2021 (12) TMI 770 - HC - Income Tax

Tribunal and High Court uphold allowance of various expenses including closing stock, guest house, and HRA arrear

The tribunal allowed the depreciation claimed by the assessee, accepted the relevance of IICM contribution, reversed the disallowance of closing stock of ... Disallowance of depreciation - assessee failed to furnish any details either before AO or before him and failed to produce any reliable and convincing material to reverse the findings of the AO and therefore confirmed the findings of the AO - HELD THAT:- The documents referred to by the assessee were taken note of by the tribunal and after carefully considering the computation of total income for all the three Assessment Years, found that the depreciation claimed in the profit and loss account was depreciation claimed as per the Companies Act 1956 and that depreciation has been added to the profit and loss as per profit and loss account and depreciation as admissible under the provisions of section 32 was claimed by providing the relevant depreciation schedule which was given as annexure to the computation of total income in all the three years. In this regard the tribunal noted the depreciation chart which was filed by the assessee before the tribunal containing the records which were already available on file. On going through the records, the tribunal was satisfied that the assessee has added back the depreciation as per profit and loss account to the loss as per the profit and loss account and thereafter claimed depreciation which is permissible under section 32 - Thus, the tribunal concluded that the action of the AO in disallowing the claim is based on the premise that the assessee has made a double claim which was found to be factually incorrect by the tribunal. Accordingly, the disallowance was directed to be deleted. IICM contribution - CIT-A while considering the said issue held that it was not ascertainable as to how and under what circumstances such big amounts have been debited as IICM contribution in the profit and loss account, and it is not ascertainable as to whether claim of such expenses was incidental to the business activities carried on by the assessee or not as per relevant provisions of section 40 A (9) and therefore the expenditure was not allowable - HELD THAT:- The assessee pointed out that the said observation/findings of the Assessing Officer and CIT-A is factually incorrect and the tax auditor has not reported that the said sum has to be disallowed under section 40 A (9) - Assessing Officer and the CIT-A failed to take note of the vital facts that IICM is not a firm/trust/association/company set up for the general welfare of the employees - amount paid by holding company to IICM and subsequent payment made by the assessee company represent fee for participation in training programmes, organised by IICM - contribution made by the assessee company towards training has direct nexus with the nature of business of the assessee and therefore allowable as expenditure wholly and exclusively for the purpose of business of the assessee. The tribunal examined the factual position as well as the documents which were placed by the assessee and held that the said sum paid to IICM was crystalised as liability of the assessee during the relevant previous year and the sum in question is revenue expenditure incurred for training of the employees/executives and the sum is not hit by the provisions of Section 40 A (9) of the Act. Therefore, the contention advanced by the assessee was accepted and the deduction was directed to be allowed. Addition on account of closing stock of coal - CIT-A confirmed the order of the AO on the ground that the assessee failed to produce any evidence to prove their contention that there is no saleable value or realizable value of the closing stock of coal - HELD THAT:- As tribunal held that the value of the coal as determined by the Assessing Officer does not have any basis and accordingly accepted the contention advanced by the assessee - tribunal pointed out that the technical evaluation based on which the coal mixed with Matti etc. has been valued at NIL by the assessee has not been challenged as incorrect by the revenue authorities - as pointed out that in the event of the coal being mixed with Matti, and any sum realized by the assessee on such sale the same would be offered to tax by the assessee under section 28 of the Act or the same sum brought to tax by the revenue under section 41 (1). As perused the findings recorded by the tribunal on the other issues as well. The tribunal has proceeded to deal with the issues one after another. As noted above while dealing with each of the issue the tribunal has given the gist of the findings of the CIT-A who concurred with the Assessing Officer thereafter took note of the submissions of the assessee and decided the same for its correctness. While dealing so the tribunal considered the factual position in its entirety and granted relief to the assessee wherever admissible and permissible - we are fully satisfied that the case before us is entirely factual and the materials which were available on record were re-examined by the tribunal and relief has been granted to the assessee. The revenue cannot dispute the position of law that the tribunal is the last fact finding authority and this court exercising jurisdiction under section 260 A of the Act is not expected to re-examine the facts and record a different conclusion merely because it may be of the view that different conclusion would be appropriate. Though the expression “substantial questions of law” is not defined in the Act, the tests laid down by the Constitution Bench of the Hon’ble Supreme Court in Sir Chunilal V. Mehta and Sons Ltd. [1962 (3) TMI 77 - SUPREME COURT] for determining whether a question raised in a case is a “substantial questions of law” or not could be applied. On going through the entire facts placed before us, we find that none of the five tests laid down therein stand satisfied in the case on hand. Thus we concluded, that there are no “substantial questions of law” arising in this appeal. Issues Involved:1. Disallowance of depreciation2. IICM contribution3. Closing stock of coal4. Guest House Expenses5. Grant to Sports and Recreation6. Environmental Expenditure7. Miscellaneous Expenses8. Current Liabilities9. HRA Expenses ArrearDetailed Analysis:1. Disallowance of Depreciation:The tribunal reversed the findings of the CIT (Appeals) and allowed the depreciation claimed by the assessee. The tribunal noted that the depreciation claimed in the profit and loss account was as per the Companies Act, 1956, and this amount was added back to the profit and loss account. The depreciation claimed under section 32 of the Income Tax Act, 1961, was based on the relevant depreciation schedule provided by the assessee. The tribunal concluded that the Assessing Officer's disallowance was based on an incorrect premise that the assessee made a double claim.2. IICM Contribution:The CIT (Appeals) disallowed the IICM contribution, questioning its relevance to the business activities of the assessee. The tribunal, however, accepted the assessee's contention that the Indian Institute of Coal Management (IICM) provides training and development programs for executives, which is directly related to the business. The tribunal held that the contribution was revenue expenditure and not hit by Section 40A(9) of the Act.3. Closing Stock of Coal:The tribunal reversed the CIT (Appeals) decision, which had upheld the Assessing Officer's addition on account of the closing stock of coal. The tribunal accepted the assessee's valuation of coal mixed with Matti at NIL, based on technical evaluation. The tribunal noted that the revenue authorities did not challenge the technical evaluation and concluded that the valuation by the Assessing Officer lacked basis.4. Guest House Expenses:The tribunal reversed the CIT (Appeals) decision, which had disallowed the guest house expenses due to lack of details. The tribunal accepted the assessee's explanation and allowed the expenses.5. Grant to Sports and Recreation:The tribunal reversed the CIT (Appeals) decision, which had disallowed the grant to sports and recreation as being non-incidental to the business. The tribunal accepted the assessee's contention that such grants were part of the business expenditure and allowed the claim.6. Environmental Expenditure:The CIT (Appeals) disallowed the environmental expenditure due to lack of details. The tribunal, however, accepted the assessee's explanation and allowed the expenditure, noting that it was related to the business activities.7. Miscellaneous Expenses:The tribunal reversed the CIT (Appeals) decision, which had disallowed miscellaneous expenses due to lack of details. The tribunal accepted the assessee's explanation and allowed the expenses.8. Current Liabilities:The tribunal reversed the CIT (Appeals) decision, which had added back current liabilities. The tribunal accepted the assessee's explanation and allowed the liabilities as claimed.9. HRA Expenses Arrear:The tribunal reversed the CIT (Appeals) decision, which had disallowed HRA expenses arrear. The tribunal accepted the assessee's explanation and allowed the expenses.Conclusion:The tribunal is the last fact-finding authority, and its findings are based on the re-examination of records and materials. The High Court, exercising jurisdiction under section 260A of the Income Tax Act, 1961, found that no substantial questions of law arose for consideration in this appeal. The appeal was dismissed, and the tribunal's findings were upheld.