2017 (4) TMI 1642 - AT - Income Tax

PSU wins on staff welfare expenses under section 40A(9), publicity costs allowed as CSR

The Asstt. Commissioner of Income-tax, Circle-2, Udaipur. Versus M/s Hindustan Zinc Ltd.

The ITAT Jodhpur decided multiple issues in favor of the assessee, a PSU. Staff welfare expenses under section 40A(9) were allowed as genuine business ... Addition of staff welfare expense u/s 40A(9) - HELD THAT:- The issue is covered by the decision of the Co-ordinate Bench in assessee’s own case Assessee is a PSU governed by statutory as well as internal regulations for incurring the expenditure, its approval as per a hierarchical administrate frame work. On facts neither of the auditors i.e. statutory and tax auditors have indicated anything adverse in respect of staff welfare expenditure. It is also a fact that the staff welfare expenditure is incurred through various bodies in consultation with such staff unions. These facts coupled with findings of CIT (A) that expenditure is genuine. Wholly for business purposed and allowed in various earlier years even after verification have neither been dislodged by revenue nor controverted in any manner except raising a specious plea that issue may be set aside again. No lawful justification exists to support it. In pat so many years even after re-verification AO himself has allowed such expenditure. Such orders may have been passed after the impugned assessment order was passed respectfully following case of Radha Soami Satsang [1991 (11) TMI 2 - SUPREME COURT] we cannot gloss over the obvious legal position that revenue by its AO has allowed the staff welfare expenditure in successive assessment years after direction of Hon'ble High Court and ITAT - Decided in favour of assessee. Allowability of publicity and PR expense - HELD THAT:- As decided in own case amount deserves to be allowed as it is not disputed that it was incurred for sending Gujarat Earthquake relief in the form of a truckload of food items consequent to chittorgarh district Collectors Clarion Call. The amount being for social good and for discharge of corporate social responsibility is allowable as business expenditure u/s 37(1).Decided in favour of assessee. Allowability of depreciation on APGPCL shares - HELD THAT:- As decided in own case it is the intangible asset in form of right to procure power at cost which qualified for depreciation u/s 32 of the Act. Given that there is no separate consideration for value of shares an value of such intangible rights, the asessee and AO have to come up with an appropriate methodology. On the limited issue of determining the valuation the intangible rights which otherwise qualify for depreciation u/s 32(1)(ii) of the Act, the matter is set aside to the file of AO to examine the same after providing reasonable opportunity to the assessee. Depreciation on assets retired from active use - HELD THAT:- As decided in own case as long as the machinery was available for use, though not actually used, it feel within the expression 'used for the purpose of the business' and the assessee could claim the benefit of depreciation. An actual user was not required as had been contended by the Revenue. Use and discarding were not in the same field and could not stand together. However, a harmonious reading of the expressions 'used for the purpose of the business' and 'discarded' it would show that 'used for the purposes of the business' only means that the assessee had used the machinery for the purpose of the business in earlier years. The discarded machinery would not be actually used in the relevant previous year as long as it was used for the purposes of business in the earlier years. The Tribunal was correct in directing the assessing officer to recomputed depreciation after reducing the scrap value of the assets which had been discarded and written off in the books of account for the year under consideration from the written down value of the block of assets. Actual user of the machinery was not required with respect to discarded machinery ad the condition for eligibility for depreciation that the machinery being used for the purpose of the business would mean that the discarded machinery was used for the purpose of the business in the earlier years for which depreciation had been allowed. Decided in favour of assessee. Nature of expenses - Ghosunda Damn expenses - HELD THAT:- As decided in own case benefit received by the assessee company on account of the expenditure incurred cannot be said to be an advantage in the capital field. We are in agreement with the view taken by the CIT(A) and affirmed by the ld. ITAT that the object and effect of the expenditure made by the assessee is to facilitate its trade operation and enable the management to conduct business more efficiently or more profitably. Undervaluation of closing stocks of ore - HELD THAT:- In view of the judgment of British paints [1990 (12) TMI 2 - SUPREME COURT] we find force into the contention of the revenue that the value of stock is to be adopted either on cost ore net realizable value. The assessee has to demonstrate the value so adopted by furnishing the evidences in support thereof. In the present case, the assessee has failed to discharge this requirement of law, therefore, in order to compute the correct value this issue is restored to the file of the AO for decision afresh. AO is hereby directed to make on the spot enquiry for verification of the correct value of the stocks of ore. We are unable to accept the contention of the assessee that the stock of ore is merely soil and has no realizable value. In our considered view, there has to be same basis for adopting a certain value of such stocks. Revenue's appeal is allowed for statistical purposes. Deduction u/s 80IA - AO as reduced claim u/s 80IA with regard to CPP, Jawar and CPP Debri on the ground that Head Office Expenses have not been allocated - HELD THAT:- As identical issue was in the year 2004-05 we find that the certain expenses which are common to both to the Head Office and Captive Power Plant has not been allocated. Therefore, the issue is restored to the file of the Assessing Officer for re-computation of reduction. AO would re-work allocation of the expenses related to the director's fees, auditor's fees and donation for charity. To this extent, the order of the Ld. CIT(A) is modified. This ground of the Revenue's appeal is partly allowed for statistical purpose. Disallowance of technical feasibility and other consultancy expenses - HELD THAT:- Identical issue was before the Co-ordinate Bench own case wherein These expense had been incurred by the assessee for getting feasibility study for increase the height of Gossunda Dam and conducting geological work of excavation. The expenses related to conduct geological work paid to M/s Mineral Exploration to facilitate that the business should go on more profitable or to make earning of the profit. It does not make any change in proper earning apparatus of the company or had not brought any capital assets in existence. The ITAT had allowed these expenses in A.Y. 1991-92 and 1998-99 as revenue expenditure. The issue being identical to A.Y. 1991-92 and 1998-99, we also find that these expenses are having nature of revenue expenses as no capital assets had been brought in existence and incurred thee expenditure for smooth running of the business. Issues Involved:1. Deleting the disallowance of Rs. 3,20,82,216/- U/s 40A(9).2. Deleting the disallowance made on account of Publicity & PR expenses amounting to Rs. 10,86,920/-.3. Deleting the disallowance made on account of depreciation claimed in respect of intangible assets in the form of right in relation to power from APGPL amounting to Rs. 10,54,60,000/-.4. Deleting the addition on account of undervaluation of closing stock of ore amounting to Rs. 2,21,21,933/-.5. Deleting the disallowance of depreciation in respect of assets retired from active use amounting to Rs. 1,00,63,480/-.6. Deleting the addition of Rs. 34,60,170/- on account enabling assets written off.7. Deleting the reduction of Rs. 4,36,36,093/- made by the AO for the claim u/s 80IA of the IT Act, on captive power plant.8. Deleting the disallowance on account technical/other consultancy expenses amounting to Rs. 16,88,300/-.Issue-wise Detailed Analysis:1. Deleting the disallowance of Rs. 3,20,82,216/- U/s 40A(9):The Tribunal found that the issue was covered by the decision of the Co-ordinate Bench in the assessee's own case for the assessment year 2003-04. The Bench had dismissed the Revenue's similar grounds in earlier years, holding that the staff welfare expenditure was genuine, wholly for business purposes, and had been allowed in various earlier years even after verification. The Tribunal upheld the order of the CIT(A) and dismissed the Revenue's ground.2. Deleting the disallowance made on account of Publicity & PR expenses amounting to Rs. 10,86,920/-:The Tribunal noted that the issue was covered by the decision of the Co-ordinate Bench in the assessee's own case for the assessment year 2003-04. The expenses were incurred for social good and corporate social responsibility, which were allowable as business expenditure u/s 37(1). The Tribunal upheld the order of the CIT(A) and dismissed the Revenue's ground.3. Deleting the disallowance made on account of depreciation claimed in respect of intangible assets in the form of right in relation to power from APGPL amounting to Rs. 10,54,60,000/-:The Tribunal found that the issue was covered by the decision of the Co-ordinate Bench in the assessee's own case for the assessment year 2003-04. The Bench had partly allowed the Revenue's ground, directing that 2/3rd value of the investment in APGPCL shares should be attributed for acquisition of intangible rights and depreciation should be allowed on 2/3rd value. The Tribunal upheld the order of the CIT(A) and partly allowed the Revenue's ground.4. Deleting the addition on account of undervaluation of closing stock of ore amounting to Rs. 2,21,21,933/-:The Tribunal found that the assessee had been adopting the same value for ore stock in earlier years, which had been accepted by the Tribunal. However, the Tribunal noted that the value of stock should be adopted either on cost or net realizable value as per the Supreme Court's judgment in CIT Vs. British Paints India Ltd. The Tribunal restored the issue to the file of the Assessing Officer for fresh decision and allowed the Revenue's ground for statistical purposes.5. Deleting the disallowance of depreciation in respect of assets retired from active use amounting to Rs. 1,00,63,480/-:The Tribunal found that the issue was covered by the decision of the Co-ordinate Bench in the assessee's own case for the assessment year 2003-04. The Bench had dismissed the Revenue's similar grounds, holding that depreciation was allowable on discarded machinery as long as it was used for the purpose of business in earlier years. The Tribunal upheld the order of the CIT(A) and dismissed the Revenue's ground.6. Deleting the addition of Rs. 34,60,170/- on account enabling assets written off:The Tribunal found that the issue was covered by the decision of the Co-ordinate Bench in the assessee's own case for the assessment year 2003-04. The Bench had dismissed the Revenue's similar grounds, holding that the expenditure incurred on Ghosunda Dam for procuring water was allowable u/s 37(1). The Tribunal upheld the order of the CIT(A) and dismissed the Revenue's ground.7. Deleting the reduction of Rs. 4,36,36,093/- made by the AO for the claim u/s 80IA of the IT Act, on captive power plant:The Tribunal found that the issue was covered by the decision of the Co-ordinate Bench in the assessee's own case for the assessment year 2004-05. The Bench had dismissed the Revenue's similar grounds, holding that there was no direct nexus between the Head Office expenses and the Captive Power Plant. However, the Tribunal restored the issue to the file of the Assessing Officer for re-computation of reduction related to director's fees, auditor's fees, and donation for charity. The Tribunal partly allowed the Revenue's ground for statistical purposes.8. Deleting the disallowance on account technical/other consultancy expenses amounting to Rs. 16,88,300/-:The Tribunal found that the issue was covered by the decision of the Co-ordinate Bench in the assessee's own case for the assessment year 2001-02 and 2002-03. The Bench had allowed the assessee's claim for feasibility expenses as revenue expenditure. The Tribunal upheld the order of the CIT(A) and dismissed the Revenue's ground.Conclusion:The Tribunal dismissed the Revenue's grounds on issues 1, 2, 3, 5, 6, and 8, finding them covered by earlier decisions in the assessee's favor. On issue 4, the Tribunal restored the matter to the Assessing Officer for fresh decision. On issue 7, the Tribunal partly allowed the Revenue's ground for statistical purposes, directing re-computation of certain expenses. The appeal was partly allowed for statistical purposes.