2019 (6) TMI 1526 - AT - Income Tax

Deduction claimed towards Voluntary Retirement Scheme (VRS) expenses - HELD THAT - Commissioner (Appeals) has found that VRS expenses in fact has been added back by the assessee to arrive at the profit which has been considered for computation of income. Assessee had not claimed the deduction. The aforesaid factual finding of Commissioner (Appeals) remains uncontroverted before us. We find no reason to interfere with the decision of Commissioner (Appeals) on this issue. Ground is dismissed. MAT Computation - add the provision of doubtful debts and advances while computing the book profit under section 115JB - HELD THAT - It is evident the AO taking recourse to clause (c) of Explanation 1 to section 115JB(2) has added back the provision for doubtful debts and advances to the book profit of the assessee. Reading of the aforesaid provision makes it clear that only the amount set aside towards provision for meeting unascertained liability can be added back to the book profit under the aforesaid provisions. Undisputedly the provision for bad and doubtful debts and advances are not in the nature of unascertained liability. Rather it represents the assets of the assessee. Therefore under no circumstances clause (c) to Explanation 1 of section 115JB(2) of the Act can be brought into play to make the adjustment to book profit. Since at the time of completion of the assessment proceedings such provision was not in the statute book therefore applicability of such provision has never been examined vis a vis the relevant facts. That being the case at this stage we cannot entertain a completely new plea taken by the Revenue on the issue. Respectfully following the decision of the Tribunal in assessee s own case we uphold the decision of the learned Commissioner (Appeals) on this issue. Claim of deduction u/s 80HHC from the book profit computed under section 115JB - Commissioner (Appeals) relying upon the Special Bench decision of the Tribunal in Syncom Formulations India Ors. 2007 (3) TMI 288 - ITAT BOMBAY-H has held that while computing book profit under section 115JB deduction u/s 80HHC of the Act has to be allowed. DR that the aforesaid Special Bench decision is no more a good law in view of the decision in Ajanta Pharma Ltd. 2009 (5) TMI 7 - BOMBAY HIGH COURT . We are unable to accept the aforesaid contention of the learned Departmental Representative for the following reasons. In Bhari Information Technology Systems Pvt. Ltd. 2011 (10) TMI 19 - SUPREME COURT has approved the view taken by the Special Bench decision of the Tribunal in Syncom Formulations India Ors. 2007 (3) TMI 288 - ITAT BOMBAY-H . In case of KEC International Ltd. 2013 (9) TMI 673 - ITAT MUMBAI Tribunal following the aforesaid decision of the Hon ble Supreme Court has directed the Assessing Officer to compute deduction under section 80HHC on the basis of adjusted book profit and not on the basis of profit computed under the normal provisions of the Act. In view of the aforesaid we do not find any reason to interfere with the decision of the learned Commissioner (Appeals). Set off of brought forward loss and unabsorbed depreciation - HELD THAT - While allowing assessee s claim learned Commissioner (Appeals) has relied upon the ratio laid down by the Hon ble Supreme Court in case of Marshall Sons Co. 1996 (11) TMI 6 - SUPREME COURT . As per the aforesaid decision the date of merger is from the appointed date and not the date on which the High Court granted its approval. In our view as per the ratio laid down by the Hon ble Supreme Court in assessee s claim of set off of accumulated loss and unabsorbed depreciation has to be allowed from the appointed date of merger in terms of section 72A of the Act. That being the case we do not find any infirmity in the decision of learned Commissioner (Appeals) on the issue. Accordingly the ground raised is dismissed. Disallowance of club entrance / subscription fee - Revenue or capital expenditure - HELD THAT - The Hon ble Supreme Court in United Glass Mfg. Co. Ltd. 2012 (9) TMI 914 - SUPREME COURT has held that club membership fee for employees incurred by the assessee is allowable as business expenditure under section 37 - Hon ble Supreme Court has also held that even otherwise also it is a pure business expenditure as the expenditure is incurred by the assessee to improve its business relations and prospects. The same view has been expressed by the Hon ble Jurisdictional High Court in Lubrizol India Ltd. 2015 (8) TMI 134 - BOMBAY HIGH COURT . In view of the above deduction claimed by the assessee on account of club membership fee is allowable as business expenditure. Disallowance of unpaid service tax u/s 43B - HELD THAT - Hon ble Jurisdictional High Court in Tops Security Ltd. 2018 (9) TMI 799 - BOMBAY HIGH COURT following its earlier judgment held that provision of section 43B of the Act does not impose liability to pay service tax before actual receipt of the fund in the account of the assessee. The Hon ble Jurisdictional High Court held that liability to pay service tax into the treasury will arise only upon the assessee receiving the fund and not otherwise. In Knight Frank India Pvt. Ltd. 2016 (8) TMI 1096 - BOMBAY HIGH COURT held that since the assessee did not claim any deduction on account of service tax payable there can be no occasion to invoke provisions of section 43B. In the facts of the present case also it is the contention of assessee that since it has not claimed any deduction on account of service tax payable no disallowance under section 43B of the Act can be made. We delete the disallowance made by the assessee under section 43B. Disallowance u/s 40(a)(ia) - HELD THAT - The assessee is not in a position to deduct tax at source. Further it is the claim of the assessee that the provision so created is not claimed as a deduction. In our view the aforesaid claim of the assessee requires consideration. If at the time of creating the provision for expenditure payee is not identifiable the assessee cannot possibly deduct tax at source since the details of the payees are not known to the assessee. Further it is the contention of the assessee that the provision created is reversed in the subsequent year on the basis of actual payment made against the expenditure claimed. This claim of the assessee also requires verification along with the fact whether at the time of actual payment the assessee has deducted tax at source. Since the aforesaid facts have not been properly verified by the Departmental Authorities we are inclined to restore the issue to the Assessing Officer for de novo adjudication after due opportunity of being heard to the assessee. Disallowance of brought forward loss of amalgamating company - HELD THAT - We are of the view that this issue has to be restored back to the Assessing Officer for deciding afresh depending upon the decision to be taken on assessee s claim on the issue in assessment years 2006 07 and 2007 08. This ground is allowed for statistical purposes.

Summary

Issues Involved:

1. Deletion of addition of Rs. 23,03,48,610 on account of Voluntary Retirement Scheme (VRS) expenses.
2. Addition of provision for doubtful debts and advances while computing book profit under section 115JB.
3. Allowance of deduction under section 80HHC from book profit computed under section 115JB.
4. Set-off of brought forward loss and unabsorbed depreciation for the assessment year 2001-02.
5. Validity of assessment under section 147.
6. Disallowance of club entrance/subscription fee of Rs. 25 lakh.
7. Disallowance of unpaid service tax of Rs. 4,89,54,645 under section 43B.
8. Disallowance under section 40(a)(ia) for non-deduction of tax at source on expenses.
9. Disallowance of brought forward loss of amalgamating company.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 23,03,48,610 on Account of VRS Expenses:

The Revenue challenged the deletion of the addition made by the Assessing Officer (AO) on account of VRS expenses. The AO had added back Rs. 23,03,48,610 to the income of the assessee, alleging that the assessee was unable to prove with supporting evidence that the VRS expenses had been added to arrive at the profit of the amalgamating company. The Commissioner (Appeals) found that the amount had been added back by the assessee to arrive at the profit disclosed in the return of income. The Tribunal upheld the decision of the Commissioner (Appeals), finding no reason to interfere, as the factual finding remained uncontroverted.

2. Addition of Provision for Doubtful Debts and Advances While Computing Book Profit under Section 115JB:

The Revenue challenged the decision of the Commissioner (Appeals) in directing the AO not to add the provision for doubtful debts and advances while computing book profit under section 115JB. The AO had added back Rs. 8.97 crore, considering it an unascertained liability. The Commissioner (Appeals) held that the provision for bad and doubtful debts and advances is a diminution in the value of the asset, not a liability, and thus not applicable under Explanation-1(c) of section 115JB(2). The Tribunal upheld this view, noting that the provision represents assets and cannot be added back under the said clause.

3. Allowance of Deduction under Section 80HHC from Book Profit Computed under Section 115JB:

The Revenue challenged the allowance of deduction under section 80HHC from book profit computed under section 115JB. The AO disallowed the deduction as the assessee had no profit under the normal provisions of the Act. The Commissioner (Appeals) allowed the claim following the Special Bench decision of the Tribunal in Syncom Formulations India & Ors. The Tribunal upheld the decision, noting that the Hon'ble Supreme Court in Bhari Information Technology Systems Pvt. Ltd. had approved the view taken by the Special Bench.

4. Set-off of Brought Forward Loss and Unabsorbed Depreciation for the Assessment Year 2001-02:

The Revenue challenged the decision of the Commissioner (Appeals) in directing the AO to allow set-off of brought forward loss and unabsorbed depreciation for the assessment year 2001-02. The AO had disallowed the claim due to lack of complete details. The Commissioner (Appeals) found that the amalgamation was approved by the High Courts and allowed the claim based on the Supreme Court's decision in Marshall Sons & Co. The Tribunal upheld this decision, noting that the set-off has to be allowed from the appointed date of merger.

5. Validity of Assessment under Section 147:

The assessee challenged the validity of assessment under section 147 in its cross-objection. Since the Tribunal decided the issues raised by the Revenue on merit in favor of the assessee, the legal issue in the cross-objection became academic and was dismissed as infructuous.

6. Disallowance of Club Entrance/Subscription Fee of Rs. 25 Lakh:

The assessee challenged the disallowance of club entrance/subscription fee of Rs. 25 lakh. The AO disallowed it as capital expenditure. The Commissioner (Appeals) upheld the disallowance. The Tribunal, relying on various judicial precedents, including the Supreme Court's decision in United Glass Mfg. Co. Ltd., held that club membership fee for employees is allowable as business expenditure and allowed the deduction.

7. Disallowance of Unpaid Service Tax of Rs. 4,89,54,645 under Section 43B:

The assessee challenged the disallowance of unpaid service tax under section 43B. The AO disallowed it as the amount was not paid during the previous year. The Commissioner (Appeals) upheld the disallowance. The Tribunal, following the jurisdictional High Court's decision in Tops Security Ltd., held that the liability to pay service tax arises only upon receipt from the consumer, and since the assessee had not claimed it as deduction, no disallowance under section 43B can be made. The disallowance was deleted.

8. Disallowance under Section 40(a)(ia) for Non-deduction of Tax at Source on Expenses:

The assessee challenged the disallowance under section 40(a)(ia) for non-deduction of tax at source on expenses. The AO disallowed Rs. 1,13,35,767, as the assessee did not deduct tax at source. The Commissioner (Appeals) upheld the disallowance. The Tribunal restored the issue to the AO for verification, noting that if the payees are not identifiable at the time of creating the provision, the assessee cannot deduct tax at source.

9. Disallowance of Brought Forward Loss of Amalgamating Company:

The assessee challenged the disallowance of brought forward loss of the amalgamating company. The AO disallowed the claim as it was not allowed in earlier years. The Tribunal restored the issue to the AO for deciding afresh based on the decision in assessment years 2006-07 and 2007-08.

Conclusion:

The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, and partly allowed the assessee's appeal.