TMI Blog2012 (8) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Disallowance of expenses as being in the nature of capital expenditure - Held that:- As decided in CIT Versus M/s. Geoffrey Manners & Co. Ltd. (Now known as Wyeth Limited) [2009 (2) TMI 13 - BOMBAY HIGH COURT] the claim of the assessee to treat the expenditure on production of films as revenue expenditure - in favour of assessee. Disallowance being the depreciation on Kandla plant - Held that:- Depreciation is allowed if the plant was actually in operation and which fact has not been brought on record, the issue deserves to be restored back to the file of AO to verify whether the plant was actually in use during the year under consideration and if satisfied the depreciation may be allowed - in favour of assessee for statistical purposes. Disallowance of 20% on foreign travel expenses - Held that:- As on identical facts the Tribunal has deleted the disallowance sustained by CIT(A) no point to disallow the claim in period under question - in favour of assessee. Disallowance of expenses for impending union settlement - Held that:- When there was a memorandum of settlement dt. 29.2.1988 and thereafter dt. 7.1.1991 why the assessee had not made any provision either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see it can be concluded that as this liability was incurred for earning the profits and gains for the A.Y. 1992-93, therefore the same is allowable against the profits and gains for A.Y. 1992-93 and confirm the disallowance made by AO - against assessee. Disallowance of deduction u/s. 80HH - Organic Phosphates and Phosphites unit situated at Goa - Held that:- On submissions of assessee that there are no brought forward losses available as they have been set off from the profit of other units of the assessee need to be verified, it is desirable to restore this matter back to the file of AO - in favour of assessee for statistical purposes. - I.T.A. No. 334/Mum/1997 - - - Dated:- 29-6-2012 - SHRI B.R. MITTAL AND SHRI N.K. BILLAIYA JJ. Appellant by : S/Shri J.D. Mistri Nitesh Joshi Respondent by : Shri Satbir Singh O R D E R PER N.K. BILLAIYA, AM This appeal filed by the assessee is directed against the order of Ld. CIT(A)-XL, Mumbai dt. 29.10.1996 for assessment year 1993-94. The grounds of appeal filed alongwith Form No. 36 were concised vide application dt. 23.2.2012 filed on 27.2.2012. 2. Ground No. 1 relates to disallowance of Rs. 30,39,70,700/- on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that accrued liability of Rs. 30,39,70,700/- is a crystallized scientifically ascertained liability as the assessee failed to substantiate its claim by any cogent material brought on record. The AO accordingly disallowed the sum of Rs. 30,39,70,700/-. 4. Before the Ld. CIT(A), the assessee reiterated its submission that the assessee company is facing the situation of high personnel cost of the Bhandup Undertaking which is disproportionate to output therefrom, low capacity utilization, non-granting of new licences for manufacturing of products due to the locational policy of the Government resulted in the undertaking running at a loss for the past several years and therefore the company announced VRS in December, 1992. The assessee reiterated its stand that the accrued liability is crystallized scientifically ascertained liability which has accrued during the year and workers and the staff have an enforceable claim to the amounts in accordance with the agreements entered into with them and it is a liability based on an actuarial valuation which is accepted scientific basis for ascertaining the liability. To substantiate its claim, the assessee submitted certificate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calculation has been brought on record and therefore it cannot be said that liability has not been crystalised during the year. 7. The Ld. Departmental Representative relied upon the findings of Ld. CIT(A) and submitted that no necessary details were furnished by the assessee to substantiate its claim that the scheme has actually been effected. 8. We have heard the rival submissions and perused the orders of lower authorities and also the paper book filed by the assessee. We find that the main reason for not allowing the claim at the assessment stage was that according to the AO, the accrued liability of Rs. 30,39,70,700/- is not crystalised nor it is supported by any scientifically calculated method. The Ld. CIT(A) rejected the submission of the assessee held that the liability is nothing but contingent liability. Be that as it may, we find that the assessee has come out with VRS forced by commercial reasons. The liability is well supported by the actuary valuation the right of employees are supported by the agreement with the company and employee as the actual valuation certificate and the agreements between the company and the employees were not examined by the AO . Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Senior Counsel submitted that it is practically and arithmetically not possible to estimate the exact figure of liability therefore the provisions made may at times be in excess of the actual payment and on other times may be less than the actual payment. The lower authorities have ignored the fact that if the total provisions are taken into consideration, then there is no shortfall in the actual payment. The Ld. Counsel drew our attention to page 64 which is a copy of provisions made during A.Y. 1993-94 against which payments have been made subsequently and argued that if the complete chart is taken into consideration, the actual payment is more than the provisions made. 13. The Ld. Departmental Representative relied upon the findings of Ld. CIT(A) and submitted that subsequent year the reversal entries are accepted by the assessee. 14. We have heard the rival submissions and perused the orders of lower authorities. We find that the Ld. CIT(A) has rightfully directed the AO to see that respective expenses in the subsequent years are to be reduced to that extent. We find support from the findings of the Tribunal in assessee s own case for assessment year 1992-93 in ITA No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... block of assets and therefore claim of depreciation should be allowed. The contention of assessee did not find any favour to the Ld. CIT(A) who held that Kandla unit is a separate unit and the plant were purchased for that unit and during the year under consideration, the Kandla unit did not start functioning therefore, the plants were not used and accordingly the disallowance of depreciation of this plant by the AO is fully justified. 23. Before us, the Ld. Senior Counsel submitted that before the lower authorities, there is a factual error in respect of Kandla plant. The Counsel submitted that during the year under consideration, the Kandla plant has actually started functioning. 24. The Ld. Departmental Representative contended that this error is not coming out of the order of lower authorities. However, Ld. DR fairly conceded that the matter may be restored back to the file of the AO for verification. 25. We have considered the rival submissions. We find that if the plant was actually in operation and which fact has not been brought on record, the issue deserves to be restored back to the file of AO. The AO is directed to verify whether the plant was actually in use duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the orders of Tribunal for A.Yrs 1991-92 and 1992-93 as cited herein above. We find that on identical facts, the Tribunal has deleted the disallowance sustained by Ld. CIT(A) at para 56 56.1 on page 37 for A.Y. 1991-92 and para 56, 56.1 57 at page 39 for assessment year 1992-93. Respectfully following the decision of the Tribunal in the appeals cited herein above, disallowances sustained by the Ld. CIT(A) are deleted. The appeal of the assessee is allowed and the alternative grounds raised by the assessee are dismissed. 32. Ground No. 6 relates to disallowance of Rs. 38,59,200/- being the amount debited to the Profit and Loss Account for impending union settlement. 33. During the assessment proceedings, the AO noted that the assessee has claimed Rs. 38,59,200/- on account of impending union settlement. The AO further noted that an amount of Rs. 90,00,000/- was provided and claimed as deduction during the assessment year 1992-93. The entire amounts were disallowed and added to the income of the assessee. The AO also noted that for assessment year 1993-94 out of the provisions of Rs. 90,00,000/-, the assessee has retained an amount of Rs. 19,29,600/-. The assessee wrote b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Tribunal came to the conclusion that when there was a memorandum of settlement dt. 29.2.1988 and thereafter dt. 7.1.1991 why the assessee had not made any provision either on the basis of MOS dt. 29.2.1988 or on the basis of charter of demand dt. 7.1.1991 and confirmed the disallowance made by the lower authorities. The facts being identical and also considering the settlement which is executed on 23.8.1993 relates to A.Y. 1994-95 and the Ld. CIT(A) has rightly held that deduction in the year under consideration does not arise. We do not find any reason to interfere in the finding of Ld. CIT(A) which is accordingly confirmed. Ground No. 6 is dismissed. 37. The Ld. Senior Counsel for the assessee has not pressed ground No. 7, therefore it is dismissed as not pressed. 38. Ground No. 8 relates to disallowance of Rs. 11,80,282/- towards hotel expenses and air fare on foreign visitors coming to India. 39. This issue find placed at page 15 16 of assessment order. The AO found that an amount of Rs. 11,80,282/- was spent on foreign visitors to the assessee company which included total expenditure as well as air fare incurred on employees of Ciba-Geigy Basle. The AO was of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein on similar set of facts, the Tribunal has held that expenditure of food and beverages have to be allowed. We accordingly direct the AO to consider the details filed by the assessee giving break-up of expenses incurred on guest house maintenance and allow the expenses incurred on food and beverages. Accordingly, we restore this matter back to the file of AO with the above direction. This ground of the assessee is allowed for statistical purposes. 47. Ground No. 10 relates to the expenses incurred under the head Lunch expenses, canteen expenses, business meeting expenses and expenses on AGM being treated as expenditure in the nature of entertainment expenses for the purpose of Sec. 37(2). 48. The AO considered the following expenses being in the nature of entertainment expenses for the purpose of Sec. 37(2) of the Act. a) Lunch expenses on employees during the course of outdoor duty - Rs. 5,79,457/- b) Business meeting expenses on employees - Rs. 3,56,032/- c) Expenses of Annual General meeting - Rs. 16,050/- d) 5% of total canteen expenses and food Subsidy amounting to Rs. 98,52,089 resulting into - Rs. 4,92,604/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of CIT Vs Sudarshan Chemical Industries Ltd. 245 ITR 769. Respectfully following the decision of the Tribunal based on the decision of the Hon ble Supreme Court and the Jurisdictional High Court, we allow the relief to the assessee. This ground of the assessee is allowed. 56. So far as additional ground raised by the assessee by which it has prayed that excise duty element ought to be excluded from the figure of total turnover for the purpose of computing deduction u/s. 80HHC of the Act, the same is covered by the decision of the Hon ble Bombay High Court in the case of Sudarshan Chemical Industries Ltd. (supra). Accordingly, the additional ground is also allowed. 57. Ground No. 14 relates to disallowance of Rs. 4,28,000/- on account of expenses for the A.Y. 1992-93. 58. The AO found that during the year under consideration the assessee has claimed Rs. 4,28,000/- on account of expenses for A.Y. 1992-93. The AO was asked the assessee to explain the reason for the same. After considering the submissions of the assessee, the AO came to the conclusion that the deduction of Rs. 4,28,696/- claimed during the year cannot be allowed as it relates to A.Y. 1992-93. 59. Bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not considered past losses of this unit before working out this deduction, the AO sought explanation from the assessee why this amount not be disallowed on this point. To this, the assessee replied that the section does not speak of setting-off past losses for claiming the deduction. The AO was of the opinion that as per Sec. 80-B(5), gross total income from particular unit has got to be worked out after taking into account all deductions, expenditure for that provided under chapter VI-A. The AO finally concluded that since set off of losses of particular unit is required to be set off as per chapter relating to set-off of unabsorbed losses, it is clear that past losses are to be deducted before working out gross total income and accordingly the deduction u/s. 80HH was denied. 65. Before the Ld. CIT(A), the assessee submitted that Sec. 80HH of the Act provided for deduction in a case where the gross total income of the assessee includes any profits and gains derived from an industrial undertaking located in a backward area. The assessee further contended that u/s. 80HH of the Act , each year is a separate distinguishable year and deduction of 20% of the profits and gains derived ..... X X X X Extracts X X X X X X X X Extracts X X X X
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