2018 (6) TMI 224 - AT - Income Tax

Nature of expense - capital or revenue - installation expenses - Held that - As per the observations of CIT(A) the addition made by the AO is pure guess as is evident from the following company may have booked these expenses on revenue account under the head Repairs of P&M - thus an addition made on pure guess cannot be sustained - hence we upheld the findings of CIT(A) and dismiss the ground of appeal of Revenue. Expenditure incurred on social overheads - revenue or capital - Held that - CIT(A) correctly observed that no defect in the maintenance of books of accounts have been pointed - Assessing Officer has not established whether the system of accounting followed by the appellant was not as per AS-2 or was not consistently followed. No evidence has been brought on record by the Ld. Assessing Officer to show that the stock was that of E grade coal and not G grade coal. The Ld. Assessing Officer has presumed that all the stock at Gidi washery was E grade coal without considering the evidence brought on record by the appellant. - Decided in favour of assessee Expenses under the head Donation in the nature of sports promotion expenses and community development expenses - allowable as business expenditure - Held that - the appellant has not been able to bring out any evidence to show as to how were these expenses wholly and exclusively laid out for the purpose of business - thus this ground of appeal of the assessee is dismissed. Disallowance on account of arrear of salary - AO disallowed the same on the ground that the same was not an ascertained and had not crystallised during the year - Held that - We find that this issue has been decided in favour of the assessee by this bench of the Tribunal in assessee s own case for the assessment year 2004-05 wherin held AO has taken the view that the claim of the assessee falls in the category of unascertained liability, which in our view, is not correct. In the instant case, there is certainty about the liability, but the exact quantification could be known to the assessee in the future upon finalisation of the wage agreement. We find support for this view from the decision rendered by the Mumbai bench of Tribunal in the case of TATA communications Ltd Vs. JCIT 2013 (2) TMI 506 - ITAT MUMBAI Disallowance on account of transfer of free issue of coal - AO observed that expenses claimed by the assessee is to be gratuitous in nature and therefore, not wholly and exclusively laid out for the purpose of business and disallowed the same - Held that - We perused the documents placed before us and are of the considered opinion that the matter needs verification and examination by the CIT(A) and accordingly we remit this issue to the file of CIT(A) who shall verify and examine the documents and pass order after providing adequate opportunity of hearing to the assessee.

Summary

Issues Involved:
1. Allowance of installation expenditure as Revenue Expenditure.
2. Allowance of expenditure incurred on social overheads as Revenue Expenditure.
3. Disallowance of donation expenses as business expenditure.
4. Disallowance of arrear salary expenses.
5. Disallowance of expenses under the head 'Transfer of free issue of Coal'.

Issue-wise Detailed Analysis:

1. Allowance of Installation Expenditure as Revenue Expenditure:
The Revenue contended that the CIT(A) erred in treating installation expenditure as Revenue Expenditure. The CIT(A) relied on the Supreme Court judgment in Dhakeshawari Cotton Mills Ltd. v. CIT, emphasizing that assessments should not be based on pure guesswork. The CIT(A) found the AO’s addition to be speculative and unsupported by evidence. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue failed to demonstrate any error in the CIT(A)'s findings.

2. Allowance of Expenditure Incurred on Social Overheads as Revenue Expenditure:
The Revenue challenged the CIT(A)’s decision to allow social overheads as Revenue Expenditure. The CIT(A) observed that the AO did not point out any defects in the maintenance of books of accounts and relied on judicial precedents to allow the expenditure. The Tribunal agreed with the CIT(A), noting that the AO did not provide evidence that the stock valuation was incorrect or inconsistent with accounting standards. Thus, the Tribunal upheld the CIT(A)'s findings.

3. Disallowance of Donation Expenses as Business Expenditure:
The assessee argued that the expenses under the head 'Donation' were for sports promotion and community development, thus allowable as business expenditure. The CIT(A) dismissed this ground, stating that the assessee failed to show how these expenses were wholly and exclusively for business purposes. The Tribunal upheld the CIT(A)'s decision, noting that the assessee did not provide sufficient evidence to substantiate its claim.

4. Disallowance of Arrear Salary Expenses:
The AO disallowed the arrear salary expenses, claiming they were not ascertained liabilities. The CIT(A) upheld the AO's decision. However, the Tribunal referred to its previous decision in the assessee's case for the assessment year 2004-05, where it allowed similar expenses, recognizing them as ascertained liabilities. Following this precedent, the Tribunal allowed the assessee's appeal on this ground.

5. Disallowance of Expenses Under the Head 'Transfer of Free Issue of Coal':
The AO disallowed the expenses, considering them gratuitous. The CIT(A) upheld this decision, noting the absence of a valid agreement for nine months. The assessee argued that the expenses were contractual obligations under the National Coal Wage Agreement. The Tribunal found merit in the assessee's claim and remitted the issue to the CIT(A) for verification and examination of the documents, directing the CIT(A) to pass a reasoned order after providing the assessee an opportunity to present its case.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes, remitting the issue of free coal expenses back to the CIT(A) for further verification and examination. The Tribunal upheld the CIT(A)'s decisions on installation expenditure and social overheads, and allowed the arrear salary expenses based on previous judicial decisions.