TMI Blog2017 (12) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... wed in view of the specific provisions of S.43B(f) of the Income Tax Act, 1961 which provides for allowance of such claim only in the year of payment. Provision for Long service award - Held that:- As consistent with our view taken in assessee’s own case in earlier years, we hold that provision made by the assessee company towards long service award based on actuarial valuation is to be allowed as expenditure. Provision for mines closure - Held that:- We are of the considered view that the claim of the expenditure is quite premature. During the previous year relevant to the impugned assessment year, the assessee did not incur any expenditure in this regard. The provision was made merely in terms of the statutory provisions relating to the operation of mines. It is not a case where the expenditure accrues in proportion to the period for which the mines are operated. Therefore, we are in complete agreement with the view taken by the assessing officer Addition in respect of provision for leave travel concession - Held that:- LTC expenditure is allowed as per the scheme of the leave travel concession of the company. The liability commences no sooner the employee undertakes th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receipt, the expenditure incurred on maintenance of the trees is also to be allowed as revenue expenditure. Further, the expenditure was incurred very much during the course of the business of the assessee and no enduring benefit is obtained on account of the expenditure incurred. Peripheral development expenditure - Held that:- Expenditure incurred by the appellant as a part of the corporate social responsibility is to be allowed. Community development expenses - allowable business expenditure - Held that:- There was no dispute with regard genuineness of the expenditure. Since the company has spent the sums towards the educational medical camps for the people who are re-located the same is allowable expenditure. It is obligation on the part of the company to give support to the people who are displaced due to setting up of the industry by losing their landed property and assets. The company is discharging its obligation for the same purpose. Therefore, following the decision of Hon’ble Madras High Court in the case of CIT Vs. Madras Refineries Limited [2003 (11) TMI 47 - MADRAS High Court ] we hold that the CIT(A) has rightly allowed the appeal of the assessee and accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed the same and added back to the return of income since the asset is owned by the Indian Railways but not by the assessee relying on the decision of Hon ble Supreme Court in the case of Mysore Minerals Limited 239 ITR 775. On appeal, the Ld. CIT(A) confirmed the addition made by the A.O. Aggrieved by the order of the Ld, CIT(A), the revenue filed the appeal before this Tribunal. 3. We have heard both the parties and perused the materials placed on record. This issue is squarely covered by the decision of this Tribunal in assessee s own case in ITA No.9 16/Vizag/2013 dated 29.4.2015 against the assessee. The Hon ble ITAT, Visakhapatnam Bench following its own order for the earlier year in the assessee s own case dismissed the appeal of the assessee and confirmed the order of the Ld. CIT(A). Respectfully following the view taken by the tribunal we uphold the order of the Ld. CIT(A) and dismiss the appeal of the assesse on this ground. 4. Ground No.2 is related to the disallowance of provision towards the Post retirement benefit Scheme. This issue is involved in ITA No.13/Vizag/2013 for the assessment years 2011-12 2004-05. During the assessment proceedings, the A.O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and brought to tax. On appeal, the Ld. CIT(A) confirmed the addition made by the A.O. 5. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The issue is squarely covered in favour of the assessee by the order of this Tribunal in ITA No.9 16/Vizag/2013 dated 29.4.2015. For ready reference, we extract the relevant paragraph of the order of this Tribunal cited (supra). 16. We have heard the submissions of the parties, orders of the revenue authorities and perused the materials available on record. We find that the Coordinate Bench of Visakhapatnam Tribunal in assessee s own case for assessment year 2006-07 to 2008-09 by order dated 08.01.2015 (supra) has extensively discussed the issue and allowed the claim of the assessee, (wherein one of us is the author of the order). Therefore, respectfully following the view taken by us in our order dated 08.01.2015 (supra) in assessee s own case, we set aside the orders of both the lower authorities in disallowing the claim of the assessee company towards provision for Post Retirement Benefit Scheme and direct the Assessing Officer to allow the claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyment and also in terms of the revised/change in Accounting Standard-15 issued by ICAI which was to be followed during the year, is an allowable deduction in the hands of the assessee. The said claim being based on the valuation of the actuary is both scientific and one of the recognized method of accounting and quantifying the said post retiremental medical benefits. In such cases though actual and exact quantification may not be possible, however, the liability so recognized by the assessee could not be said to be unascertained and contingent. The assessee having followed the mercantile system of accounting was compulsorily required to account for the said post retirement medical benefits as the same was quantified and had accrued during the year. The claim of the assessee was thus allowable irrespective of the fact that the assessee had made a provision in the books of account but had claimed the said deduction in the computation of income. It is well settled proposition that the way in which entries are made by the assessee in its books of account is not determinative of the question whether the assessee had earned any profit or suffered any loss as held by the Hon ble Apex C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any payment in respect of the services in that particular year to be made in subsequent year. In view of this, we find the order of CIT (A) in ITA No.149/Del/2012 in order. We set aside the order of CIT (A) in ITA No.4921/Del/2010. For doing so, we also get support from the following decisions of Hon ble Supreme Court and Hon ble Delhi High Court. 5.1 Hon ble Supreme Court in the case of Metal Box Company of India Ltd. vs. Their Workmen - 73 ITR 53 has held as under :- Contingent liabilities discounted and valued as necessary, can be taken into account as trading expenses if they are sufficiently certain to be capable of valuation and if profits cannot be properly estimated without taking them into consideration. An estimated liability under a scheme of gratuity, if property ascertainable and its present value is discounted, is deductible from the gross receipts while preparing the profit and loss account. This is recognised in trade circles and there is nothing in the Bonus Act which prohibits such a practice. Such a provision provides for a known liability of which the amount can be determined with substantial accuracy. It cannot, therefore, be termed a reserve . Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds gratuity under the Income Tax Act, 1961. The Supreme Court, after noticing the judgment in Metal Box Company (supra), crystallized its analysis at page 599 and made the following observations:- It would thus be apparent from the analysis aforesaid that the position till the provisions of section 40A(7) were inserted in the Act in 1973 was as follows:- 1 xxxx 2 xxxx 3 xxxx 4 xxxx 5. Provision made in the profit and loss I.T.A. Nos.94, 95,96,97 141/Viz/2012 Assessment Years:2006-07 to2007-08 2005-06 RINL 19 account for the estimated present value of the contingent liability properly ascertained and discounted on an accrued basis as falling on the assessee in the year of account could be deductible either under Section 28 or section 37 of the Act. ITA 873/2008 1156/2008 Page 6 of 25 7. The Division Bench of this Court, while considering deductibility of a provision for warranties made by an assessee, which dealt in computers in the case of CIT vs Hewlett Packard India (P) Ltd, by its judgment passed in Appeal No. ITA 486/2006 dated 31.03.2008, upheld the deductibility of the provision for warranty on the ground that it was made on the basis of actuarial valuation be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision which can be explained by the company. The assessee argued that it is obligatory on the part of the company to provide the benefits under the employees family benefit scheme and mandatory requirement of AS-15 of ICAI and the company has provided the liability on the basis of actuarial valuation certificate issued by the competent consultant for this purpose. The A.O. was not impressed with the explanation of the assessee and held that the provision is not an ascertained liability and the assessee has created the provisions over and above the requirement and has not been adopted any basis and the assessee has spent meager amounts and accumulated the funds under the employees benefit scheme, which is being utilized by the company. The expenditure was not allowable u/s 30 to 38 of the Act , hence disallowed and added back to the income. 7. Aggrieved by the order of the A.O., the assessee went on appeal before the CIT(A) and the Ld. CIT(A) confirmed the order of the A.O., hence this appeal. 8. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The same issue has come up for adjudication in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve of each staff member the eligibility of encashment of leave and the liability related to encashment of leave. Further, the Ld. A.O. observed that the liability is neither accrued nor incurred unless the employees of the company encash the leave accrued to them and the employees had option either to avail the leave or to encash the same, hence, there is a high element of uncertainty and therefore, the expenditure was purely contingent in nature, accordingly disallowed. 11. Aggrieved by the order of the A.O., the assessee went on appeal before the CIT(A) and the Ld. CIT(A) confirmed order of the A.O. 12. Aggrieved by the order of the CIT(A), the assessee is in appeal before this Tribunal. 13. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. This issue is squarely covered by the order of this Tribunal in ITA Nos.9 16/Vizag/2015 dated 29.4.2015 against the assessee. The relevant part of the order is extracted below which reads as under: 20. The assessee company has created a provision under the head Future Leave Encashment of ₹ 66,31,68,389 during the F.Y. 2008- 09 relevant to the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order. Respectfully following the view taken by the coordinate bench, we uphold the orders of the lower authorities and confirm the same. Ground No.5 of the assessee is dismissed. 14. Respectfully following the view taken by this Tribunal in the order cited (supra), we uphold the orders of the lower authorities and dismiss the appeal of the assessee on this ground. 15. Ground No.5 is related to the provision for Long service award. During the assessment proceedings, the A.O. found that the assessee company has created provision under the head long service award to the tune of ₹ 3,03,18,326/-. The assessee explained that the company gives the award to the employee who completes the 25 years continuous service under scheme. The award would be silver medallion weighing 150 gms. with the emblem of RINL, Visakhapatnam Steel Plant embossed on the side long service award on the other side. The assessee has created the provision on actuarial basis as per certificate of actuarial valuation issued by the competent consultant for this purpose and the amount was debited following the accounting standard-15 of the guidelines issued by the Institute of Chartered Accountants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears, we hold that provision made by the assessee company towards long service award based on actuarial valuation is to be allowed as expenditure. Accordingly, we allow ground No.6 of the assessee. 20. Respectfully following the order of this Tribunal, we set aside the orders of the lower authorities and allow the appeal of the assessee. 21. Ground No.6 is related to the provision for mines closure. During the assessment proceedings, the A.O. found that the assessee debited a sum of ₹ 18,46,000/- towards mines closure. The assessee explained that as per the Government of India, the Mineral Services and Development Rules, 1998, Government has introduced statutory provisions for preparation and implementation of progressive mines closure plan for operating mines, closure plan for final closure of mines. The company is supposed to close the mined areas and at the time of closure of mines, the expenditure would be huge and would jeopardize the financial results of the company, hence, the assessee is providing for mines closure expenditure every year as at the end of each financial year based on area mined during the year. Accordingly, the amount was provided for financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a case where the expenditure accrues in proportion to the period for which the mines are operated. Therefore, we are in complete agreement with the view taken by the assessing officer and the Ld. CIT(A) and confirm the view taken by them. Ground No.7 is dismissed. 23. Respectfully following the view taken by this Tribunal, we uphold the order of the lower authorities and dismiss the appeal of the assessee. 24. Ground No.7 is related to the addition in respect of provision for leave travel concession amounting to ₹ 1,01,74,000/-. During the assessment proceedings, the assessing officer found that the assessee had made a provision towards LTC and debited to the Profit loss account. The assessee explained to the A.O. that the company is providing LTC facilities to the employees and according to the benefits extended to the employees, the assessee company has created the liability towards the LTC expenditure. The assessee further argued that the assessee has followed scientific method of ascertaining liabilities towards the expenditure through actuarial valuation done by the concerned actuary after due consideration of the provisions/rules of the company for LTC sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed as per the scheme of the leave travel concession of the company. The liability commences no sooner the employee undertakes the tour, without the commencement of the tour, there is no liability accrue or arise under the leave travel concession. In the case of the company, it is evident from the assessment order that the assessee has not furnished the LTC rules, the operation of LTC account, the amounts actually incurred out of the account, treatment given to the unutilized amounts and the amount that cannot be utilized etc. Though the A.O. has called for the specific details, the assessee has not furnished the above details. The expenditure cannot be ascertained on actuarial valuation and the expenditure has to be ascertained and determined on the basis of the LTC rules and the details called for by the A.O. and the journeys undertaken as discussed above. Therefore, we are of the considered opinion that the assessee company required to submit the above details and the issue needs further verification at the end of the A.O. to ascertain the liability accrued. Therefore, this issue is remitted back to the file of the A.O. to examine the details and decide the issue afresh on me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s towards additional power lines to meet the requirements of new unit being set up by the assessee. The said expenditure clearly was prior to setting up of the new unit or prior to expansion of the capacity, thus such expenditure is preoperative expenditure and cannot be treated as revenue. 30. Aggrieved by the order of the A.O., the assessee went on appeal before the CIT(A). The Ld. CIT(A) confirmed the order of the A.O., but accepted the contention that the expenditure was in the nature of revenue expenditure. Since the work relating to erection and allowing service lines are not completed and the purported assets having became nonfunctional, the assessee would not be entitled to claim the expenditure as revenue expenditure for impugned A.Y. and accordingly, confirmed the order for the A.O. 31. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. During the appeal hearing, the Ld. A.R. argued that the assessee incurred the expenditure towards the service line charges for development and extension of power supply for CMD of 400MVA. While agreeing with the contention of the assessee that service lines are owned by the A.P. Transco and expenditure was rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the investment of ₹ 361.60 crores in the shares of various companies. Since the return on the said investment is the dividends which is exempt from the tax as per section 10(34) of the Act, the A.O. invoked the provisions of section 14A r.w. rule 8D of the Act and accordingly, made the disallowance of ₹ 90,46,215/-. During the appeal hearing, the Ld. A.R. submitted that there was no exempt income in the year under consideration, hence contended that the addition is not justified in the absence of the exempt income. Further, the Ld. A.R. argued that the investments were strategic investments and relied on the order of this Tribunal in the case of D. Veerabhadra Reddy (HUF) 263/Vizag/2014 dated 23.6.2017. 35. On the other hand, the Ld. D.R. relied on the orders of the lower authorities. 36. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. There is no dispute with regard to the Ld. A.R s contention that the assessee company has no exempt income in the year under consideration. This Tribunal following the judgment of Hon ble Madras High Court in the case of Redington India Private Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt income, the question of disallowance u/s14A r.w.Rule 8D is not called for. The same view is expressed by the decision of Hon ble Madras High Court in Redington (India) Ltd. Vs. Addl.CIT, 77 taxman.com 257, Hon ble Delhi High Court in Chem Investments Vs. CIT, 61 taxman.com 118 and the Hon ble Gujarat High Court in Principal CIT Vs. Sintex Industries Ltd., 82 taxman.com 171 held that no disallowance is called for when assessee makes small investment from the surplus funds. There was no dividend income earned by the assessee and the case was taken for revision to disallow the business loss claimed against the property income which was examined by the AO and dropped the assessment proceedings and the Ld.CIT also satisfied that there is no case for revision on account of incorrect set off of business loss. With regard to the issue of disallowance u/s 14A as per the judicial pronouncements no disallowance is called for when there is no exempt income. Therefore, we are of the considered opinion that there is no case for revision of order u/s 263 and accordingly we set aside the orders of the CIT and allow the appeal of the assessee. 37. Respectfully following the view taken by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure was wholly and exclusively laid out for the purpose of business and there is no lavish expenditure incurred and the same was purely incurred for hosting the lunch to various official teams visited the company and argued that the expenditure is allowable u/s 37 of the Act. The assessee is a public sector undertaking and there is no personal advantage except business consideration for incurring such expenditure. Considering the volume of the business the Ld.AR submitted that expenditure was very much reasonable. 40. On the other hand, the Ld. D.R. supported the orders of the lower authorities. 41. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. On verification of the order of the Ld. CIT(A) the expenditure was incurred towards tea, snacks, milk and other expenses for customers or official guests at various office locations. The expenses were also incurred for dinner for airline officials and agro forest department, food arrangement for common wealth games teams and catering arrangements at cricket stadium, south zone volleyball team, etc. These expenses mainly incurred for the purpose of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he receipt on sale of trees was considered as revenue receipt for the assessment years 2007-08 and 2008-09 by the Revenue. This view taken by the assessing officer has been upheld by the Ld. CIT(A) also. The view taken by the learned CIT(A) was contested by the appellant before this bench and vide order dt.8th January, 2015 in ITA Nos.94, 95 and 97/viz/2012 the coordinate bench has taken the view that the sale proceeds of the trees is Revenue in nature. When the receipt from sale of trees is assessed as revenue receipt, the expenditure incurred on maintenance of the trees is also to be allowed as revenue expenditure. Further, the expenditure was incurred very much during the course of the business of the assessee and no enduring benefit is obtained on account of the expenditure incurred. Therefore, we find no infirmity in the order of the Ld. CIT(A) on this issue and we confirm the order of the Ld. CIT(A). Accordingly, ground No.2 of the Revenue is dismissed. 46. Respectfully following the decision of this Tribunal, we uphold the order of the Ld. CIT(A) and dismiss the appeal of the revenue. 47. Ground No.4 is related to peripheral development expenditure. During the previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the Revenue. The learned CIT(A) appraised the entire evidence on record and came to the conclusion that the expenditure incurred by the appellant as a part of the corporate social responsibility is to be allowed as 8 ITA.No.9, 14, 15 16/Vizag/2013 M/s. Rashtriya Ispat Nigam Limited, Visakhapatnam. expenditure and that the assessing officer is not justified in doubting the expenditure merely on the ground that the expenditure was accounted on the basis of a journal entry at the end of the year. On a careful consideration of the facts and circumstances of the case and perusal of the papers on record and the orders of the authorities below, we find no infirmity in the order of the Ld. CIT(A) and accordingly we confirm the same. Respectfully following view taken by this Tribunal, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. 50. Ground No.5 is related to the community development expenses. The A.O. found that the assessee has incurred a sum of ₹ 3,39,00,000/- as community development expenses, which was claimed as a deduction. The assessee explained that the expenditure was incurred towards many community development activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of care and concern for the society at large and the people of the locality in which the business is located in particular. Being known as a good corporate citizen brings goodwill of the local community, as also with the regulatory agencies and the society at large, thereby creating an atmosphere in which the business can succeed in a greater measure with the aid of such goodwill. Monies spent for bringing drinking water as also for establishing or improving the school meant for the residents of the locality in which the business is situated cannot be regarded as actually outside the ambit of the business concerns of the assessee, especially when the undertaking owned by the assessee is one which is to some extent a polluting industry. Hence, expenditure incurred by the assessee for establishing drinking water facilities to the residents in the vicinity of its refinery and for providing aid to the school run for the benefit of the children of those residents was allowable as deduction. The ratio decided on the expenditure incurred on schools also speaks in favour of the company as submitted below. (i) ITAT VS. Hill(B) and Co.(P) Ltd. (1983) 142 1TR 0185, It is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.3 MTPA EXPN/TB- 4/ERC/BHEL/M-736/2007 dt. 11 07.20O7). Contract No.(i) above has been entered for supplying all indigenous plant, machinery and equipment with auxiliaries Including insurance spares and commissioning spares for the above work and also supply of drawing documents in conformity to the contract specification and the value of the contract as per copy of agreement produced in this office is ₹ 63,33,36,000/ - Contract No(ii) above has been entered for storage, handling, erection, commissioning and PG tests of plant, machinery and equipment including insurance, inland transportation etc., for Turbo Blower and Auxiliaries (TB-4) including pipe work, electrics and instrumentation and the value of the contract as per copy of agreement produced in this office is ₹ 6,44,00,000/-. 60. The A.O. held that the works contract covered by the two agreements are nothing but composite contracts for supply and erection of the machinery, interdependent and falls within the purview of chapter XVVIIB for deduction of tax at source. The assessee is of the view that first contract is for the supply of the machinery and second contract is for commissioning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Principal Contractor confirmed all aforesaid indigenous Equipment/Items and drawings documents shall be supplied by the Contractor were included and covered by the Contract Price . 6.4 The scope of work under the said contract-I is defined in schedule 2 of the agreement as follows: SCHEDULE 2 SCOPE OF WORK 2.1 GENERAL The Contract Specification No.BHEL/MT/TB-4/JULY 2007 submitted by the Contractor and accepted by the Employer in conjunction with various clauses of this Contract shall be binding for the purpose of determining the scope of work under this Agreement and shall form integral part of this Contract. 2.2 SCOPE OF WORK In consideration of the payments to be made by the Employer the Principal Contractor shall be responsible for the following: 2.2.1 Design, supply of drawing documents procurement of materials, manufacture/fabrication, inspection, testing and supply of all indigenous Equipment on F.O.T. works basis within the time stipulated in Schedule 4 (DELIVERY). The Equipment/Items are to be suitably and securely packed for road transport in India and for storage under tropical conditions. 2.2.2 Supply of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on the CBDT circular which clarifies as under: Where, however, the contractor undertakes to supply any article or thing fabricated according to the specifications given by Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of this section. 6.6 Considering the above, I am of the opinion that the contract-I pertain to supply of machine, equipment and spares. Besides, it is noted that under the terms of contract-TI, BHEL is required to render certain services such as the work of inland transportation including insurance till delivery at site of imported and indigenous items and storage, handling, erection, testing, commissioning, demonstration of performance guarantee of complete plant as a whole and other related site work conforming to the contract specifications] From the perusal of both the contracts, it is not possible to come to a conclusion that due to the services required to be rendered under contract-TI, the terms of contract-I would be in the nature of works contract. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he materials placed on record. The contract-I is a supply contract primarily for supply of the machinery equipment and spares and contract-II is works contract for commissioning the equipment. The Ld. CIT(A) after verification of the recitals of the contract given a finding that both are independent contracts and held that it is not possible to come to conclusion that due to services required to be rendered under contract no.(ii), the terms of the contract no.(i) would be in the nature of works contract. The Ld. DR did not bring any other evidence to show that the finding given by the Ld. CIT(A) is incorrect and also did not place any other decision to support the view of the department. The facts are identical to the decision of this Tribunal in the case of NTPC Limited cited (supra). Since the CIT(A) has allowed the appeal of the assessee, following the order of this Tribunal, we do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld. 63. In the result, the assessee s appeals for the assessment year 2004-05 is allowed and for the assessment year 2011-12 is partly allowed. The revenue s appeals for the assessment years 2008-09 2011-12 are dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
