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2016 (4) TMI 1138 - ITAT PUNE

2016 (4) TMI 1138 - ITAT PUNE - TMI - Disallowance of provision made for leave encashment - Held that:- In view of the amended provisions of section 43B of the Act, wherein clause (f) has been inserted, we find no merit in the claim of assessee in this regard to the provision for leave encashment, which was made by the assessee as on close of the year, since it was following mercantile system of accounting. However, the said amount has not been paid to the employees before due date of filing the .....

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eal, hence, out of total expenditure of ₹ 1,37,93,473/-, expenditure of ₹ 41,96,741/- stands allowed.

For adjudication of issue, the expenditure of ₹ 1,37,93,473/- has to be considered and after excluding the expenditure of ₹ 41,96,741/-, the balance is ₹ 95,96,732/-, which is the expenditure to be shared between the assessee and its sister concern SIIL. In view of the admission of learned Authorized Representative for the assessee, we remit this issue ba .....

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tistical purposes.

Claim of deduction under section 80IA(2) - interpretation of ‘initial assessment year’ - Held that:- Initial assessment year would mean the first year opted by the assessee for claiming deduction under section 80IA of the Act. The CBDT has also directed the Assessing Officers to allow deduction under section 80IA of the Act in accordance with this clarification. It has also directed that pending litigation on allowability of deduction under section 80IA of the Act s .....

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held that only the losses of the year beginning from initial assessment year were to be brought forward and not the losses of earlier year which had already been set off against the other income of assessee. It was further held by the Tribunal that the revenue could not notionally bring forward any loss of earlier years which had already been set off against any other income of the assessee and set off the same against the current income of the eligible business. Applying the said decision in a .....

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t order of CIT(A)-III, Pune, dated 23.12.2011 relating to assessment year 2008-09 against order passed under sections 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. The cross appeals filed by the assessee and the Revenue were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. The assessee in ITA No.1578/PN/2012 has raised the following grounds of appeal:- On the facts and circumstances of the case and in law, the .....

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nce for Foreign Travel expenses amounting to ₹ 2,85,610/- 4. The appellant reserves the right to add, alter, amend, amend withdraw any of the Grounds of Appeal mentioned above at the time of appeal hearing. 4. The Revenue in ITA No.1 618/PN/2012 has raised the following grounds of appeal:- 1. The order of the learned CIT (Appeals) is contrary to law and to the facts and circumstances of the case. 2. The Commissioner of Income-Tax(Appeals) erred .....

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essee exercises the option, only the losses of the year beginning from the initial Assessment Year are to be brought forward and not the losses of earlier years, ignoring section 80IA(5) which stipulates that for the purpose of determining the quantum of deduction under section 80IA(1), profits and gains of business of 'the assessee is to be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial Assessment Year an .....

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r this and such other reasons as may be urged at the time of the hearing, the order of the Commissioner of Income-Tax (Appeals) may be vacated and that of the Assessing Officer be restored. 6. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the ITAT. 5. The issue raised vide ground of appeal No.1 by the assessee is against the disallowance of provision made for leave encashmen .....

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the one described in section 43B(f) of the Act. As per the assessee, the said provision was required to be made as per Accounting Standard 15 issued by Institute of Chartered Accountants of India (ICAI) and in terms of mercantile accounting system being followed by the assessee. However, the Assessing Officer was of the view that as per section 43B(f) of the Act, deduction for leave encashment payable to the employees could be allowed only on actual basis. Accordingly, the deduction claimed amou .....

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icable. The CIT(A) on the other hand, was of the view that under section 43B of the Act, deduction in respect of certain types of expenditure is allowable, in computation of income of the assessee, only in the year in which the same amount is actually paid, irrespective of the year in which the liability to pay such amount had arisen, in accordance with the method of accounting regularly employed by the assessee. The types of expenditure include the sum payable by the assessee by way of tax, dut .....

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was not to be allowed as deduction unless the amount was actually paid by the assessee on or before due date of filing the return of income. The CIT(A) further noted that the assessee had placed reliance on the judgment of Hon ble Calcutta High Court in Excide Industries Ltd. & Anr Vs. UOI (2007) 292 ITR 470 (Cal), wherein the Hon ble High Court had struck down insertion of clause (f) in section 43B of the Act, but the CIT(A) however, observed that the said judgment of the Hon ble Calcutta .....

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d against the assessee in the light of amended provisions of section 43B(f) of the Act. 10. In view of the amended provisions of section 43B of the Act, wherein clause (f) has been inserted, we find no merit in the claim of assessee in this regard to the provision for leave encashment, which was made by the assessee as on close of the year, since it was following mercantile system of accounting. However, the said amount has not been paid to the employees before due date of .....

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and further, disallowance has been enhanced by ₹ 36,90,771/-. 13. The grievance of the assessee before us is that the said enhancement has been made without giving the assessee an opportunity of being heard. 14. The brief facts relating to the issue are that, during the year under consideration, the assessee had claimed expenditure to the tune of ₹ 41,96,741/- under the head sales promotion expenses . The total expenses claimed by the assessee under the head sa .....

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ame was not allowable as it related to gifts. In respect of balance expenditure, the Assessing Officer was of view that the allocation made to Serum Institute India Ltd., a group company whose sales were ₹ 985.77 crores as against the total sales of the assessee at ₹ 36.16 crores, was not correct. The explanation of the assessee in this regard was that the assessee was engaged in trading of goods in a competitive local market while SIIL was the manufacturer of various vaccines mainly .....

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of the Act, wherein the disallowance made at ₹ 88,05,304/- was reduced to ₹ 50,96,657/-. Thus, the total disallowance consequent to the order passed under section 154 of the Act was ₹ 92,93,398/- i.e. ₹ 41,96,741/- plus ₹ 50,96,657/-. 15. The CIT(A) in the first instance, considered the expenditure of ₹ 41,96,741/- and vide para 5.3 held that the assessee was entitled to the claim of said expenditure. Admittedly, the Revenue is not in appeal agains .....

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the CIT(A) noted that the same was claimed by the assessee in its hands as the expenditure and sum of ₹ 45,00,075/- was claimed by the sister concern as expenditure. Since the assessee has failed to explain the basis on which allocation was made to SIIL, the same was not accepted and the basis for allocation of expenses was taken to be the turnover of two companies. The CIT(A) was of the view that where the turnover of SIIL during the year was ₹ 985.78 crores, which includ .....

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ld to be attributable to SIIL and the same was held to be not allowable in the hands of assessee. Thus, the addition made on this count of ₹ 50,96,657/- as revised by the order passed under section 154 of the Act was enhanced to ₹ 87,87,426/-. 16. The assessee is in appeal against the order of CIT(A). 17. The first plea raised by the assessee before us is that the CIT(A) has worked out the disallowance incorrectly. In the first instance, he allowed the gift arti .....

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d under the head sales promotion expenses . In respect of the nature of expenditure, the learned Authorized Representative for the assessee fairly pointed out that the complete details were filed before the authorities below and it may go back for verification of expenses. 18. The learned Departmental Representative for the Revenue placed reliance on the orders of authorities below. 19. We have heard the rival contentions and perused the record. The total expenditure claime .....

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22 of the Paper Book, which was claimed to have filed before the authorities below. However, the nature of expenses have not been gone into by any authorities below and where the same are to be allowed as sales promotion expenses, the first aspect to be kept in mind is that the CIT(A) has allowed the expenditure on gift articles totaling ₹ 41,96,741/-, against which the Revenue is not in appeal, hence, out of total expenditure of ₹ 1,37,93,473/-, expenditure of ₹ 41,96,741/- s .....

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e. The assessee before us is aggrieved by the enhancement made by the CIT(A) in this regard. For adjudication of issue, the expenditure of ₹ 1,37,93,473/- has to be considered and after excluding the expenditure of ₹ 41,96,741/-, the balance is ₹ 95,96,732/-, which is the expenditure to be shared between the assessee and its sister concern SIIL. In view of the admission of learned Authorized Representative for the assessee, we remit this issue back to the file of Assessing Offi .....

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d for statistical purposes. 21. The ground of appeal No.3 raised by the assessee is not pressed and hence, the same is dismissed as not pressed. 22. The only issue raised by the Revenue is against the order of CIT(A) in holding that for the purpose of claim of deduction under section 80IA(2) of the Act, the same is to be allowed from the year in which the assessee first exercised its option ignoring the provisions of section 80IA(2) of the Act, according to which the first .....

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issue raised in the present appeal is in respect of claim of deduction under section 80IA(5) of the Act in respect of windmill amounting to ₹ 57,30,229/-, is squarely covered by the order of Tribunal in assessee s own case relating to assessment years 2004-05 to 2006-07. The learned Authorized Representative for the assessee further pointed out that the issue is also covered by the recent circular issued by CBDT dated 15.02.2016 i.e. clarification of the term initial assessment year in sec .....

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on by exercising the option available under section 80IA(2) of the Act. The Assessing Officer however, denied the deduction claimed under section 80IA(5) of the Act, in view of the option of initial assessment year. The CBDT recently vide Circular No.1/2016, dated 15.02.2016 had clarified the term initial assessment year under section 80IA(5) of the Act. The CBDT has clarified that it is abundantly clear from subsection 2 of section 80IA of the Act that the assessee has the option to .....

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