Rural Electrification Corporation Ltd. Vs DCIT (ITAT Delhi)
The assessee debited a sum of Rs. 4,97,27,224 on account of provision for post-retirement medical benefit to its employees. According to the scheme, which was an optional scheme, available to an retired employee of REC against a one-time contribution of Rs. 1500. According to the assessee, the scheme was approved by the Board of Directors and backed by actual valuation for meeting out ascertained liability and it was not a contingent liability. The submission of the assessee was rejected by the assessing officer on the ground that liability of assessee in future is contingent in nature and not being ascertained, was liable for disallowance as expenditure. According to the assessing officer, the scheme was not approved under the Income Tax laws.
Before the learned Commissioner (Appeals), the assessee reiterated its submissions which were made before the assessing officer and further submitted that deduction claimed is allowable in view of the decision of the Hon’ble Supreme Court in the case of Bharat Earth Movers v. CIT (2000) 245 ITR 428 (SC) and Metal Box Company of India Limited v. Their Workmen, (1969 AIR 612). The learned Commissioner (Appeals) accepted the contention of the assessee and held the provision created for post-retirement medical benefit as an ascertained liability, allowable as expenditure.
We have heard the rival submissions and perused the relevant material on record. The Tribunal in ITA No. 3011/Del/2014 for assessment year 2009-10 in the case of the assessee has dismissed the appeal of the Revenue against the order of the learned Commissioner (Appeals) deleting the disallowances. The relevant finding of the Tribunal is reproduced as under :–
“39. We have carefully considered the rival contentions. The post retirement medical benefit provision has been created by the assessee in accordance with accounting standard 15 relating to employees benefit. The above provision was made on actuarial valuation in accordance with the post retirement medical scheme. The taxguru.in learned Commissioner (Appeals) allowed the above claim holding that such provision is accrued liability and not contingent in nature. He relied upon the decision of the coordinate bench in Bokaro Power Supply Co. Ltd. v. DCIT (4921/Del/2010). Similar view has been taken by the Hon’ble Delhi High Court that where the provision has been created on the basis of actuarial calculation on a scientific basis the liability is not contingent but definite. We do not find any infirmity in the order of the learned Commissioner (Appeals) in deleting the above disallowance. In view of this ground No. 1 of the appeal is dismissed.”
Thus, respectfully following the above finding of the Tribunal, the finding of the learned Commissioner (Appeals) on the issue in dispute is upheld and the ground no. 1 of the appeal of the Revenue is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
These cross appeals by the assessee and the Revenue are directed against two different Orders, dated 11-7-2014 and 10-9-2014 passed by the learned Commissioner (Appeals)-LTU, New Delhi (in short ‘the learned Commissioner (Appeals)’) for assessment yea Rs. 2010-11 and 2011-12 respectively. As Common Grounds are involved in these taxguru.in appeals, these were heard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts.
2. First, we take up the cross-appeals of the assessee (ITA No. 5153/Del/2014) and the Revenue (ITA No. 5060/Del/2014) for assessment year 2010-11. The grounds of the appeal are reproduced as under :–
Grounds of appeal of the assessee
1. On the facts and in the circumstances of the case and in Law, the learned Commissioner (Appeals) has erred in upholding the disallowance of Rs. 20,89,469 under section 14A of the Income Tax Act read with rule 8D of the Income Tax Rules 1962.
2. On the facts and in the circumstances of the case and in Law, the learned Commissioner. (Appeals) has erred in not appreciating that the assessee company is having | substantial interest free funds in the form of share capital and reserve & surplus for making investments to earn incomes which are exempt under Income Tax I Act, 1961.
3. On the facts and in the circumstances of the case and in Law, the learned Commissioner (Appeals) has erred in upholding the addition of Rs. 1,29,25,650 being done by the assessing officer on account of treating the interest income earned by The Cooperative Electrical Society, Sircila, on special reserve fund created and maintained by it out of the interest forgone by the appellant company, as the income of the appellant company.
4. On the facts and in the circumstances of the case and in Law, the learned Commissioner (Appeals) has erred in upholding the addition of Rs. 79,74,627 being done by the assessing officer on account of treating the interest income earned by other various Cooperative Electrical Societies, on special reserve fund created and maintained by it out of the interest forgone by the appellant company, as the income of the appellant company.
The appellant craves to leave add, alter, amend, modify, delete, all or any of the grounds of appeal before or at the time of hearing.
Grounds of appeal of the Revenue.
1. On the facts and circumstances of the case and in law learned Commissioner (Appeals) has erred in deleting the addition of Rs. 4,97,27,224 made by assessing officer on account of disallowance of provision for post retirement medical expenses.
2. On the facts and circumstances of the case and in law learned Commissioner (Appeals) has erred in deleting the addition of Rs. 42,01,977 out of total addition of Rs. 62,91,445 made by assessing officer under section 14A of the Income Tax Act read with rule 8D of Income Tax Rules 1962.
2.1 On the facts and circumstances of the case and in law learned Commissioner (Appeals) has erred in deleting the addition of Rs. 42,01,977 out of total addition of Rs. 62,91,445 made by assessing officer under section 14A of the Income Tax Act read with rule 8D of Income Tax Rules 1962 without affording an opportunity to the assessing officer in this regard.
3. On the facts and circumstances of the case and in law learned Commissioner (Appeals) has erred in deleting the addition of Rs. 2,34,25,620 out of total addition of Rs. 4,43,25,897 made by assessing officer on account of interest accrued to various cooperative societies but taxable in the hands of the assessee i.e. M/s. REC Ltd.
3.1 On the facts and circumstances of the case and in law learned Commissioner (Appeals) has erred in deleting the addition of Rs. 23425620 out of total addition of Rs. 44325897 without appreciating that notwithstanding offering of such income by some of the societies in their hands, the same is legally tax able in the hands of the assessee i.e. M/s. REC Ltd. only.
3.2 On the facts and circumstances of the case and in law learned Commissioner (Appeals) has erred in deleting the addition of Rs. 23425620 out of total addition of Rs. 44325897 ignoring his own findings in the same appellate order, holding income of the same nature as taxable in the hands of the assessee i.e. M/s. REC Ltd.
4. The appellant craves leave to add to, alter, amend or vary from the above grounds of appeal at or before the time of hearing.
3. Briefly stated facts of the case are that the assessee company was engaged in the business of providing finance for rural electrification including power generation, transmission and distribution project. The company raises fund by way of issue of priority and non-priority sector bonds, infrastructure bond, loan from LIC and other banks and those funds are then deployed for financing power projects. For the year under consideration, the assessee filed return of income on 13-10-2010 declaring total income of Rs. 2038,74,20,592, which was revised further on 30-3-2012 to Rs. 2038,64,69,164 after claiming deduction under section 36(1)(viia) and 36(1)(vii) of the Income Tax Act, 1961 (in short ‘the Act’). The case was selected for the scrutiny and notice under section 143(2) of the Act was issued and complied with. The assessment under section 143(3) of the Act was completed on 28-2-2013 after making certain additions/disallowances to the returned income. Aggrieved, the assessee filed appeal before the learned Commissioner (Appeals), who partly allowed the appeal vide impugned Order, dated 11-7-2014. Aggrieved with the finding of the learned Commissioner (Appeals), both the assessee as well as the Revenue are in appeal before the Tribunal raising the grounds as reproduced above.
4. The ground No. 1 of the appeal of the assessee relates to disallowances of provision for post-retirement medical expenses amounting to Rs. 4,97,27,224.
4.1 The assessee debited a sum of Rs. 4,97,27,224 on account of provision for post-retirement medical benefit to its employees. According to the scheme, which was an optional scheme, available to an retired employee of REC against a one-time contribution of Rs. 1500. According to the assessee, the scheme was approved by the Board of Directors and backed by actual valuation for meeting out ascertained liability and it was not a contingent liability. The submission of the assessee was rejected by the assessing officer on the ground that liability of assessee in future is contingent in nature and not being ascertained, was liable for disallowance as expenditure. According to the assessing officer, the scheme was not approved under the Income Tax laws.
Before the learned Commissioner (Appeals), the assessee reiterated its submissions which were made before the assessing officer and further submitted that deduction claimed is allowable in view of the decision of the Hon’ble Supreme Court in the case of Bharat Earth Movers v. CIT (2000) 245 ITR 428 (SC) and Metal Box Company of India Limited v. Their Workmen, (1969 AIR 612). The learned Commissioner (Appeals) accepted the contention of the assessee and held the provision created for post-retirement medical benefit as an ascertained liability, allowable as expenditure.
4.2 Before us, the learned Departmental Representative relied on the order of the assessing officer. According to the learned Departmental Representative employee benefits like gratuity, leave encashment can be ascertained but medical benefit cannot be ascertained and no scientific method has been adopted by the assessee for estimating the liability.
4.3 On the contrary, the learned counsel of the assessee submitted that issue in dispute is covered in the favour of the assessee by the order of the Tribunal in the case of the assessee for assessment year 2009-10.
4.4 We have heard the rival submissions and perused the relevant material on record. The Tribunal in ITA No. 3011/Del/2014 for assessment year 2009-10 in the case of the assessee has dismissed the appeal of the Revenue against the order of the learned Commissioner (Appeals) deleting the disallowances. The relevant finding of the Tribunal is reproduced as under :–
“39. We have carefully considered the rival contentions. The post retirement medical benefit provision has been created by the assessee in accordance with accounting standard 15 relating to employees benefit. The above provision was made on actuarial valuation in accordance with the post retirement medical scheme. The taxguru.in learned Commissioner (Appeals) allowed the above claim holding that such provision is accrued liability and not contingent in nature. He relied upon the decision of the coordinate bench in Bokaro Power Supply Co. Ltd. v. DCIT (4921/Del/2010). Similar view has been taken by the Hon’ble Delhi High Court that where the provision has been created on the basis of actuarial calculation on a scientific basis the liability is not contingent but definite. We do not find any infirmity in the order of the learned Commissioner (Appeals) in deleting the above disallowance. In view of this ground No. 1 of the appeal is dismissed.”
4.5 Thus, respectfully following the above finding of the Tribunal, the finding of the learned Commissioner (Appeals) on the issue in dispute is upheld and the ground no. 1 of the appeal of the Revenue is dismissed.
5. The ground No. 1 and 2 of the appeal of the assessee are related to disallowances under section 14A of the Act of Rs. 20,89,469 sustained by the learned Commissioner (Appeals) out of the addition of Rs. 62,91,445 made by the assessing officer. The ground No. 2 and 2.1 of the appeal of the Revenue are related to deleting addition of Rs. 42,01,977 out of the addition of Rs. 62,91,445.
5.1 Brief facts qua the issue in dispute are that the assessee shown dividend income of Rs. 9,80,09,625 from various investment in mutual funds and shares and claimed this income as exempt under the provision of section 10(33)/10(34) of the Act. The assessing officer invoking the provisions of section 14A read with rule 8D of the Income Tax Rules, 1962, (in short ‘the rules’) made disallowances of Rs. 62,91,445 for the amount of expenditure incurred in relation to exempt income, but claimed in the profit and loss account as under :–
