2015 (8) TMI 978 - AT - Income Tax

Tribunal decision on expenses provision, custom duty, revenue cost matching, liabilities under mercantile accounting, and TDS credit.

The Tribunal upheld the CIT(A)'s decision regarding the provision for expenses and custom duty, emphasizing revenue cost matching and recognizing ... Expenditure claimed under the head “provision towards SOBM and drill cutting disposal expenses” disallowed - CIT(A) deleted disallowance and held that the provision so made by the assessee is in the nature of ascertained liability and same is deductible both under the normal provisions of the Act and also while computing the book profit under section 115JB of the Act. - Held that:- In the present case, the undisputed fact remains that the contract receipts cannot be considered to be free money available with the assessee, since there is obligation to discharge the responsibility to process the waste materials. Hence the gross contract receipts cannot considered to be the net income of the assessee, i.e., the income arising from the said contract alone can be brought to tax, in which the corresponding expenditure is required to be allowed as deduction. Hence the liability to process the materials constitute ascertained liability in praesenti and hence the assessee is justified in providing for those expenses in order to arrive at the net profit. In respect of liability already accrued, the actual date of incurring of expenses is irrelevant and hence the payment could be postponed in subsequent years. Even otherwise, it is submitted that the assessee has reversed the provision in the immediately succeeding year, i.e., the said provision is offered as income in the succeeding year in the form of reduction of corresponding expenditure. As observed by Hon’ble Supreme Court in the case of Excel Industries Ltd. (2013 (10) TMI 324 - SUPREME COURT ), accounting policy adopted by the assessee is tax neutral in nature, No infirmity in the order of the ld CIT(A) on this issue and, accordingly, we uphold the same. - Dcided against revenue. Issues Involved:1. Deletion of expenditure claimed under the head 'provision towards SOBM and drill cutting disposal expenses.'2. Disallowance of custom duty paid on equipment imported and returned back.3. Non-allowance of credit for TDS amount.4. Provisions of expenses claimed by the assessee.Issue-wise Detailed Analysis:1. Deletion of Expenditure Claimed under the Head 'Provision towards SOBM and Drill Cutting Disposal Expenses':The Revenue challenged the CIT(A)'s decision to delete the expenditure claimed under 'provision towards SOBM and drill cutting disposal expenses.' The assessee, engaged in waste disposal from offshore oil rigging, entered into a contract with GSPC for waste management. The assessee followed the accounting practice of offering the entire contract receipts as income in the year of receipt and made a provision for processing expenses of unprocessed waste lying in stock at the year-end. The AO disallowed this provision, considering it a future expense and not allowable under section 37(1) of the Act, citing Supreme Court decisions in Indian Molasses Company Pvt. Ltd. vs. CIT and M/s. Tuticorin Alkali Chemicals and Fertilisers Ltd vs. CIT. The CIT(A) disagreed, holding that the provision was a present liability under the mercantile system of accounting, supported by Supreme Court rulings in Bharat Earth Movers and CIT vs. Swarup Vegetable Products. The Tribunal upheld the CIT(A)'s decision, recognizing the provision as an ascertained liability and deductible both under normal provisions and section 115JB of the Act.2. Disallowance of Custom Duty Paid on Equipment Imported and Returned Back:The assessee claimed Rs. 30,04,154 as revenue expenditure for custom duty paid on a drier machinery imported from Norway, which was returned due to unsuitability. The AO treated this as capital expenditure, and the CIT(A) confirmed the disallowance. The Tribunal, however, sided with the assessee, noting that since the machinery was returned and no enduring benefit was derived, the custom duty should be treated as revenue expenditure. The Tribunal directed the AO to allow the custom duty as revenue expenditure, referencing the Calcutta High Court's decision in Binami Cements Ltd. vs. CIT.3. Non-allowance of Credit for TDS Amount:The issue of non-allowance of credit for TDS amount was remanded to the AO for reconsideration, with instructions to provide an opportunity to the assessee to present their case.4. Provisions of Expenses Claimed by the Assessee:For the assessment year 2009-2010, the assessee claimed Rs. 1.99 crores as a deduction under 'provisions for expenses,' which the AO disallowed. The CIT(A) allowed Rs. 1.89 crores but disallowed Rs. 10 lakhs. The Tribunal, following its earlier decision for the assessment year 2008-09, directed the AO to allow the entire claim, modifying the CIT(A)'s order accordingly.Conclusion:The Tribunal dismissed the Revenue's appeals and the assessee's cross-objection, while allowing the assessee's appeals. The Tribunal upheld the CIT(A)'s decisions on the provision for expenses and custom duty, emphasizing the principles of revenue cost matching and the recognition of ascertained liabilities under mercantile accounting. The issue of TDS credit was remanded for further consideration by the AO.