9911796707
TMI Blog2010 (11) TMI 1147X X X X Extracts X X X X X X X X Extracts X X X X ..... uting the disallowance under prescribed rules. 3. In course of assessment proceedings, the Assessing Officer called upon the assessee to furnish full and complete details regarding travelling expenses. Under sub-section 3 to section 37 of the Act as it existed up to A.Y. 1997-98, any expenditure incurred by an assessee in connection with traveling by an employee or any other person including hotel expenses or allowance paid in connection with such traveling, shall be allowed as a deduction in computing total income only to the extent and subject to such condition, if any, as may be prescribed. Rule 6D of the Income Tax Rules imposed restriction on traveling expenses, inside India and outside the headquarters claimed as deduction is limited to travelling expenses actually incurred and daily allowance not existing a specified limit and depending upon whether the boarding or lodging facilities are available to the employees or to the other persons. In view of the aforesaid provisions, assessee had on its own submitted that a sum of Rs. 23,36,220/- is liable to be disallowed and the said sum was offered for taxation in the assessee's return of income. In reply to the query of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade applicable in the case of the appellant on account of distinguishing facts as pointed out by learned A/R of the appellant. The case of the appellant in may view gets full support by the following judicial pronouncements relied upon by the appellant : CIT Vs. Gannon Dunkerly & Co. reported in 69 Taxman 563 (Bom) CIT Vs. Vidyut Metallics Ltd. reported in 203 ITR 779 (Cal) Decision of Special Bench of the Madras ITAT in the case of Sundaram Finance Ltd. Vs. IAC reported in 7 ITD 845. The additional disallowance of Rs. 16,63,780/- has been made by the DC(IT) without pointing out a single inadmissible item on presumption on adhoc basis. The addition disallowance of Rs. 16,63,780/- made by the DC(IT) is therefore deleted being unjust." 5. Aggrieved by the aforesaid order of learned CIT(A), the revenue has raised Ground No. 1 before the Tribunal. 6. Before us, learned DR relied on the decision of Hon'ble Bombay High Court in the case of CIT Vs. Aorow India Ltd., 229 ITR 325, wherein Hon'ble Bombay High Court has held that ceiling of expenditure by an employee on traveling as laid in Rule 6D has to be computed on per trip basis and not on per person basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was not a proper method and he therefore made the aforesaid addition. 12. On appeal by the assessee, learned CIT (A) deleted the addition made by the Assessing Officer accepting assessee's contention that method of accounting followed by the assessee to debit purchase of raw materials net of excise duty and therefore closing stock was also to be required to be valued at cost net of excise duty. The Assessee also pointed out that if excise duty is added to the purchase as well as closing stock, effect on profit will be nil. The decision of Calcutta High Court in the case of Berger Paints India Ltd. Vs. CIT, 44 ITR 573 was also relied upon by the assessee. Accepting the contentions raised by the assessee, the learned CIT (A) deleted the addition made by the Assessing Officer. 13. Before us, it is not in dispute that the issue raised by the revenue in Ground No. 3 has to be dismissed in view of the decision of Hon'ble Supreme Court in the case of Indo Nippon Chemical Co. Ltd., 261 ITR 275 (SC). In the aforesaid decision, Hon'ble Supreme Court has held that whether the net method of valuation of inventory or gross method of valuation of inventory is followed by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification to treat expenses as capital expenditure. Moreover, adhoc disallowance cannot be made in a case of this nature. In these circumstances, we are satisfied that the action of learned CIT (A) in deleting the addition made by the Assessing Officer was correct and calls for no interference. 18. Ground No. 5(a) raised by the revenue reads as follows :- On the facts and circumstances of the case and in law, learned CIT (A) erred in deleting the disallowance of Rs. 25,00,000/- out of an amount of Rs. 3,91,82,174/- attributable to the expenditure claimed for buying time on Television for releasing the advertisement films etc. disregarding the fact that assessee had not submitted the details before the Assessing Officer. This ground can be conveniently decided along with ground No. 9 of assessee's appeal which reads as follows :- 9(1) Learned CIT (A) erred in confirming the disallowance of Rs. 85,47,046/- being the expenditure incurred on promotion films, slides and TV films production by treating it as a capital expenditure on the ground that the films and slides have repeat value and are utilized for a considerably long time. The appellant submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as raised Ground No. 9 before the Tribunal. 21. Apart from the above, the assessee also incurred a sum of Rs. 25,00,000/- for getting time slot and to release advertisements in various media. This was disallowed by the Assessing Officer because in his opinion the expenditure was capital expenditure and not revenue expenditure. The learned CIT(A), however, allowed the claim of the assessee for deduction holding that the expenditure was revenue expenditure. Against the order of learned CIT(A), the revenue has raised Ground 5(a). 22. We have heard the rival submissions. In assessee's own case, this issue had come up for consideration in A.Y. 1996-97. The Tribunal in ITA No. 2189/Mum/03 for A.Y. 1996-97 held that the aforesaid expenditure was revenue expenditure and had to be allowed as a deduction. The Tribunal also took into consideration the decision of Hon'ble Bombay High Court in the case of Patel International Films Ltd. (supra) referred to by the Assessing Officer in the assessment order in this assessment year. It is further noticed that as against the aforesaid order of the Tribunal, the revenue filed an appeal before Hon'ble High Court and such appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the aforesaid expenses. The learned CIT (A) therefore thought it fit to examine the aforesaid adhoc disallowance of Rs.. 5,00,000/-. The learned CIT (A) dealt with the issue of disallowance of Rs.. 5,00,000/- at paragraph 44 of his order. In paragraph 44, learned CIT (A) held that the disallowance of Rs.. 5,00,000/- also included disallowance of Rs. 1,43,498/- made on account of invocation of Rule 6B of the I.T. Rules. The learned CIT (A) restricted the adhoc disallowance of Rs.. 5,00,000/- made by the Assessing Officer to Rs.. 1,62,598/-. Since, disallowance of Rs. 1,43,498/- is already included in the amount of Rs.. 1,62,598/- sustained by learned CIT(A), this addition was deleted by learned CIT(A). It may be mentioned here that in Ground No. 3(b) of the assessee's appeal, the assessee has challenged the action of learned CIT (A) in sustaining the disallowance of Rs.. 1,62,598/- included 'advertisement and publicity expenses'. In our view, grievance projected by the revenue in this appeal cannot be sustained in the light of the findings of learned CIT (A) that sum of Rs.. 1,43,498/- is already included in disallowance sustained by learned CIT (A) of Rs.. 1,62,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 equity shares of Rs.. 10/- each Rs.. 25/- Unit Trust of India 1964 Scheme 45,19,000 units @ Rs.. 1.60 per unit Rs..81,34,200/- Rs..91,79,225/- 30. The Assessee submitted that shares of Cibatual Limited are old holdings and there was no interest charge on the same. It was also submitted that no administrative or management expenses were incurred on receiving the said dividend. It was pointed out that except 9,00,000 units all the other units were purchased during the earlier assessment years. The 9,00,000 units which were purchased during the A.Y. under reference were purchased out of accumulated sales proceeds and not out of alleged borrowings. Thus, there was no justification for estimating any expenditure in the nature of interest on alleged borrowed funds. The assessee also furnished copy of bank statement as per Annexure 23 to show that the units were not purchased out of borrowed funds. The Assessee contended that units of UTI and shares of Cibatual limited were not purchased out of borrowed funds. The assessee did not incur any administrative charges for earning the dividend income. Thus, there was no justification for making the impugned addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporation of India, 254 ITR 203 (Bom) that only expenses that are directly relatable to earning of dividend have to be reduced for the purpose of computing deduction u/s. 80M of the Act. As already stated there has been no identification of expenses directly relatable to earning of dividend. The disallowance on the basis of estimate cannot be sustained. We therefore direct that the deduction u/s. 80M as claimed by the assessee be allowed. Ground No. 10 of the assessee's appeal is accordingly allowed while Ground No. 6 raised by the revenue is dismissed. 34. Ground No. 7 raised by the revenue reads as follows :- On the facts and circumstances of the case and in law, learned CIT (A) erred in holding that speculation loss on sale of units amounting to Rs.. 14,62,500/- assessed under Explanation to section 73 of the I.T. Act should be allowed as short term capital loss which is contrary to the provision of section 32 read with section 32(ii)(2)(a) of the U.T. I. Act which clarifies the units of UTI shares for the purpose of I.T. Act. 35. The Assessing Officer treated the loss of Rs.. 14,62,500/- on sale of units as speculative loss. The Assessing Officer has discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not shares. The Assessee submitted that in view of the above facts and the decision of the ITAT in the case of Appollo tyres Ltd. (supra), the Assessing Officer was not justified in applying provisions of explanation to section 73 in the case of the assessee by holding that units of UTI were shares. It was prayed that the Assessing Officer should therefore be directed to allow the loss of Rs.. 14,62,500/- as claimed by the assessee. 36. The learned CIT (A) held that 9,00,000 units of UTI were purchased on 28.5.1990 as evidenced by the purchase contract from Citibank. The payment of stamp duty has also been confirmed by the bank. Full payment for purchase of these units was made and the assessee had also taken physical delivery thereof. These units were also sent for transfer to UTI on 29.5.1990. The units were transferred in the name of Hindustan Ciba Geiygy Ltd., which is evident from the dividend counterfoil for dividend received of 9,00,000 unit by the assessee company. The said units were sold on 28.7.1990 for Rs.. 1,19,79,000/-. These facts are not disputed. The CIT (A) found that the controversy was therefore in a very narrow compass, viz., whether or not purchase and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT, 255 ITR 273. The Hon'ble Supreme Court held that 'even though section 32(3) of the UTI Act, 1963 creates a fiction to make the UTI a deemed company and distribution of income received by the unit holder a deemed dividend for the purposes of the I.T. Act, by virtue of those provisions it cannot be said that section also makes the unit of the UTI a deemed share. The deeming provision in section 32(3) should be confirmed only to deeming the UTI a company and the income from units a dividend. In the absence of any specific deeming provision in regard to the units as shares it would be erroneous to extend the provisions of section 32(3) for the purpose of holding the unit shares. It was accordingly held that buying and selling of units by the assessee company could not be treated as a speculative business. The Explanation to section 73 of the I.T. Act did not apply. Loss in buying and selling of units of the UTI was business loss not speculation loss. The decision of learned CIT (A) is in consonance with decision of Supreme Court . We therefore do not find any ground to interfere in the order of learned CIT(A). Consequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,130 Total Expenditure on transit House ( 38,720 + 20,130) 58,850 Less: Amounts recovered from the users of the Transit House 47,838 11,012 Other expenses incurred contended not to be disallowable u/s 37(4) Rent/Lease Expenses 3,468 0 Insurance 2,193 317 Canteen Supply materials 3,244 147,512 Repairs 1,293 2,401 Service Charges/documentation charges 5,133 0 Depreciation as per I T Rules 10,803 19,630 26,134 169,860 Total 64,854 189,990 43. The whole of the above expenses were disallowed by the revenue authorities on the ground that they were expenses in connection with maintenance of guest house and therefore hit by the prohibition contained in Sec.37(4) of the Act. It is not in dispute before us that in view of the decision of the Hon'ble Supreme Court in the case of Brittania India Ltd. Vs. CIT 278 ITR 546 (SC), any expenditure on maintenance of a guest house cannot be allowed as a deduction. The learned counsel for the Assessee however submitted that the expenses to the extent it relates to provision of food to employees would not fall within the meaning o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyees were incurred at the work place, it may be allowed as per Explanation 2 of sec. 37(2) of I T Act." From the above, it may be seen that the Tribunal held that expenditure on food and beverages in respect of staff employed for maintenance of guesthouse will be in the nature of expenditure on maintenance of guesthouse and will be hit by sec. 37(4) of the Act. However, the expenditure on inhabitants will not be covered under the expenditure for maintenance of guesthouse even though the same can be considered u/s 37(2) or u/s 37(2A). This issue is, therefore, resorted back to the Assessing Officer to be considered and decided in the light of the observations made by the Tribunal, which have been reproduced above. We are of the view that the issue in so far as it relates to expenditure on providing food and beverages has to be decided afresh by the Assessing Officer on the basis of the directions as given above by the Tribunal. We accordingly allow ground No. 2 partly for statistical purposes. 45. Ground No. 3(A), 3(B) and 3(c) raised by the Assessee reads as follows: "3A. On the facts and in the circumstances of the case, the CIT (A) erred n holding that an amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut prejudice to the above, out of Rs. 1,59,858/- Rs. 19,200/- being the amount allowable per Rules 6B ought to be allowed. The appellants submit that the DCI be given suitable directions in this matter. C. The CIT (A) erred in confirming the disallowance made by the DCI of Rs. 87,000/- being the subscription paid to the cricket club of India for corporate membership on the ground that it is an expenditure on entertainment. The appellants submit that the subscription has been made to maintain, establish, develop and strengthen business contacts, connections etc., with a view to increasing the volume of business. There is no element of entertainment expenditure in the membership subscription fees paid. Further, the CIT (A) erred in not considering the following decisions which were handed over to him at the time of the hearing and which are directly on this issue that the life membership fee/entrance fee paid for membership to the clubs is an allowable expenditure: i) Asian Advertising v/s ITO -ITAT, Bombay reported in 26 BCAJ 877 ii) Gujarat State Export Corporation Ltd vs CIT - Gujarat High Court reported in 209 ITR 649 The appellants pray that the DCI be direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee contended that the items appearing at Sr.No.4, 5 & 6 aggregating to Rs..5,39,341/- have already been offered by the appellant as entertainment expenditure in the computation of income. Thus, by making ad-hoc disallowance of Rs. 10,00,000/- the Assessing Officer has made an effective disallowances of Rs. 15,39,841/- whereas the total expenditure under this head was Rs. 13,04,404/- only. The Assessee submitted that this action by itself would show that the entire addition has been made in a most arbitrary and casual manner without any basis. The Assessee further contended that as per accounting procedures followed by the company inadmissible amount under various section of the I T Act were identified at the time of booking the entries itself in order to obviate the necessity of undertaking a massive exercise subsequently. Under the accounting procedures followed by the company expenses on entertainment of business associates, clients, customers etc., are booked under business Meeting - Business Associates and disallowed as entertainment expenses. Expenses relatable to employees or purely on account of employees were not booked under this head. Similarly travel expenses whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shipping (AY 91-82, 82-93 and 83-84) The AR argued that in view of above fact and circumstances of the case and judicial pronouncements involved in favour of the assessee the entire addition of Rs..15,87,000/- made by the Assessing Officer deserves to be deleted. 48. The CIT (A) held as follows: "42 I have considered the entire matter carefully. There is some force in the plea of the ld counsel of the appellant that by making an adhoc disallowance of Rs. 10,00,000/- out of total sales, conference and business meeting expenses amounting to Rs. 13,04,404/-, the Assessing Officer has made an effective disallowance of Rs. 15,39,841/-.This discrepancy has arisen because the appellant has itself offered disallowance on account of entertainment expenses amounting to Rs. 1,67,633/- in the computation of income filed. Besides that, it has been stated by the appellant that in the computation of income filed, the appellant has also offered disallowance of Rs. 3,71,848/ under Rule 6D in respect of item no.5 & 6 appearing on page no.45 of the present appellate order. As the Assessing Officer has proceeded to compute the total income in Annexure 5 annexed to the asst order by taking busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... santries to the outsiders who visit office. It was also made clear to the ld counsel of the appellant that the Assessing Officer has not separately quantified any specific amount in this connection by the relevant observations have been made in the assessment order while making the impugned disallowance. In this connection, it was argued by the AR that the expenditure on tea and refreshments served to constituents of the business cannot be treated as entertainment expenditure. The disallowance made in this connection u/s 37(2A) of the I T Act in the case of ITO vs Uttam Road Ways Pvt Ltd was deleted by the Hon'ble ITAT Bombay Bench D by following the decisions of Gujarat and Bombay High Courts delivered in the case of CIT vs Patel International Film Ltd reported in 101 ITR 219. 43 After due consideration, I am not inclined to accept the plea of the ld counsel of the appellant that expenditure incurred for offering tea and coffee etc., to the outsiders/customers should not be treated as entertainment expenditure. During the asst year under reference, the appellant has claimed expenditure of Rs. 92,85,039/- under the head canteen expenditure as against Rs. 80,41,642/- claimed duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be reasonable if the disallowance out of advertisement and promotional expenditure is restricted to Rs. 1,62,598/- as against Rs. 5,00,000/- made by the Assessing Officer. The excess thereof stands deleted. The above referred disallowances of Rs. Rs. 1,62,598/- is obviously inclusive of disallowance of Rs. 1,43,498/-. Thus, there is no need of making separate addition of Rs. 1,43,498/-. The disallowance of Rs. 1,43,498/- which has been agitated by the appellant in ground no.3 is therefore, deleted. For the earlier asst year similar disallowance made by the Assessing Officer u/r 6B of the I T Rules was deleted as the decision of the Hon'ble Himachal Pradesh High Court in the case of CIT vs Mohan Meaking Braveries Ltd reported in 192 ITR 134 was not available at that time. As regards payment of Rs.. 87,000/- made to Cricket Club of India for corporate membership, I am of the view that the same cannot be treated as an admissible revenue expenditure. It was onetime payment for obtaining corporate membership. The Assessing Officer was therefore, fully justified in making the impugned disallowances. This disallowance is therefore, confirmed. In the result the disallowance of Rs.. 10,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture on conference and business meeting is deleted. 52. As far as canteen expenses disallowed as entertainment expenditure is concerned, the same has been made by the CIT (A) for the reason that the Assessee has not maintained complete records regarding the expenditure incurred under this head to employees and outsiders and has also taken note of the past history of the Assessee's case. We are of the view that an adhoc disallowance of Rs..1,00,000/- on this count would be just and fair. 53. Regarding the disallowance of Rs..1,62,598 included in advertisement and publicity expenses as entertainment expenses, we find that the addition sustained by the CIT (A) relates to total value of gift items the details of the gift items are given at page-24 and 25 of the paper book. Out of the above the Assessee on its own had admittedly not claimed expenditure to the tune of Rs..1,43,498/-. The Assessee claimed deduction of only Rs. 19,100/- and has further justified its claim on the ground that the items of gifts were of small value and did not contain the company's logo. Thus CIT (A) proceeded under an erroneous assumption that the entire expenditure of Rs..1,62,598/- had been claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance on this account should not exceed 20% of Rs. 7,43,829/- i.e. Rs. 1,48,766/- under any circumstances. (c) Without prejudice to the above, the appellants submit that full details of foreign travel expenses had been furnished to the DCI and the CIT (A) and disallowance if any, should be made on itemized basis and not on ad-hoc basis. The appellants pray that the DCI be given suitable directions in this regard. The above grounds of appeal are connected to Ground No. 2 raised by the Revenue in its appeal, which reads as follows: "On the facts and in the circumstances of the case and in law, the ld CIT (A) erred in partly deleting the disallowance out of foreign travel expense amounting to Rs.. 7,12,282/- disregarding the detailed reasons assigned in the assessment order." 55.1 The AO made a disallowance of an adhoc amount of Rs. 20,00,000/- out of foreign travel expenses incurred by the assessee. The impugned disallowance of Rs. 20,00,000/- has been made by the Assessing Officer on the ground that the expenses were not fully and exclusively incurred for the purpose of the business of the company besides being disallowable under Rule 6D(1) of the I T Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y or development of a new line of business and were not for the benefit of the parent company of the foreign shareholders and further that the entire duration was devoted to travelling or on company's business. It was pointed that on a perusal of the details furnished in respect of foreign travel submitted it can be seen that no travel was undertaken for vision 2000. The Vision 2000 was nothing but merely a statement of values to employees. It was argued that the DC(IT) has made a general observation that the expenses were capital in nature or not wholly and exclusively for the purpose of the business without specifically stating that which items were capital in nature and not for the purpose of the business. It was pointed out that from the details filed by the assessee it was clear that all the expenses were incurred for the purpose of the business and were not of a capital nature. The assessee further contended that for the assessment years 1982-83 and 1983-84 the Assessing Officer has made adhoc disallowance of 15% of foreign travel expenses which was deleted by the CIT (A) in appellate proceedings. No such arbitrary or adhoc disallowance was made by the DC(IT) for the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above works out to Rs. 7,43,829/-, the disallowance of Rs. 20,00,000/- made by the DC(IT) is unsupportable. In this connection, I agree with AR of the appellant only to the limited extent that the estimation of disallowance made by the Assessing Officer was on the high side but the disallowance is not to be restricted with reference to only a sum of Rs..7,43,829/- as it was only a test check. In the present case the overall estimation of disallowance is required to be made with reference to foreign travel expenditure which is claimed at Rs. 64,38,993/-. The details given on page 3 of the Annexure I of the asst order clearly reveal the inadmissible nature of foreign visits in certain cases. Some of the visits were mainly for furtherance of the interests of the group as such and some visits were also for starting new business which cannot be allowed as a revenue expenditure. All the required details were not furnished by the appellant before the Assessing Officer. For example, the actual business conducted during the entire period of stay abroad. I agree that details in respect of day-to-day business conducted abroad cannot be possibly filed but when glaring instances of inadmissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atriation of the exchange & production of FIRC in due course which was done. 14 Mr R Ram Rs. 79,299/- Conference covering empowerment to negotiations, communicating during corporate restricting, ethical communication, the new consumer activism. 15 Mr H P Punwani Rs. 78,893/- Meeting of heads of Agrl.divn. 56.1 Perusal of the above details shows that none of the visit was for starting manufacture of a new produce. The allegation that the visits were for benefiting the parent company is again not correct. New Tinopal CBS-X is not a new project but the name of existing product of the Assessee. The disallowance has been made on assumptions and presumptions. The very basis on which the disallowance has been made is found to be not correct. In fact in AY 74-75, 64-65 76-77 and 77-78 similar disallowance of expenses has been deleted by the Tribunal. Copies of the said orders are in the paper book. In view of the above, we direct that the disallowance sustained by the CIT (A) be deleted. Ground No. 4(a) is allowed and therefore Ground No. 4(b) and (c) do not require any adjudication. Ground No. 2 of the Revenue is dismissed. 57. In ground No. 5(a), the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was held that If an item of income is closely linked with business operations and constitutes "operational income", it cannot be excluded under Explanation (baa) to s. 80HHC. This proposition is inconsistent with the law in Ravindranathan Nair and is no longer good law. The submission that Bangalore Clothing was impliedly approved in Baby Marine Exports 290 ITR 323 (SC) is not acceptable because that judgment turned on the fact that the export house premium was an integral part of the consideration for the sale realized by the assessee, a supporting manufacturer. 59. Further reliance was placed on the decision In the case of CIT Vs. Asian Star, by the Hon'ble Bombay High Court in which the Hon'ble Court was dealing with the question, "Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was correct in holding that net interest on fixed deposits in banks received by the Assessee Company should be considered for the purpose of working out the deduction u/s. 80HHC and not the gross interest?" The Hon'ble Court held that for Expln.(baa) to s. 80HHC, netting of income from expenditure is not allowed. In that case the assessee claimed deduction u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e". 60. The learned Counsel for the Assessee made a prayer that in so as far as the interest on overdue account receivable from customers of Rs. 1,05,85,684/- is in respect of sales effected by the Assessee, and therefore the same has to be considered as profits of business. In this regard, the learned counsel for the Assessee relied on the decision of the ITAT Mumbai in the case of Silvasa Industries Pvt. Ltd. Vs. DCIT ITA 462/Mum/02 order dated 10/5/02 wherein the Tribunal has taken the view that interest on overdue payment from customers has the same character as sale proceeds and therefore has to form part of the profits of the business for allowing deduction u/s. 80-HHC of the Act. 61. We have heard the rival submissions. It is not clear from the details of interest income as to whether the interest on overdue amounts relates to the export sales. On the principle laid down by the Hon'ble Bombay High Court in the case of Dresser Rand (Supra), interest income cannot be considered as part of the business income for the purpose of allowing deduction u/s. 80-HHC of the Act. However if the interest on overdue amounts relate to export sales then they may be considered as part of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to be allowed in respect of the expenditure pertaining to Goregaon where the appellants' Research Centre is located. c) The CIT (A) ought to have directed the DCI to consider the above amount in working out the profit/capital gains arising when the land is sold. The appellants pray that the DCI be given suitable directions in the matter." 63.1 The Assessee incurred expenditure of a sum of Rs. 5,50,000/- which was paid to M/s Sharad Shiledar &Associates. The said payment was made by the Assessee to the above firm of professionals who rendered professional services in connection with the return statutorily required to be filed by them under section 6(1) of the Urban Land (Ceiling ®ulations) Act, 1976 (ULC Act) and obtaining clearance and order u/s 8(4) of the said Act. Pursuant to their rendering professional services a revised order u/s 8(4) of the ULC Act was obtained. The Assessee claimed that the above expenditure was incurred solely for meeting the company's statutory obligations and hence are for the purpose of its business. Further, the assessee submitted that the above expenditure has not resulted in any acquisition or improvement of an asset or in perfecting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zation of the industry was a sum wholly and exclusively laid out for the purpose of the Company's trade and was an admissible deduction from its profits for income- tax purposes. A Majority of the House held that the object of the expenditure being to preserve the assets of the Company from seizure and so to enable it to carry on and earn profits, the expenditure was a permissible deduction under r. 3(a) of the Rules applicable to cases (1) & (2) of Sch. D of the Income-tax Act, 1918. The object of the petition filed by the Company was to secure a declaration that the order dated February 20, 1946 insofar as it sought to put restrictions upon the right of the Company to carry on its business in the manner in which it was accustomed to do was unauthorized and to prevent enforcement of that order: thereby the Company was seeking to obtain an order from the Court, enabling the business to be carried on without interference. Expenditure incurred in that behalf would without doubt be expenditure laid out wholly and exclusively for the purpose of the business of the Company. 65. Further reliance was placed on the decision of the Hon'ble Supreme Court in the case reported in 1967 AIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenge of change in an increasingly competitive and demanding business and social environment. The expenditure incurred in connection with this programme is partly on employee training and gearing them up for fulfilling the company's goal/vision. Part of it is on advertisement e.g printing of brochures etc. Thus it is evident that no part of the expenditure incurred on the Vision 2000 programme is of a capital nature. The appellants therefore pray that the DCI be directed to delete the disallowance of Rs. 5,00,000/- 2. In any event the amount pertaining to advertisement is allowable u/s 37(3) irrespective of whether it is capital or revenue in nature. 3. Without prejudice to the above, the appellants submit that the disallowance of Rs.. 5,00,000/- is excessive. 4. Without prejudice to the above, the appellants pray that the DCI be directed to allow them depreciation on the aforesaid amount or any pat thereof which is considered to be capital in nature. The appellants pray that the DCI be given suitable directions in the matter. 68 The AO disallowed a sum of Rs. 10,00,000/- on account of alleged advertisement and publicity expenditure on Vision 2000 programme. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering I find some force in the submissions of the ld counsel of the appellant but the same cannot be accepted in its entirety. Although the expenditure was incurred for advertisement and publicity but vision 2000 programme was not an ordinary advertisement. It cannot be altogether denied that Vision 2000 programme was in the nature of building up the corporate image of the company for a long term period. This was an ordinary expenditure incurred by the appellant company in the course of day to day business but a partly it also related to the image building exercise of the assessee company Considering these facts the entire expenditure incurred by the appellant on advertisement and publicity on the vision 2000 programme cannot be treated as revenue expenditure. However, I find force in the submissions of the ld counsel f the appellant that the disallowance estimated at Rs. 10,000/- appears to be on the high side. After considering the expenditure incurred by the appellant and all the other facts and circumstances of the case, I am of the view that it would be reasonable if the disallowance is reduced to Rs. 5,00,000/- by treating the expenditure to that extent as capital expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee shows that it was a reinstatement of the corporate values. It teaches the work force of the organization leadership qualities, responsibility for environment, Social responsibility, customer relationship, quality and other aspects. In our view the plea of the Assessee that it is an expenditure in the nature of employee training and motivating them to fulfill the Assessee's goal and vision has to be accepted. The same has to be treated as revenue expenditure. We direct accordingly. Ground No. 7(1) is allowed. In view of the above, ground No. 7(2) to (4) do not require any adjudication. 72. Ground No. 8 raised by the Assessee reads as follows: The CIT (A) erred in upholding the following disallowances by treating them as donations e by the DCI out of corporate development expenses: Name of the party Amount (Rs.) 1. Embassy of Switzerland 1,29,000 2. Neurological Society of India 50,000 3. Vasco Environment 20,000 Total 1,99,000 In this connection, the appellants submit as under: (i) Rs.1,29,000/- was paid to the Embassy of Switzerand to develop and maintain cordial and harmonious working relations with the country which houses t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,50,000/ was exempted u/s 35(1)(ii) which would be separately allowable subject to filing of receipt etc. Hence, the impugned disallowance was made. 73.1 Before CIT(A), it was that a sum of Rs. 50,000/- was paid to the Association of Basic Manufacturers of Pesticides represent the share payable by the company to the association of which it is a member, for producing a video cassette on safety in transportation of pesticides. The appellant company is a member of the association which likes a mini Chamber of Commerce, protects and defends the interest of manufacturers of pesticides and took up their case with the Govt forums etc. as the need may arise from time to time. As a member of association the appellant was bound to pay such dues as the management of the association may deem necessary for these purposes. It was further submitted by the Assessee that the advertising cum general public awareness campaign highlights the safety measures involved and t be followed in transporting hazardous pesticides. The expenditure is a normal day-to-day running expenditure/advertisement expenditure and should therefore be allowed. As regards a sum of Rs. 1,29,000/- paid to Embassy of Switzerla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- paid to the Embassy of Switzerland is apparently in the nature of donation. The payment is nothing to do with the business of the appellant company. The appellant company cannot be allowed to claim any payment made to Embassy of Switzerland as an admissible business expenditure simply because the headquarters of the group are situated at Switzerland. The expenditure incurred was in the nature of donation. The same was therefore, rightly disallowed by the Assessing Officer. Similarly, the other payments made to the Neurological Society of India and Vasco Environment amounting to Rs. 50,000/- and Rs.. 20,000/- respectively were also in the nature of donation. The facts of the present case being different the earlier decision of CIT (A) for the asst. year 198485 and the decision of the Himachal Pradesh High Court in the case of Mohan Meakin Breweries reported in 118 ITR 101cannot be made applicable in the case of the appellant. These disallowances are therefore, confirmed. In the result the appellant gets relief of only Rs. 50,000/- with reference to ground no.15 of the appeal." 74. Aggrieved by the action of CIT (A) in sustaining part of the disallowance made by the AO, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee which is in the manufacture and sale of medicines. The payment to Vasco Environment is to support a project on preservation of environment. Even this payment has to be considered as payment in connection with the business of the Assessee which has a social responsibility to see that the environment is clean. We therefore direct that the deduction claimed to the above extent be allowed. Ground No. 8 is thus partly allowed. 76. Ground No. 9 and 10 have already been decided while deciding the grounds of appeal of the Revenue. 77. Ground No. 11 (1) and 11(2) raised by the Assessee reads as follows: 11(1) The CIT (A) erred in upholding the DCI's stand f not allowing set off of short term capital loss of Rs. 6,00,670/- arising on sale of CHN Analyzers, against the business income. In this connection, the appellants submit that they had purchased these analyzers in November 1988 for Rs. 1100,413/ for their business. These assets had not been installed and no depreciation had been claimed thereon These analyzers were sold in May 1990 for Rs. 4,99,743/-. Thus, a short term capital loss of Rs.. 6,00,670/- arose. Under the provisions of sec. 71 as they stood at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld as follows: "55 After due consideration I do not find any force in the submissions of the ld counsel of the appellant. It is an admitted fact that the CHN analyzers which were purchased by the appellant in Nov 1988 for Rs. 11,00,413/ were sold subsequently without even installing the same. The assessee was also not dealing in CHN analyzers or other scientific instruments as a trader. The CHN analyzers were sold even before installation which shows that these were not business assets and had nothing to do with the business of the appellant. In view of the above facts and circumstances of the case, I am unable to accept the plea of the appellant that the above short-term capital loss is admissible to the appellant against the business income. Short term capital loss can be allowed against short term capital gain. In the case of the appellant there was no income under the head short term capital gain and the transaction involved did not relate to the business of the appellant. The Assessing Officer was therefore, fully justified in disallowing the claim of the appellant in respect of set off of short term capital loss of Rs. 6,00,670/ This ground of appeal is therefore, decided a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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