of the Act specifically. As this issue was not examined by the CIT(A) and has considerable time has passed now, we direct the AO to examine the trips, nature and amount involved and, if correct, exclude the trips made by the research scientists from the computation of restriction u/s 37(3) while giving effect to this order. With this direction the ground is considered allowed." 13.1 Accordingly, we direct the Assessing Officer to examine the trips, nature and amount involved and if the claim of the assessee is found factually correct, then the same should be allowed u/s 35 in terms of the directions of the Tribunal for the AY 1986-87. Hence, this ground of the assessee is allowed for statistical purpose. 14 Ground no.4 regarding disallowance of guest house expenses and salary, fee and telephone etc., u/s 37(4) 15 We have heard the Ld Sr. counsel for the assessee as well as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7(4) and confirmed by the CIT(A). 6.1 After hearing both the parties, we find that this issue is covered by the decision of the Tribunal in Assessment Year 1988-89 which was based on the judgment of Hon'ble Supreme Court in the case of Britannia Industries Ltd. (supra), in which expenses relating to maintenance of guest houses have been held not allowable under section 37(4). Therefore, respectfully following the decision of the Tribunal in the case of 1988-89 (supra), we confirm the order of the CIT(A). 7. The dispute raised in ground No.7 is regarding allowability of telephone expenses of ₹ 3,714/- at the guest house. This issue is also covered against the assessee by the decision of the Tribunal in Assessment Year 1988-89 (supra), which was based on the judgment of Hon'ble Supreme Court in the case of Britannia Industries Ltd. (supra). We, therefore, confirm the order of the CIT(A) disallowing the claim." 16.1 As it is clear from the above findings of the Tribunal that these issues are covered by the decision of the Hon'ble Supreme Court in the case of Britannia Industries (supra). Accordingly, following the order of the Tribunal in assesse's own case we decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed the claim of the assessee aggrieved by which revenue is in appeal. This issue is also covered against the assessee by the decision of the Tribunal in Assessment Year 1988-89 (supra), in which disallowance of similar claim has been upheld. Respectfully following the decision of the Tribunal in Assessment Year 1988-89, (supra), we set aside the order of CIT(A)." 20 Accordingly the claim of expenditure on food and beverages provided to the business visitors is not allowable. 21 Next item of expenditure on the premises located at research centre and the assessee claimed deduction u/s 35(1)(i). 22 This issue has been decided in favour of the assessee by the CIT(A) for the AY 1987-88 to 90-91 and the revenue has accepted the order of the CIT(A) as no appeal has been preferred against the same. Further, this issue is also covered by the order of the Tribunal in the case of Bush India Ltd (supra). 23 A similar issue has been dealt with by us while deciding the ground no.3.1. Accordingly, this issue is set aside to the record of the Assessing Officer for verification of the actual expenditure and allow the same, if the claim is found correct. Accordingly, ground no.5 is partly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 80G or not. 28 We have heard the Ld Sr. counsel for the assessee as well as the ld DR and considered the relevant material on record. The only grievance of the assessee against the order of the CIT(A) is that the direction should have been given to the Assessing Officer to verify the records available with the revenue in respect of validity of the exemption certificate of the institutions to whom donation was given. The Ld Sr. counsel for the assessee has submitted that it can be verified from the revenue's records itself whether these institutions are given certificate of exemption u/s 80G or not. Therefore, the ld senior counsel has pleaded that the directions given by the CIT(A) be modify to that extent. 28.1 We find logic in the arguments of the ld senior counsel that the Assessing Officer could have verified the exemption given to the institutions u/s 80G. Accordingly, we direct the Assessing Officer to verify the exemption granted to these institutions from the available records as well as the records to be produced by the assessee and then decide the claim of the assessee. 29 Ground no 8 is regarding time barred liability written back. 29.1 The assessee has written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be taxed until and unless the assessee itself offered the same as remission/cessation of liability. It is to be noted that it is not the case of the assessee that the amount which was written back by the assessee unilaterally has been subsequently paid or part of this amount has been paid in subsequent year. Therefore, when it is not the case of the assessee that the said amount still exits as liability and can be paid in future despite expiry of more than 20 years, then it has become irrelevant at this stage to appreciate the contention of the assessee. Further, identical issue has been considered and decided by the Tribunal for the AY 1989-90 in ITA Nos. 8681/M/92 & 8605/M/92 vide order dated 21.9.2011 in para 22.1 as under: "22.1 We have heard both the parties, perused the records and considered the matter carefully. We find that the same issue had been considered by the Tribunal in assessment Year 1988-89 (supra). In that year also the assessee had written back certain liabilities which were barred by limitation for recovery and, therefore, AO had treated the same as income u/s 41(1). Tribunal after necessary examination held that liability could not be taken as ceased t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the turnover of the respective undertakings. 34 Before us, the Sr ld counsel for the assessee has submitted that the common expenses incurred at HO cannot be allocated to the undertakings eligible for deduction u/s 80HH and 80I. He has relied upon series of decision of the Tribunal as well as Authority for Advance Rul;ings in the case of National Fertilisers Ltd reported in 142 Taxman 5 and the decision of the Hon'ble Kolkata High Court in the case of CIT vs Jiyajeerao Cotton Mills Ltd reported in 79 Taxman 51 and submitted that when there is no direct nexus between the HO expenses and the undertaking eligible for deduction u/s 80HH and 80I, the said expenditure cannot be allocated. Alternatively, the Ld Sr counsel for the assessee has submitted that if the common expenses to be allocated to the individual unit, then the common income should also be allocated by following the same principle. 34.1 On the other hand, ld DR has relied upon the orders of the lower authorities and submitted that the issue has already considered and decided by the Tribunal in assessee's own case for the AY 1985-86 to 89-90. 35 We have considered the rival contention as well as the relevant material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier year's loss of the unit eligible for deduction u/s 80I and consequently the claim of deduction u/s 80I was not allowed in full as claimed by the assessee. 37.2 On appeal, the CIT(A) has referred sub.sec. (1) of sub sec (6) of sec. 80I and held that the profit has to be computed, if the Haldia unit eligible for deduction u/s 80I was only undertaking. 38 We have heard the ld Sr counsel for the assessee as well as ld DR and considered the relevant material on record. At the outset, we note that this issue has been decided against the assessee by the Tribunal for the AY 88-89 & 89- 90. The Tribunal for the AY 89-90 has adjudicated the issue in para 27.1 a under; "27.1 After hearing both the parties, we find that this issue is also covered by the decision of Tribunal in assessment year 1988-89 (supra). In that year, the Revenue had relied on the judgment of Hon'ble Supreme Court in case of Synco Industries Ltd. vs. Assessing Officer (299 ITR 444), to argue that the brought forward losses and unabsorbed depreciation have to be adjusted before allowing claim of deduction u/s 80HH & 80I. The Tribunal distinguished the said case on the ground that brought forward losses/depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant material on record. Undisputedly, interest has been earned by the assessee on the FDs and IDBI deposits. No nexus has been established by the assessee between the FDs and the business activity of the assessee or FD was made as required for the business activity of the assessee. It is not the case of the assessee that the deposits were made as mandatory requirement or in connection with the business activity of the assessee. When the assessee is not in the business of finance or advance and the interest income has no direct or live connection with the business of the assessee, then it cannot be said that the interest earned on the deposits has any connection with the business of the assessee. 42.1 The ld Sr counsel of the assessee has placed heavy reliance on the order of the Tribunal in the case of M/s Creation by Shangar(supra) and submitted that 10% of the income to be treated as attributable expenditure for earning the said income and therefore, only 90%a of the interest should be excluded while computing the deduction u/s 80HHC. When the interest income has been assessed by the Assessing Officer as income from other source and the assessee has not made out any case bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT V/s K Ravindranathan Nai r reported in (2007)295 ITR 228(SC) in which vide paragraphs 18 to 22, the Apex Court held as under : "18. In the present case the Assessing Of f icer had worked out Business Profits of ₹ 1,94,08,220 as gross total income on the basis of income received from cashew business (See: pages 50 and 52 of the SLP Paper book). Even according to assessees, in the above formula his Business Prof its included the abovementioned processing charges. However, according to assessees, the said charges were not to be included in the total turnover. We are not incl ined to accept the contention of the assessees. The above discussion indicates that the formula in Section 80HHC(3) of the I .T. Act provided for a fraction of export turnover divided by total turnover to be appl ied to Business Profits calculated after deducting 90% of the sums mentioned in clause (baa) to the said Explanation. That, profit incentives and items l ike rent, commission, brokerage, charges etc. though formed part of gross total income had to be excluded as they were "independent incomes" which had no element of export turnover. That, the said items distorted the f igure of expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes clear that every receipt is not income and every income would not necessari ly include element of export turnover. This aspect needs to be kept in mind whi le interpreting clause (baa) to the said Explanation. The said clause stated that 90% of incentive prof its or receipts by way of brokerage, commission, interest , rent, charges or any other receipt of l ike nature included in Business Profits, had to be deducted from Business Profits computed in terms of Sections 28 to 44D of the I .T. Act. In other words, receipts constituting independent income having no nexus with exports were required to be reduced from Business Prof its under clause (baa). A bare reading of clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent, charges etc. formed part of gross total income being Business Prof i ts. But for the purposes of working out the formula and in order to avoid distortion of arriving export prof its clause (baa) stood inserted to say that although incentive profits and "independent incomes" constituted part of gross total income, they had to be excluded from gross total income because such receipts had no nexus with the export turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. As regards deeming expenditure to be al located once the income is assessed under the head income from other sources there is no provision for al location of the expenditure by applying the deeming f iction but whatever expenses is actual ly incurred for earning the said income is al lowable u/s 57. Thus actual expenditure and cannot be restricted to 10%. At the same time i f no expenditure is incurred then there cannot be any al location of any expenditure. Accordingly, we decide this issue against the assessee. 43 Ground No.11 regarding provision for retirement pension payable to the employees. 43.1 The Assessing Officer noted that during the year, the assessee company has made provision of ₹ 7,77,60,972/- which included ₹ 6.77 crores relating to the earlier years, as liability on account of retirement pension plan. The expenditure had been claimed as deduction during the previous year. Therefore, the Assessing Officer was of the view that the liability is towards the discretionary retirement pension payment to its employees as supplementing amount otherwise payable by LIC under the approved Superannuation Fund. Since there is a departure from the pension payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Delhi High Court in the case Commissioner of Income-tax v. Ranbaxy Laboratories Ltd. reported in 334 ITR 341. He has also relied upon the decision of the Supreme Court in the case of Bharat Earth Movers v. Commissioner of Income-tax Bharat reported in 245 ITR 428. The ld Sr counsel also filed a copy of the rule of Pension Scheme. 44.2 The ld DR has relied upon the orders of the lower authorities and submitted that the assessee could not furnish the copy of the approved pension scheme before the Assessing Officer. 45 We have considered the rival submission as well the relevant material on record. It is an undisputed fact that the pension scheme of the assessee is not approved as per provision of I T Act. and as observed by the Assessing Officer and the CIT(A) the pension scheme as formulated by the assessee for meeting the extra payment over and above the amount payable under LIC scheme. The Hon'ble Supreme Court in the case of Bharat Earth Movers (supra) has taken into consideration the principle laid down in the case of Metal Box Company of India Ltd. v. Their Workmen reported in 73 ITR 53 and held that for making liability incurred by the assessee under leave encashment s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in allowing the deduction of ₹ 50,000I- claimed uls.35(d)." (5) "On the facts and in the circumstance of the case and in law, the Ld.CIT(A) erred in deleting the disallowance u!s.40A(9) of ₹ 2,19,615/-." (6) "On the facts and in the circumstance of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of ₹ 18.76 lakh made on account of rural development expenses." (7) "On the facts and in the circumstance of the case and in law, the Ld.CIT(A) erred in excluding Excise Duty of ₹ 237.07 crore, Sales Tax of ₹ 1O1.76 crore, Miscellaneous Income of ₹ 66.44 lakh and Distribution Charges of ₹ 26.O1 crore from the total turnover for the purpose of calculating deduction u/s.8OHHC of the I .T. Act." 47 Ground no.1 is regarding foreign travelling expenses of wives of senior mangers. 47.1 The Assessing Officer disallowed a sum of ₹ 9,71,158/- being expenditure incurred in respect of foreign tours of spouses who accompanied the executives of the assessee. The CIT(A) allowed the claim of the assessee by following the order of the Tribunal in the case of Glaxo Laboratories vs ITO reported in 18 ITD 226. 48 We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and in favour of the assessee. 50 Ground no.2 is regarding entrance fees paid to club. 51 We have heard the ld DR as well as the ld Sr counsel for the assessee and considered the relevant material on record. At the outset, we find that this issue has been considered and adjudicated by the Tribunal in assessee's own case for the Assessment Years 1986-87 and 89-90. For the Assessment Year 1989-90, the Tribunal has decided this issue in favour of the assessee in para 19.1 as under: 19.1 We have perused the records and considered the matter carefully. The dispute is regarding disallowance of explanation on account of entry fees to club. The issue is covered by the decision of the Tribunal in assessee's own case in Assessment Year 1988-89 (supra). Respectfully following the same, we confirm the order of CIT(A) allowing the expenditure as revenue expenditure. 52 Accordingly, following the earlier order of the Tribunal, we decide this issue against the revenue and in favour of the assessee. 53 Ground no.3 is regarding disallowance on account of refreshment to shareholder at AGM. 54 We have heard the ld DR as well as the ld Sr counsel for the assessee and considered the relevant mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Tribunal has decided this issue in favour of the assessee in paras 23 and 23.1 as under: 23. The Ground No. 10 is regarding disallowance of expenses reimbursed by the assessee to Hindustan Lever Sports Club. The assessee claimed such reimbursement of expenses as staff welfare expenses as the club had been set up for sports and cultural activities. The AO, however, disallowed the claim but in appeal CIT (A) following the decision in assessment year 1988-89, allowed the claim of the assessee aggrieved by which the Revenue is in appeal. 23.1 After hearing both the parties, we find that this issue is also covered by the decision of the Tribunal in assessee's own case in assessment year 1988-89 (supra). In that year also the Assessing Officer had disallowed contributions to Haldia Education Society and the expenditure incurred on Hindustan Lever Sports Club. The Tribunal following the decision in assessment year 1987-88 in ITA No.1817/M/1991 held that the payments were discretionary payments and were spent on employees' welfare and, therefore, provision of sec. 40A(9) were not applicable. The Tribunal accordingly allowed the claim as the expenditure incurred wholly and exclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X
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