2017 (11) TMI 1147 - AT - Income Tax

Disallowance of Provision for outstanding expenses - Held that - The difference between the provision and actual amount shall usually be adjusted in the subsequent years by debiting/credit the profit and loss account. The assessee submitted that the assessee is consistently following same methodology of estimation year after year. We find merit in the submissions of the assessee. We have also gone through the details of outstanding expenses given in page No. 66 of the paper book. We noticed that the same pertain to various expenses. It, inter alia, includes certain payments covered by the provisions of sec. 43B of the Act like leave encashment, excise duty etc. In respect of expenses attracted by the provisions of section 43B, the AO is required to examine them in terms of sec. 43B only. In this view of the matter, we are of the view that this issue requires fresh examination at the end of the Assessing Officer. Accordingly we set aside the order passed by the learned CIT(A) on this issue and restore the same to the file of the Assessing Officer with the direction to examine the items covered by section 43B of the Act in accordance with the said section. MAT computation - addition of outstanding expenses while computing book profit under the provisions of section 115JB treating the same as unascertained liability - Held that - Since we have held that the liabilities are accrued liabilities, the same would fall under the category of ascertained liabilities. Hence the same is not required to be added u/s. 115JB of the Act. Accordingly, we set aside the order passed by the tax authorities on this issue. Addition of modvat credit - Held that - We notice that the assessee has given workings relating to modvat in page No. 30 of the paper book, wherein it has computed the modvat amount under inclusive method. The assessee has demonstrated that there is no impact on the profit if modvat is accounted under inclusive method. Further identical issue in assessee s own case relating to A.Y. 2007-08 has deleted identical disallowance made in that year. Since the assessee has demonstrated that there is no impact on profit if inclusive method of accounting is followed, we do not find any substance in the addition made by the Assessing Officer. Denial of set off of unabsorbed depreciation against long term capital gain - Held that - Direct the Assessing Officer to allow set off of unabsorbed depreciation against long term capital gain. As decided in case of M/s. Amforge Industries Ltd. (2014 (10) TMI 957 - ITAT MUMBAI) wherein it was held that treatment given to current year depreciation would equally apply to brought forward depreciation and accordingly unabsorbed depreciation can be set off against capital gain. Disallowance of depreciation on walls and fences - Held that - The assessee has taken entire amount of sale consideration as pertaining to land. When we allocate a portion of the same towards wall & fences, the sale consideration pertaining to land should be reduced by that amount. Accordingly, we direct the Assessing Officer to reduce the sale consideration of land by ₹ 7,64,689/- and compute long term capital gains accordingly. Rejection of claim of set off of unabsorbed depreciation against business income - Held that - Provisions of section 32(2) as amended by the Finance Act, 2001 would allow the unabsorbed depreciation allowance available in A.Ys. 1997-98 to 2001-02 to be carried forward to the succeeding years and if any unabsorbed depreciation or part thereof could not be set off till A.Y. 2002-03 then it would be carried forward till time it is set off against the profits and gains of subsequent years Charging of interest u/s 234A - A.R submitted that the due date for filing return of income was extended during the year under consideration upto 15th October, 2010 and the assessee has filed the return of income on 11th October, 2010. Accordingly she submitted that the interest u/s 234A is not chargeable - Held that - We restore this issue to the file of the AO for examining the claim of the assessee. We direct him not to levy interest u/s 234A of the Act, if the assessee had filed return of income within extended time limit.

Issues Involved:
1. Disallowance of provision for outstanding expenses.
2. Addition of outstanding expenses while computing book profit under section 115JB.
3. Addition of MODVAT credit.
4. Denial of set-off of unabsorbed depreciation against long-term capital gain.
5. Disallowance of depreciation on walls and fences.
6. Set-off of unabsorbed depreciation against business income.
7. Charging of interest under section 234A.

Detailed Analysis:

1. Disallowance of Provision for Outstanding Expenses:
The assessee created a provision of ?7,85,811 for outstanding expenses and claimed it as a deduction. The Assessing Officer (AO) disallowed this claim due to the lack of precise quantification and supporting documentary evidence. The CIT(A) upheld this disallowance. The Tribunal, however, referenced the Supreme Court decision in Bharat Earth Movers Vs. CIT, which allows for the deduction of business liabilities that have arisen but are yet to be quantified. The Tribunal found merit in the assessee's consistent methodology and remanded the issue to the AO for fresh examination, particularly for items covered under section 43B of the Act.

2. Addition of Outstanding Expenses While Computing Book Profit Under Section 115JB:
The AO added the outstanding expenses to the book profit under section 115JB, treating them as unascertained liabilities. Since the Tribunal held that these liabilities are accrued and ascertained, it directed that they should not be added under section 115JB.

3. Addition of MODVAT Credit:
The AO disallowed the closing balance of MODVAT credit amounting to ?4,15,852. The CIT(A) confirmed this disallowance. The Tribunal noted that the assessee demonstrated no impact on profit whether the inclusive or exclusive method of accounting was used. Referring to a previous decision in the assessee's favor, the Tribunal directed the AO to delete this disallowance.

4. Denial of Set-off of Unabsorbed Depreciation Against Long-term Capital Gain:
The AO denied the set-off of unabsorbed depreciation against long-term capital gain, citing the Special Bench decision in Times Guaranty Ltd. The CIT(A) allowed set-off against business income but not against capital gains. The Tribunal, referencing the decision in M/s. Amforge Industries Ltd., directed the AO to allow the set-off of unabsorbed depreciation against long-term capital gain.

5. Disallowance of Depreciation on Walls and Fences:
The AO disallowed depreciation on walls and fences, arguing that the asset ceased to exist after the land sale. The CIT(A) restricted the disallowance to 10% of the WDV. The Tribunal agreed with the CIT(A) that the sale value of land implicitly includes walls and fences and directed the AO to adjust the sale consideration of land accordingly for computing long-term capital gains.

6. Set-off of Unabsorbed Depreciation Against Business Income:
The AO had rejected the set-off of unabsorbed depreciation against business income, but the CIT(A) allowed it. The Tribunal upheld the CIT(A)'s decision, referencing the Gujarat High Court decision in General Motors India Pvt. Ltd. vs. DCIT, which allows unabsorbed depreciation to be carried forward indefinitely and set off against future profits.

7. Charging of Interest Under Section 234A:
The assessee contested the charging of interest under section 234A, claiming the return was filed within the extended due date. The Tribunal restored this issue to the AO for verification and directed that interest under section 234A should not be charged if the return was indeed filed within the extended time limit.

Conclusion:
Both appeals by the assessee were allowed for statistical purposes, and the appeal by the revenue was dismissed. The Tribunal provided detailed directions for each issue, ensuring compliance with relevant legal precedents and accounting standards.

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