ALSTOM INDIA LTD,MUMBAI vs. ADDL CIT RG 1(1), MUMBAI

In ground no.1, the Revenue has challenged deletion of addition of ` 23,03,48,610, made by the Assessing Officer on account of

Brief facts are, in case of assessee, the assessment was originally completed under section 143(3) of the Income–tax Act, 1961 (for short "the Act") vide order dated 22nd March 2005, assessing the total income at ` nil and book profit at ` 75,52,70,710. Subsequently, the Assessing Officer re–opened the assessment under section 147 of the Act. In the course of re–assessment proceedings, the Assessing Officer noticing that the assessee has debited an amount of ` 23,03,48,610, to the Profit & Loss account towards VRS expenses called for necessary details and also asked the assessee to explain as to why it should not be disallowed. In response, it was submitted by the assessee that the assessee has claimed the deduction in terms of section 35DDA of the Act. The Assessing Officer, however, did not find merit in the submissions of the assessee. He observed, though the assessee had claimed deduction under section 35DDA of the Act towards VRS expenses of ` 11,03,45,554, being 1/5th of ` 55,17,27,077, However, it has debited an amount of ` 23,03,48,610, to the Profit & Loss Account. Alleging that the assessee was unable to prove with supporting evidence that the VRS expenses amounting to ` 23,03,48,610, has been added to arrive at the profit of the amalgamating company, the Assessing Officer added back the said

After considering the submissions of the assessee in the context of facts and material on record, learned Commissioner (Appeals) having found that the amount of ` 23,03,48,610, has been added back by the assessee to arrive at the profit disclosed in the return of income, deleted the addition made by the Assessing Officer.

Shri Anadi Verma, the learned Departmental Representative relied upon the observations of the Assessing Officer.

Shri Mrunal Parekh, the learned Authorised Representative for the assessee relied upon the observations of learned Commissioner (Appeals).

We have considered rival submissions and perused the material on record. It is evident, in course of assessment proceedings itself the assessee had submitted that the amount of ` 23,03,48,610, debited to the Profit & Loss Account has been added back to arrive at the profit declared in the return of income. However, the Assessing Officer rejected the aforesaid claim of the assessee alleging lack of complete detail. As could be seen, upon going through the facts and material available on record learned Commissioner (Appeals) has found that VRS expenses of ` 23,03,48,610, in fact, has been added back by the

In ground no.2, the Revenue has challenged the decision of learned Commissioner (Appeals) in directing the Assessing Officer not to add the provision of doubtful debts and advances while computing the book profit under section 115JB of the Act.

Brief facts are, in course of assessment proceedings the Assessing Officer noticed that the assessee has created a provision for doubtful debt and advances amounting to ` 8.97 crore in its books of account. Being of the view that such provision is in the nature of unascertained liability, he observed that as per clause (c) to Explaination–1 to section 115JB(2) of the Act, it has to be added back for computing book profit. Accordingly, he added back the said amount to the book profit computed under section 115JB of the Act. The assessee challenged the aforesaid decision of the Assessing Officer before the first appellate authority.

The learned Departmental Representative submitted, as per clause (g) to Explanation to section 115JA r/w clause (i) of Explanation–1 to section 115JB(2) of the Act, the amounts set aside as provision for diminution in the value of an asset have to be adjusted while computing book profit. He submitted, the aforesaid provision though brought to the statute by finance Act, 2009, however, they will apply retrospectively from 1st April 2001. Thus, he submitted, the Assessing Officer was correct in adding back the amount while computing the book profit under section 115JB of the Act.

The learned Authorised Representative submitted, the provision for doubtful debt and advances is not a liability of the assessee, hence, cannot be added back to the book profit as per clause (c) to

We have considered rival submissions and perused the material on record. It is evident, the Assessing Officer taking recourse to clause (c) of Explanation–1 to section 115JB(2) of the Act has added back the provision for doubtful debts and advances to the book profit of the assessee. Reading of the aforesaid provision makes it clear that only the amount set aside towards provision for meeting unascertained liability can be added back to the book profit under the aforesaid provisions. Undisputedly, the provision for bad and doubtful debts and advances are not in the nature of unascertained liability. Rather, it represents the assets of the assessee. Therefore, under no

In ground no.3, the Revenue has challenged the decision of learned Commissioner (Appeals) in directing the Assessing Officer to allow assessee’s claim of deduction under section 80HHC of the Act from the book profit computed under section 115JB of the Act.

Brief facts are, in the course of assessment proceedings the Assessing Officer noticed that while computing book profit under section 115JB of the Act, the assessee has claimed deduction of ` 24,16,179, under section 80HHC of the Act. From the facts on record, he found that the assessee had no profit as per the computation of income under normal provisions of the Act and its income was computed at nil after giving effect to the brought forward loss. Thus, he observed that since there is no income of the assessee for allowing deduction under section 80HHC of the Act under the normal provisions, it cannot be allowed while computing book profit under section 115JB of the Act.

While deciding assessee’s appeal on the issue, learned Commissioner (Appeals) following the decision of the Special Bench of the Tribunal, Mumbai, in DCIT v/s Syncom Formulations India &Ors., [2007] 106 TTJ 193 (Mum.) allowed the claim.

The learned Departmental Representative submitted, the Special Bench decision of the Tribunal in Syncom Formulations India &Ors. (supra) is no more a good law in view of the decision of the Hon'ble Jurisdictional High Court in CIT v/s Ajanta Pharma Ltd., [2009] 318 ITR 252 (Bom.). Further, he relied upon the decision of the Tribunal, Vishakhapatnam Bench, in Rashtriya Ispat Nigam Ltd. v/s ACIT,

The learned Authorised Representative strongly relying upon the observations of learned Commissioner (Appeals) submitted, the issue has now being set at rest by the decision of the Hon'ble Supreme Court in CIT v/s Bhari Information Technology Systems Pvt. Ltd., [2012] 340 ITR 593 (SC). Further, he relied upon the following decisions:–

We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. As could be seen, learned Commissioner (Appeals) relying upon the Special Bench decision of the Tribunal, in Syncom Formulations India &Ors. (supra) has held that while computing book profit under section 115JB of the Act, deduction under section 80HHC of the Act has to be allowed. It is the contention of the learned Departmental Representative that the aforesaid Special Bench decision is no more a good law in view of the decision of the Hon'ble Jurisdictional High

In ground no.4, the Revenue has challenged the decision of the learned Commissioner (Appeals) in directing the Assessing Officer to allow set–off of brought forward loss and unabsorbed depreciation for the assessment year 2001–02.

In course of proceedings before the learned Commissioner (Appeals), the assessee raised additional ground claiming set–off of accumulated loss and unabsorbed depreciation for the assessment year 2001–02. The ground raised by the assessee was forwarded to the Assessing Officer for his remark. In his reply, the Assessing Officer

The learned Departmental Representative relied upon the observations of the Assessing Officer.

The learned Authorised Representative strongly relied upon the observations of learned Commissioner (Appeals). Further, he relied upon the following decisions as well.

Further, learned Authorised Representative submitted that while deciding identical issue in assessee’s own case for assessment year 2006–07, in ITA no.8670/Mum./2010, dated 23rd July 2013, the

We have considered rival submissions and perused material on record. As could be seen from the facts on record, the Assessing Officer has disallowed assessee’s claim of set–off of accumulated loss and unabsorbed depreciation of the amalgamating company primarily on the ground of lack of complete details. Further, learned Commissioner (Appeals) after examining the issue in the context of facts and material on record found that there was amalgamation of three associate companies with the assessee from the appointed date of 31.03.2001 by virtue of a scheme of merger approved by the Hon'ble Jurisdictional High Court and Hon'ble Delhi High Court. Learned Commissioner (Appeals) has also observed that the dispute between the assessee and the Department is only with regard to the appointed date and whether the scheme becomes operative from 31st March 2001. It is further noticed that while allowing assessee’s claim, learned Commissioner (Appeals) has relied upon the ratio laid down by the Hon'ble Supreme Court in case of Marshall Sons & Co. (supra). As per the aforesaid decision, the date of merger is from the appointed date and not the date on which the High Court granted its approval. In our view, as per the ratio laid down by the Hon'ble Supreme Court in

Grounds no.5 and 6 being general in nature do not require adjudication.

In the result, Revenue’s appeal is dismissed.

In this cross objection, the assessee has challenged the validity of assessment under section 147 of the Act.

Since, while dealing with Revenue’s appeal in ITA no.6201/ Mum./2008 in earlier part of the order, we have decided the issues raised by the Revenue on merit in favour of the assessee., he legal issue raised in the cross objection is of mere academic importance, hence, there is no need to adjudicate the same. Therefore, the cross objection having become infructuous is dismissed.

In the result, assessee’s cross objection is dismissed.

In ground no.1, assessee has challenged disallowance of club entrance / subscription fee of ` 25 lakh.

Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has debited an amount of ` 25 lakh towards club subscription fee. Being of the view that such expenditure is of capital, the Assessing Officer disallowed the same.

The learned Commissioner (Appeals) also upheld such disallowance agreeing with the decision of the Assessing Officer. While doing so, he relied upon certain judicial pronouncements.

The learned Authorised Representative submitted, expenditure incurred towards club subscription fee is allowable as revenue expenditure in view of various judicial precedents. In support, he relied upon the following decisions:–

The learned Departmental Representative submitted, there is a difference between entrance fee and subscription fee. He submitted, any payment made towards entrance is of capital nature, hence, not allowable as expenditure.

In rejoinder, the learned Authorised Representative drawing our attention to the material placed in the paper book submitted, these are membership renewal fee, hence, cannot be considered as capital expenditure.

We have considered rival submissions and perused material on record. The dispute is with regard to allowability of club expenditure incurred by the assessee towards its employees. While the assessee has claimed it as revenue expenditure, the case of the Revenue is, since the expenditure incurred is towards subscription for acquiring the

In ground no.2, the assessee has challenged the disallowance of unpaid service tax of ` 4,89,54,645, under section 43B of the Act.

Brief facts are, in the course of assessment proceedings, the Assessing Officer while examining the tax audit report found that as on 31st March 2008, an amount of ` 4,89,54,645, was shown as unpaid service tax in the books of account. He also observe that in the assessment year 2007–08, corresponding figure of ` 3,34,75,448, was disallowed under section 43B of the Act. Therefore, he called upon the assessee to explain why similar disallowance should not be made in

The learned Commissioner (Appeals) also upheld the disallowance on the reasoning that the amount in dispute being in the nature of tax and having not been actually paid during the previous year, has to be disallowed under section 43B of the Act.

The learned Authorised Representative submitted, the liability to pay service tax arises only after the collection of service charges by the service provider. He submitted, since the service charges corresponding to unpaid service tax were not collected by the assessee, the same cannot be disallowed under section 45B of the Act. Further, the learned Authorised Representative submitted, since the assessee had not claimed it as deduction, no disallowance under section 43B of the Act can be made. In support of his contention, the learned Authorised Representative relied upon the following decisions:–

The learned Departmental Representative relied upon the order of the Assessing Officer.

We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. Undisputedly, the amount in dispute represents service tax which remains to be paid by the assessee. It is the contention of the assessee that service tax is payable only on receipt from consumer of such service. It is observed that the Hon'ble Jurisdictional High Court in Tops Security Ltd. (supra) following its earlier judgment held that provision of section 43B of the Act does not impose liability to pay service tax before actual receipt of the fund in the account of the assessee. The Hon'ble Jurisdictional High Court held that liability to pay service tax into the treasury will arise only upon the assessee receiving the fund and not otherwise. Further, in Knight Frank India Pvt. Ltd. (supra), the Hon'ble Jurisdictional High Court held that since the assessee did not claim any deduction on account of service tax payable, there can be no occasion to invoke provisions of section 43B of the Act. In the facts of the present case also, it is the contention of

In ground no,3, the assessee has challenged the disallowance of ` 1,13,35,767, under section 40(a)(ia) of the Act.

Brief facts are, in the course of assessment proceedings, the Assessing Officer on examining the accounts of the assessee found that payment made amounting to ` 1,13,35,767, towards various expenses incurred during the year and claimed as deduction was without deducting tax at source. Therefore, he called upon the assessee to explain why the deduction claimed should not be disallowed under section 40(a)(ia) of the Act. In response, it was submitted by the assessee that the amount represents the provision made at the end of the year purely on estimate basis under different heads. He submitted, at that stage the assessee even does not know the identity of the payees. Therefore, it was not possible on the part of the assessee to deduct tax at source. Further, he submitted, the provision for expenditure is never claimed as deduction by the assessee. Only when the amount is actually paid in the subsequent

Reiterating the stand taken before the Departmental Authorities, the learned Authorised Representative submitted, while making provision for expenditure at the end of the year, the assessee only specifies the head under which such expenditure is to be incurred and the payees are not identified. Therefore, the assessee could not have deducted tax at source in the absence of the details of the payees. He submitted, in the subsequent year, when the amount is actually paid the assessee deducts tax at source and entries were made in the books of account reversing the provision made earlier. The learned Authorised Representative submitted, in assessee’s own case for the assessment year 2006–07, the Tribunal has decided identical issue. Further, he relied upon the following decisions:–

The learned Departmental Representative relied upon the observations of learned Commissioner (Appeals) and the Assessing Officer.

We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. The specific contention of the learned Authorised Representative before us is, the amount in dispute is created as a provision towards expenditure under various heads at the end of the year and at that stage the payees are not identified. Therefore, the assessee is not in a position to deduct tax at source. Further, it is the claim of the assessee that the provision so created is not claimed as a deduction. In our view, the aforesaid claim of the assessee requires consideration. If at the time of creating the provision for expenditure payee is not identifiable, the assessee cannot possibly deduct tax at source, since, the details of the payees are not known to the assessee. Further, it is the contention of the assessee that the provision created is reversed in the subsequent year on the basis of actual payment made against the expenditure claimed. This claim of the assessee also requires

In ground no.4, the assessee has challenged the disallowance of brought forward loss of amalgamating company.

The learned Authorised Representative submitted, the assessee’s claim for set–off of brought forward losses of amalgamating company arising in assessment year 2006–07 and 2007–08 were disallowed by the Assessing Officer on the ground that such claim was not allowed in those assessment years. The learned Authorised Representative submitted, assessee’s appeal for the assessment year 2006–07 in the meanwhile has been disposed of by the Tribunal by restoring the issue to the Assessing Officer. The appeal for the assessment year 2007–08 is still pending. Thus, he submitted, the Assessing Officer may be directed to grant consequential relief to the assessee on the basis of decision to be taken on assessee’s claim in assessment year 2006–07 and 2007–08.

In the result, assessee’s appeal is partly allowed.

To sum up, Revenue’s appeal and assessee’s cross objection are dismissed and assessee’s appeal is partly allowed. Order pronounced in the open Court on 28.06.2019