2007 (5) TMI 256 - AT - Income Tax

Tribunal Ruling: Assessee Appeals Allowed, Revenue Appeals Dismissed. Property Income Assessability, Deductions Upheld.

The Tribunal allowed the assessee's appeals and dismissed the Revenue's appeals. The disallowance of provision for Early Retirement Scheme was overturned, ... Business loss/deductions, Business Expenditure Issues Involved:1. Disallowance of provision in respect of Early Retirement Scheme.2. Assessability of property income for the 5th floor of Hoechst House.3. Allowance of pension without verifying the calculation.4. Provisions for liability towards long service entitlement and leave salary encashment.5. Adoption of Annual Letting Value (ALV) in computing property income.6. Exclusion of sales-tax from total turnover for the purpose of deduction under Section 80HHC.7. Deletion of addition made under Section 92 of the Act.8. Disallowance of sales promotion expenses under Section 6B.Issue-wise Detailed Analysis:1. Disallowance of provision in respect of Early Retirement Scheme:The first common issue in both the appeals filed by the assessee relates to the disallowance of provision in respect of Early Retirement Scheme. The assessee company formulated a scheme of early retirement for employees, offering benefits. Payments under the approved Voluntary Retirement Scheme were exempt from income-tax, while additional benefits offered were liable to income-tax. The provision for the discounted value of additional benefits was made in the accounts but not paid during the year. The AO viewed this as a contingent liability and disallowed it, following the Karnataka High Court's decision in CIT vs. Motor Industries Co. Ltd. The CIT(A) upheld this disallowance, stating that the liability arose only in the year of actual payment. However, the Tribunal accepted the assessee's contention based on the Supreme Court's decision in Bharat Earth Movers vs. CIT, directing the AO to adopt a revised interest rate for calculating the present value of future liabilities.2. Assessability of property income for the 5th floor of Hoechst House:The next common dispute in the assessee's appeals relates to the assessability of property income for the 5th floor of Hoechst House. The Departmental authorities assessed the income at Rs. 24 lakhs, while the assessee took it at Rs. 1,70,342. The Tribunal followed its decision for the assessment year 1994-95, accepting the Annual Letting Value (ALV) determined by the Municipal Corporation for assessing rental income, directing the AO accordingly.3. Allowance of pension without verifying the calculation:The first common issue in the Department's appeals is that the CIT(A) erred in allowing pension without verifying the calculation. The Tribunal noted that identical issues were decided in favor of the assessee for previous assessment years, dismissing the Department's ground.4. Provisions for liability towards long service entitlement and leave salary encashment:Ground 2 in both the appeals pertains to provisions for liability towards long service entitlement and leave salary encashment. The Tribunal found that this issue was also decided in favor of the assessee for previous assessment years, dismissing this ground in both assessment years.5. Adoption of Annual Letting Value (ALV) in computing property income:Ground No. 3 in both the appeals pertains to the adoption of ALV in computing property income for the 5th floor of Hoechst House. The Tribunal found that this issue was covered by its decision in favor of the assessee for previous assessment years, dismissing this ground in both assessment years.6. Exclusion of sales-tax from total turnover for the purpose of deduction under Section 80HHC:Ground No. 4 in both the appeals pertains to the exclusion of sales-tax from total turnover for the purpose of deduction under Section 80HHC. The Tribunal noted that this issue was settled in favor of the assessee by the jurisdictional High Court's judgment in CIT vs. Sudarshan Chemicals Industries Ltd., rejecting the Revenue's ground.7. Deletion of addition made under Section 92 of the Act:Ground Nos. 5, 6, and 7 pertain to the deletion of addition made under Section 92 of the Act. The assessee imported 'Cefotaxime Sodium' from its parent company, Hoechst AG, Germany, at a higher price compared to other companies importing from South Korea. The AO invoked Section 92, alleging over-invoicing and an arrangement to produce less than ordinary profits. The CIT(A) deleted the addition, noting that the price paid was justified due to the patented nature of the product, quality differences, and the lack of evidence for over-invoicing. The Tribunal upheld the CIT(A)'s decision, finding no basis for invoking Section 92.8. Disallowance of sales promotion expenses under Section 6B:The remaining ground in appeal for the assessment year 1997-98 pertains to sales promotion expenses of Rs. 50 lakhs. The Department contended that it should be disallowed under Section 6B. The Tribunal noted that this issue was decided in favor of the assessee for previous assessment years, dismissing the Revenue's ground.Conclusion:In conclusion, the Tribunal allowed the appeals filed by the assessee and dismissed the appeals filed by the Revenue, providing detailed reasons for each issue involved.