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2016 (4) TMI 1138 - AT - Income TaxDisallowance of provision made for leave encashment - Held that - In view of the amended provisions of section 43B of the Act, wherein clause (f) has been inserted, we find no merit in the claim of assessee in this regard to the provision for leave encashment, which was made by the assessee as on close of the year, since it was following mercantile system of accounting. However, the said amount has not been paid to the employees before due date of filing the return of income and hence, the same is to be disallowed under section 43B(f) of the Act. - Decided against assessee Disallowance made out of sales promotion expenses - Held that - The nature of expenses have not been gone into by any authorities below and where the same are to be allowed as sales promotion expenses, the first aspect to be kept in mind is that the CIT(A) has allowed the expenditure on gift articles totaling ₹ 41,96,741/-, against which the Revenue is not in appeal, hence, out of total expenditure of ₹ 1,37,93,473/-, expenditure of ₹ 41,96,741/- stands allowed. For adjudication of issue, the expenditure of ₹ 1,37,93,473/- has to be considered and after excluding the expenditure of ₹ 41,96,741/-, the balance is ₹ 95,96,732/-, which is the expenditure to be shared between the assessee and its sister concern SIIL. In view of the admission of learned Authorized Representative for the assessee, we remit this issue back to the file of Assessing Officer to verify the claim of assessee vis- -vis its allowability in the hands of assessee and / or its sister concern after verifying the nature of expenditure incurred by the assessee to the tune of ₹ 95,96,732/-. The Assessing Officer shall determine the expenditure allowable in the hands of assessee and the amount apportioned to the sister concern SIIL after affording reasonable opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purposes. Claim of deduction under section 80IA(2) - interpretation of initial assessment year - Held that - Initial assessment year would mean the first year opted by the assessee for claiming deduction under section 80IA of the Act. The CBDT has also directed the Assessing Officers to allow deduction under section 80IA of the Act in accordance with this clarification. It has also directed that pending litigation on allowability of deduction under section 80IA of the Act shall not be pursued to the extent it relates to interpreting initial assessment year as mentioned in sub-section 5 of section 80IA of the Act. The copy of Circular is placed on record. Further, similar issue of claim of initial assessment year arose before the Tribunal in assessee s own case relating to assessment years 2004-05 to 2006-07 Tribunal accepted the plea of assessee and held that the assessee has the option in choosing the initial assessment year i.e. 2004-05 in the instant case and held that only the losses of the year beginning from initial assessment year were to be brought forward and not the losses of earlier year which had already been set off against the other income of assessee. It was further held by the Tribunal that the revenue could not notionally bring forward any loss of earlier years which had already been set off against any other income of the assessee and set off the same against the current income of the eligible business. Applying the said decision in assessee s own case and in view of the Circular of CBDT (supra), we uphold the order of CIT(A) and dismiss the grounds of appeal raised by the Revenue.
Issues involved:
1. Disallowance of 'Provision for Leave Encashment'. 2. Disallowance of 'Sales Promotion Expenses'. 3. Disallowance of 'Foreign Travel expenses'. 4. Deduction under section 80IA(2) of the Income-tax Act. Issue-wise Detailed Analysis: 1. Disallowance of 'Provision for Leave Encashment': The first issue pertains to the disallowance of the provision for leave encashment amounting to ?7,86,853/-. The assessee had debited a total of ?41,19,961/- towards leave encashment, out of which ?33,33,106/- was actually paid during the year, and the remaining ?7,86,853/- was a provision based on actuarial valuation. The assessee argued that this provision was required as per Accounting Standard 15 and the mercantile accounting system. However, the Assessing Officer disallowed the deduction under section 43B(f) of the Act, which allows such deductions only on an actual payment basis. The CIT(A) upheld this disallowance, noting that the provision for leave encashment was not allowable unless the amount was actually paid before the due date of filing the return of income. The assessee conceded that this issue should be decided against them in light of the amended provisions of section 43B(f). Consequently, the appellate tribunal found no merit in the assessee's claim and upheld the CIT(A)'s order, dismissing the ground of appeal. 2. Disallowance of 'Sales Promotion Expenses': The second issue involves the disallowance of ?50,96,657/- out of sales promotion expenses, which was upheld by the CIT(A) and further enhanced by ?36,90,771/-. The assessee claimed a total expenditure of ?1,37,93,473/- under sales promotion, which included ?41,96,741/- for gifts. The Assessing Officer disallowed the expenditure related to gifts and questioned the allocation of sales promotion expenses to the sister concern, Serum Institute India Ltd. (SIIL). The CIT(A) allowed the expenditure on gifts but disallowed the balance allocation to SIIL, attributing it to an incorrect basis of allocation and enhancing the disallowance. The tribunal noted that the CIT(A) had allowed the expenditure on gifts, and the remaining ?95,96,732/- was to be shared between the assessee and SIIL. The tribunal remitted the issue back to the Assessing Officer to verify the nature of the expenditure and determine the allowable amount after providing a reasonable opportunity of hearing to the assessee. 3. Disallowance of 'Foreign Travel expenses': The third issue raised by the assessee regarding the disallowance of foreign travel expenses amounting to ?2,85,610/- was not pressed by the assessee during the hearing. Consequently, this ground of appeal was dismissed as not pressed. 4. Deduction under section 80IA(2) of the Income-tax Act: The fourth issue raised by the Revenue concerns the deduction under section 80IA(2) of the Act. The CIT(A) held that the initial assessment year for claiming the deduction was the first year in which the assessee made such a claim after exercising the option, rather than the year in which the assessee started generating electricity. The CIT(A) ruled that only the losses from the initial assessment year should be brought forward, not the losses of earlier years. The assessee supported this view, citing the Tribunal's decision in their own case for earlier years and a recent CBDT circular clarifying the term 'initial assessment year'. The tribunal upheld the CIT(A)'s order, noting that the CBDT circular and the Tribunal's earlier decision supported the assessee's position. Consequently, the grounds of appeal raised by the Revenue were dismissed. Conclusion: In the result, the appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed. The order was pronounced on April 29, 2016.
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