2017 (8) TMI 1457 - AT - Income Tax

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

The Tribunal upheld the CIT(A)'s decision to dismiss the Revenue's appeal on non-deduction of tax under Section 195 and disallowance of prior period ... TDS u/s 195 - Addition on account of non-deduction of tax u/s.40(a)(ia) - Held that:- D.R. could not controvert the findings of the CIT(A) that IOCL is a public sector undertaking on which the assessee is critically dependent. The billing disputes have been settled by mutual discussion and reconciliation as per minutes of joint reconciliation of accounts drawn on 17.2,2010, a copy of which has been filed as per which further net amount of ₹ 26,54,639.51 was determined payable by the appellant to the IOCL. The price differential is mainly due to change of rate of FO with retrospective effect and difference in invoice quantity and receipt quantity. Therefore, the amount of ₹ 26,54,640/- has been crystallized in the FY 2009-10 relevant to the impugned assessment year. Hence, we confirm the order of the CIT(A) and dismiss the grounds of the revenue. Disallowance under school expenses - Whether amount incurred during the year for the school (DAV school) does not fall under the ambit of provisions of section 40A(9) - Held that:- The issue at hand is squarely covered by the decision of Hon’ble Kerala High Court in the case of N.Radhakrishnan [1999 (10) TMI 33 - KERALA HIGH COURT]. Respectfully following the same, we set aside the orders of lower authorities and delete the disallowance of ₹ 1,74,85,684/- made u/s.40A(9) of the Act and allow the ground of appeal of the assessee. Disallowing the claim of post-retirement medical benefit - fresh claim acceptance - Held that:- CIT(A) held that the issue of claim of post retirement medical benefit has not been discussed by the Assessing Officer in the assessment order. There is no evidence to support the contention that the fresh claim was made during the assessment proceedings, which has not been made in the return of income. In view of the same, the CIT(A) held that the claim of ₹ 1,37,82,763/- on account of post retirement medical benefit cannot be entertained at the appellate stage and dismissed the ground of appeal of the assessee. Before us also, ld AR also failed to produce any evidence to show that fresh claim was made during the assessment proceedings for deduction 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.