2012 (3) TMI 557 - AT - Income Tax

Summary

Issues Involved:
1. Addition on account of reconciliation difference in the closing stock of natural gas.
2. Disallowance of provision for leave encashment u/s 43B(f).
3. Disallowance u/s 14A of the Income Tax Act.

Summary:

1. Addition on account of reconciliation difference in the closing stock of natural gas:
The assessee declared a total income of Rs. 86,20,06,630/- for A.Y. 2004-05. The Assessing Officer (AO) noticed a reconciliation quantity of 187,47,287 SCM/Kg of natural gas, which was not reflected in sales or closing stock. The assessee explained this as a shortage/loss included in the cost of natural gas. The AO rejected this explanation, stating that the gas stored in pipelines should be accounted for as inventory. The AO computed an addition of Rs. 2,47,61,450/- for this reconciliation difference. The CIT(A) deleted this addition, following the Tribunal's order for A.Ys. 2002-03 & 2004-05. The Tribunal upheld the CIT(A)'s order, noting that the facts were identical to previous years where a 4% loss was considered reasonable.

2. Disallowance of provision for leave encashment u/s 43B(f):
For A.Y. 2006-07, the AO disallowed Rs. 18,20,068/- out of the provision for leave encashment of Rs. 36,84,064/-, citing section 43B(f). The AO noted that only Rs. 4,52,138/- was paid during the year and Rs. 14,11,858/- was paid in the succeeding year, leaving Rs. 18,20,068/- disallowed. The CIT(A) deleted this disallowance, following the Tribunal's order for A.Y. 2005-06, which relied on the Calcutta High Court's decision in Exide Industries Ltd., 292 ITR 470, and the Supreme Court's decision in Bharat Earth Movers, 245 ITR 428. The Tribunal upheld the CIT(A)'s order.

3. Disallowance u/s 14A of the Income Tax Act:
For A.Y. 2006-07, the AO made a disallowance of Rs. 20,93,850/- u/s 14A, based on proportionate interest and administrative expenses. The CIT(A) reduced this disallowance to Rs. 2,66,943/-, following the decision for A.Y. 2007-08, which restricted disallowance to 1% of total exempt income. The Tribunal restored the matter to the AO for quantifying the expenditure in line with the Delhi High Court's observations in Maxopp Investment Ltd. vs. CIT & Others.

Order Pronounced:
The Tribunal upheld the CIT(A)'s orders on the issues of reconciliation difference and leave encashment, while restoring the matter of disallowance u/s 14A to the AO for fresh quantification. The appeals filed by the Revenue were dismissed or allowed for statistical purposes accordingly.