2018 (12) TMI 196 - AT - Income Tax

Disallowance on account of sugarcane development expenses - AO submitted that Cane development expenses incurred for development of the infrastructure facility are in the nature of capital expenditure and thus not allowable - Held that - Sec. 37(1) provides that any expenditure, not being in the nature of capital expenditure of personal expenses of the taxpayers, laid out or expended wholly and exclusively for the purposes of his business, is to be allowed as deduction in computing the income chargeable under the head Profits and gains of business or profession . Hence, any expenditure incurred by a sugar factory on cane development programmes would be eligible for deduction in computing the taxable profits if, having regard to the facts and circumstances of the case, AO is satisfied that the conditions laid down in s. 37(1) of the Act are fulfilled. The withdrawal of the tax concession under s. 35C would not affect this position - Decided in favour of assessee. Disallowance on account of provision for liability outstanding - Held that - Identical liability was raised in respect of electrical stores and other expenditure in assessment year 2006-07. Thus, we do not find any error in the order of the CIT(A) while adjudicating this issue for the Assessment Year 2004-05, came to a conclusion that the liability in question is ascertained liability and hence allowable under the mercantile system of accounting. Assessee made a statement at the Bar that these liabilities were discharged in the immediately succeeding Assessment Year. This is a timing issue i.e. the year of allowability of the expenses is in dispute. On the principle of consistency, we are of the considered opinion that the order of the First Appellate Authority has to be upheld as in the earlier Assessment Year the finding of CIT (Appeals) on the year of allowability has not been challenged by the Revenue. In the result this ground of the Revenue is dismissed Late payment of the employees contribution to Provident Fund and ESI is not allowable to the assessee - Held that - We note that the Hon ble Jurisdictional Delhi High Court in the case of CIT Vs AIMIL 2009 (12) TMI 38 - DELHI HIGH COURT held that the assessee can get benefit of section 36(1)(va), if the actual payment towards the PF/CSI contributions is made before the return is filed. - Revenue appeal dismissed.

Issues Involved:
1. Deletion of disallowance of ?89,79,165/- on account of sugarcane development expenses.
2. Deletion of disallowance of ?29,82,870/- on account of provision for liability outstanding.
3. Deletion of addition of ?17,34,336/- pertaining to late payments of employees' contribution to Provident Fund and ESI.
4. Consideration of late deposit of employees' contribution towards provident fund under the provisions of section 2(24)(x) read with section 36(1)(va) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of ?89,79,165/- on Account of Sugarcane Development Expenses:

The Revenue contested the deletion of disallowance of ?89,79,165/- made by the Assessing Officer (AO) on account of sugarcane development expenses, arguing that these expenses were capital in nature. The assessee countered that these expenses had been consistently allowed as revenue expenditure in previous years, supported by the CBDT Circular No. 578 dated 1/02/1990. The Tribunal noted that the expenses were incurred for improving sugarcane variety, educating farmers, and enhancing land fertility, and were mandated by the Cane Commissioner, Uttar Pradesh. The Tribunal found that the AO had allowed similar expenses in earlier years and that the CIT(A) had rightly followed the CBDT circular and previous rulings. Thus, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal on this ground.

2. Deletion of Disallowance of ?29,82,870/- on Account of Provision for Liability Outstanding:

The Revenue challenged the deletion of disallowance of ?29,82,870/- made by the AO for provision for outstanding liability, claiming it was provisional. The assessee argued that the liability was ascertained and related to materials procured, with payments made in subsequent years. The CIT(A) had followed the Tribunal's order for the assessment year 2006-07, which allowed similar liabilities on the principle of consistency. The Tribunal found no error in the CIT(A)'s decision and upheld the deletion of the disallowance, dismissing the Revenue's appeal on this ground.

3. Deletion of Addition of ?17,34,336/- Pertaining to Late Payments of Employees' Contribution to Provident Fund and ESI:

The Revenue contended that late payments of employees' contributions to Provident Fund and ESI were not allowable as deductions under the Act. The assessee cited the jurisdictional High Court's decision in CIT Vs. AIMIL, which allowed such deductions if payments were made before filing the return. The Tribunal noted the conflicting views of different High Courts but adhered to the binding precedent of the Delhi High Court, which favored the assessee. Consequently, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal on this ground.

4. Consideration of Late Deposit of Employees' Contribution Towards Provident Fund:

The Revenue argued that late deposits of employees' contributions were not deductible under section 2(24)(x) read with section 36(1)(va) of the Act. The Tribunal referenced the Gujarat High Court's decision, which supported the Revenue's stance. However, the Tribunal followed the Delhi High Court's ruling in CIT Vs. AIMIL, which allowed deductions for contributions paid before filing the return. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal on this ground.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all contested grounds. The Tribunal emphasized the principle of consistency and adhered to jurisdictional High Court rulings, particularly in favor of the assessee regarding the allowability of expenses and deductions for late payments of employees' contributions.

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