2022 (5) TMI 104 - AT - Income Tax

Tribunal Rulings: Commission Disallowed, Capital Receipts Allowed, Expenditures Upheld

Larsen & Toubro Limited Taxation Department Versus Deputy Commissioner of Income-tax, Range-2 (2), Mumbai And (Vice-Versa)

Larsen & Toubro Limited Taxation Department Versus Deputy Commissioner of Income-tax, Range-2 (2), Mumbai And (Vice-Versa) - TMI Issues Involved:1. Disallowance of commission paid.2. Treatment of non-compete fees.3. Contribution to Utmal Employees Welfare Fund.4. Expenditure in relation to oil exploration.5. Expenditure on computer software.6. Disallowance under section 14A.7. Treatment of extinguishment of sales-tax deferred loan liability.8. Deduction under section 80HHC.9. Re-computation of deduction under section 80IA for Captive Power Plant.10. Deduction under section 80IA for Captive Power Generating (DG) Units.11. Disallowance under section 14A for computing book profit under section 115JB.12. Additional grounds related to deduction under section 80HHC and 80HHE for book profit under section 115JA.13. Reduction in depreciation due to refusal to treat transfer of Bangalore undertaking as slump sale.14. Club membership expenditure.15. Inclusion of excise duty in valuing goods manufactured.16. Expenditure on setting up new cement plants.17. Amount provided in valuing work-in-progress.Detailed Analysis:1. Disallowance of Commission Paid:The first ground pertained to the disallowance of Rs. 4,86,03,144/- being commission paid. The Tribunal found that this issue had been consistently decided against the assessee in previous years. Therefore, the Tribunal upheld the order of CIT(A) and dismissed the ground raised by the assessee.2. Treatment of Non-Compete Fees:The second ground related to the disallowance of Rs. 3,00,00,000/- towards non-compete fees. The Tribunal observed that the non-compete fees were a capital receipt and not liable to tax, citing the Supreme Court decision in Guffick Chem Pvt Ltd. The Tribunal allowed the claim of the assessee, treating the non-compete fees as a capital receipt.3. Contribution to Utmal Employees Welfare Fund:The third ground involved the disallowance of Rs. 1,00,000/- towards the Utmal Employees Welfare Fund. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal allowed the ground raised by the assessee.4. Expenditure in Relation to Oil Exploration:The fourth ground pertained to the disallowance of expenditure under section 42 of the Act. The Tribunal found that this issue had been consistently decided against the assessee in previous years. Therefore, the Tribunal upheld the order of CIT(A) and dismissed the ground raised by the assessee.5. Expenditure on Computer Software:The fifth ground involved the disallowance of expenditure on computer software. The Tribunal found that this issue had been decided in favor of the assessee in previous years, treating the software expenditure as revenue expenditure. Therefore, the Tribunal allowed the ground raised by the assessee.6. Disallowance under Section 14A:The sixth ground related to the disallowance of Rs. 11,13,00,000/- solely on account of interest under section 14A. The Tribunal found that this issue had been decided in favor of the assessee in previous years, following the presumption that investments in tax-free securities were made out of the assessee's own funds. Therefore, the Tribunal allowed the ground raised by the assessee.7. Treatment of Extinguishment of Sales-Tax Deferred Loan Liability:The seventh ground pertained to the treatment of extinguishment of sales-tax deferred loan liability as revenue receipt. The Tribunal found that this issue had been decided in favor of the assessee in previous years, treating the differential amount as a capital receipt not chargeable to tax. Therefore, the Tribunal allowed the ground raised by the assessee.8. Deduction under Section 80HHC:The eighth ground involved the deduction under section 80HHC. The Tribunal restored the issue to the file of the assessing officer for fresh examination, consistent with the earlier decision of the Tribunal for assessment year 2000-01.9. Re-Calculation of Deduction under Section 80IA for Captive Power Plant:The ninth ground related to the re-computation of deduction under section 80IA by applying a lower market value to power generated by the Captive Power Plant. The Tribunal found that this issue had been decided in favor of the assessee in previous years, following the jurisdictional High Court's judgment in the case of Reliance Industries Ltd. Therefore, the Tribunal allowed the ground raised by the assessee.10. Deduction under Section 80IA for Captive Power Generating (DG) Units:The tenth ground pertained to the deduction under section 80IA for Captive Power Generating (DG) Units. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal allowed the ground raised by the assessee.11. Disallowance under Section 14A for Computing Book Profit under Section 115JB:The eleventh ground involved the disallowance under section 14A for the purpose of computing book profit under section 115JB. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal partly allowed the ground raised by the assessee.12. Additional Grounds Related to Deduction under Section 80HHC and 80HHE for Book Profit under Section 115JA:The first additional ground pertained to the deduction under section 80HHC under section 115JA. The Tribunal restored this issue to the file of the Assessing Officer for fresh examination, consistent with the earlier decision of the Tribunal for assessment year 2000-01. The second additional ground related to the deduction under section 80HHE under section 115JA. The Tribunal allowed this ground, following the Supreme Court's judgment in the case of Ajanta Pharma vs CIT.13. Reduction in Depreciation Due to Refusal to Treat Transfer of Bangalore Undertaking as Slump Sale:The second additional ground raised by the assessee pertained to the reduction in depreciation arising on account of the AO’s action to disregard the transfer of the Bangalore undertaking as a slump sale. The Tribunal directed the AO to accept the depreciation as calculated by the assessee, consistent with the earlier decision of the Tribunal.14. Club Membership Expenditure:The first ground in the Revenue's appeal pertained to the disallowance of club membership expenditure. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal dismissed the ground raised by the Revenue.15. Inclusion of Excise Duty in Valuing Goods Manufactured:The second ground in the Revenue's appeal related to the inclusion of excise duty in valuing goods manufactured. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal dismissed the ground raised by the Revenue.16. Expenditure on Setting Up New Cement Plants:The third ground in the Revenue's appeal pertained to the expenditure on setting up new cement plants. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal dismissed the ground raised by the Revenue.17. Amount Provided in Valuing Work-in-Progress:The fourth ground in the Revenue's appeal related to the amount provided in valuing work-in-progress. The Tribunal found that this issue had been decided in favor of the assessee in previous years. Therefore, the Tribunal dismissed the ground raised by the Revenue.Conclusion:The Tribunal allowed several grounds raised by the assessee, including the treatment of non-compete fees, contribution to Utmal Employees Welfare Fund, expenditure on computer software, disallowance under section 14A, treatment of extinguishment of sales-tax deferred loan liability, deduction under section 80IA for Captive Power Plant and DG Units, and additional grounds related to deduction under section 80HHC and 80HHE for book profit under section 115JA. The Tribunal dismissed several grounds raised by the Revenue, including club membership expenditure, inclusion of excise duty in valuing goods manufactured, expenditure on setting up new cement plants, and amount provided in valuing work-in-progress. The Tribunal restored certain issues to the file of the assessing officer for fresh examination.