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2019 (1) TMI 849 - AT - Income TaxDisallowance of the claim of provisions for liquidated damages - Disallowance of the claim of provisions as per Schedule 18, treating the same as not ascertained liabilities - Held that - Assessee company is maintaining its account in mercantile system. It is also not in dispute that the assessee company is a Government of India undertaking and its accounts are audited by statutory auditor and Controller & Auditor General (C&AG). It is also not in dispute that assessee has claimed that the liability which has accrued though to be discharged at a future date has to be deducted while working out the profit and gains of the business being ascertained liability. When the business liability of the assessee company for making provisions of ₹ 327,22,64,000/- is not disputed and account of the assessee company are audited by statutory auditor and C&AG, the deduction cannot be disallowed merely on the ground that the liability has to be quantified and discharged at a future date. So, in view of the matter, this issue is required to be set aside to the AO to decide afresh in the light of the decision rendered by the Hon ble Supreme Court in Bharat Earth Movers (2000 (8) TMI 4 - SUPREME COURT). So, grounds determined in favour of the assessee company for statistical purposes. Eligible for deduction u/s 80O - Held that - When the claim of the assessee u/s 80-O is duly certified by statutory auditor and has been perused by the AO, the AO has erred in estimating the expenditure so as to compute the deduction u/s 80-O of the Act. In these circumstances, this issue is also set aside to the AO to decide afresh after providing an opportunity of being heard to the assessee by identifying the expenditure on actual basis for deduction against the gross receipts for the purpose of section 80-O of the Act. Assessee is also directed to furnish relatable details to the AO to decide the issue in controversy. So, grounds determined in favour of the assessee for statistical purposes. Deduction u/s 80HHC computation - AO also reduced 90% of the receipts by way of lease rental and other operation income including other receipts and interest income to compute the deduction u/s 80HHC of the Act and AO has also set off carry forward business losses for the computation of business profit for the purpose of deduction u/s 80HHC - Held that - So far as question of including the sale of scrap, surplus stores and sales-tax from total turnover is concerned, this issue has already been settled in favour of the assessee by the coordinate Bench of the Tribunal in in AY 1991-92 2017 (11) TMI 1144 - ITAT DELHI onwards in assessee s own case, wherein the coordinate Bench of the Tribunal directed the AO to recompute the deduction excluding the sale of scrap, surplus stores and sales-tax from total turnover. So, in view of the matter, sale of scrap, surplus stores and sales-tax are ordered to be excluded from the total turnover and AO to recompute the deduction accordingly. So far as question of deduction of profit of 90% on account of lease rental, other operational income, other receipts and interest income by AO/CIT(A) is concerned, it is undisputed fact that partial relief in this regard has been given to the assessee on same items by ld. CIT (A) in AY 2004-05, copy of order is available. So, we are of the considered view that when there is no change in the facts and circumstances of the case, the AO is directed to decide this issue afresh by following the decision rendered by the CIT (A) in AY 2004-05 by following the rule of consistency by providing an opportunity of being heard to the assessee. Deduction claimed by the assessee u/s 80IA as against claimed deduction calculating the profit after setting off brought forward losses - allowed the deduction @ 30% of the resulting profits - AO estimated the deduction of carry forward losses to reduce the claim on assumptive basis - Held that - Undisputedly, profits of the assessee company from the eligible projects from the previous years have not been considered. No doubt, there was overall business losses in the assessee company but eligible projects u/s 80IA gained the profits from the projects. It is also not in dispute that in AY 2001-02, assessee company was entitled for deduction u/s 80IA which was not given as there was loss under the head business or profession . It appears that AO has only considered the loss of AY 2001-02 but has not considered the profit of the project computed u/s 80IA in respect of AY 2001-02. So, we are of the considered view that AO is to recompute the claim of the assessee u/s 80IA keeping in view the actual figures as per audited accounts of the assessee. Disallowance of claim of the assessee on account of village development and other social welfare expenses on the ground that these expenses are beyond its objectives - Held that - When the Corporate Social Responsibility (CSR) is recognised activities of the companies, all these expenses are allowable expenses. Prior to Finance (No.2) Act of 2014 from 01.04.2015, all these expenses incurred on CSR were allowable for deduction irrespective of the qualification contained for allowability of the business expenditure in section 37(1) of the Act. Moreover, such expenses have been allowed by the CIT (A) itself in assessee s own case for AYs 2004- 05 and 2005-06. So, the AO is directed to allow these expenses as deduction by following the rule of consistency as similar expenses have already been allowed by the Revenue itself in AYs 2004-05 and 2005-06. Additions in respect of interest on line of credit extended to APSEB which was not received - Held that - CIT (A) has also not dealt with the issue and disposed of the ground by stating that this ground is academic in nature. So, in these circumstances, we are of the considered view that this issue is required to be set aside to AO to decide afresh in the light of the decision taken by the Revenue in earlier years. So, ground determined in favour of the assessee for statistical purposes. Disallowance of the assessee u/s 80G - Held that - When incurrence of expenditure made by the assessee by way of donation to carry out the welfare activities for Nethrajothi and Visually Impaired Women Association is not in dispute, the same are allowable expenses u/s 37(1) of the Act. So, we order to allow the amount of ₹ 2,500/- and ₹ 5,000/- incurred by the assessee company on Nethrajothi and Visually Impaired Women Association respectively.
Issues Involved:
1. Disallowance of provisions as not ascertained liabilities. 2. Disallowance of interest paid on income tax. 3. Reduction of deduction under Section 80-O. 4. Restriction of deduction under Section 80HHC. 5. Restriction of deduction under Section 80IA. 6. Disallowance of depreciation included in prior period expenditure. 7. Disallowance of village development and social welfare expenses. 8. Non-allowance of interest on line of credit extended to APSEB. 9. Non-allowance of donations made to Nethrajothi and Visually Impaired Women Association. 10. Initiation of penalty proceedings under Section 271(1)(c). Detailed Analysis: 1. Disallowance of Provisions as Not Ascertained Liabilities: The assessee claimed a deduction of ?327.22 crores, including provisions for non-moving stock and liquidated damages. The AO and CIT(A) disallowed these provisions, treating them as unascertained liabilities. The Tribunal referred to the Supreme Court's decision in Bharat Earth Movers vs. CIT, which held that if a business liability has definitely arisen in the accounting year, the deduction should be allowed even if the liability is to be quantified and discharged in the future. The Tribunal set aside this issue to the AO for reconsideration in light of this Supreme Court decision. 2. Disallowance of Interest Paid on Income Tax: This ground was dismissed as it was not pressed during the course of arguments. 3. Reduction of Deduction Under Section 80-O: The assessee claimed a deduction of ?1.57 crores under Section 80-O, which was reduced to ?1.29 crores by the AO due to lack of details on direct and indirect expenses. The Tribunal noted that the claim was certified by statutory auditors and should not have been estimated by the AO. The issue was set aside to the AO for fresh consideration, directing the assessee to furnish detailed expenses. 4. Restriction of Deduction Under Section 80HHC: The AO restricted the deduction under Section 80HHC from ?48.19 crores to ?36.80 crores by adjusting carry forward business losses and excluding certain incomes. The Tribunal referred to its earlier decision in the assessee's case, which excluded sales of scrap, surplus stores, and sales tax from total turnover. The Tribunal directed the AO to recompute the deduction accordingly and to follow the decision of the CIT(A) for AY 2004-05 regarding other operational incomes. 5. Restriction of Deduction Under Section 80IA: The AO allowed a deduction of ?8.21 crores under Section 80IA against the claimed ?9.82 crores, after setting off brought forward losses. The Tribunal noted that the AO did not consider profits from eligible projects in previous years and directed the AO to recompute the deduction based on actual figures from audited accounts. 6. Disallowance of Depreciation Included in Prior Period Expenditure: This ground was dismissed as it was not pressed during the course of arguments. 7. Disallowance of Village Development and Social Welfare Expenses: The AO disallowed ?12.52 lakhs claimed under village development and social welfare expenses, stating they were beyond the assessee's objectives. The Tribunal held that these expenses, incurred under the Government's 20-point program, were allowable as Corporate Social Responsibility (CSR) expenses. The AO was directed to allow these expenses, following the rule of consistency with earlier years. 8. Non-Allowance of Interest on Line of Credit Extended to APSEB: The AO disallowed the claim related to interest on a line of credit extended to APSEB. The Tribunal noted that this issue was decided in favor of the assessee in earlier years and set aside the issue to the AO for fresh consideration in light of previous decisions. 9. Non-Allowance of Donations Made to Nethrajothi and Visually Impaired Women Association: The AO disallowed donations of ?2,500 and ?5,000 to Nethrajothi and Visually Impaired Women Association. The Tribunal allowed these expenses under Section 37(1), noting that similar claims were allowed in the case of Hindustan Petroleum Corporation Ltd. 10. Initiation of Penalty Proceedings Under Section 271(1)(c): This ground was deemed premature and required no specific findings. Conclusion: The appeal was partly allowed for statistical purposes, with several issues being remanded to the AO for fresh consideration.
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