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2013 (11) TMI 934 - AT - Income TaxDisallowance of extra ordinary expenses - Payment under VRS scheme - Held that - payments made under the Voluntary Retirement Scheme was the expenditure incurred by the assessee to save expenses and it was not referable to any income yielding asset. It was held that the said expenditure thus should be allowed in its entirety in the year in which it was incurred and the same could not be spread over a number of years. It was also held that the expenditure incurred by the assessee relating to Voluntary Retirement Scheme as well as on account of gratuity was revenue expenditure and the same was allowable as deduction in the year in which it was actually incurred - Following decision of Commissioner of Income-tax v. Bhor Industries Ltd. 2003 (2) TMI 20 - BOMBAY High Court - Decided against Revenue. Disallowance of interest - Loan taken for new factory - Held that - loans had been obtained for the purpose of assessee s business and the fact that the particular portion of the business for which the loans were obtained had been transferred or closed down did not alter the fact that the loans, when obtained had been for the purpose of the assessee s business - CIT(A) was fully justified in allowing the claim of the assessee on interest paid on capital borrowed for the purpose of new glass factory set up by the assessee at Jambusar in Gujarat which was nothing but expansion of the assessee s existing business - Following decision of Veecumsees v. Commissioner of Income-tax 1996 (4) TMI 6 - SUPREME Court - Decided against Revenue. Disallowance of expenditure - Closure of factory - Held that - Thane unit was closed by the assessee as a business necessity arising out of statutory compulsion. As further found by him, the business carried on in the said unit was not discontinued but shifted to other places. Having taken note of these facts, the ld. CIT(A) held that the ratio of the decision of Hon ble Supreme Court in the case of K. Ravindranathan Nair (2000 (11) TMI 3 - SUPREME Court) was clearly applicable to the facts of the assessee s case and accordingly he directed the A.O. to allow the deduction claimed by the assessee on account of expenses pertaining to the closed Thane factory u/s 37(1) of the Act. At the time of hearing, the ld. D.R. has not been able to bring anything on record to controvert or rebut the finding of fact recorded by the ld. CIT(A) on this issue - Decided against Revenue. Computation of profit u/s. 115JA Held that - P&L Account prepared by the assessee for the purpose of 115JA of the Act has been duly certified by the Chartered Accountant. There is no complaint that the same is not in accordance with provisions of part II & Part II of Schedule VI of the Companies Act 1956. As rightly pointed out by the assessee the only restriction in 115JA(2) is regarding the depreciation which has to be in conformity with the method adopted under Companies Act. There is however, departure in section 115JB(2) of the Act which provides that the accounting policies and accounting standards adopted while preparing P&L Account for section 115JB of the Act should correspond to the one adopted for the purpose of Companies Act 1956 - Decided against Revenue. Assessee provided funds for establishing drinking water facilities to the residents in the vicinity of the refinery and also provided aid to the school run for the benefit of the children of those local residents - Monies spent for bringing drinking water as also for establishing or improving the school meant for the residents of the locality in which the business is situated cannot be regarded as being wholly outside the ambit of the business concerns of the assessee, especially where the undertaking owned by the assessee is one which is to some extent a polluting industry such expenditure are allowable.
Issues Involved:
1. Deletion of disallowance of expenses incurred on VRS payments. 2. Deletion of disallowance of interest on loan taken for a new glass factory. 3. Acceptance of the assessee's decision not to claim depreciation on assets taken over on amalgamation. 4. Allowance of depreciation on assets of bulk drug division. 5. Deletion of disallowance of expenses on closure of Thane factory. 6. Deletion of disallowance of interest attributable to investment in tax-free bonds. 7. Deletion of addition of debenture redemption reserve while computing book profit u/s 115JA. 8. Deletion of additions on account of VRS expenses, Thane factory closure expenses, and loss on termination of lease while computing book profit u/s 115JA. 9. Disallowance of community development expenses. 10. Disallowance of provision for bad and doubtful debts. 11. Disallowance of payments made to foreign technicians. 12. Alternative claim for depreciation on repairs to the building held to be capital in nature. Detailed Analysis: 1. Deletion of Disallowance of Expenses Incurred on VRS Payments: The Revenue challenged the deletion of Rs. 15,25,73,928/- by the CIT(A) on account of VRS payments, treating them as capital expenditure. The Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's ruling in Commissioner of Income-tax v. Bhor Industries Ltd., which held that VRS payments are revenue expenditures, allowable in the year incurred. 2. Deletion of Disallowance of Interest on Loan Taken for a New Glass Factory: The Revenue contested the deletion of Rs. 21,70,43,477/- by the CIT(A) related to interest on loans for a new glass factory. The Tribunal affirmed the CIT(A)'s decision, citing the Supreme Court's ruling in Veecumsees v. Commissioner of Income-tax, which allowed interest on loans for business expansion as deductible under section 36(1)(iii). 3. Acceptance of the Assessee's Decision Not to Claim Depreciation on Assets Taken Over on Amalgamation: The Revenue's challenge regarding the non-claim of depreciation on assets taken over on amalgamation was dismissed. The Tribunal followed its previous ruling in the assessee's case for A.Y. 1997-98, which supported the assessee's stance based on the Supreme Court's judgment in CIT v. Mahindra Mills, allowing the assessee the option not to claim depreciation. 4. Allowance of Depreciation on Assets of Bulk Drug Division: The Tribunal upheld the CIT(A)'s decision to allow depreciation on the assets of the bulk drug division taken over from Sumitra Pharmaceuticals & Chemicals Ltd., following its earlier rulings for A.Y. 1996-97 and 1997-98, which treated the market value of assets as the cost for depreciation purposes. 5. Deletion of Disallowance of Expenses on Closure of Thane Factory: The Tribunal supported the CIT(A)'s deletion of Rs. 2,84,10,992/- related to the closure of the Thane factory. It agreed that the closure was a business necessity and the expenses were allowable under section 37(1), referencing the Supreme Court's decision in K. Ravindranathan Nair v. CIT. 6. Deletion of Disallowance of Interest Attributable to Investment in Tax-Free Bonds: The Tribunal upheld the CIT(A)'s deletion of Rs. 1,32,44,720/- disallowed by the A.O. as interest attributable to tax-free bonds, finding that the investments were made from the assessee's own funds, not borrowed funds. 7. Deletion of Addition of Debenture Redemption Reserve While Computing Book Profit u/s 115JA: The Tribunal confirmed the CIT(A)'s decision to delete the addition of Rs. 10.60 crores for debenture redemption reserve, referencing its previous ruling for A.Y. 1997-98 that treated such reserves as provisions for ascertained liabilities. 8. Deletion of Additions on Account of VRS Expenses, Thane Factory Closure Expenses, and Loss on Termination of Lease While Computing Book Profit u/s 115JA: The Tribunal dismissed the Revenue's appeal, following the Supreme Court's decision in Apollo Tyres Ltd. v. CIT, which limited the A.O.'s power to alter the book profits certified under the Companies Act, thus supporting the CIT(A)'s deletions. 9. Disallowance of Community Development Expenses: The Tribunal allowed the assessee's claim for community development expenses of Rs. 14,42,654/-, citing the Madras High Court's ruling in CIT v. Madras Refineries Ltd., which recognized such expenses as deductible business expenditures. 10. Disallowance of Provision for Bad and Doubtful Debts: The Tribunal remanded the issue back to the A.O. for verification in light of the Supreme Court's decision in Vijaya Bank v. CIT, which requires actual write-off of bad debts for deduction under section 36(1)(vii). 11. Disallowance of Payments Made to Foreign Technicians: The Tribunal allowed the deduction of Rs. 1,72,900/- for payments to foreign technicians, noting that the bill was received in the relevant year, thus justifying the expense in the current assessment year. 12. Alternative Claim for Depreciation on Repairs to Building Held to be Capital in Nature: The Tribunal admitted the additional ground and directed the A.O. to allow depreciation on the capitalized value of repairs to the building, following its previous order for A.Y. 1997-98. Conclusion: The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objections, providing relief on multiple grounds, including the treatment of VRS payments, interest on loans, depreciation claims, and community development expenses.
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