2016 (9) TMI 110 - HC - Income Tax

Court upholds assessee's tax appeals, ruling on various issues incl. deductions, exemptions, and prior period expenses.

COMMISSIONER OF INCOME TAX-I Versus INDIAN PETROCHEMICALS CORPORATION LTD.

The court dismissed all tax appeals in favor of the assessee, upholding decisions on various issues including prior period expenses, sales tax exemption ... Entitlment to claim interest paid on borrowed capital - Held that:- No distinction in Section 36(1)(iii) between ‘capital borrowed for a revenue purpose’ and capital borrowed for capital purpose’ and an assessee is entitled to claim interest paid on borrowed capital provided that capital is used for business purpose irrespective of what may be result of using such borrowed capital. Allowabilty of payment of surtax - Held that:- This Court in the case of Gujarat State Export Corporation Ltd. (1993 (9) TMI 52 - GUJARAT High Court) has held that payment of surtax was not an allowable deduction and that by paying the entrance fee to the sports club the assessee had no intention to acquire any capital asset or take advantage for the enduring benefit of the business and that by common sense standards, it could be stated that it was for running the business or for bettering the conduct of its business and therefore the amount paid as entrance fee was deductible. In view of the said decision, we find that the question raised is required to be answered in favour of the assessee. Addition for provisions made for bad and doubtful debts - Held that:- As in the case of Yokogawa India Ltd. (2011 (8) TMI 766 - KARNATAKA HIGH COURT ), the Karnataka High Court has held that while computing book profits, provisions made for bad and doubtful debts cannot be added back in accordance with Explanation (c ) to Section 115JB(1) as same is not an ascertained liability. In that view o the matter, we are of the opinion that the Tribunal was justified in confirming the order of CIT(A) deleting the addition. We do not see any reason for interference and therefore we answer the question in favour of assessee and against the revenue MAT computation - payment to L & T towards excise duty - Held that:- CIT(A) directed to allow the expenditure on payment to L & T towards excise duty as revenue expenditure and the remaining expenditure incurred on payment to GAIL and expenditure on cell membranes were held as capital expenditure. On further appeal by the assessee before the Tribunal, the Tribunal directed to allow the entire expenditure as revenue expenditure but directed to allow the same on deferment basis as claimed by the assessee. The Tribunal also allowed deduction u/s 80HHC while computing the book profit u/s 115JA. Issues Involved:1. Prior period expenses.2. Sales tax exemption as capital receipt.3. Contributions to various organizations.4. Expenditure on payments to GEB, MECON (I) Ltd., GAIL, and L&T.5. Deduction under Section 80HHC while computing book profit under Section 115JA.6. Lease rent deduction for boilers.7. Provision for doubtful debts while calculating book profit under Section 115JA.8. Order under Section 154 of the Income Tax Act.Issue-wise Detailed Analysis:1. Prior Period Expenses:The court considered whether the Tribunal was right in upholding the order of the CIT(A) allowing prior period expenses of Rs. 4,63,09,000/- paid in respect of earlier years, even though the assessee followed the mercantile system of accounting. The Tribunal dismissed the revenue's appeal, referencing the Supreme Court's decision in Commissioner of Income tax vs. Excel Industries Ltd., which emphasized that the timing of tax payment was immaterial as long as the revenue was not deprived of any tax.2. Sales Tax Exemption as Capital Receipt:The court examined whether the sales tax exemption granted by the Government of Gujarat should be treated as a capital receipt exempt from tax or a revenue receipt. The Tribunal's decision to treat it as a capital receipt was upheld, relying on the Supreme Court's decisions in Commissioner of Income Tax, Madras vs. Ponni Sugars and Chemicals Ltd. and Commissioner of Income Tax vs. Meghalaya Steels Ltd.3. Contributions to Various Organizations:The issue was whether contributions made by the assessee to various organizations should be treated as business expenses or donations. The Tribunal allowed the deductions, supported by the Supreme Court's ruling in Sri Venkata Satyanarayana Rice Mill Contractors Co. vs. Commissioner of Income tax, which recognized such contributions as business expenses.4. Expenditure on Payments to GEB, MECON (I) Ltd., GAIL, and L&T:The court considered whether payments to GEB, MECON (I) Ltd., GAIL, and L&T should be treated as revenue or capital expenditure. The Tribunal allowed these as revenue expenditures, referencing the Gujarat High Court's decision in Sarabhai M. Chemicals (P.) Ltd. vs. Commissioner of Income tax.5. Deduction under Section 80HHC while Computing Book Profit under Section 115JA:The court examined whether the deduction under Section 80HHC should be allowed while computing book profit under Section 115JA, even if the assessee had no taxable income under normal provisions. The Tribunal's decision to allow the deduction was upheld, supported by the Supreme Court's ruling in Ajanta Pharma Ltd. vs. Commissioner of Income tax, Mumbai.6. Lease Rent Deduction for Boilers:The court considered whether the lease rent deduction for boilers taken on lease from M/s. ICICI should be allowed. The Tribunal upheld the CIT(A)'s decision to allow the deduction, referencing the Gujarat High Court's decisions in the assessee's own case for previous assessment years.7. Provision for Doubtful Debts while Calculating Book Profit under Section 115JA:The issue was whether the provision for doubtful debts should be added back while calculating book profit under Section 115JA. The Tribunal's decision to exclude this provision was upheld, supported by the Karnataka High Court's rulings in Commissioner of Income Tax vs. Kirloskar Systems Ltd. and Commissioner of Income Tax vs. Yokogawa India Ltd.8. Order under Section 154 of the Income Tax Act:The court examined whether the order under Section 154, which corrected the figure of unascertained liability for doubtful debts, was valid. The Tribunal's decision to cancel the order was upheld, as the issue had become academic.Conclusion:The court dismissed all the tax appeals, answering all questions of law in favor of the assessee and against the revenue. The judgments were based on established precedents from the Supreme Court and various High Courts, ensuring consistency in the application of legal principles.