2018 (9) TMI 1899 - AT - Income Tax

Appellate court ruling: Leave encashment issue restored, sales tax incentives excluded from book profits.

Tata Metaliks Ltd. Versus Income Tax Officer, Ward-3 (2), Kolakta AND DCIT, Circle-3 (1), Kolkata Versus M/s Tata Metaliks Ltd.

Tata Metaliks Ltd. Versus Income Tax Officer, Ward-3 (2), Kolakta AND DCIT, Circle-3 (1), Kolkata Versus M/s Tata Metaliks Ltd. - TMI Issues Involved:1. Disallowance of provision for leave encashment under Section 43B(f) of the Income Tax Act.2. Exclusion of sales tax incentive and state capital investment subsidy from book profits under Section 115JB of the Act.3. Deletion of addition made by the Assessing Officer in respect to sales tax remission and state capital investment subsidy.4. Section 14A read with Rule 8D disallowance of administrative expenditure.Issue-wise Detailed Analysis:1. Disallowance of Provision for Leave Encashment under Section 43B(f):The assessee's appeal challenged the disallowance of Rs. 87,13,450/- for leave encashment under Section 43B(f) due to non-payment. Both parties acknowledged that the jurisdictional High Court had quashed this statutory provision in Exide Industries Ltd. vs. Union of India, but the Supreme Court stayed this decision. The Tribunal had previously restored this issue to the Assessing Officer for a fresh decision pending the Supreme Court's final order. The same course of action was adopted for this assessment year, restoring the issue back to the Assessing Officer.2. Exclusion of Sales Tax Incentive and State Capital Investment Subsidy from Book Profits under Section 115JB:The assessee challenged the non-exclusion of Rs. 4,14,13,831/- (sales tax incentive) and Rs. 18,20,000/- (state capital investment subsidy) from book profits under Section 115JB. The Tribunal noted that similar issues were upheld in the preceding assessment year, recognizing these incentives as capital in nature and not taxable under normal provisions. The Tribunal referenced the case of Sicpa India (P) Ltd. vs. DCIT and the Supreme Court's decision in CIT vs. Chaphal Kar Brothers, which supported the exclusion of such subsidies from book profits. Consequently, the Tribunal directed the Assessing Officer to exclude these amounts from the book profits.3. Deletion of Addition Made by the Assessing Officer in Respect to Sales Tax Remission and State Capital Investment Subsidy:The Revenue's appeal contested the CIT(A)'s deletion of Rs. 84,65,932/- added by the Assessing Officer, treating the sales tax remission and state capital investment subsidy as revenue receipts. The CIT(A) had followed previous findings from the assessment year 2010-11, which were upheld by the Tribunal. The Tribunal noted that the assessee had succeeded on this issue in earlier years (2005-06 and 2008-09) and found no distinction in facts or law. Therefore, the Tribunal declined the Revenue's appeal, maintaining judicial consistency.4. Section 14A Read with Rule 8D Disallowance of Administrative Expenditure:The Revenue's appeal sought to revive a disallowance of Rs. 30,21,750/- under Section 14A read with Rule 8D for administrative expenses. The CIT(A) had followed the Tribunal's decision in REI Agro Ltd. vs. DCIT, which held that only dividend-yielding investments should be considered for such disallowance. The CIT(A) directed the Assessing Officer to apply this formula, and the Tribunal found no irregularity in this approach. Since the Revenue had lost on this issue in the preceding year, the Tribunal rejected the Revenue's appeal.Conclusion:The assessee's appeal was partly accepted, leading to the restoration of the leave encashment issue to the Assessing Officer and the exclusion of sales tax incentives and subsidies from book profits. The Revenue's cross-appeal was dismissed, upholding the CIT(A)'s decisions on the nature of the incentives and the Section 14A disallowance. The order was pronounced in the open court on 12/09/2018.