2015 (7) TMI 1023 - AT - Income Tax

Provision for bad and doubtful debts in computing book profit u/s.115JB - computing the income under the MAT provisions - Held that - In the facts of the case of Echjay Forgings (2001 (2) TMI 56 - BOMBAY High Court) were that in computing the book profits of the assesseecompany under section 115JB of the Act,the AO had disallowed the deductions claimed by the assessee on account of payment of wealth-tax,provisions for doubtful debts, gratuity, bonus and amounts debited to the profit and loss account in respect of foreign exchange rate difference, on the ground that the above items were to be added back to the net profit as shown in the profit and loss account under the Explanation to section 115J(1A) .The Tribunal held that the disallowances made by the Department under section 115J were impermissible. - Decided in favour of assessee. Addition in respect of provision for Director s Retirement Benefit in computing Book Profit u/s.115JB - Held that - Addition of Provision for discretionary terminal benefits in the form of additional gratuity in computing Book Profit u/s 115J had been deleted by the Tribunal in assessee s own case in AY. 1990-91 as relied upon the cases of National Hydro Electric Power Corporation(2010 (7) TMI 969 - PUNJAB AND HARYANA HIGH COURT),Hewlett Packard India (P.) Ltd.(2008 (3) TMI 23 - HIGH COURT OF DELHI ),Bechtel India (P) Ltd.(2007 (11) TMI 2 - HIGH COURT , DELHI)and Dresser Valve India (P) Ltd.(2009 (4) TMI 535 - ITAT MUMBAI)- Decided in favour of assessee. Computing of Book Profit u/s.115JB with regard to expenditure incurred by the assessee on Voluntary Retirement - Held that - FAA is based on the judgment of the Hon ble Supreme Court and the Tribunal has in the case of Nicholas Piramal India Ltd.(2013 (11) TMI 934 - ITAT MUMBAI) has decided the issue of VRS in favour of the assessee.So,in our opinion,his order does not suffer from any legal infirmity.- Decided in favour of assessee. Addition made in respect of Capital Expenditure debited to P&L account in computing book profit u/s 115JB - CIT(A) deleted addition - Held that - Expenditure had been disclosed in Clause 17(a) of the tax Audit Report and same were added to total income while computing income under the normal provisions of the Act.The AO made the addition of the above items under the MAT provisions.The FAA deleted the addition relying on the decision of the Apex Court in Apollo Tyres Ltd. (2002 (5) TMI 5 - SUPREME Court ). Following our orders for the earlier grounds,we dismiss this ground also,as it also deals with computation of income u/s.115JB of the Act. - Decided in favour of assessee. Addition made in respect of Revenue generated from trial run production in computation of Book Profits u/s.115JB - CIT(A) deleted addition - Held that - Treatment in the books of accounts was is as per guidance note issued by the Institute of Chartered Accountants of India,that same was not disputed by the AO,that the addition made by him was not tenable in view of the decision of the Apex Court in the case of Apollo Tyres Ltd.(2002 (5) TMI 5 - SUPREME Court).- Decided in favour of assessee. Allowance of expenditure on temporary structures at customer s site - FAA held that the expenditure had been incurred for setting up temporary arrangement for providing RMC to the contractors at their location,that it was s revenue in nature and was incurred wholly and exclusively for the purpose of business - Held that - Tribunal has dealt the issue while deciding the appeals for the AY.2000-01 that the expenditure had been incurred for setting up temporary arrangement for providing RMC to the contractors at their location,that it was s revenue in nature and was incurred wholly and exclusively for the purpose of business.- Decided in favour of assessee. Disallowance made in respect of 43B - CIT(A) deleted addition - Held that - Second proviso to Sec.43B,which provided for disallowance of employer s contribution to any fund for the welfwere of employees if not paid before the due date specified in Sec.36(1)(va)was deleted by the Finance Ac, 2003,that the issue was favorably covered by the decision of Hon ble Apex Court delivered in the case of Alom Extrusions Ltd.(2009 (11) TMI 27 - SUPREME COURT )wherein it was held that omission of second proviso and the corresponding amendment of first proviso by Finance Act, 2003,were curative in nature and were effective retrospectively w.e.f. 1st April, 1988, that the contribution of ₹ 5, 00, 790/- had been deposited before the due date of filling of Return of income u/ s 139(1), deduction should be allowed in computing taxable income - Decided in favour of assessee. Subsidy received from Government of West Bengal - Whether the amount received by the assessee was not allocable towards any capital asset and was in the nature of incentive which was a taxable receipt? - Held that - FAA had relied upon various case laws and decided the issue without examining the whole scheme.On a query by the Bench the AR informed that the matter of Reliance Industries Ltd. 2003 (10) TMI 255 - ITAT BOMBAY-J was sent back by the Hon ble Supreme Court to the Hon ble Bombay High Court to decide afresh after considering the provisions of the scheme.In our opinion,any scheme in itself cannot be treated revenue or capital in nature-to arrive at a definite conclusion one has to consider the scheme in entirety.We feel that the issue needs further investigation.Therefore,in the interest of justice,the issue is restored back to the file of the AO who would decide the matter after affording a reasonable opportunity of hearing to the assessee and after analysing the scheme - Decided in favour of revenue for statistical purposes. Provision for deferred tax - Held that - FAA had,after verifying the fact,deleted the addition and therefore in our opinion there is no infirmity in his order.So,confirming his order ground raised by the AO is rejected. - Decided in favour of assessee. Disallowance of discarded capital assets and Cost of dismantling - CIT(A) deleted addition - Held that - The identical claim for earlier years in Assessee s own case had been allowed by ITAT in AY.s.1991-92 to 92-93,96-97,97-98 & 99-00 had not been challenged before the Hon ble High Court.- Decided in favour of assessee. Deletion of interest levied u/s.234D -s consequential in nature and hence needs no interference from our side. - Decided in favour of assessee. Exclusion of non compete fees and compensation of termination of contract received on sale of shweres of Float Glass Ltd.as capital receipt and hence not part of sales consideration in computing Long Term Capital Gain - Held that - The case of Wintac Ltd.(2013 (11) TMI 732 - KARNATAKA HIGH COURT)the Karnataka High Court had, following the judgment of Guffic Chem (2011 (3) TMI 6 - Supreme Court) held that the compensation received for restraining the assessee from carrying on competitive business was a capital receipt.is well settled that a liability cannot be created retrospectively. In the present case, compensation received under the noncompetition agreement became taxable as a capital receipt and not as a revenue receipt by specific legislative mandate vide section 28(va) and that too with effect from April 1, 2003. Hence, the said section 28(va) is amendatory and not clarificatory. On issue of Compensation for termination of the contract AR correctly stated that the compensation for termination of contract was akin to consideration received for transfer of right to carry on the business,that right to carry on any business was taxable as capital gain w.e.f A.Y. 2003-04,that the above receipt should be treated as capital receipt. - Decided against revenue. Provision for contingencies in computation of Book Profit u/s 115JB - Held that - During the course of hearing before us,the AR fairly conceded that the issue was covered against it due to insertion of clause (i) to Expl.1to Sec.115 JB vide Finance Act, 2009 w.r.e.f.01-04-2001.- Decided in favour of revenue. Profit on sale of fixed assets in computation of book profit u/s 115JB - assessee had claimed exclusion of Profit on sale of Fixed Assets(Net)in computing Book Profit - Held that - In the absence of any provision for exclusion of capital gains exempted in the computation of book profit under the provisions contained in Explanation to s. 115JB of the Act, the assessee is not entitled to the exclusion thereof as claimed. We, therefore, answer the question referred to us against the assessee and hold that in the absence of any provision for exclusion of exempted capital gain in the computation of book profit under the provisions contained in Explanation to s. 115JB of the Act, the assessee is not entitled to the exclusion thereof as claimed - Decided in favour of revenue. Claim of additional gratuity on provision basis - Held that - The issue was decided in favour of the assessee in the earlier AY.s - Decided against revenue. Interest u/s.234B on short payment of advance tax over assessed tax - CIT(A) deleted addition - Held that - AR correctly relied upon the case of Jupiter Bio-Science Ltd.(2011 (8) TMI 268 - KARNATAKA HIGH COURT ) and argued that the amendment with retrospective effect became part of the Act after the assessee had filed its return of income,that at the time of filing of return the assessee was not liable to pay advance tax.- Decided against revenue. Addition in respect of provision for Director s Retirement Benefit in comput -ing income under normal provisions of the Act - Held that - The issue of a certain business liability was deliberated upon and adjudicated by the Hon ble Apex Court in the case of Bharat Earth Movers 2000 (8) TMI 4 - SUPREME Court and it was held that if a business liability had definitely arisen in the accounting year and was capable of being estimated with reasonable certainty, the deduction should be allowed although the liability may have to be quantified and discharged at a future date.- Decided against revenue. Deduction u/s 35DDA - Held that - There is no doubt that the assessee was entitled to the deduction and it had not claimed the same in the return.It is also a fact that before the FAA it lodged its claim. FAA had rightly allowed the claim raised by the assessee. See case of Pruthivi Brokers and Shareholders P.Ltd 2012 (7) TMI 158 - BOMBAY HIGH COURT - Decided against revenue. Reducing the total income to less than returned income - Held that - The issue is directly covered by the judgment of Gujarat Gas Co.Ltd.the Hon ble Gujarat High Court(2000 (4) TMI 19 - GUJARAT High Court )wherein it had been held that CBDT Circular No. 549 dated 31st Oct,1989 providing that the assessed income should not be less than returned income was ultra vires the Board s powers and that the AO was not bound by the same.AO was to assess the correct tax liability in accordance with law and even that if there was wrong admission of income by the assessee,it would not binding on the assessee - Decided against revenue. Unutilised MODVAT credit added to the closing stock without making similar addition in opening stock - FAA deleted addition - Held that - We are unable to understand the logic behind filing the appeal by the AO and its authorisation by the CIT concerned.The AO has not only refused to follow the directions of the FAA but also choose not to file appeal before the Tribunal against the direction.Thus,the issue had attained finality.When the assessee found that the AO had not followed the directions of the FAA he was compelled to file appeal before the FAA for the same issue for the second time.The FAA rightly held that MODVAT credit attributable to closing stock should be deleted.At that stage also if the AO and the CIT had stopped,the unwanted and frivolous litigation would have not taken place.- Decided against revenue. Non exclusion of profit on sale of investments in computing Book Profit u/s.115JB - Held that - The Tribunal decided the issue against the assessee while adjudicating the appeals for the AY.s.1998-99,99-2000,2001-01.We find that the Hon ble Bombay High Court has dealt the issue of non exclusion of profit on sale of investments in computing Book Profit u/s.115JB of the Act,in the case of Veekaylal Investment Co. P. Ltd. (2001 (2) TMI 117 - BOMBAY High Court) wherein held while computing the book profits under the Companies Act, the assessee has to include capital gains for computing the book profits under section 115J . Even under clause 3(xii)(b) of Part II of Schedule VI to the Companies Act, 1956, profits or losses in respect of transactions or transactions of an exceptional or nonrecurring nature are to be disclosed. This shows clearly that capital gains should be included for the purposes of computing book profits - Decided against assessee. Written off insurance and railways claims - Held that - The matteR is covered in favour of the assessee by the judgment of Morgan Securities & Creditors(P.)Ltd. 2006 (12) TMI 106 - DELHI High Court . Assessee was entitled to the deduction on account of bad debts in the previous year in which it had been written off in the books. Identical issue had been sent back to the file of the AO by the Tribunal while deciding the appeals for the AY.s.2000-01 and 2001-02. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:

1. Deletion of addition of unutilized MODVAT credit to closing stock.
2. Deletion of addition in respect of provision for bad and doubtful debts in computation of book profit under section 115JB.
3. Deletion of addition in respect of provision for Director's Retirement Benefit in computation of book profit under section 115JB.
4. Deletion of addition in respect of Excess expenditure on Voluntary Retirement in computation of book profit under section 115JB.
5. Deletion of addition in respect of Expenses on VRS pertaining to earlier years in computation of book profit under section 115JB.
6. Deletion of addition in respect of Capital expenditure debited to P&L account in computation of book profit under section 115JB.
7. Deletion of addition in respect of Revenue generated from trial run production in computation of book profit under section 115JB.
8. Deletion of disallowance of revenue expenditure on temporary structures at customer's site.
9. Deletion of disallowance under section 43B.
10. Deletion of disallowance of capital investment subsidy received from the Government of West Bengal.
11. Deletion of addition in respect of provision for deferred tax.
12. Deletion of disallowance of discarded capital assets and cost of dismantling.
13. Deletion of interest levied under section 234D.
14. Deletion of addition in respect of non-compete fees and compensation for termination of contract.
15. Deletion of addition on account of provisions for contingencies in computation of book profit under section 115JB.
16. Deletion of addition on account of profit on sale of fixed assets in computation of book profit under section 115JB.
17. Allowance of assessee's claim of additional gratuity.
18. Deletion of interest levied under section 234B.
19. Deletion of addition on account of provision for Director's Retirement Benefit.
20. Deletion of addition on account of sales tax subsidy in computation of book profit under section 115JB and normal provisions.
21. Allowance of deduction under section 35DDA.
22. Directions given by the CIT(A) resulting in reducing the total income to less than the returned income.
23. Exclusion of profit on sale of investments in computation of book profit under section 115JB.
24. Exclusion of amount transferred to debenture redemption reserve in computation of book profit under section 115JB.
25. Written off insurance and railway claims.

Detailed Analysis:

1. Deletion of Addition of Unutilized MODVAT Credit to Closing Stock:

The CIT(A) deleted the addition of Rs. 8,88,04,704 to the closing stock on account of unutilized MODVAT credit. The ITAT upheld this decision, noting that the AO had not challenged the direction given by the CIT(A) in the first round of appeals, and thus the issue had attained finality.

2. Deletion of Addition in Respect of Provision for Bad and Doubtful Debts:

The CIT(A) deleted the addition of Rs. 11,91,81,266 made by the AO in computing the book profit under section 115JB, relying on the decision of the Bombay High Court in Echjay Forgings (P) Ltd. The ITAT upheld this decision, noting that the provision for bad and doubtful debts was a diminution in the value of assets and not a liability.

3. Deletion of Addition in Respect of Provision for Director's Retirement Benefit:

The CIT(A) deleted the addition of Rs. 2,84,53,850 made by the AO in computing the book profit under section 115JB, following the judgment in Echjay Forgings (P) Ltd. The ITAT upheld this decision, noting that the provision represented a liability in praesenti that was to be discharged at a future date.

4. Deletion of Addition in Respect of Excess Expenditure on Voluntary Retirement:

The CIT(A) deleted the addition of Rs. 2,96,00,000 made by the AO in computing the book profit under section 115JB, relying on the decision of the Supreme Court in Apollo Tyres Ltd. The ITAT upheld this decision, noting that the expenditure on VRS was allowable.

5. Deletion of Addition in Respect of Expenses on VRS Pertaining to Earlier Years:

The CIT(A) deleted the addition of Rs. 17,97,32,434 made by the AO in computing the book profit under section 115JB, following the same reasoning as for the excess expenditure on VRS. The ITAT upheld this decision.

6. Deletion of Addition in Respect of Capital Expenditure Debited to P&L Account:

The CIT(A) deleted the addition of Rs. 30,17,77,030 made by the AO in computing the book profit under section 115JB, relying on the decision of the Supreme Court in Apollo Tyres Ltd. The ITAT upheld this decision.

7. Deletion of Addition in Respect of Revenue Generated from Trial Run Production:

The CIT(A) deleted the addition of Rs. 73,48,69,876 made by the AO in computing the book profit under section 115JB, noting that the treatment in the books of accounts was as per the guidance note issued by the Institute of Chartered Accountants of India. The ITAT upheld this decision.

8. Deletion of Disallowance of Revenue Expenditure on Temporary Structures at Customer's Site:

The CIT(A) deleted the disallowance of Rs. 49,94,501 made by the AO, noting that the expenditure was revenue in nature and incurred wholly and exclusively for the purpose of business. The ITAT upheld this decision, referring to its earlier decisions in the assessee's own case.

9. Deletion of Disallowance under Section 43B:

The CIT(A) deleted the disallowance of Rs. 5,01,292 made by the AO, noting that the employer's contribution to the pension fund had been deposited before the due date of filing the return of income under section 139(1). The ITAT upheld this decision, referring to the Supreme Court's decision in Alom Extrusions Ltd.

10. Deletion of Disallowance of Capital Investment Subsidy Received from the Government of West Bengal:

The CIT(A) deleted the addition of Rs. 12,10,000 made by the AO, noting that the subsidy was on capital account and an incentive for industrialization. The ITAT restored the issue to the AO for fresh adjudication, directing the AO to analyze the scheme and decide accordingly.

11. Deletion of Addition in Respect of Provision for Deferred Tax:

The CIT(A) deleted the addition of Rs. 20,50,00,000 made by the AO, noting that the provision for deferred tax was already added back in computing the total income under normal provisions. The ITAT upheld this decision.

12. Deletion of Disallowance of Discarded Capital Assets and Cost of Dismantling:

The CIT(A) deleted the disallowance of Rs. 1,33,95,494 made by the AO, noting that the Tribunal had allowed similar claims in the assessee's own case for earlier years. The ITAT upheld this decision.

13. Deletion of Interest Levied under Section 234D:

The CIT(A) deleted the interest levied under section 234D, following the decision in West Cost Paper Mills Ltd. The ITAT upheld this decision, noting that the issue was consequential in nature.

14. Deletion of Addition in Respect of Non-Compete Fees and Compensation for Termination of Contract:

The CIT(A) deleted the addition of Rs. 75,00,000 and Rs. 2,30,00,000 made by the AO, noting that the provisions of section 55(2)(a) and section 28(va) were not applicable for the assessment year under consideration. The ITAT upheld this decision, referring to the Supreme Court's decision in Guffic Chem (P) Ltd.

15. Deletion of Addition on Account of Provisions for Contingencies in Computation of Book Profit under Section 115JB:

The CIT(A) deleted the addition of Rs. 11,00,00,000 made by the AO, noting that the provision for contingencies was covered by the insertion of clause (i) to Explanation 1 to section 115JB. The ITAT upheld this decision.

16. Deletion of Addition on Account of Profit on Sale of Fixed Assets in Computation of Book Profit under Section 115JB:

The CIT(A) deleted the addition of Rs. 2,74,14,074 made by the AO, following the Tribunal's decision in the assessee's own case for earlier years. The ITAT upheld this decision, referring to the decision of the Hyderabad Tribunal in Rain Commodities Ltd.

17. Allowance of Assessee's Claim of Additional Gratuity:

The CIT(A) allowed the assessee's claim of additional gratuity amounting to Rs. 1,93,13,467, following the Tribunal's decision in the assessee's own case for earlier years. The ITAT upheld this decision.

18. Deletion of Interest Levied under Section 234B:

The CIT(A) deleted the interest levied under section 234B, following the Karnataka High Court's decision in Jupiter Bio-Science Ltd. The ITAT upheld this decision.

19. Deletion of Addition on Account of Provision for Director's Retirement Benefit:

The CIT(A) deleted the addition of Rs. 2,84,53,850 made by the AO, following the Tribunal's decision in the assessee's own case for earlier years. The ITAT upheld this decision.

20. Deletion of Addition on Account of Sales Tax Subsidy in Computation of Book Profit under Section 115JB and Normal Provisions:

The CIT(A) deleted the addition of Rs. 84,73,17,391 made by the AO, noting that the sales tax subsidy was capital in nature. The ITAT restored the issue to the AO for fresh adjudication, directing the AO to analyze the scheme and decide accordingly.

21. Allowance of Deduction under Section 35DDA:

The CIT(A) allowed the assessee's claim of deduction under section 35DDA amounting to Rs. 1,53,00,536, noting that the claim was inadvertently omitted in the return. The ITAT upheld this decision, referring to the Bombay High Court's decision in Pruthivi Brokers and Shareholders P. Ltd.

22. Directions Given by the CIT(A) Resulting in Reducing the Total Income to Less than the Returned Income:

The ITAT upheld the CIT(A)'s directions, noting that the issue was covered by the Gujarat High Court's decision in Gujarat Gas Co. Ltd., which held that the assessed income should not be less than the returned income was ultra vires the Board's powers.

23. Exclusion of Profit on Sale of Investments in Computation of Book Profit under Section 115JB:

The ITAT upheld the CIT(A)'s decision, noting that the issue was decided against the assessee in earlier years and referring to the Bombay High Court's decision in Veekaylal Investment Co. P. Ltd.

24. Exclusion of Amount Transferred to Debenture Redemption Reserve in Computation of Book Profit under Section 115JB:

The ITAT upheld the CIT(A)'s decision, noting that the issue was decided in favor of the assessee in earlier years and referring to the Bombay High Court's decision.

25. Written Off Insurance and Railway Claims:

The ITAT restored the issue to the AO for fresh adjudication, following the Tribunal's decision in the assessee's own case for earlier years.