2022 (5) TMI 1608 - AT - Income Tax

Leave encashment for non-retiring employees deductible as not covered under Section 43B(f)

ITAT Mumbai ruled in favor of the assessee on multiple issues. Leave encashment provisions for non-retiring employees were held deductible as they don't ... Disallowance u/s.43B - leave encashment payable for non-retiring employees - HELD THAT:- Leave encashment payable for employees who had retired during the year alone would fall within the ambit of Section 43B(f) of the Act and if the same is not paid within the due date of filing of return of income u/s.139(1) of the Act, the said expenditure shall not be allowed as deduction. In respect of provision made as stated supra for leave encashment in respect of non-retiring employees, the same does not become payable at all to those employees. In other words, the provision is made for expenses accrued but not due for payment during the year. Hence, the provisions of Section 43B(f) of the Act could not be put into operation in respect of the said provision. In any case, we find that the issue in dispute is already addressed by the Co-ordinate Bench of the Tribunal [2017 (12) TMI 1134 - ITAT MUMBAI] and also by the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Hindustan Construction Company Ltd.[2015 (4) TMI 881 - BOMBAY HIGH COURT] - Decided against revenue. Disallowance of expenditure on account of contribution to local organisations - assessee had made contributions to various local organisations located in and around the areas where plant offices of the assessee company are situated - Addition made on the ground that the expenditure was not wholly and exclusively incurred for the purpose of business - HELD THAT:- We find that this issue is no longer res integra in view of the Co-ordinate Bench decision of this Tribunal in [2014 (10) TMI 994 - ITAT MUMBAI] - Decided against revenue. Disallowance towards rural development activities by the assessee company - HELD THAT:- We find that this issue is no longer res integra in view of the issue in view of the Co-ordinate Bench decision of this Tribunal in [2014 (10) TMI 994 - ITAT MUMBAI] Nature of expenses - treat the production cost of advertisement film as revenue expenditure - HELD THAT:- We find that assessee is not in the business of production of feature films rather the films have been used for advertisement. It was pleaded that the air time of T.V. or radio is allowed as expenditure in the year in which such advertisement is telecasted / broadcasted. The ld. AO observed that advertisement film produced could be used again and again and therefore, the assessee derives enduring benefit out of the same. We find that this issue is no longer res-integra in view of the decision of the Co-ordinate Bench of this Tribunal in assessee’s own case in [2014 (10) TMI 994 - ITAT MUMBAI] as held similar issue has been decided by the Hon’ble Supreme Court in the case of Empire Jute Co. Ltd [1980 (5) TMI 1 - SUPREME COURT] Accordingly, we do not find any infirmity in the order of the ld. CIT(A) deleting the disallowance by observing that advertisement film was made only for advertisement and its useful life is very short and such films do not add to the capital structure of the company. Disallowance towards ESOP - HELD THAT:- We find that assessee had incurred an expenditure on account of employee compensation cost under Employee Stock Options Scheme (ESOS). The entire scheme together with the object and vesting period are addressed in detail by the ld. AO. The discount cost incurred on ESOP scheme was written off by the assessee over the vesting period. This issue is squarely covered by the decision of the Special Bench of Bangalore Tribunal in the case of Biocon Ltd., which has been subsequently approved by the Hon’ble Karnataka High Court in 430 ITR 151 [2020 (11) TMI 779 - KARNATAKA HIGH COURT]. Deduction u/s.80IA in respect of Rail systems - HELD THAT:- Even in the recent order passed by this Tribunal in the case of Ultratech Cement Ltd., vs. DCIT [2022 (1) TMI 923 - ITAT MUMBAI] this issue has been decided in favour of that assessee. In view of the aforesaid judicial precedents, we do not find any infirmity in the order of ld. CIT(A) granting deduction u/s.80IA of the Act in respect of Raipur and Hotgi Unit. Deduction u/s.80IA of the Act towards apportionment of head office expenses - HELD THAT:- We find that this issue is no longer res integra in view of the decision of this Tribunal in assessee’s own case in [2014 (10) TMI 994 - ITAT MUMBAI] wherein this Tribunal had placed reliance on the order passed in assessee’s own case for A.Yrs.1994-95 to 1998-99, which decisions were accepted by the department by not preferring further appeal to High Court on this issue. Since, the issue is already settled by the order of this Tribunal, we do not find any infirmity in ld. CIT(A) granting relief to the assessee. Accordingly, ground raised by the Revenue is dismissed. Issues Involved:1. Deletion of disallowance under Section 43B of the Income Tax Act.2. Deletion of disallowance of expenditure on account of contribution to local organizations.3. Deletion of disallowance of expenditure incurred towards rural development activities.4. Treatment of production cost of advertisement film as revenue expenditure.5. Deletion of disallowance towards ESOP (Employee Stock Option Plan) expenses.6. Granting deduction under Section 80IA for rail systems at Raipur and Hotgi.7. Apportionment of head office expenses for deduction under Section 80IA.Detailed Analysis:1. Deletion of Disallowance under Section 43B:The issue pertains to the disallowance of Rs. 2,72,31,613/- under Section 43B of the Act. The CIT(A) deleted this disallowance by relying on the Tribunal's decision in the assessee’s own case for earlier assessment years. The Tribunal held that leave encashment payable for non-retiring employees does not fall under Section 43B(f) as it is not payable at the end of the year. The Tribunal also cited the Hon’ble Jurisdictional High Court’s decision in CIT vs. Hindustan Construction Company Ltd., which supported the assessee's position. Consequently, the Tribunal dismissed the Revenue's ground.2. Deletion of Disallowance of Expenditure on Account of Contribution to Local Organizations:The disallowance of Rs. 2,47,430/- for contributions to local organizations was deleted by the CIT(A) based on previous Tribunal decisions favoring the assessee. The Tribunal noted that such contributions were consistently allowed in earlier years and upheld by the Hon’ble Jurisdictional High Court. Therefore, the Tribunal dismissed the Revenue's appeal on this ground.3. Deletion of Disallowance of Expenditure Incurred Towards Rural Development Activities:The disallowance of Rs. 1,33,54,176/- for rural development activities was deleted by the CIT(A) citing previous Tribunal decisions. The Tribunal found that the expenditure was incurred for activities benefiting people residing near the plant area and was wholly and exclusively for business purposes. The Tribunal upheld the CIT(A)'s decision and dismissed the Revenue's ground.4. Treatment of Production Cost of Advertisement Film as Revenue Expenditure:The CIT(A) treated the production cost of advertisement films amounting to Rs. 47,37,761/- as revenue expenditure. The Tribunal agreed with this treatment, noting that the films were used for advertisement and did not add to the capital structure of the company. This position was supported by earlier Tribunal decisions and the Hon’ble Supreme Court’s ruling in Empire Jute Co. Ltd. The Tribunal dismissed the Revenue's appeal on this ground.5. Deletion of Disallowance Towards ESOP Expenses:The disallowance of Rs. 16,60,120/- for ESOP expenses was deleted by the CIT(A) based on the Special Bench of Bangalore Tribunal’s decision in Biocon Ltd., which was subsequently upheld by the Hon’ble Karnataka High Court. The Tribunal noted that the ESOP discount cost is an ascertained liability and deductible under Section 37 of the Act. The Tribunal dismissed the Revenue's ground.6. Granting Deduction Under Section 80IA for Rail Systems at Raipur and Hotgi:The CIT(A) granted deduction under Section 80IA for rail systems at Raipur and Hotgi. The Tribunal upheld this decision, referencing its earlier rulings in the successor company’s case (Ultratech Cements Ltd.) and noting that the rail systems met all conditions specified in Section 80IA(4). The Tribunal dismissed the Revenue's appeal on this ground.7. Apportionment of Head Office Expenses for Deduction Under Section 80IA:The CIT(A) directed the AO not to reduce the claim of deduction under Section 80IA by apportioning head office expenses. The Tribunal upheld this direction, citing its earlier decisions in the assessee’s own case where such apportionment was consistently disallowed. The Tribunal dismissed the Revenue's ground.Conclusion:The Tribunal dismissed the Revenue's appeals for both assessment years 2010-11 and 2011-12, upholding the CIT(A)'s decisions on all grounds. The judgments were based on consistent application of legal precedents and the Tribunal's earlier rulings in similar cases.