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2020 (6) TMI 46 - AT - Income TaxAddition on account of liquidated damages - Allowable business expenditure - HELD THAT - Both the sides, this issue is squarely covered in favour of the assessee by the decision of this Tribunal rendered in assessee s own case for A.Y. 2008-09 to 2011-12 2019 (4) TMI 1469 - ITAT KOLKATA wherein held inbuilt condition of the contract that in case of late delivery of goods, percentage of consideration as liquidated damages would be deducted by the customer while making payment. It is noted that the payment was made to the assessee by the parties while it was carrying on its business, and the deduction of payment made by the parties were as per the contractual terms and so, it is an allowable deduction and we confirm the order of the Ld. CIT(A) and dismiss this ground of appeal of the revenue. Addition on account of prior period expenses - HELD THAT - Decided in assessee s own case 2019 (4) TMI 1469 - ITAT KOLKATA expenses of such nature which though relates to earlier period had crystalised in the year under consideration either due to change of law with retrospective effect like bonus or till finalization of sales tax case or settlement with trade union with retrospective effect in respect to fee, allowance etc. or receipt of final bill after the cut-off date of the assessment years. The Ld. CIT(A) has duly considered the magnitude and the scale of operations of the assessee company and observed that many of the expenses could not be correctly estimated and there could arise exigencies which require calibration/correction and, therefore, taking note of the fact that these expenses are crystallized in this assessment year under consideration, the Ld. CIT(A) has given relief which according to us, does not require any interference Disallowance on account of Cold Weather Expenses - HELD THAT - At the time of hearing before the Tribunal, the ld. Representatives of both the sides have submitted that the appellate orders of the ld. CIT(Appeals) giving relief to the assessee on a similar issue were challenged by the Revenue in the appeals filed before the ld. CIT(Appeals) and while disposing the said appeals, the Tribunal has restored this issue to the file of the AO for deciding the same afresh with certain directions. They have urged that a similar issue involved in the year under consideration, therefore, may also be sent back to the Assessing Officer for deciding the same afresh. The impugned order of the ld. CIT(Appeals) on this issue is accordingly set aside and the matter is restored to the file of the Assessing Officer for deciding the same afresh Expenses incurred on maintenance of young tea bushes - HELD THAT - Decided in assessee s own case for A.Y. 2008-09 to 2011-12 2019 (4) TMI 1469 - ITAT KOLKATA since the expenses were incurred by the assessee company for maintenance of and replacement of tea bushes in its existing garden only, the same cannot be said to be that of an enduring benefit of capital nature and accordingly we hold that the expenses claimed by the assessee company are allowable as revenue expenditure. Disallowance on account of provision of Gratuity - CIT(Appeals) giving relief to the assessee on the similar issue for A.Y. 2004-05 has been accepted by the Department as there was no appeal filed by the Department - HELD THAT - CIT-A relied on the provision of clause (b) of sub-section (7) of section 40A of the Income Tax Act, 1961, whereby any provision for the purpose of payment by way of contribution towards an approved gratuity fund is allowable as deduction. As further submitted by him, section 43B thus is not applicable here and as specifically provided in Explanation below section 40A(7)- once deduction is allowed on account of any provision made for the purpose of payment by way of contribution towards an approved gratuity fund, no deduction can be claimed by the assessee again on payment basis. Keeping in view this submission made by the ld. Counsel for the assessee which has remained un-rebutted or uncontroverted by the ld. D.R., we find no infirmity in the impugned order of the ld. CIT(Appeals) Disallowance on account of fees to ROC for recapitalisation of depleted net worth - HELD THAT - In the present case, capitalisation however was made by the assessee company for meeting urgent payments like employees dues on account of PF etc. and the intention was not to enlarge capital for higher productive capacity by acquisition of any fixed assets. A perusal of the relevant balance sheet of the assessee company also shows that there was no change in the issued and subscribed capital during the year under consideration and the increase of authorised capital did not lead to increase of issued capital or acquisition of fixed assets. Keeping in view all these facts of the present case as well as the decision in the case of Hindustan Machine Tools Ltd. vs CIT 1988 (3) TMI 14 - KARNATAKA HIGH COURT we find no infirmity in the impugned order of the Ld. CIT(A) allowing the deduction claimed by the assessee on account of fees paid to ROC for capitalisation of depleted net worth by treating the same as revenue expenditure.
Issues Involved:
1. Delay in filing the appeal. 2. Deduction of ?1,28,04,000/- on account of liquidated damages. 3. Disallowance of ?4,63,49,404/- on account of prior period expenses. 4. Disallowance of ?5,93,03,435/- on account of cold weather expenses. 5. Disallowance of ?51,67,374/- on account of expenses incurred on maintenance of young tea bushes. 6. Disallowance of ?1,30,55,158/- on account of provision of gratuity. 7. Disallowance of ?62,50,000/- on account of fees to ROC for recapitalisation of depleted net worth. Detailed Analysis: 1. Delay in Filing the Appeal: The Revenue filed the appeal with a delay of 137 days. An application for condonation of the delay was submitted, and the Tribunal, satisfied with the reasons provided, condoned the delay. The assessee’s counsel did not object to this condonation. 2. Deduction of ?1,28,04,000/- on Account of Liquidated Damages: The assessee claimed a deduction for liquidated damages, which the Assessing Officer (AO) disallowed due to lack of documentary evidence. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction based on previous appellate orders for A.Y. 2003-04 and 2004-05. The Tribunal upheld the CIT(A)’s decision, referencing a similar issue resolved in favor of the assessee for A.Y. 2008-09 to 2011-12, where the liquidated damages were deemed allowable as they arose from contractual obligations. 3. Disallowance of ?4,63,49,404/- on Account of Prior Period Expenses: The AO disallowed the prior period expenses, arguing they related to earlier years. The CIT(A) deleted the disallowance, noting that the liabilities crystallized in the year under consideration. The Tribunal upheld the CIT(A)’s decision, referencing a similar issue resolved in favor of the assessee for A.Y. 2008-09 to 2011-12, where such expenses were allowed as they crystallized in the relevant assessment year. 4. Disallowance of ?5,93,03,435/- on Account of Cold Weather Expenses: The AO disallowed the cold weather expenses, which the CIT(A) deleted based on previous appellate orders for A.Y. 2002-03 to 2004-05. The Tribunal restored the issue to the AO for fresh consideration, following the directions given in the appeals for A.Y. 2002-03 to 2004-05. 5. Disallowance of ?51,67,374/- on Account of Expenses Incurred on Maintenance of Young Tea Bushes: The AO treated the expenses as capital in nature, which the CIT(A) deleted, referencing earlier appellate orders for A.Y. 2002-03 to 2004-05. The Tribunal upheld the CIT(A)’s decision, referencing a similar issue resolved in favor of the assessee for A.Y. 2008-09 to 2011-12, where such expenses were allowed as revenue expenditure. 6. Disallowance of ?1,30,55,158/- on Account of Provision of Gratuity: The AO disallowed the provision for gratuity, invoking section 43B. The CIT(A) deleted the disallowance, referencing an appellate order for A.Y. 2004-05. The Tribunal upheld the CIT(A)’s decision, noting that the Department had accepted the similar issue for A.Y. 2004-05 and that section 43B was not applicable as per section 40A(7). 7. Disallowance of ?62,50,000/- on Account of Fees to ROC for Recapitalisation of Depleted Net Worth: The AO disallowed the fees paid to ROC, treating it as capital expenditure. The CIT(A) deleted the disallowance, noting that the expenditure was for recapitalising the company’s net worth, which was revenue in nature. The Tribunal upheld the CIT(A)’s decision, distinguishing the facts from the Supreme Court case cited by the Revenue and referencing the Karnataka High Court decision in Hindustan Machine Tools Ltd. vs CIT. Conclusion: The Tribunal partly allowed the appeal for statistical purposes, restoring the issue of cold weather expenses to the AO for fresh consideration and upholding the CIT(A)’s decisions on all other issues. The order was pronounced on May 22, 2020, with an extension due to the COVID-19 pandemic.
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