TMI Blog2016 (1) TMI 1491X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 74-75, 64-65 76-77 and 77-78 similar disallowance of expenses has been deleted by the Tribunal. Ground of appeal No.2 is decided in favour of the assessee. Disallowance of entertainment expenses - HELD THAT:- Tribunal had dealt with the said issue in the assessee s own case for the AY.1995-96 [ 2013 (10) TMI 1039 - ITAT MUMBAI] . we direct the AO to allow the lunch expenses on employees during the outdoor duty, business meeting expenses, expenses on AGM fully and we confirmed disallowance out of the total canteen expenses - Ground No.3,raised by the assessee, is partly allowed. Disallowance of hotel expenses and air fares of foreign visitors coming/visiting to India - HELD THAT:- As decided in own case as held foreign victors came to India for purposes of attending the board meetings, general discussion, finance, reporting etc. It is considered that the expenditure represented predominantly business expenditure. Deduction u/s 80HHC - reducing the loss on export of trading goods from deduction computed under section 80HHC(3) in respect of manufactured goods - HELD THAT:- As decided in own case in reducing the loss on export of trading goods from the deduction com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Glass ltd. [ 2011 (11) TMI 2 - DELHI HIGH COURT] Estimated freight components in the closing stock - HELD THAT:- As decided in own case 1996-97 there is no impediment to the deduction of true profits and gains of the business because of the method of valuation followed by the assessee consistently and which has also been accepted by the departmental authorities. A stray departure just for one year tends to upset the calculations. When the method has not been found fault with for a long period of years. It acquires fundamental character and forms a sound basis for the assessment of the profits especially when the method followed is not patently false or unacceptable, and any accepted fundamental feature of an assessment cannot be lightly tinkered with as held by the Supreme Court in the case of Radhasaomi Satsang Sabha [ 1991 (11) TMI 2 - SUPREME COURT] Exclude the sales tax and excise duty for the purpose of computing deduction u/s. 80HHC - HELD THAT:- .The Hon ble Apex Court and the Jurisdictional High Court have in the cases of Laxmi Machine Works [ 2007 (4) TMI 202 - SUPREME COURT] and Sudershan Chemical Industries Ltd. [ 2000 (8) TMI 73 - BOMBAY HIGH COURT] , held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 537/-)for payment of pension created on an actuarial basis. It was brought to our notice that while deciding the appeal for the AY.1995-96(ITA/ 498/ Mum/2003,dt.25.09.2013)Tribunal had dealt with the same issue.We would like to reproduce the relevant portion of the said order and it reads as under:- 36. Ground no. 6 relates to the disallowance of Rs.3,90,12,431/- on account of incrementalliability for payment of pension under the Voluntary retirement scheme (VRS) created on an actuarial basis in computing the assessee s total income. The AO has discussed this issue on para 12 on page 32 of his order, wherein the AO followed order of 1993-94 and 1994-95 for disallowing the incremental liability of Rs.3.90 crores. When the matter was agitated before the CIT(A), the CIT(A) has considered this issue of the assessee at para 13 of page 33 of his order wherein the CIT(A) has followed the decision of his predecessors for A.Y. 1993-94 and 1994-95 and confirmed the disallowance made by the AO. Before us, the counsel for the assessee drew our attention to page 134 of the paper book which is internal page 15 of order of the Tribunal in assessee s own case for A.Y. 1994-95 in ITA No. 287 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laces visited, period of visit and purpose of visits.Further, during the hearing of the appeal papers were filed along with the sample copies of the tour reports as submitted by the touring officers. He held that the details contained certain foreign visits which were to Kathmandu, Nepal against which the only purpose given was Business discussion ,that expenses of such visits totaled to Rs.7,70,051.He held that some of the visits were personal in nature,that the foreign travel expenses could not be allowed in full as claimed by the assessee.Following the orders for the year 1993-94 and 1991-92 he upheld disallowances of 20% of the foreign travel expenses claimed by the assessee. 6.1.Before us,AR and DR agreed that issue has been dealt by the Tribunal in earlier AY.s. 6.2. We have heard the rival submission and perused the details filed by assessee in this regard.We find the in the year 1991-92 Cross appeals were filed by the assessee and the AO against the partial allowance/ disallowance of foreign travel expenses.Deciding the appeal,Tribunal held as under: The disallowance has been made on assumptions and presumptions. The very basis on which the disallowance has been made is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1993-94. We have carefully considered the order of the Tribunal for A.Y. 1993-94 in ITA No.334/Mum/1997. We find that identical facts have been considered by the Tribunal at para 48 of its order. We find that the Tribunal has directed the AO to allow the business meeting expenses and expenses of AGM and the Tribunal has confirmed disallowance of Rs. 2 lakhs out of total canteen expenses which come to around 40% of the total canteen expenses disallowed. Lunch expenses on employees during the course of outdoor duty has been fully allowed u/s 37(3) of the Act. Respectfully following the findings of the Tribunal (Supra), we direct the AO to allow the lunch expenses on employees during the outdoor duty, business meeting expenses, expenses on AGM fully and we confirmed disallowance of Rs.85,000/- out of the total canteen expenses of 2,18,004/-. Ground no. 8 is partly allowed. Respectfully, following the above Tribunal order Ground No.3,raised by the assessee, is partly allowed. 4.Next Ground raised by the assessee is with regard to disallowance of an amount of Rs. 36, 25,189/- towards hotel expenses and air fares of foreign visitors coming/visiting to India.The Tribunal had dealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in page 6, paras 9 10 of the assessment order. The brief facts in this connection are that the assessee incurred expenditure in respect of visitors to India, in connection with its business. Such expenditure amounted to Rs. 51,375/-. The assessee furnished the details of such expenditure. The Assessing Officer took the view that the expenditure represented hospitality extended to the visitors and therefore, disallowed the same as entertainment expenses. On appeal the CIT(A) noted that the foreign visitors had come to India for the purpose of attending Board meeting, general discussion, finance, reporting etc. The assessee contended that this expenditure cannot therefore, be considered to be entertainment expenditure. An order of the Bombay Bench of the Tribunal in the case of R H Windsor India Ltd vs ITO was relied upon the CIT(A), finding that the facts of the present case are nearly similar, held that the expenditure cannot be treated as entertainment expenditure. The revenue is in appeal. In view of the finding recorded by the CIT(A) that the foreign victors came to India for purposes of attending the board meetings, general discussion, finance, reporting etc. It is conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This is Revenue's appeal directed against the order of the learned CIT(A)-X, Mumbai dated 11.10.2000 for Assessment Year 1998-99. The grounds of appeal raised by the revenue are as under :- On the facts in the circumstances of the case, the learned CIT(A) erred in fact and in law, by directing the A.O. to pay to the assessee s interest u/.s.244A -on processing the return u/s. 143(1) (a) even on the amount of self-assessment tax paid by the assessee u/s.140A of the Act in as much as: i)On the facts and in the circumstances of the case and in law, the learned CIT(A) lost sight of the fact that the Explanation to clause (b) of' section 244A(1) on which explanation the learned CIT(A) placed reliance, refers to the excess payment; of tax made by the assessee in response to the demand made of him by the A.O. vide notice u/s.156 of the Act. And ii)The learned CIT(A) also lost sight of the fact that in the case under consideration the impugned tax was paid by the assessee suo moto or voluntarily as the tax admitted by the asssessee on the income declared by him and that such tax payment was not demanded of the assessee by the AO.' 2. It was contended by the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale of assets. It relied on the decision of Kasturi Sons(237ITR24) of the Hon'ble Supreme Court wherein the Hon ble Court had defined the words moneys payable and had held that the phrase included actual currency form and not money s worth.It was, therefore,contended that since no money in actual currency was received by the assessee on account of demerger, no adjustment was required to be done to the WDV with reference to assets in question.It further submitted that reliance placed by the AO with regard to the treatment given by another assessee in its own case was irrelevant and also that the observation made by the AO that the assessee had fraudulently claimed excess depreciation was wholly unjustified,that it had fully disclosed the stand taken by it in the return filed. After considering the submissions of the assesee and the order of the AO, he held ,that an assessee had to be the owner of a particular asset on which depreciation had been claimed, that the said assets had to be used for the purpose of its business, that the assessee was neither the owner of the assets transferred nor were same used for the business purposes during the year under consideration, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was transferred , that the AO had made enquiry with other concern, that he found that the assets were taken on book value, that requirement of ownership of assets was a must, that it was not a case of slump sale, that the cases relied upon by the assessee were distinguishable on facts. 8.3.We find that in the case of Kasturi Sons(supra)the Hon ble Apex Court has interpreted the phrase money s worth and applicability of section 41(2)of the Act as under: 19. We are unable to accept the contention that the word `money' should be interpreted as `money's worth'. The reasons given by us earlier are sufficient and we need not add to them. The reason for introducing a fiction in S.41 (2) of the Act as explained in Bipinchandra Maganlal Co. Ltd. (41 I.T.R. 290) quoted in Artex Manufacturing Co. (1997) 6 S.C.C. 437 that it is for the purpose of recoupment by the Revenue of the benefit allowed to the assessee in the previous years does not alter the situation. 20. In the result, we do not find any error in the view expressed by the High Court in the judgment under appeal.We are in agreement with the reasoning and conclusion of the High Court in this case. Respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue expenditure The ITO did not agree nor did the AAC On further appeal, the Tribunal upheld the assessee s contention It disagreed with the Revenue s contention that inasmuch as the said amalgamation resulted in acquisition of the other company by the assessee, which acquisition was in the nature of acquisition of a capital asset, the legal expenses incurred in that behalf partake the nature of capital expenditure.The Tribunal was of the opinion thatas both the companies were carrying on complimentary business and their amalgamation was necessary for the smooth and efficient conduct of the business, it is an expenditure laid out wholly and exclusively for the purpose of the business of the assessee In view of the said finding and also in view of the decision of this Court in Bombay Steam Navigation Co (1953) (P) Ltd Vs CIT (1965) 56 ITR 52 (SC), we are of the opinion that the Tribunal was right in its conclusion The decision in Bombay Steam Navigation (supra) also pertains to amalgamation of two shipping companies The assessee-company took over the assets of the other company and part of the price was treated as a loan secured by a promissory note and hypothecation of all mov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deciding the issue with regard to non eligibility of the assessee for depreciation on merger (GOA-8),we had adjudicated it in its favour.Following the same second ground,raised by the AO,stands dismissed. 11.Next ground of appeal deals with deleting the disallowance of advertisement and publicity expenses, amounting to Rs.42.99 lakhs. 11.1. During the course of hearing the representatives of both the sides agreed that identical issue stands decided against the AO by the orders of the Tribunal for earlier AY.s.(1991-92 to 1996-97),that the Hon ble Bombay High Court had upheld the order of the Tribunal for the AY.1996-97. 1. ......we find that the issue pertains to allowance of advertising and publicity expenses. The Commissioner (Appeals) held in favour of the assessee . In appeal preferred by revenue, learned Tribunal relied on the judgment of the Supreme Court in the case of Empire Jute Co. Ltd., reported in 124 ITR 1. 2. In the light of the above, question as framed would not arise and consequently, appeal dismissed. Respectfully, following the above order, of the Hon ble High Court, we dismiss Ground No.3. 12.Fourth ground of appeal is with regard to expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Asahi India safety glass limited 245 CTR 529.We have considered the rival submissions and perused the orders of the lower authorities. It is not in dispute that the expenditure has been incurred on application software The Hon ble Delhi High Court in the case of Asahi Safety Glass ltd.(Supra) has held that application software arc of revenue in nature as the AO has not doubted that the expenses were on application software therefore respectfully following the decision of the Hon ble Delhi High Court, findings of the CIT(A) are confirmed. Appeal of the revenue is dismissed. Following the same,ground no.1 filed by the AO,is decided against him.As the ground has been decided in favour of the assessee, so, first ground of CO become infructuous. Respectfully following the orders of the Tribunal for the earlier years and judgment of Raychem RPG Ltd.(supra) of the Jurisdictional High Court, we decide Ground No.4 against the AO. 13.Fifth Ground deals with deletion of an addition of Rs.71.70 lakhs made by the AO on account of estimated freight components in the closing stock. It was brought to our notice that identical issue was decided against the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this context,that they held that a method of valuation of closing stock has been adopted by,it is erroneous or unsound or unacceptable or is against accouning or commercial practice,the same can be discarded.In case, this principle is not attracted because the incurring expenses on freight or cartage outward or packing expenses purposes of transporting the goods have not added any stock.They are post manufacturing expenses are to be as selling expenses.Normally, the manufacturing are debited to the manufacturing account whereas the expenses are debited to the profit loss account.According to the Advanced Accounts by R.N.Carter (1939 Rev.Edn.,Page-32),carriage inwards increases the cost of the goods purchased and is hence debited to trading account whereas carriage outwards is a selling expenses and is debited to profit loss account. In the present case, the goods manufactured by the assessee had to be distributed to the depots across the country from the centralized distribution depot at Bombay and the transporting cost is purely for the purpose of selling the goods. The packaging expenses are not the expenses are not expenses incurred in the primary wrapping of the products, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d against the AO.Respecfully following the order of the Tribunal for earlier years, ground no.4,filed by the AO stands dismissed. Ground no.3 of CO is treated as infructuous. Respectfully following the above Ground No.5 is dismissed. 14.Expenditure incurred by the assessee on transit houses maintained by it is the subject matter of sixth Ground of appeal. While deciding the appeal, filed by the assessee, the FAA deleted the disallowance of Rs.6.88 lakhs made by AO u/s.37(4) of the Act. 14.1.We find that while deciding the appeal for the AY 1991-92 to 1996-97 the Tribunal had partly allowed the expenditure incurred by the assessee on transit houses, that the food and beverages expenditure were allowed by the Tribunal,that the other expenses were disallowed, that the department did not challenge the orders of the Tribunal before the Hon'ble High Court.The order of the Tribunal for AY 1996-97 at para no.16 deals with the issue as under : 16.Ground no.6,filed by the AO,is about deletion of disallowance of Rs.9.69 lakhs u/s.37(4)of the Act,in respect of expenditure incurred by the assessee on transit houses maintained by it at Goregaon and Goa.Before us,AR and DR stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e then FAA.s who had given similar direction the then AO.s. The AR further relied upon the cases of Sudershan Chemicals Industries Ltd. (245 ITR 769)and Laxmi Machine Works (296ITR667). 15.2.The Hon ble Apex Court and the Jurisdictional High Court have in the cases of Laxmi Machine Works and Sudershan Chemical Industries Ltd.(supra),held that sales tax and excise duty cannot be included for the purpose of computing the 80HHC deduction. Respectfully following the above mentioned two judgments, we dismiss Ground No.7. C.O./249/Mum/2004,AY-1997-98 : 16.First Ground of the Cross Objection(C.O.)is about expenditure incurred for amalgama - tion/demerger.While deciding Ground No.1,we have dismissed appeal of the AO. Ground No.1 is allowed for statistical purpose. 17.Ground No.2 is about advertisement and publicity expenses. Considering the fact that we have dismissed Ground No.3 raised by AO dealing with the issue,we allow second Ground raised in the CO for statistical purposes. 18.Ground No.3, 4 of the CO deal with software expenditure and estimate freight component. In the earlier part of our order, we have decided both the issues against the AO .Ground No.3 and 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld take up the independent grounds raised by the AO for the above referred two AY.s. First we would deal with Ground of appeal No.7 (GOA-7) for the AY.1998-99 and it deals with granting interest u/s.244A of the Act on SA paid by the assessee. While deciding the identical ground for the AY.1997-98(Ground 7),we had allowed the appeal filed by the assessee. Following the same, seventh ground for AY.1998-99 stands decided against the AO. 23.Ground No.5 for the same year is about incremental liability on account of VRS, amounting to Rs.3.09 Crores in respect of workers who had retired in the earlier years from the assessee is unit at Bhandup. While adjudicating the first ground of appeal,for the AY. 1997-98,we have decided the issue in favour of the assessee.Following the same,ground no.5 is decided against the AO and in favour of the assessee. 24.Next independent ground (GOA-8)for the year under appeal is about deleting the disallow ance on account of expenditure incurred in connection with earning of interest income exempt u/s.10(15) of the Act. During the assessment proceedings the AO found that the assessee had claimed an amount of Rs.2.70 crores relating to receipt of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure incurred on computer soft ware,amounting to Rs.25.54 lakhs.The AO treated the said expenditure as capital expendi -ture,whereas the FAA held that the expenditure was revenue in nature.While deciding identical ground for the AY.1997-98,we have held that expenditure incurred for computer software was revenue expenditure.Following the same we dismiss ground No.4,raised by AO. 27.Second independent Ground(GOA-7)is about deleting the disallowance of 2% made by the AO,on the tax free interest and dividend income.While deciding the identical issue for earlier year,we have restricted disallowance to 0.05%.Ground No.7 is partly allowed in favour of the AO. 28.The next Ground of appeal is about direction issued by FAA to the AO to grant deduction u/s.43B on delayed payment of ESIC of Rs.1.28 lakhs.The AO found that there was delay in payment of ESIC dues.Invoking the provisions of section 43B, he made an addition of Rs.1,28,685/-.After hearing the assessee,the FAA held that amount was paid within the grace period allowed under the ESI Act, that there was no justification for the addition.The DR left the issue to the discretion of the Bench and the AR supported the order of ..... 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