2017 (11) TMI 627 - AT - Income Tax

Interest paid or payable on borrowings in respect of the unit no. 2 which could not be put to use till 31.03.2010 was to be capitalized without set off of interest earned - Held that - Interest during construction has to be allowed as set off as decided in favour of assessee NTPC SAIL Power Co. Pvt. Ltd. vs. CIT 2012 (10) TMI 524 - DELHI HIGH COURT . Allowability of provision of other retirement benefits - Held that - Liability providing for service awards payable in future is an allowable liability. See CIT vs. Insilco Ltd. 2009 (2) TMI 31 - DELHI HIGH COURT .

Summary

Issues:
1. Disallowance of interest during construction period.
2. Disallowance of provision of other retirement benefits.

Issue 1 - Disallowance of interest during construction period:
The Revenue challenged the order deleting the disallowance of interest during the construction period amounting to ?2,93,00,000. The Revenue contended that the interest should be capitalized without set off of interest earned from banks, as per the proviso to section 36(1)(iii) of the Income Tax Act. The Assessee argued that the interest earned should be set off against the interest paid on borrowings, following accounting standards and judicial precedents. The Ld. CIT (A) deleted the addition based on precedents like CIT vs. Bokaro Steels Ltd. and CIT vs. Karnataka Power Corporation. The Tribunal upheld the Ld. CIT (A)'s decision, citing previous rulings in the Assessee's favor, including NTPC Sail Power Company (P) Ltd. vs. CIT.

Issue 2 - Disallowance of provision of other retirement benefits:
The Revenue also contested the deletion of the disallowance of provision for other retirement benefits amounting to ?72,94,614. The Revenue argued that the provision was contingent and not definite and determined. However, the Ld. CIT (A) relied on precedents like Calcutta Co. Ltd. vs. CIT and Metal Box Co. of India Ltd. vs. Their workmen to support the allowance of such liabilities. The Tribunal upheld the Ld. CIT (A)'s decision, emphasizing the decision in CIT vs. Insilco Ltd., where it was held that providing for future service awards is an allowable liability.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT (A)'s decisions on both issues. The Tribunal found no irregularity in allowing the set off of interest during the construction period and in permitting the provision for other retirement benefits based on established legal precedents.