2018 (9) TMI 404 - AT - Income Tax

Disallowance of provision for Long Term Incentive Plan ( LTIP ) Payments - Held that - The explanations of ld. AR are vague and not satisfactory. Whereas ld. DR on the other hand submitted that the income tax department is deprived to verify and examine these documents and to form an opinion on the disputed issue. We find strength in the arguments of ld. DR as these documents are filed for the first time before the Tribunal as envisaged by ld AR. Therefore, we in the interest of substantial justice, are of the opinion that this disputed issue shall be restored to the file of AO along with the documents where the AO shall verify and examine and adjudicate the issue. Non-grant of credit in respect of Tax Deducted at Source ( TDS ) and advance tax paid - Held that - The assessee has raised the ground in respect of non-grant of credit of TDS, we found that the CIT(A) having dealt on this issue has directed to AO to consider the assessee s claim for grant of TDS credit after due verification as per provisions of law. Therefore, we are of the opinion that the directions of the CIT(A) are acceptable and we uphold the same and dismiss this ground of appeal of the assessee. Addition on account of penalty paid to Department of Telecommunication(DoT) - Held that - As decided in in the case of Vodafone Essar Digilink Ltd. 2018 (6) TMI 1029 - ITAT DELHI gone through the relevant provisions of the Indian Telegraphs Act, 1885 and find that anomalies and irregularities in CIF and CAF are not covered under any of the specific provisions of the Indian Telegraphs Act. Rather, such penalties were imposed for noncompliance with the contractual obligations under the Licence agreement. As the payment by the assessee is not for an offence, nor is it prohibited by law, the same being failure to comply with the contractual obligations, cannot fall within the domain of Explanation 1 to section 37(1) of the Act. Similar issue came up for consideration before the Kolkata Bench of the Tribunal in the case of Vodafone East Ltd. 2015 (9) TMI 1358 - ITAT KOLKATA Disallowance of proportionate interest debited to P &L A/c - Held that - When the query was raised to the ld. AR whether such disallowance was made by the AO in earlier years or any scrutiny order was passed, the ld. AR could not substantiate with any evidence. We found this issue needs to be re-examined and verified by the AO on material submitted by the assessee. Accordingly, in the interest of substantial justice, we remit this issue to the file of AO to adjudicate afresh

Issues Involved:
1. Disallowance of provision for Long Term Incentive Plan (LTIP) Payments.
2. Non-grant of credit in respect of Tax Deducted at Source (TDS) and advance tax paid.
3. Deletion of addition on account of penalty paid to the Department of Telecommunications (DoT).
4. Deletion of addition on account of interest debited to the Profit & Loss Account on a proportionate basis.

Issue-wise Detailed Analysis:

1. Disallowance of Provision for Long Term Incentive Plan (LTIP) Payments:
The assessee challenged the disallowance of INR 4,43,00,000 for LTIP payments, arguing that the provision created on an estimate basis should be allowable under the Act. The assessee contended that the provision, made as of 31st March 2010, was based on management estimates and that actual payments in July 2010 exceeded the provision. The Revenue argued that these details were not presented during the assessment proceedings. The Tribunal found that the documents supporting the provision were submitted for the first time at the Tribunal level and were not examined by the AO. Consequently, the Tribunal remitted the issue back to the AO for verification and proper adjudication, allowing the assessee’s appeal for statistical purposes.

2. Non-grant of Credit in Respect of TDS and Advance Tax Paid:
The assessee contended that the CIT(A) erred by not issuing a specific direction to the AO to allow TDS and advance tax credits. The Tribunal noted that the CIT(A) had directed the AO to verify and allow such credits as per the law. The Tribunal upheld the CIT(A)’s directions and dismissed this ground of the assessee’s appeal.

3. Deletion of Addition on Account of Penalty Paid to DoT:
The Revenue challenged the deletion of the addition of INR 46,00,025, arguing that the penalty paid to DoT should not be deductible. The CIT(A) had deleted the addition, reasoning that the penalty was for a breach of contractual obligations and not for an offense or prohibited by law. The Tribunal upheld the CIT(A)’s decision, referencing similar cases where penalties for contractual breaches were deemed allowable business expenditures under section 37 of the Act. The Tribunal dismissed the Revenue’s appeal on this ground.

4. Deletion of Addition on Account of Interest Debited to P&L Account on a Proportionate Basis:
The Revenue contested the deletion of the addition of INR 15,07,01,823, arguing that the CIT(A) erred in not accepting the AO’s findings. The AO had disallowed the proportionate interest, reasoning that certain advances could have reduced the interest burden. The CIT(A) found the AO’s basis for disallowance questionable, noting no diversion of borrowed funds or non-genuine loans. The Tribunal, however, noted the need for re-examination and verification of the material submitted by the assessee. The issue was remitted back to the AO for fresh adjudication, allowing the Revenue’s appeal for statistical purposes.

Conclusion:
Both the assessee’s and the Revenue’s appeals were partly allowed for statistical purposes, with certain issues remitted back to the AO for re-examination and proper adjudication. The Tribunal emphasized the need for substantial justice and proper verification of the contested issues.

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