JCIT (OSD), NEW DELHI vs. M/S. DCM SHRIRAM CONSOLIDATED LTD., NEW DELHI

(hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 27.01.2006 passed by Ld. CIT (Appeals)-V, New Delhi on the grounds inter alia that :-

Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee is a public sector undertaking engaged in the manufacturing of power generation equipment and other heavy industrial elements. Assessing Officer rejected the claim of the assessee fro deduction of entire amount of provision of Rs.327,22,64,000/- by following Assessment Year 2000-01 on the ground that there is no evidence to show that these provisions are in the nature of ascertained liabilities. AO also made disallowance of claim of provision of liquidated damages made by the assessee amounting to Rs.42.12 crores as per Schedule 18 on the same ground that the provision is not an ascertained liability. AO allowed the deduction claimed by the assessee u/s 80-O of the Income-tax Act, 1961 (for short ‘the Act’) to the tune of 30% of the net receipt on the ground that the assessee has not maintained separate books of account to ascertain the components of direct / indirect expenses to earn receipts covered u/s 80-O of the Act nor any such details have been furnished.

AO also disallowed the deduction claimed by the assessee on account of expenses incurred to earn the income from the amount eligible for deduction u/s 80-O of the Act and estimated the amount to the tune of Rs.94,46,058/-. Assessee’s claim for deduction u/s 80HHC of Rs.48,19,71,436/- has been restricted by the AO to the tune of Rs.36,80,68,813/- by computing the profits of the business after adjusting carry forward business losses. AO also reduced the profit of the company by 90% of lease rental, other operational income, other receipts and interest income which formed part of the business in India and is eligible for benefit u/s 80HHC of the Act. AO also computed carry forward business losses from the profit of the business to compute the deduction u/s 80HHC.

AO also made disallowance of Rs.12,52,000/- claimed by the assessee on account of village development and social welfare expenses under 20 point programme vide Schedule 16 of the profit & loss account as the assessee has failed to prove the business purpose of such expenditure. AO has disallowed deduction claimed by the assessee on account of addition made in AYs 1997- 98 to 1999-00 in respect of interest on line of credit extended to APSEB which was not received. AO has also not allowed the amount paid by the assessee to Netrajothi and Visually Impaired Women Association to the tune of Rs.2,500/- & Rs.5,000/- respectively.

Assessee carried the matter by way of an appeal before the ld. CIT (A) who has partly allowed the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.

We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.

Undisputedly, the assessee company has claimed deduction of Rs.3,27,22,64,000/- which includes for provision for non- moving stock amounting to Rs.4,38,91,000/- and provision for liquidated damages to the tune of Rs.42,11,93,000/- being the provisions debited to P&L account as per Schedule 11 and claimed the same to be deducted while computing the taxable income of the assessee by claiming the same as ascertained liability. However, AO as well as CIT (A) have disallowed the same on the ground that these provisions are not in the nature of ascertained liability by following AY 2000-01.

Undisputedly, assessee company is maintaining its account in mercantile system. It is also not in dispute that the assessee company is a Government of India undertaking and its accounts are audited by statutory auditor and Controller & Auditor General (C&AG). It is also not in dispute that assessee has claimed that the liability which has accrued though to be discharged at a future date has to be deducted while working out the profit and gains of the business being ascertained liability. Hon’ble Supreme Court in the case of Bharat Earth Movers 9. vs. CIT – (2000) 245 ITR 428 relied upon by the assessee company dealt with the issue in controversy by holding that when a business liability has definitely arising in the accounting year, the deduction should be allowed although the liability made have to be quantified and have to be discharged in a future date. Operative part of the ratio of the judgment is extracted for ready perusal as under :-

When the business liability of the assessee company for making provisions of Rs.327,22,64,000/- is not disputed and account of the assessee company are audited by statutory auditor and C&AG, the deduction cannot be disallowed merely on the ground that the liability has to be quantified and discharged at a future date. So, in view of the matter, this issue is required to be set aside to the AO to decide afresh in the light of the decision rendered by the Hon’ble Supreme Court in Bharat Earth Movers (supra). So, grounds no.1(a) & 1 (b) are determined in favour of the assessee company for statistical purposes.

Assessee has claimed deduction of Rs.1,57,50,000/- computed @ 30% of the gross receipt of Rs.5.25 crores eligible for deduction u/s 80-O of the Act, which has been reduced to Rs.1,29,16,182/- on the ground that the assessee has not furnished detail of direct and indirect expenses to earn such receipts However, it is the case of the assessee that its claim has been duly certified by statutory auditors attached with the return of income for perusal of the AO. Assessee also claimed that even during assessment proceedings, the details of the claim have been given to the AO and even then the AO has allowed deduction for estimated expenses on pro-rata basis.

We are of the considered view that when the claim of the assessee u/s 80-O is duly certified by statutory auditor and has been perused by the AO, the AO has erred in estimating the expenditure so as to compute the deduction u/s 80-O of the Act. In these circumstances, this issue is also set aside to the AO to decide afresh after providing an opportunity of being heard to the assessee by identifying the expenditure on actual basis for deduction against the gross receipts for the purpose of section 80-O of the Act.

So far as question of including the sale of scrap, surplus stores and sales-tax from total turnover is concerned, this issue has already been settled in favour of the assessee by the coordinate Bench of the Tribunal in & Ors. in AY 1991-92 onwards in assessee’s own case, wherein the coordinate Bench of the Tribunal directed the AO to recompute the deduction excluding the sale of scrap, surplus stores and sales-tax from total turnover. So, in view of the matter, sale of scrap, surplus stores and sales-tax are ordered to be excluded from the total turnover and AO to recompute the deduction accordingly.

So far as question of deduction of profit of 90% on account of lease rental, other operational income, other receipts and interest income by AO/CIT(A) is concerned, it is undisputed fact that partial relief in this regard has been given to the assessee on same items by ld. CIT (A) in AY 2004-05, copy of order is available at pages 229 to 238 of the paper book. So, we are of the considered view that when there is no change in the facts and circumstances of the case, the AO is directed to decide this issue afresh by following the decision rendered by the ld. CIT (A) in AY 2004-05 by following the rule of consistency by providing an opportunity of being heard to the assessee. Consequently, grounds no.4(a), 4(b), 4(c) & 4(d) are determined in favour of the assessee for statistical purposes.

Undisputedly, profits of the assessee company from the eligible projects from the previous years have not been considered.

Ground No.6 is dismissed having not been pressed during the course of arguments.

AO has disallowed the claim of the assessee on account of village development and other social welfare expenses on the ground that these expenses are beyond its objectives.

It is the claim of the assessee that it has extended a line of credit to APSEB in respect of supply made to Vijayawada TPS on which simple interest was paid and was treated as income although the Memorandum of Understanding (MoU) provided for charging of compound interest. Assessee claimed to have explained all these facts in Schedule 19 of the annual accounts attached with the income-tax return but AO/CIT(A) have not allowed the deduction on account of addition made in AYs 1997-97 & 1999-00 qua the interest on line of credit extended to APSEB which was not received. Ld. AR for the assessee contended that this issue has been decided in favour of the assessee in AYs 1997-98 & 1998-99 in & 1834/Del/2006 order dated 11.03.2011, copy available at pages 185 to 193 of the paper book, and AY 1999-00 in ITA No.1835/Del2006 order dated 26.10.2017, copy available at pages 194 to 207 of the paper book.

However, ld. CIT (A) has also not dealt with the issue and disposed of the ground by stating that this ground is academic in nature. So, in these circumstances, we are of the considered view that this issue is required to be set aside to AO to decide afresh in the light of the decision taken by the Revenue in earlier years. So, ground no.8 is determined in favour of the assessee for statistical purposes GROUND NO.9 23. AO/CIT (A) have disallowed the claim of the assessee u/s 80G of the Act. Now, it is contended by the ld. AR for the assessee that this claim is allowable in entirety u/s 37(1) of the Act in view of the decision rendered by the coordinate Bench of the Tribunal in case cited as HPCL vs. DCIT (supra). When incurrence of expenditure made by the assessee by way of donation to carry out the welfare activities for Nethrajothi and Visually Impaired Women Association is not in dispute, the same are allowable expenses u/s 37(1) of the Act. Identical issue has also been decided by the coordinate Bench of the Tribunal in HPCL vs. DCIT (supra) in favour of the assessee. So, we order to allow the amount of Rs.2,500/- and Rs.5,000/- incurred by the assessee company on Nethrajothi and Visually Impaired Women Association respectively. So, this ground is determined in favour of the assessee.