IN THE ITAT MUMBAI BENCH ‘J’
Tata Chemicals Ltd.
versus
Assistant Commissioner of Income-tax
IT Appeal NoS. 5181 & 5452 (Mum.) of 2002
[Assessment year 1985-86]
July 13, 2012
ORDER
Dinesh Kumar Agarwal, Judicial Member
These cross appeals by the assessee and Revenue are directed against the order dtd. 18-07-2002 passed by the ld. CIT(A) – II, Mumbai for the A.Y. 1985-86. Both these appeals are disposed of by this common order for the sake of convenience.
2. Briefly stated facts of the case are that the assessee company is engaged in the business of manufacture and sale of Soda Ash and other inorganic chemicals. The return was filed declaring total income at Rs. 2,11,42,780/-. This income was revised to Rs. 7,32,06,632/-. The revision was due to revising the decision for capitalization and the total interest payable on the borrowings for investment in fixed assets. However, the assessments after making various disallowances and additions was made at an income of Rs. 10,26,57,190/- vide order dtd. 22-3-1988 passed u/s 143(3) of the Income Tax Act, 1961 (the Act). On appeal, the ld. CIT(A), however, partly allowed the appeal.
3. Being aggrieved by the order of the ld. CIT(A) the assessee and the Revenue both are in appeal before us.
ITA No. 5181/Mum/2002 (Assessee’s appeal)
4. Ground No. 1(a to f) are against the sustenance of disallowance of Rs. 30,73,662/- u/s 37(3A) of the Act.
5. Brief facts of the above issue are that in the revised computation of income, the assessee disallowed u/s 37(3A) of the Act Rs. 3,02,842/- being 20% of Rs. 15,14,212/-. However, the A.O. found that the assessee has not included various expenses disallowable u/s 37(3A) of the Act and accordingly the A.O. after discussing the issue at pages 2 to 5 of the assessment order, disallowed Rs. 30,73,662/- being 20% of Rs. 1,53,68,309/- and added the same to the total income of the assessee. On appeal the ld. CIT(A) while agreeing with the views of the A.O. confirmed the disallowance made by the A.O.
6. At the time of hearing, the ld. Sr. Counsel for the assessee while stating that due to smallness of the amount of Rs. 6804/- being 20% of Rs. 34,020/-of rent paid for stall in showroom of Tata Exports Ltd., he does not want to press the above ground further submits that there are factual mistakes in the amount of disallowance in respect of all other expenses, therefore, the issue may be set aside to the file of the A.O. to decide the same afresh in the light of the decisions of the Tribunal in assessee’s own case, the judgments of Hon’ble jurisdictional High Court and other High Courts.
7. On the other hand, the ld. D.R. while relying on the order of the A.O. and ld. CIT(A) submits that she has no objection if the issue is set aside to the file of the A.O. to decide the same afresh.
8. We have carefully considered the submissions of the rival parties and perused the material available on record. At the time of hearing it was pointed out to the ld. Sr. Counsel for the assessee that there are mistakes in the amounts of disallowance made by the A.O. and the amounts mentioned in the facts sheet submitted by the assessee which requires clarification. It was, therefore, agreed by both the parties that the issue may be set aside to the file of the A.O. to decide the same afresh in the light of the decisions of the Tribunal in assessee’s own case, judgments of the Hon’ble jurisdictional High Court and other High Court. In this view of the matter we, in the interest of justice, consider it fair and reasonable that the matter should go back to the file of the A.O. and accordingly we set aside the orders passed by the Revenue Authorities on this account and send back the matter to file of the A.O. to decide the same afresh in the light of our observations hereinabove and according to law after providing reasonable opportunity of being heard to the assessee. The grounds taken by the assessee are, therefore, partly allowed for statistical purpose.
9. Ground No. 2 (a&b) are against the sustenance of disallowance of entertainment expenses.
10. Ground No. 3 is against the sustenance of disallowance of Rs. 1,13,284/- u/s 37(3) read with Rule 6D.
11. Brief facts of the issue in ground No. 2(a&b) are that the A.O. observed that the expenditure amount of Rs. 4,34,014/- is not for the advertisement for promotion of sale. In fact, it is in the nature of customary presents to customers, friends and business associates. Thus it is admittedly for advertisement and, therefore, even if it is not resulting in sales promotion, it is covered under the provisions of section 37(3A) of the Act because the very purpose of this expenditure is advertisement and accordingly he disallowed Rs. 86,803/- being 20% of Rs. 4,34,014/-. On appeal the ld. CIT(A) upheld the disallowance made by the A.O.
12. Brief facts of the issue in ground No. 3 are that the A.O. observed that the assessee while working out the disallowance under Rule 6D has taken into consideration only lodging, boarding and daily allowance but has excluded other expenses such as conveyance, tips, coolie charges etc. The A.O. was of the view that the stand of the assessee cannot be accepted because the expression used in Rule 6D is “expenditure incurred in connection with traveling” which will include all expenses in connection with traveling other than fare. Undoubtedly the expenses not considered by the assessee are in connection with the travelling and hence are to be taken into account while working out disallowance and accordingly the A.O. made a disallowance of Rs. 2,96,950/-. On appeal, the ld. CIT(A) while relying on the decision of Hon’ble jurisdictional High Court in the case of CIT v. Chemet [1999] 240 ITR 624 (Bom) wherein it has been held that miscellaneous expenses and local conveyance expenses incurred by the employees on tour for conducting assessee’s business have to be excluded from the purview of Rule 6D, held that the expenses on tips and coolie charges cannot be said to have been incurred on conducting the business of the assessee. The ld. CIT(A) after considering the provisions of section 37(3) r.w.r. 6D directed the A.O. to work out the disallowance after obtaining the break-up of conveyance expenses from the assessee.
13. At the time of hearing, the ld. Sr. Counsel for the assessee while admitting that there are factual mistakes in the amount of disallowances of the impugned expenses, therefore, both the issues may be set aside to the file of the A.O. to decide the same afresh in the light of the decisions of the Tribunal in assessee’s own case, the judgments of Hon’ble jurisdictional High Court and other High Courts.
14. On the other hand, the ld. D.R. while relying on the order of the A.O. and ld. CIT(A) submits that she has no objection if both the issues are set aside to the file of the A.O. to decide the same afresh.
15. We have carefully considered the submissions of the rival parties and perused the material available on record. At the time of hearing it was pointed out to the ld. Sr. Counsel for the assessee that there are mistakes in the amount of disallowance made by the A.O. and the amounts mentioned in the facts sheet submitted by the assessee which requires clarification. It was, therefore, agreed by both the parties that the issue may be set aside to the file of the A.O. to decide the same afresh in the light of the decisions of the Tribunal in assessee’s own case, judgments of the Hon’ble jurisdictional High Court and other High Courts. In this view of the matter, we in the interest of justice, consider it fair and reasonable that the matter should go back to the file of the A.O. and accordingly we set aside the orders passed by the Revenue Authorities on this account and send back the matter to file of the A.O. to decide the same afresh in the light of our observations hereinabove and according to law after providing reasonable opportunity of being heard to the assessee. The grounds No. 2 (a&b) and 3 taken by the assessee are, therefore, partly allowed for statistical purpose.
16. Ground No. 4 is against the sustenance of disallowance of guest house expenses Rs. 14,24,078/-.
17. Brief facts of the above issue are that the A.O. noted that basically the guest house expenditure are intimately related to the maintenance of guest house covered u/s 37(4) of the Act. He further held that this expenditure is not incurred at the place of and during the course of the working hours in the office and factory and accordingly he disallowed the same. On appeal the ld. CIT(A) while observing that this issue is covered against the assessee, confirmed the disallowance made by the A.O.
18. At the time of hearing the ld. Sr. Counsel for the assessee very fairly submits that the amount of Rs. 14,24,078/- consists of three items namely (a) salaries & wages to staff Rs. 4,12,247/-, (b) repairs and renovation expenses Rs. 2,17,675/- and (c) food expenses (net of recoveries) Rs. 7,94,156/-aggregating to Rs. 14,24,078/-. He further submits that on the disallowance of salary & wages to staff Rs. 4,12,247/- and repairs and renovation expenses Rs. 2,17,675/-, he has no case. As regards the disallowance of food expenses Rs. 7,94,156/-, he submits that this issue is covered in favour of the assessee by the order of the Tribunal in assessee’s own case in the case of Tata Chemicals vs. DCIT and vice versa in ITA No. 2658 & 3082/Mum/2002 for A.Y. 1995-96 order dtd. 26-7-2006 wherein the Tribunal vide para 6 of its order has restored the issue to the file of the A.O. He, therefore, submits that in view of the said order of the Tribunal, the issue may be set aside to the file of the A.O.
19. On the other hand the ld. D.R. while relying on the order of the A.O. and the ld. CIT(A) submits that she has no objection if the disallowance of food expenses of Rs. 7,94,156/- is restored back to the file of the A.O. for verification and to decide the same in the light of the decision of the Tribunal (supra).
20. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the ld. Sr. Counsel for the assessee that the expenses incurred by the assessee on (a) salaries & wages to staff Rs. 4,12,247/-, (b) repairs and renovation expenses Rs. 2,17,675/- are in the nature of guest house expenses and the same are not allowable in view of the decision of the Hon’ble Supreme Court in the case of Britannia Industries Ltd. v. CIT [2005] 278 ITR 546 and accordingly we uphold the disallowance made by the A.O. and confirmed by the ld. CIT(A). With regard to the food expenses Rs. 7,94,156/- we find that the Tribunal in assessee’s own case (supra) has restored the issue to the file of the A.O. to decide the same afresh in view of the decision of the Tribunal in the case of Tata Engg. & Locomotive Co. Ltd. v. Dy. CIT [ITA No. 5449/Mum/1998 dated 28-3-2006]. Respectfully following the same, we set aside the issue of disallowance of food expenses of Rs. 7,94,156/- to the file of the A.O. to decide the same afresh in the light of the decision of the Tribunal (supra) and according to law after allowing reasonable opportunity of being heard to the assessee. The ground taken by the assessee is, therefore, partly allowed for statistical purpose.
21. Ground No. 5 is against the sustenance of disallowance of liability of bonus of Rs. 11,21,865/- due for the year but not provided.
22. At the time of hearing the ld. Sr. Counsel for the assessee submits that he does not want to press the above ground being otiose as in the subsequent assessment year the A.O. has allowed the same on payment basis which was not objected to by the ld. D.R.
23. That being so and in the absence of any other supporting material placed on record by the ld. Sr. Counsel for the assessee, the ground taken by the assessee is, therefore, rejected being not pressed/survived.
24. Ground No. 6 is against the sustenance of disallowance of incentive bonus of Rs. 1,90,743/- paid to the workers for exceeding fixed targets.
25. Brief facts of the above issue are that the A.O. observed that the assessee has debited Rs. 1,90,747/- towards incentive bonus paid to the workers which is over and above the bonus payable under The Payment of Bonus Act as well as under the existing agreement between the assessee and employees/workers. He further observed that it is also not covered under the provisions of section 36(1)(ii) of the Act. He further observed that on similar facts an amount of Rs. 1,58,830/- was disallowed in A.Y. 1984-85, therefore, for the same reason he disallowed Rs. 1,90,747/-. On appeal the ld. CIT(A) while agreeing with the views of the A.O., confirmed the disallowance made by the A.O.
26. At the time of hearing the ld. Sr. counsel for the assessee submits that this amount is allowable u/s 37(1) of the Act since it is remuneration to workers for extra work done which partakes the character of salary and it is not bonus as provided under the Payment of Bonus Act, 1965. He further submits that similar disallowance was deleted by the Tribunal in assessee’s own case for A.Y. 1984-85 vide para 5.4.2 of the order dtd. 27-12-2007 and, therefore, the disallowance made by the A.O. and sustained by the ld. CIT(A) be deleted.
27. On the other hand the ld. D.R. supports the order of the A.O. and the ld. CIT(A).
28. We have carefully considered the submissions of the rival parties and perused the material available on record. We find merit in the plea of the ld. counsel for the assessee that similar disallowance was deleted by the Tribunal in assessee’s own case in ITA No. 4194 and 4237/Mum/2001 for A.Y. 1984- 85 order dtd. 27-12-2007 wherein it has been held vide para 5.4.2 as under:-
“After considering the submissions and orders of High Court in reference No. 95 of 1988 dated 04/07/05, we find that similar issue has been decided in favour of the assessee. Accordingly, we direct the A.O. to modify his order.”
In the absence of any distinguishing feature brought on record by the Revenue, we respectfully following the order of the Tribunal hold that the disallowance of incentive bonus made by the A.O. and confirmed by the ld. CIT(A) is not sustainable in law and accordingly we delete the same. The ground taken by the assessee is, therefore, allowed.
29. Ground No. 7 is against the sustenance of disallowance of Rs. 27,650/- u/s 80VV of the Act.
30. Facts of the above issue are that the A.O. noted that the following payments were claimed to have been made for consultations, conferences and appearances relating to proceedings before the Income-tax authorities:-
