2016 (12) TMI 790 - HC - Income Tax

Allowability of deduction of payment of the ONGC - Held that - We are of the view that taking into consideration the issue which was pending before the Apex Court regarding the liability to be fixed but ONGC has already consumed the gas. In that view of the matter, ONGC is required to make payment as it is a statutory body. Apart from that, it is required to be noted that the consumption of gas was the basic need for ONGC failing which the corporation could not have functioned. In that view of the matter, we are of the opinion that the Tribunal is justified in allowing deduction of payment to ONGC. In the assessee s own case, the Assessing Officer for the assessment year 2004-05 has in the assessmnet order stated that amount is allowed on payment basis and accordingly in the year under consideration where the liability is crystallized by the order of Supreme Court, the deduction claimed on protective basis shall not be granted. Considering the decisions cited hereinabove, we are of the view that issue raised in both these appeals is required to be answered in favour of the assessee and against the revenue. Rejection of claim to allow deduction u/s 43B - payments made beyond the due dates under the relevant Acts - Held that - The said issue is now squarely covered by the decision in the case of Commissioner of Income-tax vs. Alom Extrusions Ltd 2009 (11) TMI 27 - SUPREME COURT wherein observed that deletion of second proviso to Section 43B by Finance Act 2003 is retrospective and it would operate with effect from 01.04.1988. In the present case the assesee has paid the said amount beyond due dates but before due date for filing return of income. The Tribunal has relied upon various case laws wherein it is held that second proviso to Section 43B is to be applied retrospectively as the said proviso was inserted to remove hardship caused to assessee. We accordingly answer the question in favour of assessee Allowance of depreciation @100% in respect of air pollution control equipments - Held that - The Tribunal has allowed the claim by citing the reason that the work being used as item no. III(2)(iv) and III(3)(iii) as illustrative in nature and not exhaustive and the context in which words are used and that all the assets functioned with main plant and integral part of plant. The said issue has now been decided in favour of the assessee by this Court in COMMISSIONER OF INCOME TAX-I, BARODA Versus ALEMBIC CHEMICAL WORKS CO. LTD 2016 (6) TMI 562 - GUJARAT HIGH COURT . We therefore answer the said question in favour of assessee and against the revenue. Disallowance of stores and spares treating the same to be of capital expenditure - Held that - Tribunal held that the description of items consisting of centrifugal pumps, humidity indicators, temperature controller, vaccum pump, 3-phase industrial motors, submersible pump etc and that the same falls in the category of consumable stores and spares. We are of the view that the same should be considered under the head of revenue expenditure and the Tribunal is justified in considering the same as revenue expenditure and accordingly the said question is answered in favour of assessee and against the revenue.

Summary

Issues:
1. Allowance of deduction for payment to ONGC under disputed contractual liability.
2. Allowance of deduction under section 43B for payments made beyond due dates.
3. Allowance of depreciation on air pollution control equipments.
4. Classification of expenditure on specific items as revenue or capital expenditure.
5. Treatment of foreign exchange fluctuation loss.

Issue 1 - Deduction for Payment to ONGC under Disputed Contractual Liability:
The appellant challenged the Tribunal's decision to allow deduction for payment to ONGC when the contractual liability was in dispute before the Supreme Court. The appellant argued that the payment was not towards gas charges but was an advance or deposit. However, the respondent contended that the liability was accepted by the assessee as demonstrated by actual outgo from their pockets. The Court held that ONGC had already consumed the gas, necessitating payment, and that the Tribunal was right in allowing the deduction. The Court referred to previous decisions and upheld the allowance of the deduction.

Issue 2 - Deduction under Section 43B for Payments Made Beyond Due Dates:
The Court addressed the rejection of the claim to allow deduction under section 43B for payments made beyond due dates. Citing a Supreme Court decision, the Court ruled in favor of the assessee, stating that the deletion of the relevant proviso was retrospective and applicable in this case. The Tribunal's decision to apply the proviso retrospectively to alleviate hardship for the assessee was upheld.

Issue 3 - Allowance of Depreciation on Air Pollution Control Equipments:
The Tribunal allowed depreciation on air pollution control equipments, arguing that the qualifying effect of the term "being" was illustrative, not exhaustive. This decision was supported by a previous court ruling, and the Court ruled in favor of the assessee, upholding the allowance of depreciation.

Issue 4 - Classification of Expenditure on Specific Items:
Regarding the classification of expenditure on specific items like centrifugal pumps and motors, the Tribunal considered them as revenue expenditure rather than capital expenditure. The Court agreed with this classification, stating that these items should be treated as revenue expenditure, leading to a ruling in favor of the assessee.

Issue 5 - Treatment of Foreign Exchange Fluctuation Loss:
The Court did not provide a specific finding on the treatment of foreign exchange fluctuation loss, leaving the matter to be decided by the Assessing Officer in accordance with the law. The Tribunal's decision was not overturned, and the Tax Appeal was disposed of accordingly.

In conclusion, the Court addressed various issues raised in the appeals, ruling in favor of the assessee on multiple grounds, including the deduction for disputed contractual liability, retrospective application of section 43B, allowance of depreciation, and classification of specific expenditures. The Court's decision provided clarity on these matters and upheld the Tribunal's rulings in favor of the assessee.