2018 (10) TMI 1020 - AT - Income Tax

Disallowing expenses on account of payment of HUDCO loans - Held that - As during the course of hearing, it is stated that assessee had made payment of interest in subsequent years. This fact is not controverted by the revenue. We therefore, set aside the order of Ld. CIT(A) and restore the issue to A.O. for verification of payment of interest. The A.O. would also to compute the interest related to the financial year under appeal. The A.O. would allow the interest paid by the assessee on the loan amount related to the year under appeal. Disallowance of expenses in respect of provision for interest on SRF funds provided by the Government of M.P. - Held that - The contention of the assessee is that the provision is allowable deduction. We are of the view that the provision would be allowable if the same is on a reasonable and scientific basis. However, considering totality of the facts, we restore this issue to the A.O. to verify whether the assessee had paid any interest in subsequent years on this amount and decide accordingly. Addition of bad debt written off - Held that - We set aside the order of Ld. CIT(A) and restore the issue to the A.O. to verify whether the assessee had actually written off the bad debts and decide the issue afresh. Addition in respect of provision for Police Welfare Community Hall - Held that - We find that the Ld. CIT(A) has given finding on fact that the decision relate to earlier year. However, we are of the view that the earlier decision taken in earlier year and the work executed in another year would be sufficient to allow expenditure in the year when it was actually incurred. We therefore restore this issue to the assessing officer to verify whether any expenditure was incurred in the nature of revenue expenditure and decide accordingly. Allowability of provision of cost or run expenditure - Held that - CIT(A) disallowed this provision on the ground that it does not relate to the year under appeal. Considering the totality of the facts, we deem it proper and restore this issue to the file of the A.O. to verify whether any expenditure related to this year was incurred in the nature of escalation of cost and decide accordingly. Disallowance of contingency expenses - Held that - CIT(A) disallowed this claim on the ground that in earlier year, no such corporation was made for contingency expenses. As stated by the assessee that this expenditure was earlier borne by the Government of M.P. and the Government of M.P. directed the assessee corporation to bear this expenditure. It is contended that this expenditure relate to execution of work. We are of the view that any expenditure related to execution of work as carried out by the assessee would be allowable expenditure. However, this fact is required to be verified whether such expenditure made for the execution of work? We therefore, restore this issue to the file of the A.O. to decide it afresh. Addition on account of provision of Gratuity Fund - Held that - CIT(A) has given finding on facts that the amount was paid to LIC on account of gratuity on 29.9.2008 before the due date of filing of the return. This fact is not controverted by the revenue, therefore, we do not see any reason to interfere with the finding of the Ld. CIT(A) and the same hereby affirmed and the appeal is dismissed. Interest earned on fixed deposits not to be taxed as the same is the income of Government of Madhya Pradesh - Held that - In the present case, the assessee has been disclosing such income earlier till the assessment year 2009-10. It is the case of the assessee that in the light of the letters of the Government of Madhya Pradesh interest income was accrued on the fixed deposits cannot be said to be the income of the assessee, more particularly, in the light of the judgement of Gujarat Power Corporation Limited Vs. ITO 2012 (11) TMI 181 - GUJARAT HIGH COURT . There is no dispute with regard to the fact that as per the terms of the letters dated 23.3.2010 & 30.8.2010, the assessee is required to spend interest income as per the direction of the Government of Madhya Pradesh. The revenue has not placed any contrary binding precedent, therefore, respectfully following the judgement of the Hon ble Gujarat High Court, we direct the A.O. to delete the addition.

Issues Involved:
1. Disallowance of expenses related to HUDCO loans.
2. Disallowance of provision for interest on SRF funds.
3. Disallowance of bad debt written off.
4. Disallowance of provision for Police Welfare & Community Halls.
5. Disallowance of provision for cost overrun expenditure.
6. Disallowance of contingency expenses.
7. Deletion of addition made by A.O. on account of provision of Gratuity Fund.
8. Addition of undisclosed income based on entries shown in Form 26AS.
9. Addition of prior period items debited in the Profit & Loss account.
10. Addition on account of construction of Community Centre.

Issue-wise Detailed Analysis:

1. Disallowance of expenses related to HUDCO loans:
The assessee contended that the liability for HUDCO loans was directed to be paid by the Government of Madhya Pradesh, resulting in a loss to the assessee. The Tribunal noted that the liability was not the assessee's but the State Government's and was paid in the subsequent year. The issue was remitted to the A.O. for verification of interest payment and computation related to the financial year under appeal.

2. Disallowance of provision for interest on SRF funds:
The provision for interest on SRF funds was made without any stipulation or evidence of interest liability. The Tribunal restored the issue to the A.O. to verify if any interest was paid in subsequent years and decide accordingly.

3. Disallowance of bad debt written off:
The Tribunal found that the provision for bad debts was not supported by evidence of actual write-off. The issue was restored to the A.O. for verification of actual write-off and fresh decision.

4. Disallowance of provision for Police Welfare & Community Halls:
The provision was made for constructing community halls decided in a board meeting after the relevant financial year. The Tribunal restored the issue to the A.O. to verify actual expenditure incurred in the nature of revenue expenditure and decide accordingly.

5. Disallowance of provision for cost overrun expenditure:
The provision for cost overrun was made after the relevant financial year and related to multiple schemes from earlier years. The Tribunal restored the issue to the A.O. to verify if any expenditure related to the year under appeal was incurred and decide accordingly.

6. Disallowance of contingency expenses:
The Tribunal noted that the contingency expenses were earlier borne by the Government of M.P. and directed the A.O. to verify if such expenses were related to the execution of work and decide afresh.

7. Deletion of addition made by A.O. on account of provision of Gratuity Fund:
The Tribunal upheld the CIT(A)'s decision that the provision for gratuity was made based on LIC's valuation and paid before the due date of filing the return. The A.O.'s addition was deleted.

8. Addition of undisclosed income based on entries shown in Form 26AS:
The Tribunal accepted the assessee's contention that interest accrued on Government funds should not be treated as the assessee's income, citing the principle of diversion of income by overriding title. The A.O. was directed to delete the addition.

9. Addition of prior period items debited in the Profit & Loss account:
The Tribunal upheld the authorities' decision as the assessee failed to provide evidence that prior period expenses were crystallized during the year under appeal.

10. Addition on account of construction of Community Centre:
The Tribunal noted that the assessee failed to demonstrate that the expenditure was incurred exclusively for business purposes. The addition was upheld.

Conclusion:
The appeals were partly allowed for statistical purposes, with several issues remitted to the A.O. for verification and fresh decision. The Tribunal upheld the deletion of addition on account of the provision of Gratuity Fund and directed the deletion of addition based on entries in Form 26AS, while other additions were upheld due to lack of evidence from the assessee.

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