2023 (6) TMI 221 - AT - Income Tax

Disallowance of prior period expenses - CIT-A allowed claim - HELD THAT - We find that the ld. AO had not doubted the genuineness of prior period expenditure and prior period income while making the disallowance on net basis. There is no change in tax rates in the year under consideration and earlier year. Further we find that the assessee has been incurring continuously huge losses. Hence it would not make any difference with regard to allowability of expenditure in one year or the other. See National Cooperative Consumers Federation of India Ltd case 2012 (9) TMI 433 - ITAT DELHI - No infirmity in the order of the ld. CIT(A) granting relief to the assessee. Decided against revenue. Disallowance on account of extraordinary items written off - expenditure incurred on abandoned project - CIT(A) granted relief to the assessee by stating that there would be absolutely no enduring benefit that would accrue to the assessee by retaining these expenditures incurred on project which stood abandoned in its balance sheet - HELD THAT - Expenses incurred by the assessee corporation for Korba Project as mandated to be closed down by the Government of India and by orders of BIFR. Once the project is abandoned either by the assessee or at the behest of the Government all the expenditures incurred towards such project (be it capital or revenue) would fetch no value to the assessee and the same had to be written off by the assessee. It is not in dispute that the assessee had indeed written off the said abandoned project expenditure in its books during the year and had reflected the same as Extra-Ordinary Items Written Off . Since this issue does not arise on a regular basis to the assessee we find that the assessee had rightly shown this as Extra Ordinary Items in accordance with Accounting Standard 5 issued by ICAI in its profit and loss account as a separate line item We hold that the extra ordinary expenses written off in respect of expenditure incurred on abandoned project would be allowable as deduction. Accordingly the Ground No.2 raised by the revenue is dismissed. Disallowance of miscellaneous expenses written off - deduction had been claimed by the assessee company towards abandoned project expenditure - HELD THAT - The feasibility study report obtained was for a project for improving the operational efficiency of the existing plant and in any case the said project was abandoned. Hence the aforesaid expenditure incurred upto the year 1991-92 which were retained as a Balance Sheet item by the assessee corporation was sought to be written off as abandoned project expenditure during the year. This in our considered opinion would be an allowable expenditure. This issue is no longer res integra in view of the decision of Binani Cement Ltd 2015 (3) TMI 849 - CALCUTTA HIGH COURT wherein it was held that expenditure incurred for construction/acquisition of new facility which was subsequently abandoned at work-in-progress stage was allowable in year of write off as incurred wholly and exclusively for purpose of assessee s business. No infirmity in the order of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly the Ground No 3 raised by the revenue is dismissed. Disallowance on account of interest / penal interest on Government of India Loans - CIT-A allowed the claim - HELD THAT - We find that the provisions of section 43B of the Act covers only interest payable on loans taken from Public Financial Institution or a State Financial Corporation or a State Industrial Investment Corporation or a Scheduled Bank. It does not cover interest payable on loans taken from Government of India. There is no dispute in the instant case that the sum of Rs 831.58 crores represent interest payable on loans from Government of India only. Hence in our considered opinion it is outside the ambit of provisions of section 43B -We are in agreement with the observations of the ld. CIT(A) that there is no scope to intend something more or less than what is written in the plain language of the statute. Neither anything extra can be read into it which is not there in the statute nor anything less can be read from what is written in the statute. No infirmity in the order of ld. CIT(A) granting relief in this regard. Accordingly the Ground No. 4 raised by the revenue is dismissed. Disallowance of depreciation - As per revenue as no manufacturing activity was carried out by the assessee during the year and accordingly the depreciation would not be allowable - HELD THAT - We find that the concept of block of assets was introduced from 1.4.1988 in the statute and once the asset enters the block its identity is lost and thereafter in subsequent years the same would not be identifiable individually. As per the Income Tax Act the depreciation is allowed on the block of assets and not on any individual assets. The plant and machinery for manufacture of fertilizers was kept in ready to use condition by the assessee company. As the asset loses its identity once it enters the block of assets. Hence there is no way for disallowing the depreciation on block of assets and the same would be taken care at the time of disposal of the assets in the block while computing short term capital gains u/s 50 of the Act on deeming fiction. Decided against revenue. Disallowance on account of employees contribution to PF and ESI - Delayed payment - HELD THAT - this issue is no longer res integra in view of the decision of the Hon ble Supreme court in the case of Checkmate Services Pvt. Ltd 2022 (10) TMI 617 - SUPREME COURT - It is not in dispute that the employee s contribution to PF and ESI were deposited by the assessee to the Government account beyond the due dates prescribed under the respective acts but well before the due date of filing of return of income u/s. 139(1) of the Act. We find that the recent decision of the Hon ble Supreme Court had settled the entire dispute to rest by deciding it in favour of the Revenue. Thus claim of deduction towards employee s contribution to PF ESI made by the assessee becomes an incorrect claim warranting primafacie adjustment u/s.143(1) - Decided in favour of assessee.

Summary

Issues Involved:

1. Deletion of disallowance of prior period expenses.
2. Deletion of disallowance of extraordinary items written off.
3. Deletion of disallowance of miscellaneous expenses written off.
4. Deletion of disallowance of interest/penal interest on Government of India Loans.
5. Deletion of disallowance of depreciation.
6. Deletion of disallowance of employees' contribution to PF and ESI.

Issue 1: Deletion of Disallowance of Prior Period Expenses

The first issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the disallowance of prior period expenses amounting to Rs 13,16,49,000/-. The assessee, a public sector enterprise, argued that due to delays in receiving information from various branches, some expenses were booked late. The CIT(A) observed that the assessee consistently followed the practice of charging prior period expenses and income when details or bills were received after the financial year closure. The Tribunal found no infirmity in the CIT(A)'s decision and dismissed the revenue's appeal on this ground.

Issue 2: Deletion of Disallowance of Extraordinary Items Written Off

The second issue was whether the CIT(A) was justified in deleting the disallowance of extraordinary items written off amounting to Rs 15,17,00,000/-. The expenses were incurred in earlier years at Korba Division and written off during the year under consideration. The CIT(A) noted that the expenditures incurred on an abandoned project should be written off, as they would not provide any enduring benefit to the assessee. The Tribunal upheld the CIT(A)'s decision, noting that the write-off was in accordance with Accounting Standard 5 and allowed as a deduction.

Issue 3: Deletion of Disallowance of Miscellaneous Expenses Written Off

The third issue was whether the CIT(A) was justified in deleting the disallowance of miscellaneous expenses written off amounting to Rs 1,66,00,000/-. These expenses were incurred on feasibility studies for revamping a plant, which was later abandoned. The Tribunal agreed with the CIT(A) that the expenses should be written off as they provided no enduring benefit and upheld the decision to allow the deduction.

Issue 4: Deletion of Disallowance of Interest/Penal Interest on Government of India Loans

The fourth issue was whether the CIT(A) was justified in deleting the disallowance of Rs 831,58,12,000/- on account of interest/penal interest on Government of India Loans. The CIT(A) held that the interest payable on Government of India Loans was not covered by section 43B of the Income-tax Act, 1961. The Tribunal agreed, noting that section 43B covers interest payable on loans from specific financial institutions but not from the Government of India. The Tribunal upheld the CIT(A)'s decision.

Issue 5: Deletion of Disallowance of Depreciation

The fifth issue was whether the CIT(A) was justified in deleting the disallowance of depreciation amounting to Rs 20,50,59,630/-. The Tribunal noted that the concept of block of assets, introduced from 1.4.1988, allows depreciation on the block of assets rather than individual assets. The Tribunal upheld the CIT(A)'s decision, referencing the Hon'ble Delhi High Court's ruling in CIT vs Oswal Agro Mills Ltd, which supported the claim for depreciation even when the assets were not actively used but kept ready for use.

Issue 6: Deletion of Disallowance of Employees' Contribution to PF and ESI

The sixth issue was whether the CIT(A) was justified in deleting the disallowance of employees' contribution to PF and ESI. The Tribunal noted that the Hon'ble Supreme Court in Checkmate Services Pvt. Ltd vs CIT had settled that employees' contributions deposited beyond the due dates prescribed under respective acts but before the due date of filing the return of income are not allowable. The Tribunal decided this issue against the assessee, allowing the revenue's appeal on this ground.

Conclusion:

The Tribunal dismissed the revenue's appeals for the assessment years 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10, and 2011-12, except for the issue related to employees' contribution to PF and ESI for the assessment year 2006-07, which was partly allowed. The decisions rendered for the assessment year 2002-03 were applied mutatis mutandis to the subsequent years.