2018 (4) TMI 1279 - AT - Income Tax

Addition on account of entertainment expense - providing foods to clients and customers as a part of business courtesy - membership in the club on behalf of assessee-company - Held that - Genuineness of the expense cannot be doubted. Similarly considering the volume of business of assessee, in terms of its clients, number of sites we are of the view the expenses claimed by assessee have been incurred only in connection with assessee s business. We also do not agree with the finding of AO that the assessee being a Central Govt. PSU does not require to provide hospitability services to its clients. It is because in any organization, the expenditure are incurred for attending clients meetings etc., these expenses are unavoidable in all the organization be it private organization or Government PSU. There is no allegation of the AO that the above expenses have been incurred by assessee in unauthorized manner. Therefore, we are of the view that above expense deserves to be allowed. - Decided in favour of assessee Addition on account of contribution to employees PF - Held that - There is no doubt the payment that the payment for the employee provident fund was made before the due date of furnishing the return of income as specified under section 139(1) of the Act. Thus the same cannot be added to the total income of the assessee in view of judgment of Hon ble jurisdictional High Court in the case of CIT v. M/s Vijay Shree Limited 2011 (9) TMI 30 - CALCUTTA HIGH COURT - Decided in favour of assessee Addition on account of Leave Travel Concessions (LTC) - Held that - There is no doubt that assessee has made a reference during the hearing before Ld. CIT(A) to the report of actuarial valuation but same has not been placed in the paper book filed before us. Assessee has not produced the copy of the report of actuarial valuation for the LTC. Therefore, we are inclined to remit the matter back to the file of AO for fresh adjudication in accordance with law as well as after considering the principle laid down by Hon ble Supreme Court in the case of Rotork Controls India (Pvt) Ltd. (2009 (5) TMI 16 - SUPREME COURT OF INDIA) as discussed above. It is also directed to assessee at liberty to produce necessary documents including the actuarial valuation report. The AO shall pass a speaking order in terms of above. Revenue s ground is allowed for statistical purpose. Allowing deduction of the expense incurred on tools & tackles by 1/5th instead of 15% depreciation as per the provision of Section 32 - allegation of AO is that there is no concept of claiming deduction under the Act on deferred revenue basis / useful life of inventory - Held that - Assessee has correctly amortized the expenditure incurred on tools and tackles inventory over a period of 5 years. The period of 5 years was decided on the basis of technical report evaluated by the Engineering Department. Ld. DR has not brought any defect in the technical evaluation report of Engineering Department. Therefore, we are inclined to upheld the order of Ld. CIT(A).

Issues Involved:
1. Liquidated Damages
2. Entertainment Expenses
3. Employees' Provident Fund Contribution
4. Leave Travel Concession (LTC)
5. Depreciation on Tools & Tackles

Detailed Analysis:

1. Liquidated Damages:
The first issue concerns whether the Commissioner of Income Tax (Appeals) [CIT(A)] was correct in deleting the addition of ?394.85 lacs made by the Assessing Officer (AO) on account of liquidated damages. The assessee, a Public Sector Undertaking (PSU), claimed deductions for liquidated damages deducted by clients due to delays in project completion. The AO disallowed these deductions, considering them as provisions for doubtful debts not allowable under the Income Tax Act. The CIT(A) deleted the addition, citing consistency with previous years where similar deductions were allowed. The Tribunal restored the issue to the AO for fresh adjudication, allowing the assessee to present additional evidence.

2. Entertainment Expenses:
The second issue pertains to the deletion of ?13,45,715/- on account of entertainment expenses. The AO disallowed these expenses due to lack of documentary evidence and the view that a Central Government PSU does not need to provide hospitality to clients. The CIT(A) deleted the addition, emphasizing that similar expenses were allowed in previous years and that the accounts were audited without any adverse comments. The Tribunal upheld the CIT(A)'s decision, noting the genuineness of the expenses and the necessity of such expenses in business operations.

3. Employees' Provident Fund Contribution:
The third issue involves the deletion of ?89,68,222/- related to the delayed deposit of employees' provident fund contributions. The AO disallowed these contributions as they were not deposited within the due dates specified under the Provident Fund Act. The CIT(A) allowed the deduction, referencing the amendment to Section 43B of the Income Tax Act, which permits deductions if payments are made before the due date of filing the return of income. The Tribunal upheld the CIT(A)'s decision, citing the jurisdictional High Court's ruling in favor of allowing such deductions.

4. Leave Travel Concession (LTC):
The fourth issue is the deletion of ?63.63 lacs related to LTC provisions. The AO disallowed this provision, considering it unquantifiable and not allowable under the Income Tax Act. The CIT(A) deleted the addition, noting that similar provisions were allowed in previous years and that the provision was made on an actuarial basis. The Tribunal remitted the issue back to the AO for fresh adjudication, directing the AO to consider the actuarial valuation report and the principles laid down by the Supreme Court in the case of Rotork Controls India (Pvt) Ltd.

5. Depreciation on Tools & Tackles:
The fifth issue concerns the disallowance of excess depreciation on tools and tackles. The AO treated these inventories as part of plant and machinery, allowing depreciation at 15% instead of the 20% claimed by the assessee. The CIT(A) deleted the addition, referencing the Tribunal's decision in the assessee's favor for a previous year. The Tribunal upheld the CIT(A)'s decision, recognizing the concept of deferred expenditure and the technical evaluation report supporting the five-year amortization period.

Conclusion:
The Tribunal's judgment addresses each issue comprehensively, emphasizing consistency with previous years' decisions, the necessity of business expenses, and adherence to legal provisions and judicial precedents. The appeals were partly allowed for statistical purposes, with some issues remitted back to the AO for fresh adjudication.

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