2015 (11) TMI 1799 - AT - Income Tax

Disallowance u/s. 43B(f) being provision made for leave salary/compensated absence as per actuarial valuation - HELD THAT - As decided in own case 2014 (10) TMI 154 - ITAT MUMBAI wherein direct the AO to allow the claim of provisions for leave salary - appeal are decided in favour of the assessee-company. Disallowance u/s. 14A in respect of other expenses - HELD THAT - We find that the AO has made disallowance u/s. 14A with regard to other expenses, that he had applied provisions of Rule 8D of the Rules. The Hon ble Jurisdictional High Court has held that said Rule could be applicable from AY. 2008-09 only. In these circumstances, we are of the opinion that, in the interest of justice, the matter should be restored back to the file of the AO for fresh adjudication. He is directed to afford a reasonable opportunity of hearing to the assessee and decide the issue afresh. Ground No. 2 is allowed in favour of the assessee, in part. Provision made for pension liability as per actuarial valuation disallowed - AR contended that the liability was disallowed without any basis, that the AO/FAA had not disputed the crystallization of the liability that the same was allowable - HELD THAT - We find that the assessee had claimed deduction for the provisions made under the head pension liability, that the figure was arrived at as per the actuarial valuation. We are of the opinion that after the decision of Bharat Earth Movers, 2000 (8) TMI 4 - SUPREME COURT the issue of crystallised liability has been decided conclusively by the Hon ble Supreme Court. Decided in favour of the assessee . Disallowance u/s. 40(a)(ia) towards provision made for expenses at the year-end as per best estimates - HELD THAT - Assessee had made provisions but had not received the bills, that in the subsequent year the provisions made by it were offered for taxation. Considering these facts and following the orders of the Tribunal in the case of Mahindra Mahindra Ltd. 2013 (9) TMI 522 - ITAT, MUMBAI Industrial Development Banking Company 2006 (7) TMI 248 - ITAT BOMBAY-H we decide ground no. 2 in favour of the assessee. Deduction u/s. 80IA ad 80IB on account of allocation of head office expenses - HELD THAT - As decided in own case interest income earned by the 100%EOU and allocation of head office expenses of other division have been decided in favour of the assessee-company. Depreciation of goodwill on acquisition of Madura Garments division on-going-concern-basis - HELD THAT - As decided in own case 2013 (11) TMI 1241 - ITAT MUMBAI we direct the AO to allow the claim of depreciation on Goodwill. Exemption from taxable profits and to treat the same as capital receipt - HELD THAT - We find that the assessee during the assessment proceedings had made the claim about sales tax exemption, relying upon the decision of Reliance Industries delivered by the Special Bench of the Tribunal 2003 (10) TMI 255 - ITAT BOMBAY-J that the AO and the FAA held that the amount in question was directly linked with the running and operation of the business. The FAA also held that claim was not made by filing a revised return. In our opinion for making a fresh claim before the appellate authority the assessee is not required to file revised return as held by the Hon ble Bombay High Court in the case of Prithvi Brokers 2012 (7) TMI 158 - BOMBAY HIGH COURT . However, the AO cannot accept a fresh claim without a revised return. The assessee had requested the FAA for relief. In our opinion the FAA was not justified to reject the claim on that ground. Now, coming to the merits of the case as to whether the incentive received by the assessee could be treated as capital receipt or not we would like to mention that the assessee had made the claim relying upon the decision of the Special Bench in the case of Reliance Industries. We find that the matter had travelled to the Hon'ble Supreme Court and it was restored back to Hon ble High Court 2009 (4) TMI 516 - BOMBAY HIGH COURT with certain directions. Therefore, we are of the opinion that in the interest of justice, the matter should be restored back to the file of the FAA who would analyse the provisions of the scheme in light of the decision of the Hon ble Apex Court Sale of certified emission reduction(CER) - treated as revenue receipts and liable to tax and to treat the same as capital receipt not chargeable to tax - HELD THAT - As relying on MY HOME POWER LTD. 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT assessee is carrying on the business of power generation. The carbon credit is not even directly linked with power generation. On the sale of excess carbon credits the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or income. In the circumstances, we do not find any element of law in this appeal. Addition made on account of general expenses incurred on buy back of shares - Expenditure on issuance of bonus shares is revenue expenditure. See GENERAL INSURANCE CORPORATION 2006 (9) TMI 116 - SUPREME COURT

Issues Involved:

1. Disallowance under section 43B(f) for leave salary.
2. Disallowance under section 14A in respect of other expenses.
3. Disallowance for provision made for pension liability.
4. Disallowance under section 40(a)(ia) towards provision made for expenses.
5. Reduction of deduction under sections 80IA and 80IB on account of allocation of head office expenses.
6. Depreciation on goodwill on acquisition of Madura Garments division.
7. Exemption of sales tax/VAT collected from purchasers.
8. Treatment of income from the sale of certified emission reductions (CERs).
9. Interest charged under section 234D.
10. Additional grounds raised by the assessee regarding disallowance under section 14A and treatment of interest subsidy under Technology Upgradation Fund Scheme (TUFS).
11. Deletion of Modvat Credit in closing stock.
12. Deletion of addition made on account of general expenses incurred on the buyback of shares.

Detailed Analysis:

1. Disallowance under section 43B(f) for leave salary:
The Tribunal found that the issue of disallowance under section 43B(f) for leave salary had been decided in favor of the assessee in previous assessment years. It was held that the provision for leave salary is not a statutory liability but a contractual one, payable only if the employee resigns or retires. The Tribunal directed the Assessing Officer (AO) to allow the claim of provisions for leave salary, following the decision of the Hon'ble Supreme Court in Bharat Earth Movers. Consequently, the ground was decided in favor of the assessee.

2. Disallowance under section 14A in respect of other expenses:
The Tribunal noted that the AO had applied Rule 8D while making the disallowance for the year under appeal, which was applicable from the next assessment year (2008-09). The Tribunal restored the matter back to the AO for fresh adjudication, directing the AO to afford a reasonable opportunity of hearing to the assessee. Ground No. 2 was allowed in part.

3. Disallowance for provision made for pension liability:
The Tribunal found that the liability for pension was crystallized and allowable as per the decision of the Hon'ble Supreme Court in Bharat Earth Movers. The provision made for pension liability was based on actuarial valuation and was not considered a contingent liability. The ground was decided in favor of the assessee.

4. Disallowance under section 40(a)(ia) towards provision made for expenses:
The Tribunal held that TDS provisions were not applicable for provisions made at the year-end when the payee was not known. Following the decisions in Mahindra & Mahindra Ltd. and Industrial Development Banking Company, the Tribunal decided the ground in favor of the assessee.

5. Reduction of deduction under sections 80IA and 80IB on account of allocation of head office expenses:
The Tribunal found that the issue had been decided in favor of the assessee in previous assessment years. It was held that head office expenses should not be allocated to the profits derived from eligible units for computing deductions under sections 80IA and 80IB. The ground was decided in favor of the assessee.

6. Depreciation on goodwill on acquisition of Madura Garments division:
The Tribunal noted that the issue of depreciation on goodwill had been decided in favor of the assessee in previous assessment years. Following the decision of the Tribunal in earlier years, the ground was decided in favor of the assessee.

7. Exemption of sales tax/VAT collected from purchasers:
The Tribunal restored the matter back to the file of the First Appellate Authority (FAA) to analyze the provisions of the scheme in light of the decision of the Hon'ble Supreme Court. The ground was partly allowed.

8. Treatment of income from the sale of certified emission reductions (CERs):
The Tribunal followed the decision of the Hon'ble Andhra Pradesh High Court in My Home Power Ltd., which held that income from the sale of CERs is a capital receipt and not taxable. The ground was decided in favor of the assessee.

9. Interest charged under section 234D:
The Tribunal noted that the issue was consequential in nature and did not adjudicate on it.

10. Additional grounds raised by the assessee regarding disallowance under section 14A and treatment of interest subsidy under Technology Upgradation Fund Scheme (TUFS):
The Tribunal restored the issue of disallowance under section 14A to the file of the AO. Regarding the interest subsidy under TUFS, the Tribunal restored the matter to the file of the FAA for fresh adjudication, allowing the additional ground in part.

11. Deletion of Modvat Credit in closing stock:
The Tribunal found that the issue had been decided in favor of the assessee in previous assessment years, following the decision of the Hon'ble Supreme Court in Indo Nippon Chemicals Co. Ltd. The ground was decided against the AO.

12. Deletion of addition made on account of general expenses incurred on the buyback of shares:
The Tribunal noted that the issue pertained to the issuance of bonus shares, not the buyback of shares, and followed the decision in GIC, holding that the expenditure on the issuance of bonus shares is revenue expenditure. The ground was decided against the AO.

Conclusion:
The appeal filed by the assessee was partly allowed, and the appeal filed by the AO was dismissed. The Tribunal directed the AO and FAA to re-adjudicate certain issues, providing a reasonable opportunity of hearing to the assessee. The significant issues were decided following precedents from previous assessment years and judgments from higher courts.

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