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2014 (8) TMI 767 - AT - Income TaxRestriction of 1/5 VRS payment u/s 35DDA VRS expenses added to income of assessee Held that - CIT(A) has rightly decided the issue in accordance with the amended provisions of section 35DDA, w.e.f. 01/04/2001 i.e. AY 2001-2002 - the assessee has made payment of ₹ 1,35,47,324/- on account of VRS and the AO has allowed deduction to the extent of 1/5th i.e. ₹ 27,09,465/- and made the disallowance of ₹ 1,14,89,040/- because the assessee has claimed deduction for the entire amount on such VRS amount of ₹ 1,35,47,324 - the disallowance made by the AO and confirmed by the CIT(A) is in accordance with the provisions of section 35DDA Decided against Assessee. Entitlement for 100% depreciation on electric vehicles CIT(A) remanded matter for verification - Whether electric vehicles falls under the head Renewed Energy Saving Devices irrespective of the period to which it is put to use Held that - CIT(A) has rightly directed the AO to examine and verify the claim of the assessee and to disallow 50% claim of the assessee for depreciation in respect of those items which were used for less than 180 days in the present year - Regarding the opening balance also, he has directed the AO to verify the record of the assessment year 2001-02 and recompute the depreciation allowable by allowing 100% depreciation on opening WDV arrived at as on 01.04.2001 - The directions of the CIT(A) are in line with the provisions of 2nd proviso to clause (ii) of sub section (1) of section 32 of the Act Decided against Assessee. Payment of gratuity under LIC scheme u/s 43B Invocation of section 40A(7) Held that - Deduction is allowable if the provision is for the purpose of payment of a sum by way of any contribution towards approved gratuity fund relying upon Shree Sajjan Mills Ltd. Vs Commissioner of Income-tax 1985 (10) TMI 2 - SUPREME Court - the amount paid was nothing else but gratuity and merely because the scheme had been mentioned as Gratuity Insurance Assurance Scheme, it does not make any difference and the provisions of section 40A(7) would be attracted as the fund had not been recognized by the Department - the deduction is not allowable u/s 36(1)(v) either and the same is not allowable u/s 36(1)(v) also because deduction is allowable u/s 43B of the Act - the assessee could not show that payment of premium to LIC is payment to approved gratuity fund Decided against Assessee. Grant of electric vehicle sanctioned on 30.3.2002 Held that - Grant of ₹ 100 lac was sanctioned on 21/08/2001 but only ₹ 50 lac was disbursed initially and balance was to be disbursed on utilization of the first ₹ 50 lac and on furnishing of utilization certificate duly audited - It is noted by CIT(A) that on receipt of utilization certificate, the balance amount was disbursed as per letter dated 10/04/2002 and the draft was received by the assessee on 15/04/2002 - A grant which was received in the next AY cannot be utilized in the present year and as per the matching principle, this grant should be considered as income in the next year the order of the CIT(A) is set aside Decided in favour of Assessee. Crystallization of liability - Salary & Wages & Bonus and Power & Fuel prior paid expenses or not Held that - The issue has been decided by CIT(A) on the basis that the liability has crystallized in the present year and allowable in the present year revenue could not controvert the finding of CIT(A) and it is settled position that if liability relating to earlier year has crystallized in the present year then the same is allowable in the present year Decided against Revenue. Policy followed relating to Prior Period Adjustment A/c ignored Held that - The assessee is claiming expenses for the year solely on the grounds the vouchers concerned were passed in the current year and he has also given a finding that in none of the cases, it can be said that the liability arose in the year under consideration - it could not be shown by assessee assessee that these liabilities have crystallized during the present year Decided against Assessee. Interest subsidy on house building loans Expenses incurred wholly for business purpose or not Deletion of benevolent expenses - Held that - Following the decision in Shahzada Nand & Sons v. CIT 1977 (4) TMI 4 - SUPREME Court - the disallowance was made by the AO on the basis that the interest subsidy cannot be allowed as business expenditure - the interest subsidy to the employees is for maintaining harmonious relationship and welfare of the employees, which is nothing but business expenditure the order of the CIT(A) is upheld Decided against revenue. Bad and Doubtful Debts, Advances and others written off u/s 36(1)(vii) Held that - CIT(A) rightly decided that in addition to writing off the debt, the assessee has to establish that the amount of debt was taken into account in computing the income of the assessee of the previous year in which it is written off or of an earlier year as the assessee could not establish that the amount was considered as income by the assessee in the previous year or in any earlier year - as per sub section (2) of section 36, deduction is not allowable to the assessee u/s 36(1)(vii) of the Act Decided against Assessee.
Issues Involved:
1. Deduction of VRS payment under Section 35DDA. 2. Depreciation on electric vehicles. 3. Disallowance of gratuity payment under Section 40A(7). 4. Treatment of grant for electric vehicles. 5. Prior year expenses. 6. Interest subsidy on house building loans. 7. Benevolent expenses. Issue-wise Detailed Analysis: 1. Deduction of VRS Payment under Section 35DDA: The assessee contested the disallowance of the entire VRS payment of Rs. 1,35,47,324, claiming a deduction for the full amount. The CIT(A) and the Assessing Officer allowed only 1/5th of the amount as per Section 35DDA, which mandates that only 1/5th of the VRS payment can be deducted in the year of payment, with the balance spread over the next four years. The tribunal upheld this decision, finding no infirmity in the CIT(A)'s order. 2. Depreciation on Electric Vehicles: The assessee claimed 100% depreciation on electric vehicles. The CIT(A) restricted the depreciation to 50% for assets used for less than 180 days, as per the second proviso to Section 32(1)(ii). The tribunal upheld the CIT(A)'s decision, directing the Assessing Officer to verify the period of use and recompute the depreciation accordingly. 3. Disallowance of Gratuity Payment under Section 40A(7): The assessee's claim for deduction of gratuity payments to LIC was disallowed by the Assessing Officer and CIT(A) under Section 40A(7), as the payment was not to an approved gratuity fund. The tribunal upheld this disallowance, citing the Supreme Court's decision in Shree Sajjan Mills Ltd. v. CIT, which required the fund to be recognized by the Department. 4. Treatment of Grant for Electric Vehicles: The assessee received a grant of Rs. 50,00,000 for electric vehicles, which was treated as income in the year of receipt by the Assessing Officer. The CIT(A) upheld this treatment, stating that the grant had accrued to the assessee. However, the tribunal reversed this decision, applying the matching principle and holding that the grant should be considered as income in the year it was utilized. 5. Prior Year Expenses: The assessee claimed prior year expenses, which were disallowed by the Assessing Officer and CIT(A) on the grounds that the liabilities did not crystallize in the current year. The tribunal upheld this disallowance, agreeing that the expenses related to earlier years and were not allowable solely because the vouchers were passed in the current year. 6. Interest Subsidy on House Building Loans: The assessee claimed an interest subsidy on house building loans as a business expense. The CIT(A) allowed this deduction, citing the principle of commercial expediency and the decision in CIT v. E.I.D. Parry India Ltd. The tribunal upheld this decision, recognizing the subsidy as a business expenditure for maintaining harmonious employee relations. 7. Benevolent Expenses: The assessee claimed benevolent expenses for employee welfare. The CIT(A) allowed this deduction, again citing commercial expediency and the decision in CIT v. E.I.D. Parry India Ltd. The tribunal upheld this decision, considering the expenses as business expenditure. Separate Judgments Delivered: - The tribunal delivered separate judgments for each assessment year and issue, either upholding or reversing the decisions of the CIT(A) and the Assessing Officer based on the merits of each case and relevant legal provisions. Conclusion: In summary, the tribunal provided a detailed and issue-wise analysis, upholding the CIT(A)'s decisions on most issues but reversing on the treatment of grants for electric vehicles based on the matching principle. The decisions were consistent with the relevant legal provisions and judicial precedents.
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