2015 (2) TMI 979 - AT - Income Tax

Deduction under section 80-IA - AO disallowed claim on the reason that the assessee has not complied with the provisions of section 80-IA(4)(iv)(c) also confirmed by CIT(A) - Held that - the assessee's claim of capitalisation of expenditure incurred on renovation and modernisation in the books of account is a condition precedent for allowing the claim of deduction under section 80IA(4)(iv)(c) of the Act. In the present case, since the plant and machinery used for transmission and distribution of electricity has been acquired from Tata Tea Ltd., it cannot be said that the book value appearing in the books of Tata Tea Ltd. as on April 1, 2004 relates to the assessee-company. Being so, in our opinion the assessee has not complied with the provisions of section 80-IA(4)(iv)(c) of the Income-tax Act. Further, we make it clear that income so increased on disallowance of deduction under section 80-IA(4)(iv) of the Income-tax Act, is to be considered as income from plantation of tea only - Decided against the assessee. Restriction on allowance u/s 43B - Held that - In the present case, the contribution to the approved gratuity fund cannot be allowed. Being so, the Commissioner of Income-tax (Appeals) is justified in disallowing the same. The claim of the assessee that for invoking the provisions of section 43B, actual payment is to be allowed. This argument of the assessee is totally misconstrued. Only the expenditure relevant to the assessment year under consideration is to be allowed. Being so, we do not find any infirmity in the order of the Commissioner of Income-tax (Appeals). - Decided against assessee. Alternative claim that in the event of disallowance, it should be considered as part of the income from tea business - relied on the judgment of Karimtharuvi Tea Estates Ltd. v. State of Kerala 1962 (11) TMI 44 - SUPREME COURT - Held that - If the assessee claimed as expenditure relevant to the tea business, then, it should be considered as income of the tea business only. Disallowance of provision made for dearness allowance - the liability is unascertained and is to be treated as contingent liability - Held that - If this amount is claimed as relating to tea business as a expenditure on adding back the same to the income of the assessee, then it is to be treated as income from tea business only. With this observation, we dismiss this ground.

Summary

Issues Involved:
1. Deduction under Section 80-IA of the Income-tax Act.
2. Disallowance of gratuity contribution.
3. Disallowance of provision for dearness allowance.

Issue-wise Detailed Analysis:

1. Deduction under Section 80-IA of the Income-tax Act:

The assessee, engaged in the business of growing, manufacturing, and selling tea, claimed a deduction under Section 80-IA amounting to Rs. 58,91,000. The Assessing Officer disallowed the deduction, reasoning that the assessee did not comply with Section 80-IA(4)(iv)(c). The Officer noted that the plant and machinery used for electricity distribution were acquired from Tata Tea Ltd. and were not set up for the generation or distribution of power, thus not fulfilling the conditions of Section 80-IA(4).

On appeal, the Commissioner of Income-tax (Appeals) upheld the disallowance, observing that the assessee was not a new industrial undertaking and the business was transferred from Tata Tea Ltd., making it an old business. The Commissioner noted that the assessee did not meet the requirement of "substantial renovation and modernisation" as the expenditure did not increase the plant and machinery's book value by 50% as required by the Explanation to Section 80-IA(4)(iv).

The Tribunal agreed with the lower authorities, emphasizing that the plant and machinery were acquired from Tata Tea Ltd. and the book value as on April 1, 2004, did not relate to the assessee. Consequently, the assessee did not comply with the provisions of Section 80-IA(4)(iv)(c), and the claim for deduction was rejected. The Tribunal also clarified that the increased income from disallowance should be considered as income from tea plantation.

2. Disallowance of Gratuity Contribution:

The Assessing Officer disallowed the gratuity contribution of Rs. 72,15,856 claimed by the assessee, as it was not certified by the auditors and was only claimed in the computation of total income. The Commissioner of Income-tax (Appeals) upheld the disallowance, noting that the amount was adjusted from the gratuity fund and included under loans and advances, making it inadmissible under Section 43B.

The Tribunal concurred with the Commissioner, stating that each assessment year is independent, and only the expenditure relating to that year should be allowed. Since the contribution was not actually paid and was only an adjustment, it could not be allowed as an expenditure. The Tribunal also agreed that the disallowed amount should be considered as part of the income from the tea business.

3. Disallowance of Provision for Dearness Allowance:

The Assessing Officer disallowed the provision for dearness allowance of Rs. 2.93 crores, considering it an unascertained contingent liability, as the liability would crystallize only after the High Court's final decision on the minimum wages notification.

The Commissioner of Income-tax (Appeals) confirmed the disallowance, noting that Rs. 51,66,192 related to statutory bonus and provident fund contributions had already been disallowed under Section 43B, leading to double disallowance. The Commissioner held that the provision was a contingent liability and should be added back to the central income.

The Tribunal rejected the assessee's appeal, noting that no reason was provided for not pressing this ground before the lower authorities. However, the Tribunal agreed that the disallowed amount should be treated as income from the tea business for the purpose of applying Section 33AB read with Rule 8 of the Income-tax Rules.

Conclusion:

The Tribunal partly allowed the appeal, rejecting the claims for deductions and disallowances but agreeing to treat the disallowed amounts as income from the tea business. The judgment was pronounced on September 19, 2014.