2021 (6) TMI 68 - AT - Income Tax

Deduction u/s 36(1)(xii) - assessee claimed for allowing all the expenditure debited in profit and loss account in view of section 36(1)(xii) of the Act, but the Assessing Officer did not give any finding on this claim of the assessee - HELD THAT - Under this provision the expenses which may not be allowable under section 37 of the Act for not incurred wholly and actually for the purpose of the business, however same were incurred for the objects and purposes authorised by the relevant Act under which such corporation has been established, then those expenses might be allowed under section 36(1)(xii) of the Act. Before us assessee did not furnish details of any amount eligible for deduction under the section 36(1)(xii) of the Act. No evidence have been filed before us to substantiate that said details were ever filed before the AO or the Ld. CIT(A). The assessee has never contested deduction under above provision in earlier years. Even in subsequent assessment year i.e. AY 2007-08, the assessee has not pressed this ground of Cross Objection. Thus, it is evident that ground in current year has been raised in casual manner without any detail of actual amount eligible under the above provision. The claim of the assessee before the Assessing officer was that all expenditures have been incurred for the object and purpose of the Central Warehousing Act. CIT(A) also rejected the claim of the assessee. It is for the assessee to substantiate, whether particular expenditure has been incurred for the objects and purpose of the Central Warehousing Act, 1962. In absence of any such detail of the claim of deduction under section 36(1)(xii) of the Act, no useful purpose will be served in restoring the matter back to the file of the AO. We accordingly dismissed this ground of the appeal of the assessee. Disallowance under section 14A - HELD THAT - In the cases where shares are held for business purposes and dividend income is also earned from such shares, the disallowance of expenses for earning exempt dividend income has to be made on proportionate basis. The assessment year under consideration being prior to assessment year 2008-09, Rule 8D of Income Tax Rules, 1962 (in short the Rules ) cannot be invoked in the case and the disallowance of expenses has to be made on reasonable basis. The quantification of disallowance in the year under consideration is also restored to the file of the Assessing Officer for deciding in accordance with law keeping in view the overall facts and circumstances of the case including disallowances made in earlier assessment years i.e. assessment years 2002-03 and 2005-06 . Depreciation on the assets having cost upto ₹ 5000/- - AO observed from clause 7(d )and 7(e) of the Tax Audit Report (TAR) that depreciation at the rate of hundred percentile ( 100 %) was charged in the books of accounts in case of assets having cost upto₹ 5000/- - HELD THAT - The contention of the assessee that said depreciation on the assets having cost less than ₹ 5000/- was claimed in the books of accounts, however, was not claimed for the purpose of computing income as per Income-Tax Act. Since this dispute is a matter of verification of the claim of the depreciation made for the purpose of computation of income under Income-tax Act, we feel it appropriate to restore this issue to the file of the Assessing Officer for adjudication after verification of documentary evidences in this regard. The ground No. 4 of the appeal of the assessee is accordingly allowed for statistical purposes. Verification of share of income from Joint Venture CFS, Ludhiana - HELD THAT - It is undisputed that income from joint-venture has to be taxed in the hands of the assessee once and same income cannot be taxed twice. Since the assessee is following mercantile system of accounting, the income from joint-venture is required to be taxed on accrual basis after verification of audited accounts of the joint ventures. The Learned Counsel of the assessee has not disputed taxing the same following mercantile system and therefore we are not going into the aspect whether those receipt should be taxable on cash basis . The income from joint-venture once considered on mercantile basis in the year under consideration, same income cannot be taxed by the Assessing Officer on cash basis in subsequent years at the time of receipt. Accordingly, the issue in dispute is restored to the file of the Assessing Officer for adjudication after verification of the documentary evidence including audited accounts of the joint ventures under reference. Applicability of provision of section 115JA - Admission of additional ground - HELD THAT - As the assessee failed to explain any specific guidelines/instruction for preparing profit and loss account and balance sheet in the relevant regulatory Acts, which could become basis for non-application of sub-section 2 of section 115JB of the Act. Moreover, the assessee has complied the provisions of section 115JA or JB in earlier years and this doubt has been raised for the first time in casual manner, without supporting with any provision under any law - the request of the learned Counsel to restore the matter back to the file of the Assessing Officer is not justified and accordingly rejected. The additional grounds of the appeal of the assessee are accordingly dismissed. Disallowance for Productivity Linked Incentives (PLI) to employees, debited in profit and loss account - HELD THAT - The calculation has been made on productivity indicator and liability toward each employee has been worked out to ₹ 6300/-. The provision of ₹ 4,15,53,750 /- has been made for staff engaged in different sectors like construction, general etc. and also office location wise ( PB-138). The documents filed by the assessee before the Assessing Officer prima facie shows that liability is an ascertained liability and not a contingent liability. We find that Tribunal in the case of container Corporation of India Ltd. 2018 (3) TMI 43 - ITAT DELHI has allowed the provision of productivity linked incentive on the ground that the liability is in present, quantifiable and not contingent. Since the quantification of liability has not been verified at the level of the Assessing Officer, in the interest of substantial justice, we feel appropriate to restore this issue to the file of the Assessing Officer for verification of documentary evidences and decide in the light of the decision in the case of Container Corporation of India Ltd (supra). The ground No. 1 of the appeal of the Revenue is accordingly allowed for statistical purposes. Addition on account of capitalization of special ( SLP) Dunnage - HELD THAT - We find that the identical issue of special versus ordinary dunnage and their treatment as capital expenditure or revenue expenditure has been adjudicated by the Tribunal in appeal filed by the Revenue in the case of the assessee 2020 (5) TMI 590 - ITAT DELHI for assessment year 2012-13 - we do not find any error or perversity in the order of the Ld. CIT(A) and accordingly, we uphold the same. The ground No.2 of the appeal of the Revenue is dismissed. Disallowance for Quality improvement expenses - HELD THAT - The details include unit-wise expenses as well as nature of the expenses which include expenses on labour, lamination, purchase of the cleaning material, expenses related to ISO audit, supply of various construction and miscellaneous material. All these expenses need to be looked into from the angle that same are in the nature of the capital expenditure or in the nature of the revenue expenditure. In view of the facts and circumstances and in the interest of the justice, we feel it appropriate to restore this issue to the file of the Learned Assessing Officer for deciding afresh after affording adequate opportunity of being heard to the assessee. Disallowance for unabsorbed overhead on capital works expenditure - whether the part of overhead charges on monitoring of the capital expenditure of construction, could be charged to revenue expenditure.? - HELD THAT - The claim of the assessee that same have been charged to revenue expenses, following regular accounting practice whereas according to the Revenue in absence of details of expenses actually incurred, no expenditure can be allowed as revenue expenditure only on the ad-hoc accounting practice. We find that the Tribunal 2011 (5) TMI 1117 - ITAT DELHI for assessment year 2005-06 has restored the identical issue to the file of the Assessing Officer after examining the nature of the expenses.In view of the above facts and circumstances, the issue in dispute in the year under consideration is also restored to the file of the Assessing Officer for deciding afresh after providing reasonable and adequate opportunity of being heard to the assessee. This ground of the appeal of the Revenue is accordingly allowed for statistical purposes. Addition for income from bonded warehouses - HELD THAT - Assessing Officer has added the income from warehousing charges which is accrued during the year under consideration. The learned Counsel has agreed in principle that warehousing charges is liable to be assessed on accrual basis in view of Mercantile system followed by the assessee, but he emphasized that income which has been taxed on accrual basis in the year under consideration, should not be subjected to tax twice i.e once on Mercantile basis and second on cash basis. We concur with the above contention of the Learned Counsel of the assessee. Accordingly, the bonded warehouse income added by the Assessing Officer on accrual basis, is hereby confirmed, however, the Assessing Officer is directed to ascertain that, bonded warehouse income which has been added on Mercantile basis in the year under consideration, is not again subjected to tax on cash basis in subsequent years. Additions for various provisions, made by the Assessing Officer in terms of section 115JB - HELD THAT - As assessee has submitted that provision for gratuity and leave encashment have been made on the basis of the actuarial valuation and therefore, these are ascertained liabilities. Similarly, regarding wealth tax provisions, it has been submitted that the liability has been added back. Similar submissions have been made regarding provision for bad and doubtful debts. Regarding profit linked incentives, we have already restored the issue in dispute to the file of the Assessing Officer for verification of the working of said liability. In view of the above facts and circumstances, we feel it appropriate to restore this issue to the file of the Assessing Officer for verification of the claim of the assessee of actuarial valuation and other documentary evidence to substantiate that the relevant liabilities are ascertained liabilities. Disallowance of social obligation expenditure - AO disallowed the claim of the assessee of social obligation expenses on the ground that there was no provision in the Act to allow such expenses - HELD THAT - We find that this Explanation has been made effective from 01/04/2015. The Tribunal in the case of Addl CIT vs Rites Ltd 2021 (1) TMI 530 - ITAT DELHI has held this Explanation as prospective in nature. Respectfully, following the above decision, the corporate social responsibility expenses incurred by the assessee in the year under consideration cannot be disallowed invoking Explanation -2 to section 37 of the Act. Accordingly, this ground of the appeal of the Revenue is dismissed. Addition of interest on service tax - No justification was submitted by the assessee before the Assessing Officer for allowing this expenditure. The assessing officer held same to be in the nature of the penalty by the service tax department for default on the part of the assessee and accordingly, he disallowed the expense in terms of Explanation-1 1 to section 37(1) -whether interest paid on delayed deposit of the service tax is in the nature of the compensatory or in the nature of the penalty - HELD THAT -The payment of sales-tax and service tax both are indirect taxes, which being pari materia , said expenditure on interest for delayed payment of service tax is eligible for allowance as revenue expenditure following the finding of in the case of Lachmandas Mathura 1997 (12) TMI 16 - SUPREME COURT Accordingly, this ground of appeal is restored to the file of the Assessing Officer for verification, whether the assessee has followed inclusive/exclusive method of accounting for service tax and then decide in accordance with law. The ground of the appeal of the assessee is accordingly allowed for the statistical purposes.

Summary

Issues Involved:

1. Validity of Revised Return under Section 139(5).
2. Claim of Deduction under Section 36(1)(xii).
3. Disallowance under Section 14A.
4. Depreciation on Assets costing up to ?5000.
5. Verification of Share of Income from Joint Venture.
6. Applicability of Minimum Alternate Tax (MAT) under Section 115JA.
7. Disallowance of Productivity Linked Incentives (PLI).
8. Capitalization of Special Dunnage Expenses.
9. Disallowance of Quality Improvement Expenses.
10. Disallowance of Unabsorbed Overheads on Capital Works.
11. Addition of Income from Bonded Warehouses.
12. Additions to Book Profit under Section 115JB.

Detailed Analysis:

1. Validity of Revised Return under Section 139(5):
The assessee's revised return was not accepted by the Assessing Officer (AO) and CIT(A) on the grounds that it was filed after the processing of the original return under Section 143(1). The Tribunal dismissed the assessee's ground for the validity of the revised return and the claim for Post-retirement Medical Benefit as withdrawn.

2. Claim of Deduction under Section 36(1)(xii):
The assessee's claim for deduction under Section 36(1)(xii) was rejected by the AO and CIT(A) as the assessee failed to substantiate that the expenses were incurred for the objects and purposes authorized by the Warehousing Corporation Act. The Tribunal upheld this rejection due to the lack of detailed evidence.

3. Disallowance under Section 14A:
The AO made a disallowance under Section 14A read with Rule 8D for administrative and interest expenses related to exempt income. The CIT(A) reduced the disallowance to 5% of the exempt income. The Tribunal restored the issue to the AO for fresh determination in light of recent judicial decisions, emphasizing the need for proportionate disallowance.

4. Depreciation on Assets costing up to ?5000:
The AO disallowed 5% of the total depreciation claimed due to the lack of detailed lists of such assets. The CIT(A) upheld this disallowance. The Tribunal restored the issue to the AO for verification of the claim that the entire depreciation was added back in the computation of income.

5. Verification of Share of Income from Joint Venture:
The Tribunal restored this issue to the AO for verification, emphasizing that income from joint ventures should be taxed once and not on both accrual and cash basis.

6. Applicability of Minimum Alternate Tax (MAT) under Section 115JA:
The assessee's additional grounds challenging the applicability of MAT were dismissed by the Tribunal. The Tribunal found no merit in the claim that the assessee, being a non-Schedule VI company, was exempt from MAT provisions.

7. Disallowance of Productivity Linked Incentives (PLI):
The AO disallowed the PLI provision as unascertained liability, which was deleted by the CIT(A). The Tribunal restored the issue to the AO for verification of the quantification of the liability, following the precedent set in the case of Container Corporation of India Ltd.

8. Capitalization of Special Dunnage Expenses:
The AO treated ordinary dunnage expenses as capital expenditure. The CIT(A) deleted this addition, and the Tribunal upheld the CIT(A)'s decision, following its own earlier ruling that ordinary dunnage with a shorter life should be treated as revenue expenditure.

9. Disallowance of Quality Improvement Expenses:
The AO treated these expenses as capital expenditure, but the CIT(A) deleted the addition. The Tribunal restored the issue to the AO for fresh examination, emphasizing the need to distinguish between capital and revenue nature of the expenses.

10. Disallowance of Unabsorbed Overheads on Capital Works:
The AO treated unabsorbed overheads as capital expenditure. The CIT(A) deleted this addition. The Tribunal restored the issue to the AO for fresh examination, following its earlier decision to verify the nature of expenses.

11. Addition of Income from Bonded Warehouses:
The AO added income from bonded warehouses on an accrual basis. The CIT(A) deleted this addition. The Tribunal upheld the addition on an accrual basis but directed the AO to ensure the income is not taxed again on a cash basis in subsequent years.

12. Additions to Book Profit under Section 115JB:
The AO added various provisions to the book profit under Section 115JB. The CIT(A) deleted these additions, treating them as ascertained liabilities. The Tribunal restored the issue to the AO for verification of the actuarial valuation and other documentary evidence to substantiate the claim of ascertained liabilities.

Conclusion:
The appeals and cross-objections were partly allowed for statistical purposes, with several issues restored to the AO for fresh examination and verification. The Tribunal directed the AO to re-evaluate the disallowances and additions in light of recent judicial decisions and provided detailed guidelines for the verification of claims and expenses.