2017 (8) TMI 1457 - AT - Income Tax

Tribunal Decision: Dismissed Revenue's Appeal, Allowed Assessee's Appeal on School Expenses

DCIT, Circle 1 (1), Bhubaneswar Versus Paradeep Phosphates Limited

DCIT, Circle 1 (1), Bhubaneswar Versus Paradeep Phosphates Limited - TMI Issues Involved:1. Non-deduction of tax under Section 195 of the Income Tax Act.2. Disallowance of prior period expenses.3. Disallowance of school expenses under Section 40A(9).4. Disallowance of post-retirement medical benefit.Issue-wise Analysis:1. Non-deduction of Tax under Section 195:The Revenue appealed against the deletion of Rs. 21,80,04,41,000/- by the CIT(A) on account of non-deduction of tax under Section 195. The Assessing Officer (AO) had disallowed the amount, citing the assessee's failure to apply for a certificate under Sections 195(2) or 197, and non-submission of CA certificates as required by CBDT circulars. The AO relied on various judicial precedents, including CIT v. Barium Chemicals Ltd. and Transmission Corpn. of A.P. Ltd. vs CIT. The CIT(A) allowed the appeal, referencing the Supreme Court's decision in GE India Technology Centre P. Ltd v CIT, which clarified that tax is deductible under Section 195 only if the payment is chargeable to tax in India. The Tribunal upheld the CIT(A)'s decision, noting the consistency in the assessee's case and the absence of any change in facts.2. Disallowance of Prior Period Expenses:The AO disallowed Rs. 26,55,760/- under 'prior period expenses,' arguing that the assessee followed a hybrid system of accounting, which is impermissible. The assessee contended that such expenses are inevitable in a mercantile system of accounting due to differences between estimated and actual liabilities. The CIT(A) accepted the assessee's explanation, noting that the expenses crystallized in the relevant financial year and were related to price differences with IOCL, a public sector undertaking. The Tribunal confirmed the CIT(A)'s decision, emphasizing that the expenses were crystallized in the relevant year and were necessary for business operations.3. Disallowance of School Expenses under Section 40A(9):The AO disallowed Rs. 1,74,85,684/- incurred for running a DAV school within the plant premises, citing Section 40A(9). The assessee argued that the expenses were for employee welfare and thus allowable under Section 37. The CIT(A) upheld the AO's decision, stating that running a school is not a business expense. However, the Tribunal referenced the Delhi Tribunal's decision in DCIT vs. Gujarat Guardian Ltd. and the Kerala High Court's decision in CIT vs. N.Radhakrishnan, which allowed similar expenses as business expenditures. Consequently, the Tribunal set aside the CIT(A)'s order and allowed the expenses.4. Disallowance of Post-Retirement Medical Benefit:The AO rejected the assessee's claim of Rs. 1,37,82,763/- for post-retirement medical benefits, stating it was not claimed in the return of income. The CIT(A) dismissed the claim, noting the absence of evidence that the claim was made during assessment proceedings. The Tribunal upheld the CIT(A)'s decision, as the assessee failed to provide evidence supporting the claim.Conclusion:The Tribunal dismissed the Revenue's appeal regarding non-deduction of tax and prior period expenses, confirming the CIT(A)'s decisions. The Tribunal allowed the assessee's appeal concerning school expenses but dismissed the appeal regarding post-retirement medical benefits due to lack of evidence.