2014 (9) TMI 628 - AT - Income Tax

Leave encashment u/s 43B Held that - In assessee s own case for the earlier assessment year, Apex Court has categorically held that the assessee may pay tax and thereafter make the claim in its return which has been done as such the same is allowable - No doubt the position on facts was influx during the time when the return was filed however with the passage of time the position on facts qua the issue under consideration would have crystallized - Consideration of these relevant facts heeding to the request of the revenue that qua the provisions it is necessary to see what amount was actually paid as per the HR policy of the assessee, the issue is restored to the AO who shall necessarily take into consideration the decision of the Apex Court wherein the SLP is pending thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of assessee. Treatment of expenses on repair of plant and machinery Capital or revenue expenses Held that - There is no similarity established by the Revenue with the facts taken into consideration by the Tribunal and the Hon ble High Court in 1994-95 A.Y - Nothing has been placed to show that the machines were lying idle or had become unfit for production and in fact no argument in that line has been advanced by the Revenue - the arguments of the Revenue have no merit Decided against revenue.

Issues Involved:
1. Deletion of addition by AO on account of treatment of expenditure on repair of plant and machinery as capital expenditure.
2. Confirmation of disallowance on account of leave encashment under Section 43B of the Income Tax Act, 1961.

Detailed Analysis:

1. Deletion of Addition by AO on Account of Treatment of Expenditure on Repair of Plant and Machinery as Capital Expenditure:
The Revenue challenged the deletion of an addition amounting to Rs. 31,76,827/- made by the AO on account of treating the expenditure on repair of plant and machinery as capital expenditure. The AO had initially disallowed the expenditure, treating it as capital in nature, and allowed depreciation at the permissible rate. The AO's decision was based on a similar issue from the assessment year 1994-95, where the ITAT had confirmed the addition, and the matter was pending before the High Court.

The CIT(A) examined the facts and found that the expenditure incurred was towards repairs and not for creating new assets. The CIT(A) noted that the machines were not lying idle or unfit for production, and the repairs were to restore operational efficiency. The CIT(A) highlighted that similar disallowances in subsequent years had been deleted by the ITAT and the High Court. Consequently, the CIT(A) deleted the addition made by the AO.

The Tribunal reviewed the submissions and found no similarity between the facts of the current assessment year and those of 1994-95. The Tribunal noted that the Revenue did not establish that the machines were lying idle or unfit for production. The Tribunal upheld the CIT(A)'s decision, concluding that the expenditure was indeed of a revenue nature and allowable as such.

2. Confirmation of Disallowance on Account of Leave Encashment under Section 43B of the Income Tax Act, 1961:
The assessee challenged the disallowance of Rs. 10,72,200/- on account of leave encashment under Section 43B. The AO disallowed the amount, stating that it had not been actually paid during the financial year. The AO relied on the Supreme Court's interim order in the case of Exide Industries Ltd. vs Union of India, which directed that tax should be paid as if Section 43B(f) was on the statute book, but the claim could still be made in the return.

The CIT(A) upheld the disallowance, interpreting the Supreme Court's direction as an indication that Section 43B(f) was still effective. The CIT(A) concluded that the amount debited without actual payment could not be allowed as a deduction.

The Tribunal considered the submissions from both sides. The Tribunal noted that the Supreme Court's interim order allowed the assessee to make the claim in its return, but the claim still required examination. The Tribunal restored the issue to the AO for de novo consideration, directing the AO to take into account the Supreme Court's decision and the actual amount paid as per the assessee's HR policy.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to treat the repair expenditure as revenue in nature. The Tribunal allowed the assessee's appeal for statistical purposes, remanding the issue of leave encashment disallowance to the AO for fresh consideration. The order was pronounced in the open court on 18.7.2014.

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