2010 (1) TMI 908 - AT - Income Tax

Disallowance of belated payment of Employees P.F. and E.S.I.C. u/s 36 (1)(va) - held that - following the decision of apex court in CIT vs Alom Extrusions Ltd. (2009 -TMI - 35073 - SUPREME COURT ) Employers/Employees contribution to P.F/ESIC if paid within the due date of filing of the return u/s 139(1) should be allowed and cannot be disallowed u/s 43B. Loss arising from exchange fluctuation - change in method of accounting in respect of foreign currency transactions - held that - the particulars of usage of funds in the subsequent year were not before the AO. We also feel that whether the loss in value of monies realised from issue of shares and kept abroad by the assessee abroad can be considered as business loss of the assessee has to be looked into. There are various aspects which require further investigation. - matter restored before AO. Levy of interst u/s 220(1) on enhanced MAT tax liability u/s 115JB - held that - Interest u/s 220(2) starts only after the demand is made and the assessee does not pay the amount within the permitted time. We therefore find no merit in the claim of the assessee that levy of interest u/s 220(2) is not correct on the tax arising from enhancement of the Book Profits. The appeal of the assessee on this issue is dismissed. Deduction u/s 35D / 35DD - expenses incurred towards increase in authorized share capital in connection with substantial expansion of assessee s business. - held that - Allowability of relief u/s 35DD has been made for the first time before the CIT(A). The AO has not been given an opportunity to examine the matter. - matter restored before AO. Expenditure on De-merger u/s 35DD - held that - all the particulars of expenses regarding demerger were not considered by the AO. Further the Demerger has taken place with effect from 1.4.2001. As per sec 35DD 1/5th of the expenses are allowable in that year and 4 successive Assessment Years. It is not clear whether the expenses were claimed in the earlier years and if so the result thereof. - matter restored before AO. Enhanced rate of depreciation on vehicles - 20% or 50% - commercial vehicles - held that - it is not necessary for the vehicle to be used for commercial purposes for claiming higher rate of depreciation. In fact cabs have been excluded from the definition of commercial vehicle as they are dealt with separately. - CIT(A) was correct in upholding the claim of the Assessee for depreciation @ 50% in respect of motor vehicles acquired after 1.4.2001 and used before 1.4.2002. Provision for doubtful debts - computation of book prifit u/s 115JB - MAT- held that - The retrospective amendment has nullified the decision of the Apex Court in the case of HCL Comnet (2008 -TMI - 30808 - SUPREME COURT). In view of the retrospective amendment to sec 115JB with introduction of explanation(i) w.e.f 1.4.2001 we allow the revenue s appeal and hold that in computing the Book Profits u/s 115JB the provision for doubtful debt and advances of Rs.595, 24, 304/- cannot be excluded and is required to be added back. computation of book prifit u/s 115JB - MAT - Adjustment of provision for wealth tax - held that - jurisdictional High Court in the case of Echjay Forgings Ltd (2001 -TMI - 13956 - BOMBAY High Court) has held that provision for wealth tax is not be added to the Book profits while computing Book Profits u/s 115J. The ratio will be equally be applicable to sec 115JB also.

Issues Involved:

1. Disallowance of belated payment of Employees P.F. and E.S.I.C.
2. Treatment of loss arising from exchange fluctuation.
3. Levy of interest u/s 220(2) on enhanced MAT Tax liability u/s 115JB.
4. Deletion of disallowance claimed u/s 35D by allowing assessee's alternate claim u/s 35DD.
5. Disallowance of expenses incurred u/s 35DD.
6. Higher rate of depreciation @ 50% vs. 20% for vehicles.
7. Deletion of disallowance of bad debts.
8. Deletion of disallowance of loss incurred on account of foreign exchange fluctuations.
9. Deletion of disallowance of various expenses on an adhoc basis.
10. Addition of provision for doubtful debts while computing Book Profit u/s 115JB.
11. Deduction u/s 80HHC while computing Book Profit u/s 115JB.
12. Deduction of "provision of Wealth Tax" while computing Book Profit u/s 115JB.

Detailed Analysis:

1. Disallowance of Belated Payment of Employees P.F. and E.S.I.C.:
The assessee's appeal against the disallowance of Rs. 4,32,752/- paid before the due date for filing the return u/s 139(1) was allowed. The Tribunal followed the High Court decisions in CIT vs Lakhani Rubber Works and CIT vs P.M. Electronics Ltd., holding that both employer's and employees' contributions to P.F./ESIC, if paid within the due date of filing the return, should be allowed and cannot be disallowed u/s 43B.

2. Treatment of Loss Arising from Exchange Fluctuation:
The issue of Rs. 1,57,05,866/- arising from exchange fluctuation was remitted back to the AO for fresh examination. The Tribunal noted that the AO did not have the particulars of usage of funds in the subsequent year and required further investigation to determine whether the loss can be considered as a business loss.

3. Levy of Interest u/s 220(2) on Enhanced MAT Tax Liability u/s 115JB:
The Tribunal upheld the levy of interest u/s 220(2) on the additions made to MAT u/s 115JB, stating that once the demand is made and not paid within the permitted time, the assessee is treated as in default, and interest is levied accordingly.

4. Deletion of Disallowance Claimed u/s 35D by Allowing Assessee's Alternate Claim u/s 35DD:
The Tribunal remitted the issue back to the AO for considering the alternate ground of the assessee for deduction u/s 35DD. The CIT(A) had allowed the alternate claim, but the AO had not been given an opportunity to examine the matter.

5. Disallowance of Expenses Incurred u/s 35DD:
The Tribunal remitted the issue back to the AO for further examination. The CIT(A) had allowed the claim based on circumstantial evidence and the hardship faced by the assessee due to floods, but the AO had not considered all particulars of expenses regarding the demerger.

6. Higher Rate of Depreciation @ 50% vs. 20% for Vehicles:
The Tribunal upheld the CIT(A)'s decision allowing depreciation @ 50% on motor vehicles acquired after 1.4.2001 and used before 1.4.2002, as per the provisions of the I.T. Rules. The classification includes light motor vehicles, not just commercial vehicles.

7. Deletion of Disallowance of Bad Debts:
The Tribunal upheld the CIT(A)'s decision allowing the claim of bad debts of Rs. 1.72 crores, following the Apex Court's decision in TRF Ltd vs CIT, which holds that the assessee is entitled to deduction of bad debts written off.

8. Deletion of Disallowance of Loss Incurred on Account of Foreign Exchange Fluctuations:
The Tribunal remitted the issue back to the AO for fresh examination, as the AO did not have an opportunity to examine the particulars about utilization provided by the assessee.

9. Deletion of Disallowance of Various Expenses on an Adhoc Basis:
The Tribunal upheld the CIT(A)'s decision deleting the adhoc disallowance of Rs. 30 lakhs, considering the extraordinary circumstances (floods) under which the assessee was unable to furnish supporting documents. The expenditures were audited and not found unreasonable.

10. Addition of Provision for Doubtful Debts While Computing Book Profit u/s 115JB:
The Tribunal allowed the revenue's appeal, holding that the provision for doubtful debts of Rs. 5,95,24,304/- must be added back while computing Book Profits u/s 115JB, following the retrospective amendment to sec 115JB by the Finance (No. 2) Act 2009.

11. Deduction u/s 80HHC While Computing Book Profit u/s 115JB:
The Tribunal dismissed the revenue's appeal, following the Apex Court's decision in Ajanta Pharma Ltd vs CIT, which allows deduction for exports based on Book profits.

12. Deduction of "Provision of Wealth Tax" While Computing Book Profit u/s 115JB:
The Tribunal upheld the CIT(A)'s decision that provision for wealth tax should not be added back while computing Book Profits u/s 115JB, following the jurisdictional High Court's decision in Eschjay Forgings Ltd.

Conclusion:
The assessee's appeal was allowed in part for statistical purposes, while the revenue's appeal was partly allowed. The Tribunal remitted several issues back to the AO for fresh examination and upheld the CIT(A)'s decisions on various points, including the allowance of bad debts, higher depreciation rates, and the exclusion of wealth tax provision from Book Profits.

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