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2016 (5) TMI 1592 - AT - Income TaxDisallowance of provisions made on account of leave encashment under section 43B - HELD THAT - Undisputedly, the deduction claimed by the assessee is only a provisions and no payment was actually made by the assessee during the relevant previous year. Therefore, in terms of section 43B(f), it is not allowable. However, in the case of Exide Industries Ltd. 2007 (6) TMI 175 - CALCUTTA HIGH COURT , the Hon ble Calcutta High Court had struck down the provisions of section 43B(f) as unconstitutional. However, the Department being aggrieved of the said judgment had preferred appeal before the Hon'ble Supreme Court and the Hon'ble Supreme Court while admitting the appeal of the Department in Special Leave to Appeal (Civil) 2009 (5) TMI 894 - SC ORDER had directed the assessee to pay tax as if section 43B(f) is in the statute book, however, the assessee permitted to claim the deduction in the return of income. We restore the matter back to the file of the Assessing Officer with a direction that assessee will pay the tax as if section 43B(f) is on the statute book. However, till the decision of the Hon'ble Supreme Court is rendered in case of CIT v/s Exide Industries Ltd. (supra), the Department will not recover the penalty and interest which may accrue till the decision of the appeal in the case of Exide Industries Ltd. (supra). It would be open to the Department to recover the outstanding interest payment once the appeal in the case of Exide Industries Ltd. (supra) is decided in favour of the Department. Ground no.1, is allowed for statistical purposes. Disallowance of revenue sharing - HELD THAT - As found from the record that this is recurring dispute between the assessee and the Department right from the assessment year 2000 01. However, in a series of decisions in assessee s own case, the Tribunal has decided the issue in favour of the assessee holding that the amount paid to DOT towards revenue sharing license fee as revenue expenditure. There being no material difference in facts and no contrary decision has been brought to our notice by the learned Departmental Representative, respectfully following the consistent view of the Tribunal in assessee s own case we allow assessee s claim of deduction on account of revenue sharing license fee Depreciation claim on revenue sharing license fee - Since we have allowed assessee s claim of deduction in respect of revenue sharing license fee by holding it as revenue expenditure, this ground raised by the Department has become infructuous. Disallowance of interest expenditure towards interest free loan given to the subsidiary - HELD THAT - As relying on assessee own case 2015 (4) TMI 92 - ITAT MUMBAI there was direct commercial expediency in advancing funds to subsidiaries have not been controverted by the Revenue by bringing any positive material on record. We therefore do not find any reason to interfere with the order of ld. CIT(A) deleting the disallowance of interest attributable to funds advanced to subsidiaries. - Decided against revenue. Deduction towards club fee - Allowable revenue expenses or not? - HELD THAT - On a perusal of the order of the Tribunal for the assessment year 2004 05 and 2005 06held that expenditure was incurred was revenue in nature as held by the Hon ble High Court, we do not find any infirmity in the order of ld. CIT(A) deleting the disallowance of Club fees paid by the assessee company. Proportionate deduction claimed u/s 35DD on legal fee - HELD THAT - As is evident, in the impugned assessment year the assessee had not claimed the expenditure in the return of income. He put forward his claim for deduction under section 35DD only at the stage of first appellate proceedings, that too, by raising an additional ground and the learned Commissioner (Appeals) dismissed the ground of the assessee for the reason that the issue was not examined by the Assessing Officer. Therefore, on over all consideration of facts and material on record, we are inclined to restore this issue to the file of the Assessing Officer for deciding afresh after providing due opportunity of being heard to the assessee. Ground no.2, is allowed for statistical purposes. Depreciation on revenue sharing license fee carried over by BTA Cellular Ltd. in continuation of amalgamation with the assessee - HELD THAT - Commissioner (Appeals) having found that neither BTA nor the assessee have claimed deduction under section 35ABB directed the Assessing Officer to verify the fact and allow assessee s claim of depreciation. We do not find any infirmity in the aforesaid direction of the learned Commissioner (Appeals). As already held by us, revenue sharing license fee paid to DOT is otherwise allowable as revenue expenditure. Since the BTA was claiming depreciation on revenue sharing license fee after treating it as intangible asset after capitalization the assessee continued with the same accounting principle after merger of BTA insofar as revenue sharing business fee paid by BTA which was acquired as a part of block of asset. In the aforesaid facts and circumstances, assessee s claim of deduction being legally valid has to be allowed. Therefore, we uphold the order of the learned Commissioner (Appeals) on the issue by dismissing ground no.2, raised by the Department.
Issues Involved:
1. Disallowance of provisions made on account of leave encashment under section 43B of the Income Tax Act, 1961. 2. Disallowance of revenue sharing license fee as revenue expenditure. 3. Allowance of depreciation on revenue sharing license fee. 4. Disallowance of interest expenditure towards interest-free loan given to the subsidiary. 5. Disallowance of club fee expenditure. 6. Deduction claimed under section 35DD on legal fee. 7. Depreciation on revenue sharing license fee carried over by amalgamated company. 8. Interest earned on interest-free advance made to the subsidiary. Detailed Analysis: 1. Disallowance of Provisions Made on Account of Leave Encashment: The assessee's claim for deduction of ?3,41,10,000 towards provisions for unpaid leave encashment was disallowed by the Assessing Officer (AO) under section 43B(f) of the Act as it was merely a provision and not an actual payment. The assessee's appeal, relying on the Calcutta High Court's decision in Exide Industries Ltd., was upheld by the Commissioner (Appeals) due to the Supreme Court's stay on the High Court's decision. The Tribunal restored the matter to the AO to decide based on the Supreme Court's final decision in the Exide Industries case. 2. Disallowance of Revenue Sharing License Fee: The AO disallowed the assessee's claim of ?142,30,76,399 as revenue expenditure under section 37, treating it as capital expenditure under section 35ABB. The Commissioner (Appeals) upheld this disallowance. However, the Tribunal, following its previous decisions and the Delhi High Court's ruling in Bharti Hexacom Ltd., allowed the deduction as revenue expenditure. 3. Allowance of Depreciation on Revenue Sharing License Fee: The Department's appeal against the allowance of depreciation on revenue sharing license fee was rendered infructuous as the Tribunal allowed the fee as revenue expenditure, negating the need for depreciation. 4. Disallowance of Interest Expenditure on Interest-Free Loan to Subsidiary: The AO disallowed ?9,87,50,000 of interest expenditure, attributing it to interest-free loans given to the subsidiary. The Commissioner (Appeals) deleted the disallowance, finding the loans were for business purposes. The Tribunal upheld this deletion, citing the Supreme Court's decision in S.A. Builders and its own previous rulings. 5. Disallowance of Club Fee Expenditure: The AO disallowed ?33,21,734 claimed as club entrance fees. The Commissioner (Appeals) allowed the claim, following earlier decisions. The Tribunal upheld this, referencing its previous rulings and the Bombay High Court's decision in Otis Elevators. 6. Deduction Claimed Under Section 35DD on Legal Fee: The assessee claimed ?5,87,487 as 1/5th of legal fees under section 35DD, related to a proposed merger. The Commissioner (Appeals) dismissed the claim due to lack of examination by the AO. The Tribunal restored the issue to the AO for verification and fresh adjudication. 7. Depreciation on Revenue Sharing License Fee Carried Over by Amalgamated Company: The AO disallowed ?6,55,44,254 claimed as depreciation by the amalgamated company, BTA, under section 35ABB. The Commissioner (Appeals) directed the AO to verify if BTA had claimed such deduction and allow depreciation if conditions were met. The Tribunal upheld this direction. 8. Interest Earned on Interest-Free Advance Made to Subsidiary: The Department's appeal against the deletion of disallowance of interest earned on interest-free advances was dismissed by the Tribunal, consistent with its decision for the previous assessment year. Conclusion: - Assessee's appeal for A.Y. 2006–07 is allowed. - Department's appeal for A.Y. 2006–07 is dismissed. - Assessee's appeal for A.Y. 2007–08 is allowed for statistical purposes. - Department's appeal for A.Y. 2007–08 is dismissed. Order Pronounced: The order was pronounced in the open Court on 27.05.2016.
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