2019 (1) TMI 849 - AT - Income Tax

Appeal Partially Allowed, Remanded for Fresh Consideration

M/s. Bharat Heavy Electricals Ltd. Versus DCIT, Co. Circle 2 (1), New Delhi

M/s. Bharat Heavy Electricals Ltd. Versus DCIT, Co. Circle 2 (1), New Delhi - TMI Issues Involved:1. Disallowance of provisions as not ascertained liabilities.2. Disallowance of interest paid on income tax.3. Reduction of deduction under Section 80-O.4. Restriction of deduction under Section 80HHC.5. Restriction of deduction under Section 80IA.6. Disallowance of depreciation included in prior period expenditure.7. Disallowance of village development and social welfare expenses.8. Non-allowance of interest on line of credit extended to APSEB.9. Non-allowance of donations made to Nethrajothi and Visually Impaired Women Association.10. Initiation of penalty proceedings under Section 271(1)(c).Detailed Analysis:1. Disallowance of Provisions as Not Ascertained Liabilities:The assessee claimed a deduction of Rs. 327.22 crores, including provisions for non-moving stock and liquidated damages. The AO and CIT(A) disallowed these provisions, treating them as unascertained liabilities. The Tribunal referred to the Supreme Court's decision in Bharat Earth Movers vs. CIT, which held that if a business liability has definitely arisen in the accounting year, the deduction should be allowed even if the liability is to be quantified and discharged in the future. The Tribunal set aside this issue to the AO for reconsideration in light of this Supreme Court decision.2. Disallowance of Interest Paid on Income Tax:This ground was dismissed as it was not pressed during the course of arguments.3. Reduction of Deduction Under Section 80-O:The assessee claimed a deduction of Rs. 1.57 crores under Section 80-O, which was reduced to Rs. 1.29 crores by the AO due to lack of details on direct and indirect expenses. The Tribunal noted that the claim was certified by statutory auditors and should not have been estimated by the AO. The issue was set aside to the AO for fresh consideration, directing the assessee to furnish detailed expenses.4. Restriction of Deduction Under Section 80HHC:The AO restricted the deduction under Section 80HHC from Rs. 48.19 crores to Rs. 36.80 crores by adjusting carry forward business losses and excluding certain incomes. The Tribunal referred to its earlier decision in the assessee's case, which excluded sales of scrap, surplus stores, and sales tax from total turnover. The Tribunal directed the AO to recompute the deduction accordingly and to follow the decision of the CIT(A) for AY 2004-05 regarding other operational incomes.5. Restriction of Deduction Under Section 80IA:The AO allowed a deduction of Rs. 8.21 crores under Section 80IA against the claimed Rs. 9.82 crores, after setting off brought forward losses. The Tribunal noted that the AO did not consider profits from eligible projects in previous years and directed the AO to recompute the deduction based on actual figures from audited accounts.6. Disallowance of Depreciation Included in Prior Period Expenditure:This ground was dismissed as it was not pressed during the course of arguments.7. Disallowance of Village Development and Social Welfare Expenses:The AO disallowed Rs. 12.52 lakhs claimed under village development and social welfare expenses, stating they were beyond the assessee's objectives. The Tribunal held that these expenses, incurred under the Government's 20-point program, were allowable as Corporate Social Responsibility (CSR) expenses. The AO was directed to allow these expenses, following the rule of consistency with earlier years.8. Non-Allowance of Interest on Line of Credit Extended to APSEB:The AO disallowed the claim related to interest on a line of credit extended to APSEB. The Tribunal noted that this issue was decided in favor of the assessee in earlier years and set aside the issue to the AO for fresh consideration in light of previous decisions.9. Non-Allowance of Donations Made to Nethrajothi and Visually Impaired Women Association:The AO disallowed donations of Rs. 2,500 and Rs. 5,000 to Nethrajothi and Visually Impaired Women Association. The Tribunal allowed these expenses under Section 37(1), noting that similar claims were allowed in the case of Hindustan Petroleum Corporation Ltd.10. Initiation of Penalty Proceedings Under Section 271(1)(c):This ground was deemed premature and required no specific findings.Conclusion:The appeal was partly allowed for statistical purposes, with several issues being remanded to the AO for fresh consideration.