2015 (11) TMI 1799 - AT - Income Tax

Assessee's Appeal Partly Allowed on Various Grounds

Aditya Birla Nuvo Ltd. (Formerly known As Indian Rayon and Industries Limited) Versus DCIT-LTU, World Trade Centre, Mumbai And Vica-Versa

Aditya Birla Nuvo Ltd. (Formerly known As Indian Rayon and Industries Limited) Versus DCIT-LTU, World Trade Centre, Mumbai And Vica-Versa - TMI Issues Involved:1. Disallowance under section 43B(f) for leave salary.2. Disallowance under section 14A in respect of other expenses.3. Disallowance for provision made for pension liability.4. Disallowance under section 40(a)(ia) towards provision made for expenses.5. Reduction of deduction under sections 80IA and 80IB on account of allocation of head office expenses.6. Depreciation on goodwill on acquisition of Madura Garments division.7. Exemption of sales tax/VAT collected from purchasers.8. Treatment of income from the sale of certified emission reductions (CERs).9. Interest charged under section 234D.10. Additional grounds raised by the assessee regarding disallowance under section 14A and treatment of interest subsidy under Technology Upgradation Fund Scheme (TUFS).11. Deletion of Modvat Credit in closing stock.12. Deletion of addition made on account of general expenses incurred on the buyback of shares.Detailed Analysis:1. Disallowance under section 43B(f) for leave salary:The Tribunal found that the issue of disallowance under section 43B(f) for leave salary had been decided in favor of the assessee in previous assessment years. It was held that the provision for leave salary is not a statutory liability but a contractual one, payable only if the employee resigns or retires. The Tribunal directed the Assessing Officer (AO) to allow the claim of provisions for leave salary, following the decision of the Hon'ble Supreme Court in Bharat Earth Movers. Consequently, the ground was decided in favor of the assessee.2. Disallowance under section 14A in respect of other expenses:The Tribunal noted that the AO had applied Rule 8D while making the disallowance for the year under appeal, which was applicable from the next assessment year (2008-09). The Tribunal restored the matter back to the AO for fresh adjudication, directing the AO to afford a reasonable opportunity of hearing to the assessee. Ground No. 2 was allowed in part.3. Disallowance for provision made for pension liability:The Tribunal found that the liability for pension was crystallized and allowable as per the decision of the Hon'ble Supreme Court in Bharat Earth Movers. The provision made for pension liability was based on actuarial valuation and was not considered a contingent liability. The ground was decided in favor of the assessee.4. Disallowance under section 40(a)(ia) towards provision made for expenses:The Tribunal held that TDS provisions were not applicable for provisions made at the year-end when the payee was not known. Following the decisions in Mahindra & Mahindra Ltd. and Industrial Development Banking Company, the Tribunal decided the ground in favor of the assessee.5. Reduction of deduction under sections 80IA and 80IB on account of allocation of head office expenses:The Tribunal found that the issue had been decided in favor of the assessee in previous assessment years. It was held that head office expenses should not be allocated to the profits derived from eligible units for computing deductions under sections 80IA and 80IB. The ground was decided in favor of the assessee.6. Depreciation on goodwill on acquisition of Madura Garments division:The Tribunal noted that the issue of depreciation on goodwill had been decided in favor of the assessee in previous assessment years. Following the decision of the Tribunal in earlier years, the ground was decided in favor of the assessee.7. Exemption of sales tax/VAT collected from purchasers:The Tribunal restored the matter back to the file of the First Appellate Authority (FAA) to analyze the provisions of the scheme in light of the decision of the Hon'ble Supreme Court. The ground was partly allowed.8. Treatment of income from the sale of certified emission reductions (CERs):The Tribunal followed the decision of the Hon'ble Andhra Pradesh High Court in My Home Power Ltd., which held that income from the sale of CERs is a capital receipt and not taxable. The ground was decided in favor of the assessee.9. Interest charged under section 234D:The Tribunal noted that the issue was consequential in nature and did not adjudicate on it.10. Additional grounds raised by the assessee regarding disallowance under section 14A and treatment of interest subsidy under Technology Upgradation Fund Scheme (TUFS):The Tribunal restored the issue of disallowance under section 14A to the file of the AO. Regarding the interest subsidy under TUFS, the Tribunal restored the matter to the file of the FAA for fresh adjudication, allowing the additional ground in part.11. Deletion of Modvat Credit in closing stock:The Tribunal found that the issue had been decided in favor of the assessee in previous assessment years, following the decision of the Hon'ble Supreme Court in Indo Nippon Chemicals Co. Ltd. The ground was decided against the AO.12. Deletion of addition made on account of general expenses incurred on the buyback of shares:The Tribunal noted that the issue pertained to the issuance of bonus shares, not the buyback of shares, and followed the decision in GIC, holding that the expenditure on the issuance of bonus shares is revenue expenditure. The ground was decided against the AO.Conclusion:The appeal filed by the assessee was partly allowed, and the appeal filed by the AO was dismissed. The Tribunal directed the AO and FAA to re-adjudicate certain issues, providing a reasonable opportunity of hearing to the assessee. The significant issues were decided following precedents from previous assessment years and judgments from higher courts.