2010 (7) TMI 1151 - AT - Income Tax

Issues Involved:

1. Unilateral writing down of assets as a grant or subsidy.
2. Treatment of the cost of removal of overburden of mines as deferred revenue.
3. Treatment of liability on account of "Employees Benefit Scheme" as deferred revenue.
4. Disallowance of PF dues under Section 43B of the Income Tax Act.
5. Treatment of bond issue expenses as deferred revenue expense.
6. Disallowance of interest payable to KFW Germany.
7. Depreciation on mining rights.

Issue-wise Detailed Analysis:

1. Unilateral Writing Down of Assets:
The assessee received loans from the Steel Development Fund (SDF) and the Government of India for acquiring plant and machinery. The loans were waived, and the assessee used the waived amount to write down the cost of its fixed assets. The Assessing Officer (AO) treated this as a grant or subsidy, reducing the depreciation allowance. The CIT (A) upheld this view, referencing Explanation 10 to Sec. 43(1) of the Income Tax Act, which states that the cost of assets met directly or indirectly by the Government should be reduced. The ITAT confirmed the AO's decision, citing previous decisions and legal precedents that support the reduction of the asset cost by the amount of the waived loan for depreciation purposes.

2. Cost of Removal of Overburden of Mines:
The AO treated the cost of removing overburden as deferred revenue expenditure, spreading it over five years. The CIT (A) upheld this decision, following previous years' rulings. However, the ITAT referenced a previous decision (ITA No.2782/Del/2004) which allowed such expenses as revenue expenditure in the year incurred. Consequently, the ITAT directed the AO to allow the expenditure in the year it was incurred.

3. Employees Benefit Scheme:
The AO treated the liability under the "Employees Benefit Scheme" as deferred revenue expenditure, allowing only 20% of it. The CIT (A) upheld this decision. The ITAT, referencing a previous decision (ITA No.2782/Del/2004), agreed with the AO, stating that the liability was ascertainable annually and should not be claimed in full in one go. Thus, the ITAT dismissed the assessee's appeal on this ground.

4. Disallowance of PF Dues under Section 43B:
The AO disallowed PF dues deposited beyond the due date but before the filing of the return. The CIT (A) upheld this decision. The ITAT, referencing the Supreme Court's decision in CIT vs. Vinay Cement Ltd. and CIT vs. Alom Extrusions Limited, ruled in favor of the assessee, allowing the PF dues as they were deposited before the return filing date.

5. Bond Issue Expenses:
The AO treated bond issue expenses as deferred revenue, allowing only 1/10th of the expenses under Section 35-D. The CIT (A) upheld this decision. The ITAT, referencing its previous decision (ITA No.2782/Del/2008), ruled in favor of the assessee, allowing the entire bond issue expenses as revenue expenditure in the year incurred.

6. Disallowance of Interest Payable to KFW Germany:
The AO disallowed 8% of the interest payable to KFW Germany, allowing only the remitted 0.75%. The CIT (A) upheld this decision. The ITAT, referencing its previous decision (ITA No.1927/Del/2004), ruled in favor of the assessee, directing the AO to allow the full interest at 8.75% as claimed.

7. Depreciation on Mining Rights:
The AO disallowed depreciation on mining rights, stating they were not enumerated as intangible assets under Section 32(1)(iii). The CIT (A) upheld this decision. The ITAT, referencing its previous decision (ITA No.1013/Del/2008), remanded the issue back to the AO to verify the acquisition date of the mining rights and determine if they qualify as intangible assets. The ITAT also directed the AO to consider if the expenditure could alternatively be treated as revenue expenditure.

General Grounds:
Grounds 8 and 9 were general in nature and did not require adjudication.

Conclusion:
The ITAT partly allowed the appeal for statistical purposes, providing specific directions on each issue based on legal precedents and statutory provisions.

← Previous Next →