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2019 (12) TMI 1272 - AT - Income TaxNature of expenditure - Non-compete fee paid - deferred revenue expenditure as per CIT-A as against capital as held by the Assessing Officer - HELD THAT - As fairly agreed by both the sides that the issue was now squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case in the Assessment Years 2003-04, 2005-06, 2006-07 2007-08 2016 (6) TMI 1388 - ITAT CHENNAI CIT(A) has not erred in holding that the non compete fees paid by the assessee is allowable as deferred revenue expenditure. We find no reason to interfere in the order of the learned CIT(A) on this issue. Consequently, Ground No.2.1 to 2.3 of the Revenue s appeal stands dismissed. Disallowance made u/s.40A(9) in respect of the assessee s contribution to the benevolent fund - HELD THAT - As in the assessee s own case 2016 (6) TMI 1388 - ITAT CHENNAI held that the contention of the appellant that contribution made by it to the Benevolent Fund constituted under a memorandum of settlement u/s 18(1) of the Industrial Act is statutory in nature and hence covered by exception provided under section 40A(9) is acceptable. Accordingly, direct the AO to allow contribution made by the appellant to the Benevolent Fund. The appellant, therefore, succeeds on this ground - Ground Nos.3.1 and 3.2 of the Revenue s appeals stands dismissed. Disallowance of provision of gratuity - an eligible deduction u/s.40A(7) or not? - HELD THAT - As perused the orders passed by the learned Assessing Officer giving effect to the order of the Income Tax Appellate Tribunal for the earlier Assessment Years, wherein the Assessing Officer has allowed the assessee s claim. This being so and also considering the fact that the learned CIT(A) has followed the judicial discipline in following the order of the Tribunal in the assessee s own case referred to supra, we find no reason to interfere in the order of the learned CIT(A). Consequently, Ground Nos.4.1 and 4.2 of the Revenue s appeals stands dismissed. Gratuity when computing the book profits u/s.115JB - HELD THAT - As in the case of Greaves Chitram Ud Vs. DCIT 2006 (3) TMI 563 - ITAT MUMBAI held that the gratuity liability, which was based on actuarial valuation, was deductible from the book profits as ascertained liability. As the facts and circumstances of the appellant are exactly similar to the case discussed above and as it has not been denied by the Assessing Officer that the provision for gratuity has been made on actuarial basis, hold that the Provision for Gratuity should not be added back to book profits. The appellant succeeds on this ground. Characterization of income - sale of carbon credits - revenue of capital receipts - HELD THAT -Respectfully following the decision of the Co-ordinate Bench of this Tribunal in the case of Ambika Cotton Mills Limited 2014 (3) TMI 428 - ITAT CHENNAI and the decision in the Sri Velayudhaswamy Spinning Mills (P) Limited 2015 (4) TMI 132 - ITAT CHENNAI as also on account of the fact that the legislature has by intent providing for taxing of the receipts from the sale of carbon credits under a special provision of Section 115BBG w.e.f 01.04.2018 and as the appeals relate to the period before this date, the receipts arising to the assessee herein on the sale of carbon credits is held to be capital receipt. Consequently, the order of the learned CIT(A) and that of the learned Assessing Officer on this issue stands reversed. Additional depreciation claim in respect of the fixed assets acquired in the second half of the financial year 2010-11 relevant to the Assessment Year 2011-12 - HELD THAT - CIT(A) has followed the judicial discipline in following the decision of the Hon ble Jurisdictional High Court in the case of M/s. Brakes India Limited vs. The Deputy Commissioner of Income Tax, 2017 (4) TMI 511 - MADRAS HIGH COURT when deciding identical issue for the Assessment Years 2013-14 and 2014-15, respectively following the decision of the Hon ble Jurisdictional High Court in the case of M/s. Brakes India Limited vs. The Deputy Commissioner of Income Tax, Chennai referred to supra, the Assessing Officer is directed to grant the assessee additional depreciation on the plant and machinery installed in the second half of the financial year preceding the Assessment Year 2012-13 - Decided in favour of assessee.
Issues Involved:
1. Treatment of non-compete fee as deferred revenue expenditure. 2. Disallowance of contributions to the benevolent fund under Section 40A(9). 3. Disallowance of provision for gratuity under Sections 40A(7) and 43B. 4. Treatment of provision for gratuity when computing book profits under Section 115JB. 5. Treatment of income from the sale of carbon credits as revenue receipts. 6. Additional depreciation claim on fixed assets acquired in the second half of the financial year. Issue-wise Detailed Analysis: 1. Treatment of Non-Compete Fee as Deferred Revenue Expenditure: The Revenue contested the CIT(A)'s decision to treat the non-compete fee paid by the assessee as deferred revenue expenditure instead of capital expenditure. The Tribunal referred to its earlier decision in the assessee's own case for the Assessment Years 2003-04, 2005-06, 2006-07, and 2007-08, where it had held that the non-compete fee paid was to be treated as deferred revenue expenditure. The Tribunal cited the Chennai Bench decisions in Orchid Chemicals & Pharmaceuticals and ITO v. Seafil Leasing, and the Madras High Court's decision in Carborandum Universal Limited v. JCIT, which supported the treatment of non-compete fees as revenue expenditure. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue. 2. Disallowance of Contributions to the Benevolent Fund under Section 40A(9): The Revenue challenged the CIT(A)'s deletion of the disallowance made under Section 40A(9) for the assessee's contributions to the benevolent fund. The Tribunal noted that this issue was covered by its earlier decision in the assessee's own case for the Assessment Year 2003-04, where it had allowed the contribution as deductible. The CIT(A) had followed this precedent, and the Tribunal found no reason to interfere with the CIT(A)'s order, dismissing the Revenue's appeal on this issue. 3. Disallowance of Provision for Gratuity under Sections 40A(7) and 43B: The Revenue appealed against the CIT(A)'s decision to allow the provision for gratuity. The Tribunal referred to its earlier decision in the assessee's own case, where it had allowed the provision for gratuity based on actuarial valuation, considering it as an ascertained liability. The Tribunal cited various High Court decisions, including those of the Kerala High Court in CIT v. Commonwealth Trust (P) Ltd. and the Delhi High Court in CIT v. Bechtel India (P) Ltd., which supported the deductibility of such provisions. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue. 4. Treatment of Provision for Gratuity when Computing Book Profits under Section 115JB: The Revenue contested the CIT(A)'s decision to exclude the provision for gratuity from book profits under Section 115JB. The Tribunal referred to its earlier decision in the assessee's own case, where it had held that the provision for gratuity based on actuarial valuation was an ascertained liability and should not be added back to book profits. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue. 5. Treatment of Income from the Sale of Carbon Credits as Revenue Receipts: The assessee contested the CIT(A)'s decision to treat the income from the sale of carbon credits as revenue receipts. The Tribunal referred to various High Court decisions, including those of the Andhra Pradesh High Court in My Home Power Limited and the Karnataka High Court in Subhash Kabini Power Corporation Limited, which held that income from the sale of carbon credits was a capital receipt. The Tribunal also noted the introduction of Section 115BBG, effective from 01.04.2018, which provided for the taxation of income from the sale of carbon credits under a special provision, indicating the legislature's intent to treat such income as capital receipts before this date. Consequently, the Tribunal reversed the CIT(A)'s decision, treating the income from the sale of carbon credits as capital receipts and allowing the assessee's appeals on this issue. 6. Additional Depreciation Claim on Fixed Assets Acquired in the Second Half of the Financial Year: The assessee raised an additional issue for the Assessment Year 2012-13 regarding the claim of additional depreciation on fixed assets acquired in the second half of the financial year. The Tribunal noted that the CIT(A) had allowed similar claims for the Assessment Years 2013-14 and 2014-15, following the decision of the Madras High Court in Brakes India Limited v. DCIT. The Tribunal directed the Assessing Officer to allow the additional depreciation for the Assessment Year 2012-13, following the same precedent. Conclusion: The Tribunal dismissed the Revenue's appeals for the Assessment Years 2008-09 to 2014-15 and allowed the assessee's appeals for the Assessment Years 2010-11 to 2013-14. The Tribunal upheld the CIT(A)'s decisions on the treatment of non-compete fees, contributions to the benevolent fund, and provisions for gratuity, while reversing the CIT(A)'s decision on the treatment of income from the sale of carbon credits, treating it as a capital receipt. The Tribunal also directed the Assessing Officer to allow additional depreciation for the Assessment Year 2012-13.
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