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2018 (8) TMI 1643 - AT - Income TaxDiminution in value of GOI Fertiliser Bonds - Held that - We direct the AO to delete the addition made on account of diminution in value of GOI fertiliser bonds. Disallowance of school expenses - Held that - The expenditure met by the assessee was wholly and exclusively for the welfare of its employees and also for carrying on business of the assessee company more efficiently by having a contended labour force. It was neither a donation covered under section 40A(9) nor a capital in nature not covered by section 37(1) of the Act. Hence, the Tribunal was justified in allowing the above expenditure towards contribution for the running of the FACT School, as an expenditure for the smooth functioning of the business of the assessee and an expenditure wholly and exclusively for the welfare of the employees of the assessee and thus, allowable under section 37(1) as well as section 40A(10) of the Act.
Issues Involved:
1. Legality of the proceedings initiated under Section 147 of the Income-tax Act. 2. Justification for the reopening of assessment based on a change of opinion. 3. Disallowance of provision for diminution in value of GOI Fertilizer Bonds. 4. Levy of interest under Sections 234C and 234D of the Income-tax Act. 5. Allowability of expenses incurred in running a school under Section 40A(9) of the Income-tax Act. Detailed Analysis: 1. Legality of the Proceedings Initiated under Section 147: The assessee contended that the proceedings initiated under Section 147 of the Income-tax Act by the Assessing Officer (AO) were erroneous and bad in law. The Tribunal did not specifically address this issue in its detailed analysis, focusing instead on the substantive issues raised in the appeal. 2. Justification for Reopening of Assessment Based on Change of Opinion: The assessee argued that the AO erred in reopening the assessment based on a mere change of opinion on the same facts. This issue was not separately analyzed by the Tribunal, as the primary focus was on the substantive grounds of appeal. 3. Disallowance of Provision for Diminution in Value of GOI Fertilizer Bonds: The Tribunal addressed the issue of disallowance of provision for diminution in value of GOI Fertilizer Bonds. The AO had added back the provision, which was confirmed by the CIT(A). The Tribunal, however, found that the issue was covered by its own decision in the assessee's case for the assessment year 2009-2010, where it was held that the diminution in value of bonds, being current assets, is a revenue loss allowable as deduction. The Tribunal referred to the decision in DCM Shriram Consolidated Ltd. and the Hon’ble Delhi High Court's affirmation, concluding that the loss due to diminution in value of bonds should be treated as a revenue loss. Consequently, the Tribunal directed the AO to delete the addition. 4. Levy of Interest under Sections 234C and 234D: The Tribunal noted that the levy of interest under Sections 234C and 234D is consequential. Therefore, the AO was directed to levy interest accordingly. 5. Allowability of Expenses Incurred in Running a School: The Revenue's appeal contested the deletion of an addition of ?2,84,34,453/- incurred in running a school, which the AO had disallowed under Section 40A(9). The Tribunal found that this issue had been decided in favor of the assessee in the assessment year 2010-2011. It was held that the expenditure incurred for running the school was for the welfare of employees and thus allowable under Section 37(1) of the Act. The Tribunal cited decisions from the Hon’ble Kerala High Court and Delhi Benches of the Tribunal, which supported the allowability of such expenses. Consequently, the Tribunal dismissed the Revenue's appeal. Conclusion: - The appeal of the assessee for the assessment year 2010-2011 was partly allowed, with the Tribunal directing the AO to delete the addition made on account of diminution in value of GOI Fertilizer Bonds. - The appeal of the assessee for the assessment year 2014-2015 was allowed on similar grounds. - The appeal of the Revenue for the assessment year 2014-2015 was dismissed, upholding the allowability of school expenses incurred by the assessee.
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