2015 (7) TMI 524 - AT - Income Tax

Disallowance of a provision in respect of post retirement medical benefit to its employees, as a contingent, and not an ascertained, liability - Tribunal allowed claim - Held that - The tribunal for A.Y. 1996-97 has followed its order for A.Y. 1997-98 (2014 (7) TMI 290 - ITAT MUMBAI). As regards the Revenue s contention of the provision being not on a scientific basis, based on an empirical study, even as observed by the apex court in Bharat Earth Movers (2000 (8) TMI 4 - SUPREME Court ), the tribunal has directed the provision to be allowed only on actuarial valuation, restoring the matter back to the file of the Assessing Officer (A.O.) for the purpose. The provision is also the subject matter of the Accounting Standard (AS)-15 issued by the Institute of Chartered Accountants of India. We have, accordingly, no hesitation in, likewise, directing for the allowance of the assessee s claim subject to actuarial validation. The matter is, accordingly, restored to the file of the A.O. for the purpose. Disallowance of expenditure incurred for acquiring the right to use know-how - Held that - The assessee, though initially made a claim u/s.37(1), has settled for its claim being allowed u/s.35AB, amortizing the same over a period of six years; being, as clarified by the ld. AR, qua the same technical know-how obtained from Escom Telecom, USA as for the earlier years. The issue is, thus, again only a continuation of the assessee s claim pursuant to the same technical know-how arrangement for transfer/user. The assessee shall, accordingly, be allowed its claim as exigible u/s. 35AB of the Act - Decided in favor of assessee Contribution by the assessee to the 20 point programme initiated by the Government of India - Held that - he tribunal, following its earlier decision in the assessee s case for A.Y. 1989-90, has allowed the contribution toward implementation of the twenty point program of the Government of India as deductible u/s. 37(1). Respectfully following the consistent stand by the tribunal, which has considered the decision by the apex court in Venkata Satyanarayana Rice Mill Contractors Co. (1996 (10) TMI 2 - SUPREME Court), we direct for the allowance of the same.- Decided in favor of assessee Addition toward the valuation of the closing stock, effected u/s. 145A - Held that - Opening stock, which stands valued at net of excise, i.e., as the closing stock for the immediately preceding year, following exclusive method of accounting. The excise duty thereon is allowable u/s. 37(1) r/w sec.43B. However, there can be no double claim, so that to the extent already allowed per the enhanced valuation, on account of excise, of the opening stock for the year, mandated per s. 145A, there is no basis for its claim.The A.O. is accordingly directed to give effect to both the provisions of s. 43B and s. 145A (i.e., by valuing all the components of the Trading A/c at inclusive of all duties) for the current year, bearing in mind that there is no double deduction qua the same sum. We decide accordingly.- Decided in favor of assessee Denial of deduction u/s. 80-I/80-IB on capital power plants and production recovery units on its LPG bottling plants - Held that - The process of bottling the LPG Gas into cylinder makes the same marketable on execution of the process. It therefore follows that a new product comes into existence - Deduction allowed . See COMMISSIONER OF INCOME TAX-1 Versus M/s HINDUSTAN PETROLEUM CORPORATION LTD. 2013 (5) TMI 124 - BOMBAY HIGH COURT - Decided in favor of assessee. Write off of capital work-in-progress (or CWIP) - Held that - Without doubt, as apparent from the foregoing narration of facts, which are not disputed, the expenditure under reference is a capital expenditure, which is inferable from the very fact of the write off of the cost of a capital asset, being accumulated under the head capital work in progress . What was being set up is a treatment plant, with a defined purpose, in alignment with the assessee s processes. It clearly forms a part of the capital structure or the profit making apparatus of the firm. Its cost, upon completion, would only stand to be regarded as a capital expenditure in the form of a capital asset, liable for depreciation on user for the purposes of business. That the same could not be, for some reason fructify, is a different matter altogether. That is, the abortiveness of the expenditure would not be determinative of or alter the nature of the expenditure (refer CIT vs. Tamil Nadu Chemical Products Ltd. 2002 (9) TMI 80 - MADRAS High Court .Both the capital and the revenue expenditure are incurred ostensibly only toward business purposes. The denial of deduction qua the latter is on account of the nature of the expenditure and not for want of satisfaction of the condition of it being incurred for and in the regular course of business. The law in the matter is well settled and the case law, legion. We may, for reference, though site some decisions by the apex court as in the case of Hasimara Industries Ltd. vs. CIT 1998 (5) TMI 7 - SUPREME Court . An expenditure incurred on a capital asset does not lose the character of capital expenditure, and does not become a revenue expenditure on the score that the said capital expenditure also ultimately enures to the efficient running of the business. Assessability of the interest u/s. 244A - Held that - As regards the issue of time of the taxability of interest u/s. 244A, the same, as admitted by the ld. AR, stands squarely covered by the decision by the larger bench of tribunal in Avada Trading Co. Ltd. (2006 (1) TMI 465 - ITAT MUMBAI). Its stands clarified that interest u/s.244A is assessable on the grant of refund, of which it forms a part, upon processing u/s.143(1). Accordingly, the entire interest received is subject to tax in the first instance. No part thereof can be with-held for the assessment on the ground of being provisional. Of-course, there can be no double taxation. The fact that a particular method of accounting has been consistently followed in the past is no ground for following it in future, where it is not proper in-as-much as each year is separate and independent year of assessment, and income of each year only is to be brought to tax for that year. Deduction qua interest withdrawn u/s.244A, the same stands again discussed and decided by the tribunal in Avada Trading Co. Ltd. (supra). It was, with reference to the decision in CIT vs. Chunilal V. Mehta & Sons (P.) Ltd. 1971 (8) TMI 4 - SUPREME Court held that the withdrawal would relate back to the year of grant of the refund (interest) in-as-much as it can only be considered as allowed in excess for that year. The decision is consistent with the decision in CIT vs. Syndicate Bank 1986 (1) TMI 85 - KARNATAKA High Court . The proper course therefore would be to claim the same through rectification u/s.154. We decide accordingly, also clarifying that the time limit for rectification u/s. 154 would extend on the basis of the orders under appellate proceedings. Disallowance u/s.14A - Held that - The various file notings, internal approvals, requiring liasoning with different banking, Board approval/s, etc. (SPB 16-22), rather, confirm the expenditure of time and attention of the senior executives as well as their staff, so that there was input in terms of organizational resources toward what we may term as investment management , entailing incurring of expenditure. Our second observation is that the same is not in any fixed proportion of the amount invested, which also needs to the product liquidated in alignment of the cash management and, therefore depends on the exigency of the situation, requiring a balance of the current and future cash requirements by the company; assessment of investment options, considering the time frame for which the investment is to be made. In our view, a fixed cost, i.e., in monetary terms itself, would therefore be required to be ascribed, making a reasonable estimate toward the direct or indirect costs incurred in relation to these investments, yielding or liable to yield tax-exempt income, meeting thus the ends of justice. We estimate the same at ₹ 10 lacs. Non disallowance of the expenditure, other than on interest, no disallowance qua the same could be proposed or directed by the ld. CIT(A) - Held that - We find the argument specious as well as inconsistent with the scheme of the Act. Section 14A, as well as the other provisions, viz. sections 68, 69, 69A, etc. mention of Assessing Officer as he is the assessing authority Act, and for no other reason. It is not meant as a fetter on the process of assessment or otherwise act as a deterrent or limitation on the scope of the assessment. The whole premise for providing for satisfaction is towards the provision of an objective basis, which could be subject to review, besides operating as an in-built check against arbitrariness. Appellate proceedings, it is well settled, are only a continuation of the assessment proceedings. The powers of the first appellate authority under the Act are coterminous with that of the assessing authority, so that he has all powers of assessment, including the power of enhancement, the only limitation being that it cannot extend to a new source of income. He is, therefore, not only vested with but obliged to do what he did, i.e., given that the satisfaction by the A.O. was not based on any materials or the facts of the case, based on a presumption made de hors the record. Reference towards the foregoing statement of law may be made to the decisions in the case of CIT vs. Kanpur Coal Syndicate 1964 (4) TMI 18 - SUPREME Court . Rather, the Act provides for a check in the form of power of revision u/s. 263, i.e., against any arbitrary action or even lack of proper enquiry/due application of mind (refer Malabar Industrial Co. Ltd. vs. CIT 2000 (2) TMI 10 - SUPREME Court by the A.O. We, accordingly, see no issue of competence here.

Summary

Issues Involved:
1. Disallowance of provision for post-retirement medical benefits.
2. Disallowance of expenditure for acquiring the right to use know-how.
3. Disallowance of contribution to the 20-point programme.
4. Addition towards the valuation of closing stock under Section 145A.
5. Denial of deduction under Section 80-I/80-IB for capital power plants and LPG bottling plants.
6. Write-off of capital work-in-progress.
7. Assessability of interest under Section 244A.
8. Deductibility of interest withdrawn under Section 244A.
9. Disallowance under Section 14A for tax-exempt income.

Issue-wise Detailed Analysis:

1. Disallowance of Provision for Post-Retirement Medical Benefits:
The tribunal directed the provision for post-retirement medical benefits to be allowed subject to actuarial validation, restoring the matter to the Assessing Officer (A.O.) for this purpose. This decision followed previous tribunal orders for earlier assessment years and relied on the Supreme Court decision in Bharat Earth Movers vs. CIT.

2. Disallowance of Expenditure for Acquiring the Right to Use Know-How:
The tribunal allowed the assessee's claim for expenditure incurred for acquiring the right to use know-how under Section 35AB, amortizing it over six years. This decision was consistent with the tribunal's orders for earlier years, recognizing the technical know-how arrangement with Escom Telecom, USA.

3. Disallowance of Contribution to the 20-Point Programme:
The tribunal allowed the contribution towards the 20-point programme as deductible under Section 37(1), following consistent tribunal decisions in the assessee's own case for earlier years. The tribunal relied on the Supreme Court decision in Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT.

4. Addition Towards Valuation of Closing Stock Under Section 145A:
The tribunal directed that the opening and closing inventories, purchases, and sales be valued inclusive of duties and taxes as mandated by Section 145A, effective from the assessment year 1999-2000. The A.O. was instructed to ensure no double deduction occurred, following the tribunal's extensive discussion in related cases.

5. Denial of Deduction Under Section 80-I/80-IB for Capital Power Plants and LPG Bottling Plants:
The tribunal allowed the deduction under Section 80-I/80-IB for capital power plants and LPG bottling plants, recognizing these activities as manufacturing or production. This decision followed earlier tribunal orders and was approved by the jurisdictional high court.

6. Write-Off of Capital Work-in-Progress:
The tribunal upheld the disallowance of the write-off of capital work-in-progress, recognizing the expenditure as capital in nature. The tribunal relied on various judicial precedents, emphasizing that the abortiveness of the expenditure does not alter its capital nature.

7. Assessability of Interest Under Section 244A:
The tribunal held that interest under Section 244A is assessable on the grant of refund upon processing under Section 143(1). The tribunal directed that the entire interest received be taxed in the first instance, ensuring no double taxation.

8. Deductibility of Interest Withdrawn Under Section 244A:
The tribunal decided that the withdrawal of interest under Section 244A should relate back to the year of grant of the refund, as it can only be considered as allowed in excess for that year. The tribunal suggested rectification under Section 154 for claiming the same.

9. Disallowance Under Section 14A for Tax-Exempt Income:
The tribunal estimated the expenditure related to tax-exempt income at Rs. 10 lacs, recognizing the involvement of organizational resources in managing investments. The tribunal rejected the assessee's plea that no disallowance could be proposed by the CIT(A) if the A.O. was satisfied with the non-disallowance, emphasizing the appellate authority's powers.

Conclusion:
The assessee's appeal was partly allowed, with specific directions and clarifications provided for each issue. The tribunal ensured adherence to legal precedents and proper application of relevant provisions of the Income Tax Act.