2015 (6) TMI 518 - AT - Income Tax

Disallowance of provision for trade guarantee - Held that - Identically, the Tribunal has placed reliance upon the decision of the Tribunal for the assessment year 2004-05, wherein a detailed deliberation has been made on identical facts / issue. In the absence of any contrary material or any case law cited by the Revenue against the assessee, on the reasoning contained in the aforesaid order / earlier order of the Tribunal, we allow this ground of the assessee. Disallowance of deduction u/s 80IA - Held that - As no claim was made by the assessee u/s 80IA of the Act and admission by the learned D.R. that no such claim was made, there is no question of making any addition / disallowance. Disallowance of professional fee - Held that - The assessee is in the business of power generation for the last about 50 years, therefore, how these can be treated as pre-operative expenses. More specifically when the Assessing Officer himself has observed that the amount was paid to the consultant in connection with feasibility report on power generation, as is evident from the assessment order. Power generation is not the new business of the assessee. It is evident that the assessee disclosed income to the tune of ₹ 270,38,23,066 24, from sales, services and operation, etc. The assessee rendered services to the extent of ₹ 95,02,33,220, the nature of business shown by the assessee is manufacturing / trading in diesel engine, trading in engineering goods and other engineering services. Thus, it can be concluded that it is not the new business of the assessee. - Decided in favour of assessee. Addition for provision of trade guarantee to book profit computed u/s 115JB - Held that - actuarial valuation report was not filed by the assessee before the Assessing Officer. Therefore, we remand this issue to the file of the Assessing Officer to examine the claim of the assessee and decide in accordance with law. The assessee be given opportunity of being heard with further liberty to furnish evidence, if any, in support of its claim. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance of provision for trade guarantee
2. Disallowance of provision for trade guarantee written-back
3. Disallowance of deduction u/s 80IA of the Act
4. Disallowance of professional fee
5. Addition for provision of trade guarantee to book profit computed u/s 115JB of the Act

Analysis:

1. Disallowance of provision for trade guarantee:
The assessee challenged the disallowance of provision for trade guarantee amounting to &8377; 1,03,34,220. The Assessing Officer observed inconsistency in the method used by the assessee to arrive at the provision for trade guarantee, considering it as a contingent liability. The CIT(A) upheld this disallowance, stating that the provision was not an ascertained liability. However, the Tribunal, after considering past decisions in favor of the assessee, allowed the claim, noting that the provision was not an irrational belief but a determined liability. The Tribunal found no contrary material to overturn its decision.

2. Disallowance of provision for trade guarantee written-back:
The issue of disallowance of provision for trade guarantee written-back was automatically disposed of in favor of the assessee once the first issue was decided in their favor.

3. Disallowance of deduction u/s 80IA of the Act:
The assessee contended that no claim was made under section 80IA of the Act, and the disallowance confirmed by the CIT(A) was erroneous. Since no claim was made, the Tribunal held that there was no basis for any addition or disallowance under this section.

4. Disallowance of professional fee:
The Assessing Officer disallowed a professional fee of &8377; 30,36,211, claiming it was not a regular business expense. However, the Tribunal disagreed, noting that the fee was paid to a consultant for the assessee's power generation business, which had been ongoing for 50 years. The Tribunal found that the fee was justified and allowed the ground raised by the assessee.

5. Addition for provision of trade guarantee to book profit:
Regarding the addition for provision of trade guarantee to book profit computed under section 115JB of the Act, the Tribunal remanded the issue to the Assessing Officer for further examination as the actuarial valuation report was not submitted by the assessee. The Tribunal directed the Assessing Officer to decide on the claim in accordance with the law, giving the assessee an opportunity to provide necessary evidence.

In conclusion, the Tribunal partly allowed the appeal of the assessee for statistical purposes, resolving various issues related to disallowances and additions in a detailed manner.