2014 (7) TMI 290 - AT - Income Tax

Provision for post-retirement medical benefits to employees Held that - Post-retirement medical benefit is a provision, which has become a must for all the concerns, specially where there are health hazards - It is because of these reasons, the Government has notified that post-retirement medical benefit be allowed - service contract is worded in such a way that these benefits are integral part of the contracts and the liability gets attached, the moment a service contract is signed, inducting a new employee Relying upon Bharat Earth Movers Ltd. vs CIT 2000 (8) TMI 4 - SUPREME Court post-retirement medical benefit is also a liability which gets attached to the company the moment, the service contract is signed, the revenue authorities erred in disallowing the provision under this head - thus, the matter is remitted back to the AO Decided in favour of Assessee. Right to use technical know-how - Disallowance of 100% claim u/s 37(1) and allowance of 1/6th u/s 35 AB of the Act - Expenditure on 20 Point Programme - Held that - The decision in assessee s own case for the previous year has been followed, AO disallowed the claim regarding right to use technical know-how u/s 37(1) and also denied the claim for 1/6th u/s 35AB the AO is directed to allow the expenses and also, the AO is directed to allow deduction for entire amount of excise duty and custom duty paid by the assessee irrespective of the excise duty and custom duty included in the valuation of assessee s closing stock at the end of the accounting year - Decided in favour of Assessee. Disallowance of telephone and telegram expenses on guest house Held that - The decision in Britannia Industries Limited Versus Commissioner of Income-Tax And Another 2005 (10) TMI 30 - SUPREME Court followed - expenditure towards rent, repairs, maintenance of guest house used in connection with business is to be disallowed u/s. 37(4) because this is a special provision overriding the general provision Decided against Assessee. Entertainment expenses deduction for employees accompanying guest 25% allowed against the claim of 50% - CIT(A) erred in allowing only 25% as against the Appellants claim of 50% towards Entertainment expenses towards employees accompanying the guests Held that - As decided in assessee s own case for the previous year, it has been held that both the disallowances had been confirmed Decided against Assessee. Disallowance of provision for write off of stores and spares Held that - Nowhere in the order of the revenue authority there is an objection to the fact that the provision had been made to write off old, obsolete, non-usable and non- moving items - the kind of activity that is performed by the giant Corporation like that of the assessee, huge quantity of stores and spares become unusable and because of which periodically they have to keep writing them off the AO is directed to allow the claim only after verification that no double advantage is taken by the assessee by making the claim in the year of actual write off Decided in favour of Assessee.

Issues Involved:
1. Provision towards post-retirement medical benefit.
2. Right to use technical know-how.
3. Disallowance of expenditure on the 20 Point Programme.
4. Partial disallowance of excise/custom duty paid during the year.
5. Disallowance of telephone and telegram expenses on the guest house.
6. Entertainment expenses deduction for employees accompanying guests.
7. Disallowance of provision for write-off of stores and spares.
8. Disallowance of claim of deduction under sections 80HH, 80I/IA on LPG bottling plants.

Issue-wise Detailed Analysis:

1. Provision towards post-retirement medical benefit:
The CIT(A) confirmed the disallowance of Rs. 1,36,12,000 claimed under section 37(1) by the assessee, considering it an unascertained liability. The ITAT found that post-retirement medical benefits are integral to the service contract and thus constitute a definite liability. The tribunal referred to the Supreme Court's judgment in Bharat Earth Movers Ltd. vs. CIT, which held that leave encashment is not a contingent liability. Consequently, the tribunal set aside the CIT(A)'s order and directed the AO to verify the year-wise valuation and allow the claim accordingly.

2. Right to use technical know-how:
The AO disallowed Rs. 4,33,49,942 of the technical know-how fee claimed under section 37(1) and allowed only 1/6th under section 35AB. The CIT(A) upheld this disallowance. The ITAT followed the coordinate Bench's decision in the assessee's own case for earlier assessment years and directed the AO to allow the claim under section 35AB to the extent of 1/6th of the amount claimed.

3. Disallowance of expenditure on the 20 Point Programme:
The CIT(A) disallowed Rs. 1,82,82,910 claimed under section 37(1) towards the 20 Point Programme. The ITAT noted that the issue was covered by the coordinate Bench's decision in the assessee's favor for earlier assessment years and allowed the ground.

4. Partial disallowance of excise/custom duty paid during the year:
The CIT(A) disallowed the claim of Rs. 32,75,47,943 under section 43B. The ITAT referred to the coordinate Bench's decision in the assessee's favor for earlier assessment years, which followed the Supreme Court's judgment in Berger Paints India Ltd. v. CIT. The tribunal directed the AO to allow the deduction for the entire amount of excise and custom duty paid by the assessee.

5. Disallowance of telephone and telegram expenses on the guest house:
The CIT(A) confirmed the disallowance of Rs. 48,532 for telephone expenses on the guest house. The ITAT upheld the CIT(A)'s decision, noting that the disallowance was reasonable and supported by the facts.

6. Entertainment expenses deduction for employees accompanying guests:
The CIT(A) allowed only 25% of the entertainment expenses claimed by the assessee, amounting to Rs. 1,31,692, instead of the claimed 50%. The ITAT upheld the CIT(A)'s decision, finding it reasonable based on the facts.

7. Disallowance of provision for write-off of stores and spares:
The CIT(A) confirmed the disallowance of Rs. 64,66,500 for the provision made towards stores and spares. The ITAT acknowledged the necessity for the provision due to the nature of the business and directed the AO to verify that no double advantage was taken by the assessee in the year of actual write-off. The tribunal allowed the ground for statistical purposes.

8. Disallowance of claim of deduction under sections 80HH, 80I/IA on LPG bottling plants:
The CIT(A) disallowed Rs. 9,35,20,000 claimed under sections 80HH, 80I/IA. The ITAT noted that the issue was covered by the coordinate Bench's decision in the assessee's favor for earlier assessment years and directed the AO to allow the deductions as claimed.

Conclusion:
The ITAT set aside the orders of the revenue authorities on several issues and directed the AO to allow the claims after necessary verifications. The appeal of the assessee was treated as allowed.

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