2020 (10) TMI 1218 - AT - Income Tax

Tribunal dismisses Revenue's appeal, partly allows assessee's appeal, emphasizes thorough examination and compliance with precedents.

DCIT, Circle-1 (1) Versus Orissa Hydro Power Corporation Limited And Vice-Versa

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, remitting various issues back to the AO for fresh adjudication. The ... Addition on account of provision for dam maintenance - allowable expenditure - assessee follows mercantile system of accounting as per which liability for expenses can be recognized and claimed only when the liability crystallizes - HELD THAT:- CIT-A observed that though the expenditure have been incurred by the assessee for dam maintenance, it was kept under provision account for settlement with the government against amounts receivable from the Government - CIT(A) relying on the decision of this Bench of the Tribunal in assessee's own case allowed the provision for dam maintenance. - Decided against revenue. Disallowance of depreciation - assessee did not produce the details of the assets on which depreciation has been claimed @ 25% - HELD THAT:- Assessee company appearing before the Ld. A.O. vide its written submission explained that the miscellaneous assets as aforesaid have been considered as plant and machinery and accordingly the depreciation as provided under the I.T. Rules for the plant and machinery have been claimed by the assessee on such assets - A.O. without appreciation the explanation and observing that in absence of the break up of details of such assets not being furnished has disallowed the claim of depreciation on such assets. In this connection, it is pertinent to state here that during the previous year i.e., relevant to the Asst. Year 2004-05, no disallowances as called for on these assets. Since presently the assessee has explained the particulars of assets and their classification under the head plant and machinery, the assessee company is entitled for depreciation as claimed. Under the circumstances the disallowance on this account are not sustainable on fact and law - Decided in favour of assessee. Addition towards provision for guarantee commission - not an allowable expenditure - CIT(A) held that the claim of guarantee commission is in accordance with the business requirement and as such allowable - HELD THAT:- As per letter No. SG-21/07/3810/F dt. 29.1.2008 relating to the Dy. Accounting General (Commercial) from the Addl. Secretary to the Govt. of Odisha, the guarantee commission could not be reduced since the guarantee amount given by the Government of Odisha has not been reduced. The appellant is required to pay the guarantee commission on the maximum amount of guarantee irrespective of the loan outstanding as long as the guarantee amount itself has not been reduced. In view of the same, the claim of guarantee commission is in accordance with the business requirement and as such allowable. The addition made by the AO in this regard is deleted - Decided against revenue. Provision for Leave Encashment - HELD THAT:- Hon'ble Calcutta High Court in the case of Exide Industries Ltd. Vs. Union of India, [2007 (6) TMI 175 - CALCUTTA HIGH COURT] the Hon'ble Calcutta High Court has struck down the provisions of Section 43B(f) of the Act as being arbitrary and unconscionable. Thereafter the Hon'ble Apex Court in case of Exide Industries Ltd. [2009 (5) TMI 894 - SC ORDER] has stayed the operation of the judgment of Hon'ble Calcutta High Court. Considering the above position, the Tribunal on the similar issue in case of Ernst and Young P. Ltd. [2015 (3) TMI 931 - ITAT KOLKATA] has restored the matter to the file of AO for fresh adjudication - Respectfully following the order of the Tribunal and we restore this issue to the file of AO to examine and allow the claim of the assessee and we allow this ground of appeal of the assessee for statistical purposes. Non-disclosure of dues from DOWR - HELD THAT:- Assessee has already conceded to the addition made by the AO for which the CIT(A) has upheld the action of AO. Accordingly, we do not see any good reason to interfere with the findings recorded by the CIT(A) in this regard. Prior Period Expenses - HELD THAT:- As decided in [2017 (9) TMI 1902 - ITAT CUTTACK] we restore the matter to the file of AO who shall examine the genuineness and crystallisation of the expenses in the financial year and the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information. Non-disclosure of interest on advance to contractor - HELD THAT:- Assessee during the course of hearing submitted that since the advance was given to contractor for capital construction by the assessee, therefore, the same deserves to be allowed. In view of the above, we restore the issue to the file of AO and direct the AO to examine the nature of advance as to whether it was given during the period of construction before commencement of commercial production of the assessee. If it is found that it was given during the construction period for the capital asset construction, the assessee's contention may be accepted. Accordingly, this ground of appeal of assessee is allowed for statistical purposes. Issues Involved:1. Deletion of addition made on account of provision for dam maintenance.2. Allowance of depreciation claimed on miscellaneous assets.3. Deletion of addition made towards provision for guarantee commission.4. Disallowance of provision for leave encashment.5. Addition of dues from the Department of Water Resources (DOWR).6. Disallowance of prior period expenses.7. Non-disclosure of interest on advance to contractors.Issue-Wise Detailed Analysis:1. Provision for Dam Maintenance:The Revenue challenged the deletion of the addition made by the AO on account of provision for dam maintenance amounting to Rs. 7,89,47,465/-. The AO argued that the provision was not an allowable expenditure as it was contingent and unascertained. The CIT(A) deleted the addition, relying on the Tribunal's earlier decision in the assessee's favor for a similar issue in AY 2004-05. The Tribunal upheld the CIT(A)'s decision, noting that the provision was consistently followed and the expenditure had actually been incurred, awaiting settlement with the government.2. Depreciation on Miscellaneous Assets:The AO disallowed the depreciation claim of Rs. 8,52,682/- on miscellaneous assets due to the lack of detailed information. The CIT(A) allowed the claim, considering the explanation that the assets were classified under plant and machinery. The Tribunal upheld the CIT(A)'s decision, noting that the assessee provided sufficient details and there was no disallowance in the previous year for similar assets.3. Provision for Guarantee Commission:The AO disallowed the provision for guarantee commission of Rs. 63,78,096/-, arguing that it was not justified. The CIT(A) deleted the addition, referencing a letter from the Government of Odisha which indicated that the guarantee commission should be paid on the maximum guarantee amount. The Tribunal upheld the CIT(A)'s decision, finding it consistent with the business requirement and supported by the government's letter.4. Provision for Leave Encashment:The assessee contested the disallowance of Rs. 1,18,36,524/- under the provision for leave encashment. The Tribunal noted the pending Supreme Court decision in the Exide Industries case and restored the matter to the AO for fresh adjudication, aligning with the Tribunal's earlier decisions in similar cases.5. Dues from DOWR:The assessee conceded to the addition of Rs. 3,98,00,000/- made by the AO for non-disclosure of dues from DOWR. The CIT(A) upheld the AO's decision, and the Tribunal found no reason to interfere, dismissing this ground of appeal.6. Prior Period Expenses:The assessee argued that prior period expenses of Rs. 4,18,89,745/- were not claimed earlier due to the lack of specific determination. The Tribunal restored the issue to the AO for examination of the genuineness and crystallization of the expenses in the relevant financial year, following the precedent set in similar cases.7. Interest on Advance to Contractors:The AO added Rs. 42,25,000/- for non-disclosure of interest on advances to contractors. The Tribunal restored the issue to the AO to verify whether the advance was given for capital asset construction during the construction period. If so, the assessee's contention should be accepted.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes, remitting several issues back to the AO for fresh adjudication. The Tribunal emphasized the need for proper examination and adherence to judicial precedents in deciding the matters.