Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the order dated 29.01.2025 passed by the Income Tax Appellate Tribunal, which disposed of twelve appeals relating to Assessment Years 2007–08 to 2011–12.

Two principal issues arose before the ITAT. First, the taxability of subsidy and remission of statutory dues amounting to ₹1,10,90,94,770 received under the Sugar Industrial Promotion Policy, 2004. The Assessing Officer treated the subsidy as a revenue receipt on accrual basis, while the CIT(A) partly reversed the addition, leading to cross-appeals. Second, disallowance of after-sales expenses amounting to ₹6,89,80,258, which the Assessing Officer treated as a mere provision not representing accrued liability.

The ITAT remanded the subsidy issue to the Assessing Officer to be decided after final adjudication by the Supreme Court in pending SLPs arising out of the Allahabad High Court judgment concerning revocation of the Sugar Industrial Promotion Policy. On the issue of after-sales expenses, the ITAT deleted the entire disallowance.

Issues Involved

Whether the ITAT erred in remanding the issue of taxability of subsidy and remission of statutory dues instead of deciding it on merits, whether the ITAT was justified in holding that the issue was pending before the Supreme Court, and whether deletion of disallowance of after-sales expenses was legally sustainable.

Appellant’s Arguments

The Revenue contended that the ITAT should have decided the taxability of subsidy instead of remanding the matter to the Assessing Officer. It was argued that remand on the ground of pendency before the Supreme Court was unwarranted.

On the issue of after-sales expenses, the Revenue argued that the assessee itself had admitted that only ₹1.76 crore represented actual expenses, while the remaining amount was merely a provision, and therefore the ITAT erred in deleting the entire addition.

Respondent’s Arguments

The assessee submitted that the subsidy issue was intrinsically linked to the final outcome of the proceedings pending before the Supreme Court concerning the Sugar Industrial Promotion Policy, 2004. Until final adjudication, there was no reasonable certainty of accrual of income, and therefore remand was justified to avoid multiplicity of proceedings.

On after-sales expenses, the assessee relied on scientific computation of future liabilities and binding precedent including Bharat Earth Movers Ltd. v. CIT and earlier Delhi High Court judgment in CIT v. Triveni Engineering & Industries Ltd. rendered in the assessee’s own case, wherein such provisions were held to be allowable and revenue neutral.

Court Order / Findings

The Delhi High Court observed that the ITAT had remanded the subsidy issue only because its taxability depended upon the final decision of the Supreme Court in pending SLPs arising from the Allahabad High Court judgment. The Court held that in such circumstances, the contention that the ITAT ought to have decided the issue on merits did not merit acceptance.

As regards after-sales expenses, the Court noted that the ITAT had relied on the binding judgment of the Delhi High Court in CIT v. Triveni Engineering & Industries Ltd. (2011) 336 ITR 374, rendered in the assessee’s own case, wherein provisions for future liabilities based on scientific computation were held to be allowable and revenue neutral. The Court also recorded that the said judgment had attained finality as it was not appealed further by the Revenue.

The Court concluded that the ITAT’s findings were based on settled legal principles and binding precedent and did not give rise to any substantial question of law.

Important Clarification

The Court clarified that where taxability of a receipt depends upon the outcome of proceedings pending before the Supreme Court, remand by the ITAT to await final adjudication is justified. It further reaffirmed that provisions for future business liabilities, if based on scientific computation and matching of cost and revenue, are allowable deductions and disputes confined only to the year of allowability may be revenue neutral.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the order of the Income Tax Appellate Tribunal remanding the subsidy issue to await the Supreme Court’s decision and deleting the disallowance of after-sales expenses, holding that no substantial question of law arose for consideration.

Link to download order- https://www.mytaxexpert.co.in/uploads/1769681781_PR.COMMISSIONEROFINCOMETAXNOIDAVsTRIVENIengineeringandindustriesltd.pdf

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