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TMI Blog2018 (9) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... 'CIT(A)'] has erred in passing the order under section ('u/s') 250 of the Income Tax Act, 1961 ('Act'), partly confirming the adjustments made by the learned Assistant Commissioner of Income Tax, Circle-2(2), Bhubaneswar ('AO') in the assessment order passed u/s 143(3) of the Act. Each of the ground is referred to separately, which may kindly be considered independent of each other. 1. Ground No. 1 - Disallowance of provision for Long Term Incentive Plan ('LTIP') Payments 1.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding disallowance of INR 4,43,00,000, being amount payable to employees under the LTIP scheme by holding that provision created purely on an estimate basis is not allowable under the Act. 1.2 Without prejudice to ground 1.1 above and in the alternative, on the facts and circumstances of the case and in law, since payment for the above amount was made in the subsequent year (which has also been acknowledged by the learned AO in the impugned assessment order), the learned ClT(A)/AO has erred in not holding that deduction for the above amount should be allowed in the subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to P&L A/c. 4. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A). In the appellate proceedings ld. AR reiterated the submissions made before the AO and the CIT(A) after considering the findings of the AO and submission of the assessee, confirmed the addition made on account of provision for LTIP and deleted the additions made on account of penalty imposed by DoT and proportionate interest debited to P&L Account and partly allowed the appeal of the assessee. 5. Aggrieved by the confirmation of addition made on account of provision for LTIP by the CIT(A), the assessee has filed an appeal before the Tribunal, whereas against the deletion of addition by the CIT(A) made on account penalty imposed by DoT and proportionate interest debited to P&L Account, the Revenue is in appeal before the Tribunal. 6. In respect of the appeal of the assessee i.e. ITA No.285/CTK/2018, the ld. AR of the assessee argued on the ground No.1with regard to disallowance of provision for Long Term Incentive Plan (LTIP) payments and submitted that the CIT(A) has erred in confirming the disallowance of payments made to employees under the LTIP scheme by holding that provision c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O shall verify and examine and adjudicate the issue. Further the assessee is required to cooperate in submitting the details and appear before the assessing authority for early disposal of the case. Accordingly, this issue is remitted to the file of AO for proper adjudication and this ground of assessee's appeal is allowed for statistical purposes. 9. In regard to ground No.2, though the assessee has raised the ground in respect of non-grant of credit of TDS, we found that the CIT(A) having dealt on this issue has directed to AO to consider the assessee's claim for grant of TDS credit after due verification as per provisions of law. Therefore, we are of the opinion that the directions of the CIT(A) are acceptable and we uphold the same and dismiss this ground of appeal of the assessee. 10. Thus, the appeal of the assessee is partly allowed for statistical purposes. 11. Now, we shall take up appeal of the Revenue in ITA No.286/CTK/2016, wherein the Revenue has raised the following grounds of appeal :- 1 On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as in facts in deleting the addition of Rs. 46,00,025/- made by the AO on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nked with the business of the assessee. I also find that the Hon'ble ITAT, Kolkata Bench in their order dt.15.9.2015 in the case of Vodafone East Ltd. in ITA Nos.l864/Kol/2012, 243/343/Kol/2014 have held that penalty paid to DoT for breach of contractual obligation is allowable as a, deduction u/s.37 of the Act. The relevant portion of this order of the Hon'ble ITAT is reproduced below: "10.5. We have heard the rival submissions and perused the materials available on record. We find that the penalty is paid to DOT for non-maintenance of personal information of the subscribers which would ensure verification of the. same in time of need. To this extent, the assessee had committed a breach of contractual obligation of the terms and conditions of the license agreement entered into with the DOT. We find that the amount paid is towards damages for breach of contractual obligation and are part and parcel of the business of the assessee and hence, should be regarded as an expenditure laid out wholly and exclusively for the purpose of business of the assessee. We find lot of force in the arguments of the Learned AR that merely the fact that penalty has been paid as a result of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sides and perused the relevant material on record. The AO has correctly recorded that penalty of Rs. 63.83 lac was paid by the assessee on account of anomalies and irregularities in CIF and CAF. For giving a hue of penalty to such an amount as magnetized under Explanation 1 to section 37(1) of the Act, the AO referred to the provisions of section7(3) and section 20 of the Indian Telegraphs Act, 1885. We have gone through the relevant provisions of the Indian Telegraphs Act, 1885 and find that anomalies and irregularities in CIF and CAF are not covered under any of the specific provisions of the Indian Telegraphs Act. Rather, such penalties were imposed for noncompliance with the contractual obligations under the Licence agreement. As the payment by the assessee is not for an offence, nor is it prohibited by law, the same being failure to comply with the contractual obligations, cannot fall within the domain of Explanation 1 to section 37(1) of the Act. Similar issue came up for consideration before the Kolkata Bench of the Tribunal in the case of Vodafone East Ltd. (supra). The Tribunal has held in para 10.5 of its order that the amount paid under similar circumstances cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been left unrecovered without any justification. In the light of the above, the trade receivables from the group companies towards services, prepaid expenses towards repair and maintenance and advance account in respect of operating expenses totaling Rs. 125,58,48,522/- could have reduced the burden of loans upon the assessee and hence the interest liability. Accordingly, the proportionate interest on the same amounting Rs. 15,07,01,823/- in the light of the above discussion is disallowed and added to the income of the assessee. Addition : Rs. 15,07,01,823/- 18. Ld. DR further emphasized that the CIT(A) on this issue has observed as under :- "5.2 I have considered the matter carefully. The AO has made the addition by disallowing proportionate interest calculated on the basis of trade receivables from group companies and prepaid expenses of Rs. 125,00,00,000/-. The reason given by him, as it appears from the assessment order though not expressed in so many words, is that, had the assessee shown promptness in recovering the trade receivables and not incurred prepaid expenses, it would have taken less loan and would have incurred less interest of Rs. 15,07,01,823/-. The very ..... X X X X Extracts X X X X X X X X Extracts X X X X
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