Tax Tribunal Affirms Gratuity, Leave Encashment Deductions; Orders Review of Teesta-V Power Station Depreciation.

The ITAT upheld the CIT(A)'s decisions, dismissing the Revenue's appeal and partly allowing the assessee's appeal. Key outcomes included deletion of disallowances under sections 14A, 115 JB for gratuity, leave encashment, and amortisation of leasehold land, while remanding the depreciation issue on Teesta-V power station to the AO for reconsideration.

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Issues Involved:
1. Disallowance under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules.
2. Disallowance in computing book profit under section 115 JB of the Act on account of provision for gratuity, leave encashment, post-retirement medical benefits, LTC, baggage allowance, etc.
3. Disallowance in computing book profits under section 115 JB of the Act on account of amortisation of leasehold land.
4. Disallowance of deduction under section 80 IA of the Act.
5. Disallowance of depreciation claimed by the assessee in respect of Teesta-V power station.
6. Addition on account of income tax on perquisite borne by the assessee in respect of accommodation provided to its employees while computing the book profit under section 115 JB of the Act.

Issue-wise Detailed Analysis:

1. Disallowance under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules:
The assessee earned exempt income and the Assessing Officer (AO) disallowed Rs. 33.46 crores under section 14A read with Rule 8D, citing incurred expenditure for managing investments. The CIT(A) deleted this addition, noting the AO's failure to record proper satisfaction and the fact that investments were made from the assessee's own funds. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO must record dissatisfaction with the assessee's claim before invoking section 14A and that investments were made from non-borrowed funds.

2. Disallowance in computing book profit under section 115 JB of the Act on account of provision for gratuity, leave encashment, post-retirement medical benefits, LTC, baggage allowance, etc.:
The AO disallowed Rs. 173,03,86,645 on the ground that the provisions were not ascertained liabilities. The CIT(A) deleted this disallowance, following the Punjab and Haryana High Court's decision for the Assessment Year (AY) 2002-03 and his own orders for AYs 2010-11 and 2011-12. The Tribunal upheld the CIT(A)'s decision, noting no change in circumstances and consistent application of the High Court's decision.

3. Disallowance in computing book profits under section 115 JB of the Act on account of amortisation of leasehold land:
The AO disallowed Rs. 3,32,81,500, stating no prescribed rate of depreciation for land. The CIT(A) deleted the disallowance, relying on his orders for AYs 2010-11 and 2011-12. The Tribunal upheld the CIT(A)'s decision, noting that the amortisation was in line with accounting standards and covered by the Punjab and Haryana High Court's decision for AY 2006-07.

4. Disallowance of deduction under section 80 IA of the Act:
The AO restricted the deduction under section 80 IA to profits from generation and distribution of power, disallowing Rs. 3,31,92,441. The CIT(A) granted relief, following the Tribunal's decisions for AYs 2010-11 and 2011-12. The Tribunal upheld the CIT(A)'s decision, noting consistent application of the Tribunal's and Delhi High Court's decisions.

5. Disallowance of depreciation claimed by the assessee in respect of Teesta-V power station:
The AO disallowed Rs. 2,52,93,963, stating the liability for sales tax crystallised in AY 2016-17. The CIT(A) upheld the disallowance. The Tribunal remanded the issue to the AO to reconsider in light of the Delhi High Court's decision in CIT vs. Noida Medicare Centre Ltd, which states that amounts should be capitalised in the year the obligation arises.

6. Addition on account of income tax on perquisite borne by the assessee in respect of accommodation provided to its employees while computing the book profit under section 115 JB of the Act:
The AO added Rs. 3,24,551 for income tax on perquisites. The CIT(A) upheld this addition. The Tribunal, noting that the issue was covered by the Tribunal's decisions for AYs 2010-11 and 2011-12 and the Mumbai Tribunal's decision in Rashtriya Chemicals and Fertilisers Ltd vs. CIT, deleted the addition.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, remanding the issue of depreciation on Teesta-V power station to the AO for reconsideration. The judgment was pronounced on 20th March 2020.

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