2014 (7) TMI 423 - AT - Income Tax

Provision for post-retirement medical benefits to employees Held that - The decision in Hindustan Petroleum Corporation Ltd. Versus Jt. Commissioner of Income Tax 2014 (7) TMI 290 - ITAT MUMBAI followed - The 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 - a 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 post-retirement medical benefit is also a liability which gets attached to the company the moment, the service contract is signed, - thus, the matter is remitted back to the AO Decided in favour of Assessee. Interpretation of section 37(1) r.w. section 35B of the Act - Expenditure incurred for acquiring the right to use the know-how - Expenses on implementation of welfare projects - Interpretation of section 43B of the Act Deduction of excise and customs duties paid Deduction u/s 80HH/80I/80IA of the Act - Claim for deduction of profits of the new LPG Bottling Plants commissioned 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 claim 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. Repairs & maintenance, telephone and telegram expenses, property tax of 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.

Issues Involved:
1. Disallowance of provision for post-retirement medical benefits.
2. Disallowance of expenditure for acquiring right to use know-how.
3. Disallowance of expenditure on welfare projects under the 20 Point Programme.
4. Disallowance of excise and customs duties included in closing inventory under Section 43B.
5. Disallowance of expenditure on maintenance and repairs, property taxes, and telephones of guest house.
6. Disallowance of entertainment expenses.
7. Disallowance of deduction under sections 80HH, 80I/80IA.
8. Disallowance of repair expenditure due to destruction of records in fire.
9. Disallowance of stores and spares written off.

Issue-wise Detailed Analysis:

1. Disallowance of provision for post-retirement medical benefits:
The assessee's appeal against the disallowance of Rs. 4,59,90,540/- for post-retirement medical benefits was upheld based on previous Tribunal decisions. The Tribunal directed the AO to allow the claim based on actuarial valuation, referencing the Supreme Court decision in Bharat Earth Movers Ltd. vs. CIT, which held that such liabilities are not contingent but ascertained.

2. Disallowance of expenditure for acquiring right to use know-how:
The Tribunal followed its earlier decision, directing the AO to allow 1/6th of the expenditure under Section 35AB, dismissing the claim under Section 37(1) as not pressed. This was consistent with the Tribunal's decision for earlier assessment years.

3. Disallowance of expenditure on welfare projects under the 20 Point Programme:
The Tribunal allowed the appeal, following its consistent view in earlier years that such expenditures are allowable. The decision was based on the Tribunal's previous rulings and the Supreme Court decision in Shri Venkata Satyanarayana Rice Mills vs. CIT.

4. Disallowance of excise and customs duties included in closing inventory under Section 43B:
The Tribunal allowed the appeal, directing the AO to allow the claim, following the Gujarat High Court decision in Lakhanpal National Ltd. vs. ITO and the Supreme Court decision in Berger Paints India Limited vs. CIT.

5. Disallowance of expenditure on maintenance and repairs, property taxes, and telephones of guest house:
The Tribunal disallowed the appeal, referencing the Supreme Court decision in Britannia Industries Ltd. vs. CIT, which held that such expenditures are to be disallowed under Section 37(4) as they pertain to guest houses.

6. Disallowance of entertainment expenses:
The assessee did not press this ground, and thus, the Tribunal dismissed it.

7. Disallowance of deduction under sections 80HH, 80I/80IA:
The Tribunal allowed the appeal, following its consistent view that the process of bottling LPG Gas is a production activity eligible for deductions under these sections. This view was upheld by the Bombay High Court.

8. Disallowance of repair expenditure due to destruction of records in fire:
The Tribunal disallowed the appeal, agreeing with the lower authorities that the liabilities were neither incurred nor accrued during the relevant assessment year and thus not eligible for deduction.

9. Disallowance of stores and spares written off:
The assessee did not press this ground, and thus, the Tribunal dismissed it.

Conclusion:
The appeals were partly allowed for statistical purposes, with specific directions to the AO to follow the Tribunal's previous decisions and the Supreme Court rulings where applicable. The order was pronounced in the open court on 25.06.2014.

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