2019 (6) TMI 617 - HC - Income Tax

Addition on account of the provision made for settlement with Union - Whether the same was contingent in nature since the labour demand was under negotiation and ultimate settlement was contingent on the conclusion of the negotiation? - HELD THAT - As decided in assessee's own case 2014 (5) TMI 322 - BOMBAY HIGH COURT even the provision for pending labour demands and its disallowance made by the Assessing Officer is rightly deleted. The Tribunal has found that the demands were pending. There was wage issue raised by the labour unions and, therefore, in the given facts and circumstances and to maintain industrial harmony and peace, the assessee company made a provision. The revenue may term it as contingent in nature. However, we do not find that the reasons assigned by the Tribunal in that regard raise any substantial question of law. Remission of advance liability - treated as capital receipt - whether the remission of a sum obtained by the assessee is taxable receipt u/s 28(iv) and / or u/S. 41(1) - HELD THAT - Issue covered in favour of the assessee by the judgment of the Supreme Court in case of Commissioner Vs. Mahindra and Mahindra Ltd. 2018 (5) TMI 358 - SUPREME COURT This was a case of this very assessee. Disallowance on account of special pension liability - Whether the expenses has not been incurred during the regular course of business and hence, is of the nature which is for bringing in benefit of enduring nature and hence, the Capital expenses?- HELD THAT - This one also considered by this Court on multiple occasions and not entertained. Reference in this respect can be made to an order in assessee's own case 2014 (5) TMI 322 - BOMBAY HIGH COURT Treatment to expenses related to setting up of a new foundry as revenue expenditure - whether the expenditure is related to the setting up of a new foundry, activity of which would be different from the activity of the assessee company and hence, cannot be said to be incurred wholly and exclusively for the purpose of business in existence and incidental to it? - HELD THAT - . As the assessee could not complete the project and abandoned the same, the Revenue s objection to such expenditure was allowed. The Tribunal, however, on facts on the case noted that the assessee was trying to set up a new foundry but the unit was in the nature of expansion of existing business. That being the position, the expenditure was correctly allowed by the Tribunal. Appeal is admitted for consideration of following substantial question of law - Whether on the facts and circumstances of the case and in law, the ITAT was right in directing to treat the technical services fee amounting to ₹ 4,92,14,495/- as revenue expenditure without appreciating the fact that the employees cost in respect of employees associated with foreign technician for development of new models is capital expenses and not incurred wholly and exclusively for the purpose of business in existence but relates to development of new model?

Summary

Issues:
1. Treatment of technical services fee as revenue expenditure
2. Provision made for settlement with Union
3. Remission of advance liability as capital receipt
4. Disallowance of special pension liability
5. Treatment of expenses related to setting up a new foundry as revenue expenditure

Analysis:

1. The main issue in this judgment revolves around the treatment of technical services fee as revenue expenditure. The substantial question of law raised was whether the ITAT was correct in directing to treat the fee as revenue expenditure, considering the nature of the expenses related to the development of new models. The court examined the facts and circumstances, emphasizing the distinction between capital and revenue expenses in the context of business purpose. The judgment highlighted the specific nature of the expenses incurred and their relevance to the existing business operations.

2. Another significant issue addressed in the judgment pertains to the provision made for settlement with the Union. The Revenue questioned the deletion of the addition made on account of this provision, arguing that it was contingent in nature due to ongoing negotiations. The court referred to previous orders involving the same assessee to support the decision to delete the addition, emphasizing the industrial harmony and peace aspect in making such provisions.

3. The judgment also delved into the question of remission of advance liability and whether it should be treated as a capital receipt. Citing a Supreme Court judgment related to the same assessee, the court ruled in favor of the assessee, relying on the precedent set by the higher court to support the decision regarding the treatment of the remission as a taxable receipt under specific sections of the Income Tax Act.

4. The issue of disallowance of special pension liability was also raised, with the ITAT directing to delete the disallowance. The court, based on previous considerations of similar matters, declined to entertain this question, indicating that it had been addressed on multiple occasions and did not raise any substantial legal question.

5. Lastly, the judgment discussed the treatment of expenses related to setting up a new foundry as revenue expenditure. The Revenue objected to this treatment, arguing that the expenses were not wholly and exclusively for the purpose of the existing business. However, the Tribunal found that the expenditure was related to expanding the existing business, leading to the allowance of the expenditure. The court upheld the Tribunal's decision, emphasizing the nature of the project and its alignment with the assessee's business expansion plans.

In conclusion, the judgment focused on various intricate issues related to expenses, provisions, and receipts, providing detailed analyses and references to previous orders to support the decisions made by the court.