2018 (9) TMI 1899 - AT - Income Tax

Disallowance of provision of leave encashment u/s 43B(f) for want of actual payment - HELD THAT - Both parties inform us during the course of hearing that hon'ble jurisdictional high court s decision in Exide Industries Ltd. vs. Union of India 2007 (6) TMI 175 - CALCUTTA HIGH COURT quashing the statutory provision itself to be ultra vires. Hon'ble apex court 2009 (5) TMI 894 - SC ORDER has stayed operation thereof vide order dated 08.05.2009. It further emerges that this tribunal s order in assessee s case itself in preceding assessment year 2018 (4) TMI 1757 - ITAT KOLKATA has restored the very issue back to the Assessing Officer to be decided afresh after awaiting final order of hon'ble apex court. We adopt the same course of action in the impugned assessment year as well. The assessee s instant former substantive ground is restored back to the Assessing Officer to be decided afresh after the final outcome in Revenue s appeal in Exide Industries Ltd. Exclusion of sales tax incentive and state capital investment subsidy availed during the year being capital in nature in computing book profits section 115JB - HELD THAT - The undisputed fact is that the incentive received by assessee is not in the nature of income earned during the course of business. Therefore, in our considered view, same cannot be regarded as income for the purpose of MAT u/s 115JB of the Act. Thus, the amount of incentive received by assessee should be excluded from the determination of book profit under the provision of Section 115JB of the Act. Thus, we reverse the order of Ld. CIT(A). and direct the AO to delete the same. This ground of assessee s appeal is allowed. Section 14A r.w. 8D disallowance of administrative expenditure - HELD THAT - CIT(A) has followed this tribunal s decision in REI Agro Ltd. vs. DCIT 2013 (9) TMI 156 - ITAT KOLKATA holding that only dividend yielding investments are to be considered for computing administrative expenditure disallowance as upheld in hon'ble jurisdictional high court. The CIT(A) has admittedly directed the Assessing Officer to adopt the same formula in impugned assessment year. DR fails to pin-point any irregularity or illegality therein during the course of hearing.

Summary

Issues Involved:
1. Disallowance of provision for leave encashment under Section 43B(f) of the Income Tax Act.
2. Exclusion of sales tax incentive and state capital investment subsidy from book profits under Section 115JB of the Act.
3. Deletion of addition made by the Assessing Officer in respect to sales tax remission and state capital investment subsidy.
4. Section 14A read with Rule 8D disallowance of administrative expenditure.

Issue-wise Detailed Analysis:

1. Disallowance of Provision for Leave Encashment under Section 43B(f):
The assessee's appeal challenged the disallowance of ?87,13,450/- for leave encashment under Section 43B(f) due to non-payment. Both parties acknowledged that the jurisdictional High Court had quashed this statutory provision in Exide Industries Ltd. vs. Union of India, but the Supreme Court stayed this decision. The Tribunal had previously restored this issue to the Assessing Officer for a fresh decision pending the Supreme Court's final order. The same course of action was adopted for this assessment year, restoring the issue back to the Assessing Officer.

2. Exclusion of Sales Tax Incentive and State Capital Investment Subsidy from Book Profits under Section 115JB:
The assessee challenged the non-exclusion of ?4,14,13,831/- (sales tax incentive) and ?18,20,000/- (state capital investment subsidy) from book profits under Section 115JB. The Tribunal noted that similar issues were upheld in the preceding assessment year, recognizing these incentives as capital in nature and not taxable under normal provisions. The Tribunal referenced the case of Sicpa India (P) Ltd. vs. DCIT and the Supreme Court's decision in CIT vs. Chaphal Kar Brothers, which supported the exclusion of such subsidies from book profits. Consequently, the Tribunal directed the Assessing Officer to exclude these amounts from the book profits.

3. Deletion of Addition Made by the Assessing Officer in Respect to Sales Tax Remission and State Capital Investment Subsidy:
The Revenue's appeal contested the CIT(A)'s deletion of ?84,65,932/- added by the Assessing Officer, treating the sales tax remission and state capital investment subsidy as revenue receipts. The CIT(A) had followed previous findings from the assessment year 2010-11, which were upheld by the Tribunal. The Tribunal noted that the assessee had succeeded on this issue in earlier years (2005-06 and 2008-09) and found no distinction in facts or law. Therefore, the Tribunal declined the Revenue's appeal, maintaining judicial consistency.

4. Section 14A Read with Rule 8D Disallowance of Administrative Expenditure:
The Revenue's appeal sought to revive a disallowance of ?30,21,750/- under Section 14A read with Rule 8D for administrative expenses. The CIT(A) had followed the Tribunal's decision in REI Agro Ltd. vs. DCIT, which held that only dividend-yielding investments should be considered for such disallowance. The CIT(A) directed the Assessing Officer to apply this formula, and the Tribunal found no irregularity in this approach. Since the Revenue had lost on this issue in the preceding year, the Tribunal rejected the Revenue's appeal.

Conclusion:
The assessee's appeal was partly accepted, leading to the restoration of the leave encashment issue to the Assessing Officer and the exclusion of sales tax incentives and subsidies from book profits. The Revenue's cross-appeal was dismissed, upholding the CIT(A)'s decisions on the nature of the incentives and the Section 14A disallowance. The order was pronounced in the open court on 12/09/2018.