2017 (12) TMI 182 - AT - Income Tax

Depreciation of Railway lines & sidings - Held that - Disallowance of depreciation confirmed since the asset is owned by the Indian Railways but not by the assessee relying on the decision of Hon ble Supreme Court in the case of Mysore Minerals Limited 1999 (9) TMI 1 - SUPREME Court Disallowance of provision towards the Post retirement benefit Scheme - Held that - Set aside the orders of both the lower authorities in disallowing the claim of the appellant towards provision for Post Retirement Benefit Scheme and direct the assessing officer to allow the claim of the appellant. Provision for employee family benefits - Held that - As relying on assessee s own case we set aside the orders of both the lower authorities in disallowing the claim of the assessee company towards provision for Employees Family Benefit Scheme and direct the lower authorities to allow the claim of the assessee company. Provision for future leave encashment - Held that - Claim of the assessee cannot be allowed in view of the specific provisions of S.43B(f) of the Income Tax Act 1961 which provides for allowance of such claim only in the year of payment. Provision for Long service award - Held that - As consistent with our view taken in assessee s own case in earlier years we hold that provision made by the assessee company towards long service award based on actuarial valuation is to be allowed as expenditure. Provision for mines closure - Held that - We are of the considered view that the claim of the expenditure is quite premature. During the previous year relevant to the impugned assessment year the assessee did not incur any expenditure in this regard. The provision was made merely in terms of the statutory provisions relating to the operation of mines. It is not a case where the expenditure accrues in proportion to the period for which the mines are operated. Therefore we are in complete agreement with the view taken by the assessing officer Addition in respect of provision for leave travel concession - Held that - LTC expenditure is allowed as per the scheme of the leave travel concession of the company. The liability commences no sooner the employee undertakes the tour without the commencement of the tour there is no liability accrue or arise under the leave travel concession. In the case of the company it is evident from the assessment order that the assessee has not furnished the LTC rules the operation of LTC account the amounts actually incurred out of the account treatment given to the unutilized amounts and the amount that cannot be utilized etc. Though the A.O. has called for the specific details the assessee has not furnished the above details. The expenditure cannot be ascertained on actuarial valuation and the expenditure has to be ascertained and determined on the basis of the LTC rules and the details called for by the A.O. and the journeys undertaken as discussed above. Therefore we are of the considered opinion that the assessee company required to submit the above details and the issue needs further verification at the end of the A.O. to ascertain the liability accrued. Payment made to A.P. Transco towards service line charges - Held that - Expenditure is revenue expenditure and allowable in the year under consideration Disallowance u/s 14A r.w.r 8D - Held that - When there is no exempt income there is no case for making the disallowance u/s 14A r.w.r 8D of the Act. Entertainment expenditure disallowed - Held that - On verification of the order of the Ld. CIT(A) the expenditure was incurred towards tea snacks milk and other expenses for customers or official guests at various office locations. The expenses were also incurred for dinner for airline officials and agro forest department food arrangement for common wealth games teams and catering arrangements at cricket stadium south zone volleyball team etc. These expenses mainly incurred for the purpose of promoting the sports and games are in the nature of marketing and advertisement expenses related to the business activity of the assessee. On careful verification of the order of the Ld. CIT(A) there is no doubt regarding genuine of the expenditure and no lavish expenditure was incurred by the assessee except the lunch and dinner expenses. Therefore we do not find any reason to restrict the disallowance. Accordingly we allow the appeal of the assessee. Expenditure incurred for afforestation and horticulture - anture od expenditure - revenue or capital - Held that - When the receipt from sale of trees is assessed as revenue receipt the expenditure incurred on maintenance of the trees is also to be allowed as revenue expenditure. Further the expenditure was incurred very much during the course of the business of the assessee and no enduring benefit is obtained on account of the expenditure incurred. Peripheral development expenditure - Held that - Expenditure incurred by the appellant as a part of the corporate social responsibility is to be allowed. Community development expenses - allowable business expenditure - Held that - There was no dispute with regard genuineness of the expenditure. Since the company has spent the sums towards the educational medical camps for the people who are re-located the same is allowable expenditure. It is obligation on the part of the company to give support to the people who are displaced due to setting up of the industry by losing their landed property and assets. The company is discharging its obligation for the same purpose. Therefore following the decision of Hon ble Madras High Court in the case of CIT Vs. Madras Refineries Limited 2003 (11) TMI 47 - MADRAS High Court we hold that the CIT(A) has rightly allowed the appeal of the assessee and accordingly uphold the order of the Ld. CIT(A) and dismiss the appeal of the revenue. Charging of interest u/s 201 & 201(1A) of the Act for non-deduction of tax at source - Held that - The contract-I is a supply contract primarily for supply of the machinery equipment and spares and contract-II is works contract for commissioning the equipment. The Ld. CIT(A) after verification of the recitals of the contract given a finding that both are independent contracts and held that it is not possible to come to conclusion that due to services required to be rendered under contract no.(ii) the terms of the contract no.(i) would be in the nature of works contract. The Ld. DR did not bring any other evidence to show that the finding given by the Ld. CIT(A) is incorrect and also did not place any other decision to support the view of the department. The facts are identical to the decision of this Tribunal in the case of NTPC Limited cited (2013 (9) TMI 644 - ITAT VISAKHAPATNAM ). Since the CIT(A) has allowed the appeal of the assessee following the order of this Tribunal we do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld.

Summary

Issues Involved:
1. Depreciation of Railway lines & sidings.
2. Disallowance of provision towards Post retirement benefit Scheme.
3. Provision for employee family benefits.
4. Provision for future leave encashment.
5. Provision for Long service award.
6. Provision for mines closure.
7. Provision for leave travel concession.
8. Payment made to A.P. Transco towards service line charges.
9. Disallowance u/s 14A r.w.s. rule 8D.
10. Entertainment expenditure.
11. Interest u/s 234C.
12. Expenditure incurred for afforestation and horticulture.
13. Peripheral development expenditure.
14. Community development expenses.
15. Charging of interest u/s 201 & 201(1A) for non-deduction of tax at source.

Detailed Analysis:

1. Depreciation of Railway Lines & Sidings:
The assessee claimed depreciation for railway lines and sidings, which was disallowed by the A.O. and confirmed by the CIT(A) on the grounds that the asset is owned by Indian Railways. The Tribunal upheld the CIT(A)'s order, dismissing the appeal based on its previous decision in the assessee's own case.

2. Disallowance of Provision Towards Post Retirement Benefit Scheme:
The A.O. disallowed the provision for post-retirement benefits, considering it contingent. The CIT(A) confirmed this. However, the Tribunal allowed the appeal, referencing its earlier orders where such provisions were deemed allowable based on actuarial valuation and the mandatory Accounting Standard-15.

3. Provision for Employee Family Benefits:
The A.O. disallowed the provision for employee family benefits, considering it contingent. The CIT(A) upheld this. The Tribunal allowed the appeal, following its earlier decision that such provisions, based on actuarial valuation, are allowable.

4. Provision for Future Leave Encashment:
The A.O. disallowed the provision for future leave encashment, considering it contingent. The CIT(A) confirmed this. The Tribunal upheld the disallowance, referencing its earlier decision that such claims are only allowable in the year of payment as per S.43B(f).

5. Provision for Long Service Award:
The A.O. disallowed the provision for long service awards, considering it contingent. The CIT(A) upheld this. The Tribunal allowed the appeal, referencing its earlier decision that such provisions, based on actuarial valuation, are allowable.

6. Provision for Mines Closure:
The A.O. disallowed the provision for mines closure, considering it contingent. The CIT(A) upheld this. The Tribunal upheld the disallowance, referencing its earlier decision that such claims are premature and contingent.

7. Provision for Leave Travel Concession:
The A.O. disallowed the provision for leave travel concession, considering it contingent. The CIT(A) confirmed this. The Tribunal remitted the issue back to the A.O. for further verification, noting that the liability arises only when the journey is undertaken.

8. Payment Made to A.P. Transco Towards Service Line Charges:
The A.O. disallowed the payment to A.P. Transco, considering it preoperative expenditure. The CIT(A) upheld this. The Tribunal allowed the appeal, considering the expenditure as revenue in nature, following its earlier decision in Sarvaraya Sugars Limited.

9. Disallowance u/s 14A r.w.s. Rule 8D:
The A.O. made a disallowance u/s 14A r.w. Rule 8D. The CIT(A) upheld this. The Tribunal allowed the appeal, noting that there was no exempt income in the year under consideration, following the judgment of Hon’ble Madras High Court in Redington India Private Limited.

10. Entertainment Expenditure:
The A.O. disallowed entertainment expenditure. The CIT(A) scaled down the disallowance. The Tribunal allowed the appeal, noting that the expenditure was reasonable and related to business activities.

11. Interest u/s 234C:
The issue was settled by rectification, and the ground was dismissed as infructuous.

12. Expenditure Incurred for Afforestation and Horticulture:
The A.O. treated the expenditure as capital expenditure. The CIT(A) deleted the addition. The Tribunal upheld the CIT(A)'s order, following its earlier decision.

13. Peripheral Development Expenditure:
The A.O. disallowed the expenditure, considering it not due to commercial expediency. The CIT(A) allowed the appeal. The Tribunal upheld the CIT(A)'s order, following its earlier decision.

14. Community Development Expenses:
The A.O. disallowed the expenditure, considering it gratuitous. The CIT(A) allowed the appeal. The Tribunal upheld the CIT(A)'s order, following the decision of Hon’ble Madras High Court in CIT Vs. Madras Refineries Limited.

15. Charging of Interest u/s 201 & 201(1A) for Non-Deduction of Tax at Source:
The A.O. imposed interest for non-deduction of tax at source on two contracts with BHEL. The CIT(A) held that both contracts are independent and only the works contract required TDS. The Tribunal upheld the CIT(A)'s order, following its earlier decision in NTPC Limited.

Conclusion:
The Tribunal's decisions were largely based on consistency with its previous rulings and adherence to established accounting standards and judicial precedents. The appeals were allowed or dismissed based on the nature of the provisions and expenditures, with a focus on whether they were contingent or ascertained liabilities.