2016 (9) TMI 1306 - AT - Income Tax

Tribunal remands case for accurate expense verification and deduction allocation

The Tribunal dismissed the revenue's appeal and allowed the assessee's appeal for statistical purposes, remanding specific issues back to the AO for ... Contribution to State Renewable Fund - allowable expenditure - Held that:- In the earlier year also similar issue arose before the Tribunal and the Tribunal was pleased to delete the disallowance pertaining to assessment year 2007-08 stating that the amount was set apart not for shareholder but it was provided for the benefits of the employees. Addition of prior period expenses - Held that:- The ld. CIT (A) has given a finding of fact that with respect to the Head Office an amount of ₹ 96,08,000/- pertains to reversal of double income booked in F.Y. 2002-03 with respect to maintenance charges. The ld.CIT (A) has given further finding of fact that an amount of ₹ 2,94,25,000/- with respect to the Head Office pertains to wrong entry of interest income in FY 2002-03 & 2003-04 with respect to toll projects on capital deployed by the appellant. This finding of fact is not controverted by the ld. D/R by placing any material on record. We are in agreement with the observations of the ld. CIT (A) that reversal of income wrongly declared in earlier years, is allowable. Hence this ground of the revenue is dismissed. Disallowance of deduction u/s 80IA - Held that:- The assessee has considered only direct operation and maintenance expenses for working out the profits of road and bridge projects for claiming deduction u/s 80IA, as if these projects were automatically set up and running without any strategic planning, management, directions, supervision, marketing support, regular contract awarding, works tendering, control etc. by the head office/branch offices. The administrative, head office and other expenses have a direct nexus with the running of road/bridge projects of the assessee situated at various places and, therefore, the same are deductible on proportionate basis in computing the profits and gains from the eligible business for the purpose of sub-section (1) of Sec. 80IA of the Act. Therefore, the AO observed that a sum of ₹ 13,75,43,459/- is required to be apportioned to 80IA units, accordingly this will be deducted for the purpose of working out deduction under section 80IA of the Act. Thus the AO reduced the allowable deduction accordingly. However, the ld. CIT (A) after considering the submissions of the assessee, restricted the disallowance to ₹ 6,98,93,301/- against ₹ 8,20,34,909/-.The assessee has demonstrated that the authorities below have taken incorrect figure of turnover. Another contention of the assessee is that the amount related to Head Office is already apportioned and, therefore, there was no need for apportionment of the same. We find merit in the contention of the ld. Counsel for the assessee. Therefore, the ground raised in the appeal of the revenue is dismissed. Confirmation of prior period expenses - Held that:- The factum of the contention that the amount is not a prior period expenditure requires verification at the end of the AO whether this income was wrongly booked in earlier years is to be verified by making further enquiry. Therefore, we set aside the order of ld. CIT (A) and restore the matter to the file of the AO for verifying the contention of the assessee that the amount represents reversal of income. In case the AO finds that it is a reversal of income wrongly booked in earlier years, in that event he would delete the disallowance. This ground of the assessee is allowed for statistical purposes. Disallowance of deduction under section 80IA - Held that:- Firstly, the turnover as taken by the AO and the ld. CIT (A) is incorrect. Secondly, the assessee himself has considered the expenditure against the income eligible for deduction under section 80IA. Thirdly, the allocation of head office expenditure as done by the lower authorities is not correct. Therefore, the authorities below were not justified in disallowing the claim of deduction under section 80IA. We find merit in the contention of the ld. Counsel for the assessee. However, the figures are required to be verified from the accounts of the assessee. Therefore, the orders of the authorities below are set aside on this issue. The issue of claim of deduction under section 80IA is restored back to the file of the AO to verify the contention of the assessee as made in the written brief. In case the AO finds that the figures as given in the written brief matches with the books of account of the assessee, he would accordingly recompute the deduction allowable to the assessee. Needless to say that the AO would give sufficient opportunity to the assessee for furnishing the evidences in support of its claim. These grounds of the assessee are allowed for statistical purposes. Issues Involved:1. Allowability of Rs. 10,00,000/- contribution to State Renewable Fund as expenditure.2. Deletion of addition of Rs. 1,94,34,645/- out of prior period expenses.3. Restriction of disallowance of deduction under section 80IA to Rs. 6,98,93,301/- against Rs. 8,20,34,909/-.4. Disallowance of prior period expenses of Rs. 55,28,017/- pertaining to Jodhpur Unit.5. Allocation of 'payment to and provision for employees' and 'administrative expenses' for determining income from BOT projects for deduction under section 80IA.Detailed Analysis:1. Allowability of Rs. 10,00,000/- Contribution to State Renewable Fund as Expenditure:The revenue contended that the CIT (A) erred in holding the contribution as allowable expenditure. The Tribunal referenced its earlier decisions in similar cases for previous years, where it was held that the contribution to the State Renewable Fund was allowable. The Tribunal found no reason to deviate from its earlier stance and dismissed the revenue's ground, confirming the CIT (A)'s decision to allow the expenditure.2. Deletion of Addition of Rs. 1,94,34,645/- Out of Prior Period Expenses:The revenue challenged the deletion of the addition made by the AO for prior period expenses. The Tribunal noted that the CIT (A) had accepted the assessee's explanation that the expenses were reversals of income wrongly booked in earlier years. The CIT (A) provided a detailed analysis, distinguishing between genuine prior period expenses and reversals of earlier income. The Tribunal upheld the CIT (A)'s decision, dismissing the revenue's ground.3. Restriction of Disallowance of Deduction Under Section 80IA to Rs. 6,98,93,301/- Against Rs. 8,20,34,909/-:The revenue argued that the CIT (A) was incorrect in reducing the disallowance. The Tribunal reviewed the detailed submissions and calculations provided by both the AO and the CIT (A). The CIT (A) had recalculated the turnover and expenses, leading to a revised disallowance. The Tribunal found the CIT (A)'s approach reasonable and dismissed the revenue's ground, affirming the revised disallowance.4. Disallowance of Prior Period Expenses of Rs. 55,28,017/- Pertaining to Jodhpur Unit:The assessee contended that the CIT (A) erred in not allowing the claim for prior period expenses, which were actually reversals of income wrongly booked in earlier years. The Tribunal acknowledged that the CIT (A) did not provide a detailed explanation for rejecting the assessee's claim. The Tribunal set aside the CIT (A)'s order on this issue and remanded it back to the AO for verification. The AO was instructed to verify if the expenses were indeed reversals of earlier income and, if so, allow the deduction.5. Allocation of 'Payment to and Provision for Employees' and 'Administrative Expenses' for Determining Income from BOT Projects for Deduction Under Section 80IA:The assessee argued against the allocation of these expenses, stating that the BOT projects were outsourced and did not incur such costs. The Tribunal found merit in the assessee's arguments but noted that the figures needed verification. The Tribunal set aside the orders of the lower authorities on this issue and remanded it back to the AO for verification. The AO was directed to recompute the deduction under section 80IA after verifying the figures provided by the assessee.Conclusion:The Tribunal dismissed the revenue's appeal and allowed the assessee's appeal for statistical purposes, remanding specific issues back to the AO for further verification and recomputation. The Tribunal emphasized the need for accurate verification of figures and proper allocation of expenses in determining the allowable deductions.