2015 (3) TMI 838 - AT - Income Tax

Addition on account of extra ordinary item i.e. flood, cyclone fire etc - CIT(A) deleted the addition - Asstt.Year 2006-07 - Held that - The assessee has not furnished any details and explanation about the expenditure of ₹ 3,53,90,000/- being loss due to flood, cyclone, fire. The assessee could not justify its claim on the basis of material evidences with respect to the particular assets and its extent. It also could not justify and did not make any submission as to why these expenses have been claimed under the head extraordinary items . In view of the above, the asseessee's claim of ₹ 3,53,90,000/- under the head extra ordinary items cannot be allowed to it. Accordingly the same is disallowed and added back to its total income.Without prejudice to the above, such claim in absence of details furnished, may be for the revival of assets damaged / destroyed during the natural calamities therefore, such claim is of capital nature. Therefore also the claim is not allowable. - Decided against assessee. Disallowance of deduction for repairing of assets damaged due to floods - CIT(A) vacated the disallowance on the ground that the assessee had received financial assistance of ₹ 929 lakhs for repairing of its assets damaged due to flood and the assessee has claimed deduction of ₹ 353.90 lakhs on account of expenses incurred on repairs of flood damaged assets and the balance amount was shown as income in the year under consideration - Held that - The fact that the assessee suffered loss has not been disputed by the AO, and therefore, the AO was not justified in disallowing the entire amount of loss claimed by the assessee, and thereby inferring that no actual loss was suffered by the assessee.However, we also find that the details of the expenditure incurred or loss suffered due to flood as well as Misc. write off of ₹ 82.93 lakhs was not filed before the CIT(A) or before us also by the assessee. The CIT(A) deleted the disallowance on the ground that the accounts of the assessee was audited by the C&AG and without verifying the details of loss and write off by the assessee. Thus, in our considered view orders of both the authorities below cannot be sustained. We, therefore, in the interest of justice remit the matter back to the file of the AO for adjudication of the issue afresh after allowing the assessee reasonable opportunity of producing the details of expenses incurred or loss suffered as well as details of amount write off and after verification of details so furnished and if the assessee fails to furnish the details, by estimating the reasonable amount of loss which was suffered by the assessee on account of flood and write off of the amount. - Decided in favour of revenue for statistical purposes. Disallowance of claim of deduction for guarantee fee - CIT(A) deleted the addition - Held that - In the instant case, the assessee did not acquire any right to exploit a commercial technology or process, and neither was the benefit enduring , since the payment of guarantee commission was an annual charge. The benefit derived from payment of such commission thus lasted for exactly one year only. Such short lived benefit could not be categorized as enduring . Hence, inclined to the view that the payment of guarantee commission was revenue expenditure. Quite apart from the other sound reasons for treating the expenditure as revenue, it would be unrealistic to say that the appellant company could derive any undue advantage or collateral benefit by making such payment to the GOG. In view of the totality of the circumstances, the AO was not justified in treating the payment of guarantee commission as capital in nature - Decided against revenue. Disallowance of restructuring of loans - CIT(A) has allowed the claim of the assessee on the ground that benefits derived from the payment of commission lasted for one year only - Held that - It is not in dispute that the amount was paid by the assessee as guarantee commission for unsecured loans. Therefore, respectfully following the decision of the Hon ble Gujarat High Court in the case of Mihir Textile Ltd. (2000 (8) TMI 20 - GUJARAT High Court), we confirm the order of the CIT(A) and dismiss this ground of the Revenue for both the years under consideration. - Decided against revenue. Guarantee fees and Premium on debt restructuring - CIT(A) deleted the disallowance on the ground that it does not confer any enduring benefit and merely facilitate the assessee s business in more efficient manner - Held that - assessee relied of the decision of the Hon ble Gujarat High Court in the case of DCIT Vs. Gujarat Narmada Valley Fertilizers Ltd.,(2013 (8) TMI 300 - GUJARAT HIGH COURT ) wherein it was held that the expenditure incurred by the assessee on restructuring of loan was revenue expenditure. No contrary decision was cited by the learned DR. Therefore, respectfully following the decision we confirm the order of the CIT(A) and dismiss the ground of appeal of the assessee. - Decided against revenue. Addition on account of Employee s PF contribution - employees contribution to PF paid beyond the due date - CIT(A) deleted addition - Held that - AR of the assessee submitted that the AO has disallowed the deduction simply because the payments were not made to the credit of PF authorities within the due date prescribed under the PF Act. He submitted that under the PF Act, the payments can be made within 15 days from the deduction of PF contribution from the employees salary plus 5 grace days. The AO has not verified the payments made to the PF authorities according to this provision of the PF Act. He, therefore, submitted that the matter should be remitted back to the file of the AO for verification, and thereafter making the disallowance of payments, which are made beyond 15 days from the payment of salary to the employees plus 5 days grace period allowed under the PF Act.Thus set aside the orders of the lower authorities and remand the matter back to the file of the AO for adjudication of the issue afresh in the light of the discussion made hereinabove after providing reasonable opportunity to the assessee - Decided in favour of revenue for statistical purposes. Treatment of the provision for gratuity as unascertained liability and in enhancing the book profit by this amount - Held that - DR could cite any contrary decision. He could not controvert the findings of the CIT(A) that the provision for gratuity in the instant case was made by the assessee on actuarial valuation. Therefore, following the decision o the Hon ble Gujarat High Court in the case of DCIT Vs. Inox Leisure 2013 (2) TMI 353 - GUJARAT HIGH COURT wherein it was held that the provision of gratuity on the basis of acturial calculation was not to be added back under clause (c) to Explanation-1 below section 115JB of the I.T.Act, 1961. - Decided against revenue. Exclude the amount withdrawn from reserve in the computation of book profit u/s.115B -CIT(A) allowed the appeal of the assessee by observing that the profit carried to the balance sheet in the reserve account were those profit, which were arrived at after deducting tax and that under the proviso it was not necessary that the amount withdrawn from the reserve should be credited to the profit & loss account of the same year - Held that - as per Explanation-1 below section 115JB(2) clause (i) the profit as shown in the profit & loss account for the relevant previous year has to be reduced by the amount withdrawn from any reserve or provision, if any amount is credited to the profit & loss account. We find that a reading of the assessment order shows that the AO disallowed deduction claimed for amount withdrawn from reserves on the ground that the same was not credited in the profit & loss account of the year under consideration, and therefore, not included in the net profit as per the profit & loss account of the year. The CIT(A) deleted the addition without recording any finding whether the amount was included in the net profit of the year or not. Before us, copy of the audited profit and loss account was not filed by either of the party. In the absence of the same, we are not in a position to adjudicate the issue completely. We, therefore, in the interest of justice restore this issue back to the file of AO for adjudicating the same afresh - Decided in favour of revenue for statistical purposes. Re computation of the book profit for MAT by not reducing the claim for depreciation - Held that - is not in dispute that the assessee has claimed only that depreciation which was debited in its audited profit & loss account which was laid before the AGM. In our considered view, following the decision of the Hon ble Supreme Court in the case of Apollo Tyres Ltd. ( 2002 (5) TMI 5 - SUPREME Court) only those adjustments from net profit disclosed by such audited accounts can be made which are specified in Explanation to section 115JB. The depreciation not being a specified item in Explanation to section 115JB at the relevant time, we do not find any error in the order of the CIT(A) in directing the AO to recomputed the book profit for MAT by not reducing the claim for depreciation of ₹ 1.75 crores. - Decided against revenue. Disallowance under Section 14A read with rule 8D - Held that - It was mandatory for the AO to apply Rule 8D while computing the disallowance under section 14A of the Act. Therefore, CIT(A) correctly restored the matter to the file of the AO to verify the correct figure of interest and recalculate the disallowance, if necessary. - Decided against assessee.

Summary

Issues Involved:
1. Deletion of additions on account of extraordinary items (flood, cyclone, fire, etc.) for AY 2006-07 and AY 2007-08.
2. Disallowance of guarantee fees and premium on debt restructuring as capital expenditure.
3. Disallowance of employees' PF contributions paid beyond the due date.
4. Exclusion of provisions for gratuity for computation of book profit under section 115JB.
5. Exclusion of the amount withdrawn from reserves in the computation of book profit under section 115JB.
6. Reduction of book profit by not reducing the claim for depreciation.
7. Disallowance under section 14A for interest expenditure attributable to exempt dividend income.
8. Non-adjudication of ground relating to reduction of capital grants from the total cost of fixed assets.
9. Enhancement of book profit under section 115JB on account of disallowance made under section 14A.

Detailed Analysis:

1. Deletion of Additions on Account of Extraordinary Items:
For AY 2006-07, the AO disallowed Rs. 353.90 lakhs claimed by the assessee for repairing assets damaged due to floods, citing a lack of evidence. The CIT(A) deleted the addition, noting the financial assistance received from the government and the certification of expenses by C&AG. For AY 2007-08, a similar disallowance of Rs. 186.99 lakhs was made. The CIT(A) again deleted the addition, emphasizing the certification by C&AG and the inclusion of excess subsidy in taxable income. However, the Tribunal remitted the matter back to the AO for fresh adjudication after verifying the details of the expenses incurred.

2. Disallowance of Guarantee Fees and Premium on Debt Restructuring:
The AO disallowed Rs. 2057.03 lakhs for AY 2006-07 and Rs. 1650.87 lakhs for AY 2007-08, treating them as capital expenditure. The CIT(A) allowed the claims, stating the benefits derived were not enduring and lasted only for one year. The Tribunal upheld the CIT(A)'s decision, citing the Gujarat High Court's ruling in Mihir Textile Ltd. that guarantee commission is allowable as revenue expenditure. The Tribunal also upheld the CIT(A)'s decision on the premium for restructuring loans, following the Gujarat High Court's ruling in Gujarat Narmada Valley Fertilizers Ltd.

3. Disallowance of Employees' PF Contributions:
The AO disallowed Rs. 37.31 lakhs for AY 2006-07 and Rs. 5.23 lakhs for AY 2007-08 for late payment of employees' PF contributions. The CIT(A) deleted the disallowance, following the Delhi High Court's ruling in Aimil Ltd. that contributions paid before the due date for filing the return are allowable. The Tribunal remitted the matter back to the AO for verification of payment dates.

4. Exclusion of Provisions for Gratuity for Computation of Book Profit:
The AO added Rs. 3.68 lakhs for AY 2006-07 and Rs. 401.16 lakhs for AY 2007-08 to the book profit, treating them as unascertained liabilities. The CIT(A) deleted the additions, following the ITAT's decision in Etcher Motors Ltd. that provision for gratuity based on actuarial valuation is not an unascertained liability. The Tribunal upheld the CIT(A)'s decision, citing the Gujarat High Court's ruling in DCIT Vs. Inox Leisure.

5. Exclusion of Amount Withdrawn from Reserves in Computation of Book Profit:
The AO added Rs. 8890.87 lakhs to the book profit, stating it was not credited to the profit & loss account. The CIT(A) deleted the addition, noting the reserves were created from taxed profits. The Tribunal remitted the matter back to the AO for verification of whether the amount was credited to the profit & loss account.

6. Reduction of Book Profit by Not Reducing the Claim for Depreciation:
The AO enhanced the book profit by Rs. 1.75 crores, citing higher depreciation claims. The CIT(A) allowed the appeal, noting the depreciation was claimed as per CERC guidelines. The Tribunal upheld the CIT(A)'s decision, following the Supreme Court's ruling in Apollo Tyres Ltd. that adjustments to book profit are limited to specified items in section 115JB.

7. Disallowance under Section 14A for Interest Expenditure Attributable to Exempt Dividend Income:
The AO disallowed Rs. 113.55 lakhs under section 14A read with Rule 8D. The CIT(A) upheld the disallowance, following the Gujarat High Court's decision in Gujarat Urja Vikas Nigam Ltd. The Tribunal upheld the CIT(A)'s decision, stating the jurisdictional High Court's ruling must be followed.

8. Non-Adjudication of Ground Relating to Reduction of Capital Grants from Total Cost of Fixed Assets:
The AR of the assessee submitted that this ground was not adjudicated by the CIT(A). The Tribunal restored the issue to the CIT(A) for adjudication.

9. Enhancement of Book Profit under Section 115JB on Account of Disallowance Made under Section 14A:
The CIT(A) confirmed the enhancement of book profit by Rs. 113.55 lakhs, citing clause (f) of Explanation-1 to section 115JB. The Tribunal upheld the CIT(A)'s decision, as it was consequential to the disallowance under section 14A.

Conclusion:
The Tribunal remitted several issues back to the AO for fresh adjudication and upheld the CIT(A)'s decisions on others, ensuring compliance with judicial precedents and proper verification of facts.