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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI C.N. PRASAD, JM & SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R Per Manoj Kumar Aggarwal (Accountant Member)
The captioned appeal by assessee for Assessment Year [AY] 2010-11 contest the order of Ld. Commissioner of Income-Tax (Appeals)- 21 [CIT(A)], Mumbai Appeal No.CIT(A)-10/ITO Gateway Terminals India Private Limited Assessment Year 2010-11 5(1)(2)/78/2014-15 dated 29/02/2016. The assessment for impugned AY was framed by Ld. Income Tax Officer-5(1)(2) on 14/03/2014 u/s 143(3) of the Income Tax Act, 1961. The headings of effective grounds raised before us reads as under:- I. Disallowance of Corporate Social Responsibility expenses (‘CSR’) : Rs.27,00,000/- II. Addition of provision of slow moving / obsolete stock to the book profit of the Appellant while computing the tax liability under Section 115JB of the Act : Rs.89,54,389/- Amortization / Depreciation claimed on Terminal Rights: Rs. 2,41,58,004/- III.
Facts leading to the same are that the assessee being resident corporate assessee engaged in operating terminal has been assessed for impugned AY at Rs. ‘Nil’ under normal provisions and at Rs.31.35 crores u/s 115JB as against returned income of Rs. ‘Nil’ under normal provisions and Rs.29.72 crores u/s 115JB. The three adjustments / additions in normal income / u/s 115JB as stated in grounds of appeal
are the subject matter of this appeal.
3. The first issue is related with expenses of Rs. 27 Lacs incurred by the assessee for providing assistance for construction of Public Toilet in JNPT area. The same has been disallowed by Ld. AO since the impugned expenditure, in the opinion of Ld. AO, was not incurred for business purposes and had no connection with activities of the assessee. The Ld. AR fairly pointed out that the assessee suffered similar disallowance in AY 2009-10 which have since been confirmed by the Tribunal vide order dated 06/04/2017. However, the Ld. AR submitted that in the impugned AY, the assessee has incurred expenditure towards construction of toilets which were to be Gateway Terminals India Private Limited Assessment Year 2010-11 used by the people visiting the port area as against paramedical expenditure incurred by the assessee in AY 2009-10 and the assessee stands benefitted by the judgment of Ahmedabad Tribunal in Lubrizol Advanced Materials India (P.) Ltd. Vs. DCIT [42 Taxmann.com 263 dated 06/12/2013] where similar issue has been decided in assessee’s favor by the Tribunal. Upon due consideration, we find that a view has already been taken by the Tribunal in assessee’s own case for immediately preceding AY where the Tribunal, not convinced with assessee’s explanation, upheld the stand of revenue in disallowing the expenditure incurred on corporate social responsibility. The relevant portion of the order is extracted below:- Similar view has been taken by Hon’ble Bombay High Court in the case of Voltas Limited v. CIT (1994) 207 ITR 47 (Bom.). The onus lie on the assessee to prove with cogent material to have substantiated its claim that the said expenses is incurred wholly and exclusively for the purposes of business of the assessee as required u/s 37(1) of 1961 as some remote connection with business is not sufficient to claim the expenses as business expenses, which in the instant case the assessee failed to prove the same. Hence, these expenses of Rs. 15,87,014/- incurred for CSR by providing ambulance services, paramedical services and medical supplies to villagers in the vicinity of its container terminal cannot be allowed as business expenses and hence, the appellate order of learned CIT(A) is hereby confirmed .We order accordingly.
Therefore, material facts being the same, respectfully following the same, we dismiss this ground of assessee’s appeal. The benefit of cited judgment of Ahmedabad Tribunal could not be given to the assessee since it is evident that the Tribunal in assessee’s own case for AY 2009- 10 has heavily relied on the judgment of Hon’ble Delhi High Court rendered in Star Trading Corporation of India Limited Vs. CIT [94 ITR 196] and secondly this judgment in assessee’s own case has been Gateway Terminals India Private Limited Assessment Year 2010-11 rendered much after the date of cited order of Ahmedabad Tribunal. Therefore, we dismiss this ground of assessee’s appeal.
The second ground pertains to adjustment of provision for slow moving / obsolete stock amounting to Rs.89,54,389/- while arriving at Book Profit u/s 115JB. The Ld. AR, in the similar manner, pointed out that the similar issue arose in assessee’s own case for AY 2009-10 where the matter has been remanded back by the Tribunal to the Ld. AO with certain directions. However, the Ld. AR made an attempt to distinguish the facts in the impugned AY by submitting that the assessee has written off the obsolete stock in the books, the complete details of which are available on record and therefore, the same is allowable to the assessee in terms of several judicial pronouncements. The Ld. AR also stressed the point that whatever treatment was given to the same, the same merely represented timing difference and was revenue neutral in nature and therefore, the same was allowable to the assessee. Upon due consideration, we find that exactly on similar facts in AY 2009-10, the matter has been remanded back by the Tribunal to the lower authorities with following directions:- 11. We have considered rival contentions and also perused the material available on record including the case laws. We have observed that the assessee company is engaged in the business of developing bulk terminal of Jawaharlal Nehru Port into a new container terminal, operating and maintaining the same. The activities carried out by the Company broadly include the loading and unloading of containers from shore to ship and from ship to shore; reefer services; container storage facilities; handling over dimensional and hazardous containers etc. We find that the assessee had made provision for obsolete and slow moving stock amounting to Rs. 1,51,33,620/- which was added to the book profit u/s 115JB of the Act but was later withdrawn in the revised return of income filed by the assessee with the revenue. The assessee had claimed that these are business losses arising out of cost of obsolescence and loss on account of obsolete and slow moving inventory which has been consistently claimed by the assessee computed in a scientific manner and is not merely the provision or an unascertained liability was the averment of the Gateway Terminals India Private Limited Assessment Year 2010-11 assessee. It is also averred by assessee that no such addition has been made by Revenue in the normal regular computation of income while only additions were made to book profits computed u/s 115JB of 1961 Act. However, the assessee has not submitted details of non-moving/slow moving and obsolete inventories before the authorities below and was not able to substantiate the basis of computing said working which is claimed to be based on scientific method been followed consistently over the years. Thus , in the absence of details , no verification could be made by the authorities below to verify the contention of the assessee that it represented business loss arising on account of cost of obsolescence and loss on account of obsolete and slow moving inventory and it is an ascertained liability as claimed by the assessee, instead of merely being a provision or unascertained liability as contended by Revenue. Keeping in view specific provision in the Statute vide explanation 1(c) and (i) to Section 115JB of 1961 Act, the additions to book profit are required if the nature of said cost of obsolescence and loss on account of obsolete and slow moving inventory as debited in Profit and Loss Account is merely a provision or an unascertained liability for which onus is on the assessee to rebut the same and prove that it is a business loss sustained by the assessee and is not hit by explanation 1(c) and (i) to Section 115JB of 1961 Act. The case laws relied upon by the assessee are not relevant at this stage as the assessee has not discharged its prima onus cast under law as no details of obsolete and slow moving inventory and basis of its working was submitted before the authorities below . In our considered view, the matter need to go back to the file of A.O. for de-novo adjudication of the issue on merits by the AO after considering the claim of the assessee that the said claim was towards cost of obsolescence and loss on account of obsolete and slow moving inventory incurred by the assessee and it is in the nature of an ascertained liability, instead of merely being a provision or unascertained liability as contended by Revenue. Accordingly, we direct the assessee to produce all the details and workings relevant to the issue regarding non-moving/slow moving stock including being computed based on scientific method consistently followed by the assessee over years before the A.O. for verification and examination by the AO on merits and to consider the claim on merits in accordance with law. Needless to say that proper and adequate opportunity of being heard shall be provided to the assessee by the AO in accordance with law. We order accordingly.
We find the matter to be inter-connected one. Therefore, with a view to maintain consistency in the treatment thereof, without delving much deeper into the issue, we deem it fit to restore the matter back to the file of Ld. AO on similar lines and adopt a consistent approach. Resultantly, this ground stands allowed for statistical purposes.
Gateway Terminals India Private Limited Assessment Year 2010-11 5. The last issue in assessee’s appeal pertains to rate of depreciation on certain intangible assets acquired by the assessee. During assessment proceedings, it was noted that the assessee entered into 30 years license agreement with Jawaharlal Nehru Port Trust (JNPT) and paid certain upfront payment including stamp duty. These rights were categorized as Terminal Rights and amortized in the books of accounts over a period of 10 years effective from AY 2007-08. However, the assessee claimed depreciation thereupon @25%, being the rate applicable to ‘intangible assets’ while computing its income as per Income Tax. Since the agreement was for 30 years, the same, in the opinion of Ld. AO, was to be amortized over a period of 30 years. The amount of disallowance thus computed, worked out to Rs.2,41,58,004/- which was added to the income of the assessee under normal provisions. The stand of Ld. AO, upon being confirmed by ld. first appellate authority, has been contested before us. Before us, both the representatives have justified their own point of view.
Upon due consideration, it is quite evident that the assessee has acquired Terminal Rights for 30 years and the expenditure is clearly a capital in nature and an intangible asset. The genuineness of the same is also not in dispute and consequently, the assessee is entitled to claim depreciation against the same. The only dispute is with regard to rate at which depreciation is allowable to the assessee. No doubt, the assessee is required to compute its income as per the provisions of Income Tax Act, 1961 and the assessee, is entitled for depreciation on capital assets in terms of Section 32 read with Rule 5 of Income Tax Rules at rates prescribed in Appendix-1 to Income Tax Rules, 1962. Upon perusal of Gateway Terminals India Private Limited Assessment Year 2010-11 the same, we find that the prescribed rate of depreciation on Intangible Assets being knowhow, Patents, Copyrights, trademarks, Licenses, franchises or any other business or commercial rights of similar nature is 25%, which assessee is eligible to claim. Therefore, the revenue was not justified in denying the same to the assessee. Accordingly, the impugned additions stands deleted and this ground of assessee’s appeal stands allowed.
Resultantly, the assessee’ appeal stands partly allowed in terms of our above order. Order pronounced in the open court on 16th March, 2018.