2020 (1) TMI 648 - AT - Income Tax

Disallowance towards payment of leave encashment as per actuarial valuation - HELD THAT - As decided in M/S. S.R. BATLIBOI CO. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-54, KOLKATA. 2012 (3) TMI 585 - ITAT KOLKATA Restore the matter back to the file of Assessing Officer for adjudication as per the decision of Hon ble Apex Court in the case of M/s. Exide Industries Ltd. 2009 (5) TMI 894 - SC ORDER . This ground of appeal of assessee is allowed for statistical purposes. Disallowance towards actual loss in respect of quantity loss and quality deterioration claimed by the respective parties - HELD THAT - During the hearing before us, when we asked the Ld. AR for supporting evidence/material for submitting that any evidence to support its claim that the liability is an ascertained liability as per the expert report etc. the Ld. AR submitted that the assessee has paid the amount of liability in respect of the claims by buyer for weight loss as well as for deterioration of quality following the prescribed formalities in vogue in the jute trade against provision of such liability and there is a system of assessment of such liability year after year. Finally has written back the said liability it was brought to our notice that in the accounts for the financial year 2017-18, huge liability has been written back in accounts. The related adjustments documents were not produced before the authorities below during the adjudication and need to be considered while adjudicating the issue. Therefore, we remand the matter back to the file of the AO to adjudicate the remaining claim after going through the documents produced by the assessee. This ground of appeal of assessee is allowed for statistical purposes. Interest earned on application of grants received from Govt. of India for upgradation of Jute Technology - HELD THAT - AO is directed to examine whether the assessee s case falls in the ratio laid down by the Tribunal in the case of West Bengal State Electricity Distribution Co. Ltd. 2020 (1) TMI 84 - ITAT KOLKATA and if assessee s claim falls in the ratio decidendi, then it should be allowed or it should be added in the hands of the assessee as interest income. Therefore we set aside the impugned order of the ld CIT(A) and remand this issue back to the file of AO for de-novo assessment

Summary

Issues Involved:
1. Disallowance of ?1,11,44,319/- towards payment of leave encashment.
2. Disallowance of ?3,48,426/- towards actual loss in respect of quantity loss and quality deterioration.
3. Inclusion of ?66,67,569/- as income from interest earned on application of funds received from the Government of India.

Issue-wise Detailed Analysis:

1. Disallowance of ?1,11,44,319/- towards payment of leave encashment:
The first issue concerns the disallowance of ?1,11,44,319/- claimed by the assessee towards payment of leave encashment as per actuarial valuation. The Tribunal noted that a similar issue was previously addressed in the case of M/s. S. R. Batliboi & Co. vs. DCIT, where the Tribunal had restored the matter to the file of the Assessing Officer (AO) to decide the issue in accordance with the decision of the Hon’ble Supreme Court in the case of M/s. Exide Industries Ltd. The Tribunal, following the same precedent, set aside the order of the Ld. CIT(A) and restored the matter back to the AO for adjudication as per the decision of the Hon’ble Supreme Court in the case of M/s. Exide Industries Ltd. This ground of appeal was allowed for statistical purposes.

2. Disallowance of ?3,48,426/- towards actual loss in respect of quantity loss and quality deterioration:
The second issue pertains to the disallowance of ?3,48,426/- towards actual loss claimed by the assessee due to quantity loss and quality deterioration of jute supplied. The AO had disallowed the provision of ?5,70,410/- made by the assessee for such losses, treating it as an unascertained liability. The Ld. CIT(A) gave partial relief by allowing ?2,22,074/- after verifying the claims, but confirmed the disallowance of the remaining ?3,48,426/-. The Tribunal noted that the assessee had produced additional documents during the hearing, which were not presented before the authorities below. Therefore, the Tribunal remanded the matter back to the AO to adjudicate the remaining claim of ?3,48,426/- after considering the new documents. This ground of appeal was allowed for statistical purposes.

3. Inclusion of ?66,67,569/- as income from interest earned on application of funds received from the Government of India:
The third issue involves the inclusion of ?66,67,569/- as income, which the assessee received as interest on funds provided by the Government of India for the implementation of projects. The AO added this amount to the total income of the assessee, treating it as revenue receipt. The Ld. CIT(A) confirmed the AO’s decision, relying on the Supreme Court’s decision in Tutikorin Alkali Chemicals and Fertilizers Ltd., which held that interest income is of revenue nature unless received as damages or compensation.

The assessee argued that the interest earned was not its income but was to be utilized for the project and any surplus was to be refunded to the Government. The Tribunal noted that the matter needed further verification to determine whether the interest income was indeed ploughed back into the project fund and disbursed accordingly. The Tribunal remanded the issue back to the AO to examine the facts and determine if the interest income falls under the principle of diversion of income by overriding title, as discussed in the case of West Bengal State Electricity Distribution Co. Ltd. If the assessee’s claim is validated, the interest income should not be taxed in its hands. This ground of appeal was allowed for statistical purposes.

Conclusion:
The Tribunal allowed all three grounds of appeal for statistical purposes, remanding each issue back to the AO for further verification and adjudication based on the principles and precedents discussed.