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Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A M 1. These are cross appeal by parties directed against the order of the Ld. CIT (A)-VIII, New Delhi dated 08.07.2011 for the Assessment Year 2008-09.
In assessee has raised the following grounds:- “
1. That the order of the Commissioner of Income-tax (Appeals) - VIII, New Delhi, dated 08.07.2011, is wrong on facts and bad in law;
2. That the Commissioner (Appeals) erred in upholding the disallowance of Rs.916/- under Section 14A of the Act. He failed to appreciate that no expenditure was incurred in relation to the income by way of dividend and as such no expenditure was to be deducted under Section 14A of the Act;
3. That the Commissioner (Appeals) erred in upholding the disallowance of Rs.6,08,74,376/-paid to the employees in view of the Voluntary Retirement Scheme;
Modipon Limited V ACIT ACIT V Modipon Limited ITA N0. 4178/Del/2011 A Y 2008-09 4. That the Commissioner (Appeals) erred in not directing the Assessing Officer to refund/adjust the tax deducted at source of Rs.2,92,865/-; 4.1 He erred in holding that the requisite material in this regard was not there; 5. That the Commissioner (Appeals) erred in holding that the Appellant was not entitled to carry forward the business loss/or being set off of in the subsequent years; 5.1 That the Commissioner (Appeals) erred in holding that the return was not filed within the time allowed under Section 139(1) of the Act; 6. That the conclusions and inferences of the Assessing Officer and/or Commissioner (Appeals) are based on suspicions, conjectures, surmises and extraneous and irrelevant considerations; 7. That the reliefs prayed for may kindly be allowed and the order(s) of the Assessing Officer and/ or Commissioner (Appeals) may kindly be quashed, set aside, annulled or modified; 8. That the aforesaid Grounds of Appeal are without prejudice to each other and the Appellant craves leave to vary, alter, amends or adds to the aforesaid Grounds of Appeal before or at the time of hearing of the above Appeal.”
The facts in brief of the case are that the assessee company is engaged in manufacturing of Nylon and Polyester Filament yarn at Modinagar, UP. The assessee company filed return of income on 01.10.2008 at Nil income claimed Nil carry forward of loss (as per clause 14 of part-B-TI of ITR 6). Subsequently the income declared in the original return was revised by way of a revised computation, filed along with a letter dated 08.02.2010 declaring the total loss of Rs.5,46,22,868/-. The case was selected for scrutiny and statutory notices u/s 143(2) and 142(1) were issued and duly served.
The first ground of appeal of the assessee is general in nature therefore same is dismissed.
Second ground of appeal of the assessee is against the disallowance u/s 14A of the Income Tax Act of Rs. 916/-. The Ld. AR submitted that there is no exempt Income of the assessee u/s 10 and therefore no disallowance can be made u/s 14A of The Income Tax Act. He relied on the decision of Honourable Delhi High court in case of Cheminvest Limited 378 ITR 33 . Ld DR relied on the orders of AO as well as CIT (A).
Modipon Limited V ACIT ACIT V Modipon Limited ITA N0. 4178/Del/2011 A Y 2008-09 6. We have carefully considered the submission. It is uncontroverted fact that assessee did not have any exempt income during the year. Hon Delhi High court in case of Cheminvest Limited V CIT 378 ITR 33 has held that where there is no exempt income there cannot be any disallowance u/s 14A of the Income Tax Act. Therefore respectfully following the decision of Honourable Delhi high court we reverse the order of CIT (A) confirming disallowance of Rs 916/-. Hence, Second ground of appeal is allowed.
Third ground of appeal is against the disallowance of Rs 6,08,74,376/- being payments made under Voluntary retirement scheme. During the year appellant has claimed the deduction of Rs 7,60,92,970/- on account of payment made under voluntary retirement scheme. However AO disallowed that sum and allowed only 20 % of the total claim made by the assessee u/s 35DDA of The Income Tax Act, resultantly he disallowed Rs 6,08,74,376/- out of the total claim of Rs 7,60,92,970/-. Ld AO was of the view that as the claim of the assessee for allowance of VRS payments , same is covered by provisions of section 35DDA of The Income Tax Act and hence, not allowable u/s 37(1) of the Act. Assessee agitated the issue before CIT (A) who also confirmed the order of AO on same reasoning and therefore assessee is in appeal before us on this ground.
Before us Ld. AR of the assessee said that the claim is allowable u/s 37(1) of the Income Tax Act and he relied up on following decision of various courts. a. CIT V KJS India Private Limited 340 ITR 380 ( Delhi) b. CIT V Bhor Industries Limited 264 ITR 180 ( Bom) c. CIT V orient papers and Industries Limited 372 ITR 680 ( cal) d. CIT V Simpson & co Limited 230 ITR 703 e. CIT V Swan Mills Limited 39 Taxmann.com 112 ( Bom)
Ld DR relied on the order of AO as well as CIT (A) and submitted that claim is not allowable u/s 37(1) of the Act as it is specifically allowable u/s 35DDA of the Income Tax Act.
We have carefully considered the rival submission of the parties and also perused the orders of lower authorities. We have also perused the decisions relied up on by the Ld AR of the assessee. In fact it is not disputed by the 3 | P a g e
Modipon Limited V ACIT ACIT V Modipon Limited ITA N0. 4178/Del/2011 A Y 2008-09 assessee that the claim of the assessee is not governed by the provision of section 35DDA. However the stand of the assessee is that though the claim of the assessee satisfies all the conditions of the provision of section 35DDA but claim of VRS payments should not be allowed spread over five years as provided u/s 35DDA but whole expenditure u/s 37(1) in this year in which it is incurred.
The provision of section 35DDA was inserted in to the Income tax Act vide Finance Act 2001 with effect from AY 2002-03 which is as under. MORTISATION OF EXPENDITURE INCURRED UNDER VOLUNTARY RETIREMENT SCHEME (1) Where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee in connection with retirement, in accordance with any scheme or schemes of voluntary retirement, one-fifth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance shall be deducted in equal installments for each of the four immediately succeeding previous years. (2) Where the assessee, being an Indian company, is entitled to the deduction under sub-section (1) and the undertaking of such Indian company entitled to the deduction under sub-section (1) is transferred, before the expiry of the period specified in that sub-section, to another Indian company in a scheme of amalgamation, the provisions of this section shall, as far as may be, apply to the amalgamated company as they would have applied to the amalgamating company if the amalgamation had not taken place. (3) Where the undertaking of an Indian company entitled to the deduction under sub-section (1) is transferred, before the expiry of the period specified in that sub-section, to another company in a scheme of demerger, the provisions of this section shall, as far as may be, apply to the resulting company, as they would have applied to the demerged company, if the demerger had not taken place. (4) Where there has been reorganization of business, whereby a firm is succeeded by a company fulfilling the conditions laid down in clause (xiii) of section 47 or a proprietary concern is succeeded by a company fulfilling the conditions laid down in clause (xiv) of section 47, the provisions of this section shall, as far as may be, apply to the successor company, as they would have applied to the firm or the proprietary concern, if reorganization of business had not taken place. (5) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) in the case of the amalgamating company referred to in sub-section (2), in the case of demerged company referred to in sub-section (3) and in the case of a firm or proprietary concern referred to in sub-section (4) of this section, for the previous year in 4 | P a g e
Modipon Limited V ACIT ACIT V Modipon Limited ITA N0. 4178/Del/2011 A Y 2008-09 which amalgamation, demerger or succession, as the case may be, takes place. (6) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) under any other provision of this Act. According to this section the dispute has come to end that whether the VRS expenditure is capital or revenue in nature. With effect from AY 2001-02 , any expenditure incurred by assessee on Voluntary retirement scheme shall be allowed in five years i.e @ 20 % for each of the year. Further any expenditure which is in nature of expenditure of Voluntary retirement scheme shall not be allowed as deduction under any other section of the Income Tax Act.
Analyzing the claim of the assessee it is apparent that claim of the assessee is allowable u/s 35DDA of the act in 5 years @ 20 % in each of the years. However assessee claims that same is fully allowable u/s 37(1) in this year .i.e. in the year in which it is incurred.
Provisions of section 37 (1) deals with the deductibility of expenses which are not covered u/s 30 to 36 of the Income Tax Act. Section 37 of the IT Act, 1961, enjoins that any expenditure, not being expenditure of the nature described in section 30 to section 36, laid out or expended wholly and exclusively for the purpose of the business or profession should be allowed in computing the income chargeable under the head ‘Profits and gains of business or profession'. In other words, section 37(1) being a residual provision, the aid of that section cannot be resorted to unless and until it is established that none of the provisions of section 30 to section 36 are applicable to a given case. Where, for instance, it is found as a fact that section 35DDA of the Act applies, the assessee cannot be allowed to make use of the provision contained in section 37(1) of the Act. Where a case specifically falls under any one of the specific provisions of Section 30 to 36, although it was not specifically pleaded by the assessee, the assessing authority has a statutory duty and obligation to consider the claim of the assessee pertaining to a particular item under that section. Honourable Guj High court has held in Khimji Vishram & sons V CIT 209 ITR 993 as under :-
“As against this, under section 37, deduction of any expenditure could be allowed in computing the income chargeable under the head "Profits and gains of business or profession", if it is found that : 5 | P a g e Modipon Limited V ACIT ACIT V Modipon Limited ITA N0. 4178/Del/2011 A Y 2008-09 (i) it is not an expenditure of the nature described in sections 30 to 36 ; (ii) it is not in the nature of capital expenditure or personal expenses of the assessee ; (iii) it must have been laid out or expended wholly and exclusively for the purposes of the business or profession ; and (iv) there is no specific prohibition for its allowance such as section 37(2B), (3) and (4) or as provided in other sections. From the aforesaid two sections, it is apparent that, under section 37, only revenue expenditure, which is expended wholly and exclusively for the purpose of business or profession, can be allowed to be deducted in computing the income while under sections 30 to 36, it could be either revenue expenditure or capital expenditure. Further, section 37 as such is a general provision which provides for deduction of expenditure while computing the income chargeable under the head "Profits and gains of business or profession" of the assessee, if the expenditure is of revenue nature and not personal expenses of the assessee and if the said expenditure is laid out or expended wholly and exclusively for the purpose of business or profession. Hence, if the expenses are not covered by the specific provisions of sections 30 to 36 and yet the said expenses are laid out or expended wholly and exclusively for the purposes of the business or profession and they are not in the nature of capital expenditure or personal expenses of the assessee, then deduction is required to be given for the said expenses. It is quite possible that with regard to some expenses there may be overlapping between sections 30 to 36 and section 37. In that set of circumstances, if the expenses are deductible under sections 30 to 36, then section 37 is not to be resorted to. But if the said expenses are not deductible under sections 30 to 36 and the conditions prescribed under section 37 are satisfied, then the said expenses are required to be deducted while computing the income unless there is a specific prohibition.”
Therefore in our view the claim of the assessee is allowable u/s 35DDA of the act and no deduction u/s 37(1) is permitted for expenditure on voluntary retirement scheme.
We also deal with the decision relied up on by the assessee:- a. CIT V KJS India Private Limited 340 ITR 380 (Delhi) the issue before Honourable high courts was whether the severance cost to the employees on suspension of one of the manufacturing activities is revenue expenditure or capital expenditure. It was held that it is revenue expenditure in nature and therefore Modipon Limited V ACIT ACIT V Modipon Limited ITA N0. 4178/Del/2011 A Y 2008-09 allowable to the assessee for AY 2003-04. However provision of section 35DDA was not brought to the notice of the court. b. CIT V Bhor Industries Limited 264 ITR 180 ( Bom) the issue before Hon high court was whether the amount of expenses on voluntary retirement scheme for AY 1996-97 would be allowable to the assessee in the year in which it is incurred or it is allowable over the period as written off in the books of accounts. Honourable court held that enduring benefit test does not apply on these expenditure and same shall be allowable in the year in which it is incurred. c. CIT V orient papers and Industries Limited 372 ITR 680 ( cal) the issue before high court was whether the VRS expenditure is capital expenditure in nature or not. Honourable High court held that it is allowable as deduction as expenditure on grounds of commercial expediency. d. In the decision of CIT V orient papers & Industries Limited Hon Delhi High court has followed the decision of CIT V Simpson and Co Limited 230 ITR 703 which is also on the issue of whether the VRS expenditure is capital or revenue expenditure. e. CIT V Swan Mills Limited 39 Taxmann.com 112 ( Bom) the issue before high court for AY 2000-01 was whether VRS payments are allowable on closure of business as revenue expenditure and court held that same is allowable as revenue expenditure.
In none of the decision cited before us, Honourable courts were concerned about the allowability of claim of VRS expenditure u/s 35DDA of the act as well as u/s 37(1) of the act. Further all the cases cited above pertains to AY prior to introduction of section 35DDA of the act except in case of CIT V KJS India Private Limited 340 ITR 380 (Delhi), however provision of section 35DDA was not brought to the notice of the court. Therefore these decisions render no help to the cause of the assessee.
In view of above facts we confirm the order of CIT (A) disallowing the claim of the assessee of Rs 6,08,74,376/- u/s 37(1) of the act on account of payment made under voluntary retirement scheme. Therefore ground no 3 of the appeal is dismissed.
Modipon Limited V ACIT ACIT V Modipon Limited ITA N0. 4178/Del/2011 A Y 2008-09 17. Ground No 4 of the appeal is against not granting adjustments of TDS of Rs 292865/-. Assessee has dully filed the TDS certificates along with the return of income. CIT (A) has not adjudicated on this issue for the reason that there is an alternative remedy available with the assessee. Therefore this ground was dismissed by CIT (A). Before us assessee submitted that as the TDS certificates are filed by the assessee along with the return of income it should have been granted credit for the same.
We have carefully considered the rivals contentions. We are of the View that CIT (A) is not justified in dismissing this ground of appeal
. If the assessee has filed TDS certificates along with the return of income filed by the assessee and if the claim is according to the law , assessee should be granted the credit for such TDS certificate. In view of this we direct AO to grant credit of TDS certificates of Rs 292865/- on merit after proper verification if the credit complies with the provision of section 199 of the Income Tax Act. Therefore the ground no. 4 of the appeal is allowed.
19. Ground no 5 of the appeal is against not allowing the carry forward of loss by AO. Assessee has filed its return of income on 30.9.2008 where as the due date of filing of return of income was also expired on 30.9.2008. However due to e - filing of return of income of assessee, ITR- V printed showed that date of filing of return of income as 1-10-2008. Therefore according to AO the return was filed beyond time and therefore he did not allow the carry forward of losses.
20. Before us assessee submitted that assessee has filed its return of income on 30.9.2008 as per verification shown in ITR V , however due to some technical error in the portal of Income tax department it showed the date of filing of return of income as 1.10.2008. For this assessee submitted the copy of the press release letter dated 22.12.2008 issued by CBDT that such returns where the returns were filed electronically on 30.9.2008 but the acknowledgement date shows stamp of 1.10.2008 , they shall be treated to be having filed the return of income on 30.9.2008.
21. We have carefully considered the submission and we direct that assessee should be allowed the carry forward of losses as shown by the return of income in view of press release of CBDT dated 22.12.2008 in No 402/92/2006-MC-(53 of 2008) where CBDT has accepted that returns filed electronically on 30.9.2008 where the acknowledgement date is 1.10.2008, shall be treated as 8 | P a g e
Modipon Limited V ACIT ACIT V Modipon Limited ITA N0. 4178/Del/2011 A Y 2008-09 having filed on 30.9.2008. Hence AO is directed to allow the claim of carry forward of losses as same is permissible according to the law. We reverse the finding of CIT (A) on this count. Accordingly ground no 5 of the appeal is allowed. 22. In the result appeal of the assessee is partly allowed. ( Revenue)
Ground no 1 of the revenue’s appeal is general in nature and therefore dismissed.
Ground no 2 of the appeal is against the deletion of disallowance of Rs 2247126/- made on account of prior period expenses. During assessment proceedings AO noticed that the appellant company had claimed prior period expense of Rs.22,47,126/-. Accordingly, he required the appellant company to explain as to why the expenses in question should not be disallowed and added back to the declared income for the AY under consideration. Assessee submitted that such expenses are settled for payment in the AY under reference and this is the policy of the assessee company booking such expenses and Further Hon'ble ITAT had allowed the prior period expenses in the AY 2004-05. Assessee consistently follows this method of accounting from beginning and accepted by the department. However, the reply furnished by the appellant company was not found satisfactory by the Id.AO and he disallowed the same. On appeal CIT (A) allowed the claim of the assessee. Therefore revenue has raised this ground. 25. Before us LD DR submitted that prior period expenses are not allowable and supported the order of AO. 26. Ld AR submitted that the expenses of Rs.22,47,126/- have actually not been claimed by the appellant company during the year under consideration and therefore, there was no reason for the AO to disallow the same. In support of his aforesaid claim, the Id. counsel has shown documents placed at pages 31- 45 of the paper book wherein complete details of prior period of expenses of Modipon Limited V ACIT ACIT V Modipon Limited ITA N0. 4178/Del/2011 A Y 2008-09 Rs.22,47,126/- is furnished. Therefore, the case of the Id. counsel is that when the expenses in question have not at all been claimed as expenditure for the AY under consideration, there was no justification in disallowing the same, It is therefore, submitted that the disallowance may be deleted and order of CIT (A) may be confirmed.
We have carefully considered the rival submissions. In fact there is no expenses debited by the company but there is a reversal of income by the assessee of interest income of Rs 10,77,555/- out of interest income shown of Rs. 29,25,000/- in AY 2007-08 which was received only of Rs 18,47,445/- and therefore the reversal of Rs 10,77,555/- was made debiting the expenses account as tax has already been paid on the interest of Rs 29,25,000/- in earlier years. Further an amount of bonus of Rs 65092/- and gratuity of Rs 1104478/- were already disallowed u/s 43B of the act. Ld CIT (A) has dealt with this issue as under :-
“On consideration, I find that the disallowance of Rs.2247125/- consists of the following items:- • Reversal of interest income - Rs.1077555/-. • Bonus-Rs.65092/-. • Gratuity-Rs.1104478/- As per the appellant company none of the aforesaid items was to be considered for disallowance for the AY under consideration on account of the following reasons:- a. Reversal of interest income - it is submitted by the appellant company that during the FY 2006-07, the appellant company had received certain funds against the sale of equity shares of M/s Ambuja Cement Eastern Lid. and the same were deposited with IFCI Ltd. and interest income of Rs.2925000/- was credited for the FY 2006-07 on estimate basis. However, on final settlement IFCI Ltd. allowed interest of Rs.1847449/- only as communicated vide their letter No.8577 dated 21.01.2008. Accordingly, the difference of Rs.10,77,555/- was reversed by crediting the same to interest income account and this is how the income of Rs.2925000/- offered to tax in FY 2006-07 has been reduced to Rs.1847445/-. In support of its claim, the appellant company has filed journal vouchers dated 31.03.2007 and 30.09.2007. Thus, it may be seen that the amount of Rs.1077555/- actually represents the reversal of interest income which was shown on estimate basis for the AY 2007-08. In my view, the amount in 10 | P a g e
Modipon Limited V ACIT ACIT V Modipon Limited ITA N0. 4178/Del/2011 A Y 2008-09 question does not represent the prepaid expenses for the reasons discussed herein before and accordingly, the AO is directed to delete the disalowar.ee of Rs.1077555/-. b. Bonus - It is submitted by the Id. counsel for the appellant that the amount in question represented a provision created for FY 2006-07 and forms part o total disallowance of Rs.9199024/- suo motto made by the appellant company in terms of section 43B of the IT Act, 1961. In support, the Id. counsels have filed complete details of disallowance made u/s 43B of the IT Act along with the breakup of total bonus of Rs.1901544/- credited during the year under consideration and the amount of Rs.1888724/- considered for disallowance u/s 43B of the IT Act, 1961. In view of the aforesaid, I am of the view that since the entire unpaid bonus of Rs.1888724/- including the bonus of Rs.65092/- pertaining to FY 2006-07 has been disallowed by the appellant itself, no further disallowance was called for in the assessment. The AO is therefore, directed to delete the disallowance of Rs.65092/-. Gratuity - It is pointed out by the Id. counsels that during the year under consideration, the appellant company had credited the gratuity payable account by sum of Rs. 18797891/- and thereafter deducted a sum of Rs. 5003523/- wit the narration wrongly credited and thereafter, having adjusted the payment actually made upto 25.09.2008, disallowed the balance of Rs.3807217/- in terms of section 43B of the IT Act, 1961 and the same is forming part of the total disallowance of Rs.9199024/- under the said section. In support, the appellant company has filed complete details of gratuity payable account, actually paid before the due date for filing of return u/s 139(1) of the IT Act, namely, 30.09.2008 and the balance disallowed u/s 43B of the Act. In view of the aforesaid fact situation, I have no hesitation in holding that even the amount of Rs.1104478/- does not represent prepaid expenses. Accordingly, the AO is directed to delete the disallowance of Rs.1104478/-also.
Therefore we don’t find any infirmity in the order of CIT (A) in deleting the disallowance of Rs 22,47,125/-. Hence we confirm the order of CIT (A) and dismiss ground no 2 of the appeal of revenue.
Ground no 3 is against the deletion of disallowance of Rs 418611/- and Rs 1320959/- made on account of loss on sales of stores and spares written off respectively. 30. Ld DR relied on the orders of lower authorities. Ld AR submitted that for AY 2006-07 Hon ITAT has set aside the claim to the file of AO and pursuant to that direction AO has allowed these claims of the assessee for AY 2006-07. Therefore the same is allowable for this year also as the facts of the claim are similar. 31. We have carefully considered the rival submission. Identical claim of the assessee was allowed by AO himself for AY 2006-07 and Ld DR did not controverted this fact. We have perused the order of AO dated 28.3.2015 passed by AO for A Y 2006-07 where in as per Para no 12 AO has held that Modipon Limited V ACIT ACIT V Modipon Limited ITA N0. 4178/Del/2011 A Y 2008-09 these expenditure are revenue in nature and allowable to the assessee. Both the parties agreed that there is no change in the facts of the case for this year also. In view of this we confirm the order of CIT (A) deleting disallowance of Rs 418611/- and Rs 1320959/- made on account of loss on sales of stores and spares written off respectively. Hence ground no 3 of the appeal is dismissed.
In the result appeal of the revenue is dismissed.
Resultantly, appeal of the assessee in is partly allowed and appeal of revenue 4178/Del/2011 is dismissed. Order pronounced in the open court on 02.12.2015.