M/s. U.B. Engineering Ltd., Pune V. DCIT, Pune

ITA 1019/PUN/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3118 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2001-2002
• Appeal Filed On: 11-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS MITHALI MADHUSMITA
• Assessee Lawyers: K R PRADEEP
• Keywords: Opportunity of being heard; Bad and doubtful debts
• Section: 43B; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO. 1019 & 09/PN/09 (ASSTT. YEAR 2001-02 & 2004-05) M/S. U.B. ENGINEERING LTD., SAHAYADRI SADAN, TILAK ROAD, PUNE- 411030 PAN NO. AAACU1363K .... APPELLANT VS. DCIT, CIRCLE -7, PUNE . RESPONDENT ITA NO. 1573/PN/08 & 1224/PN/09 (ASSTT. YEAR 2005-06 & 2006-07) M/S. U.B. ENGINEERING LTD., SAHAYADRI SADAN, TILAK ROAD, PUNE- 411030 PAN NO. AAACU1363K .... APPELLANT VS. THE ADDL. CIT RANGE-7, PUNE . RESPONDENT ASSESSEE BY : SHRI K.R. PRADEEP DEPARTMENT BY : MRS MITHALI MADHUSMITA, CIT-DR ORDER PER D. KARUNAKARA RAO AM THESE FOUR APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDERS OF CSIT(A)-III, PUNE DIFFERENTLY DATED I.E. 29-06-2009, 24-10-2008, 01-09-2008 & 24-07-2009 FOR ASSESSMENT YEAR 2001-02, 2004-05 TO 20 06-07. THE ISSUES THAT EMANATE FROM ALL THE GROUNDS REFERRED IN ALL THESE APPEA LS ARE AS UNDER,- 1) ALLOWABILITY OF GRATUITY PREMIUM PROVISIONS PAY MENT U/S. SEC. 43B VS. 40A(7)(B) 2) THE TREATMENT OF LOSS GENERATED OUT OF JOINT VE NTURE IN QATAR. 3) TAXABILITY OF INTEREST RECEIVABLE FROM UPSEB 4) CLAIM OF PRIOR PERIOD EXPENSES 5) ALLOWABILITY OF INTEREST ON TERM LOAN APPLICAB ILITY OF PROVISIONS OF SEC. 43B(E). 6) CLAIMS OF PROVIDENT FUND ITA NO. 1019,09/PN/09, 1573/PN/08 & 1224/PN/09 (ASSTT. YEAR 2001-02,2004-05 TO 2006-07) PAGE 2 OF 10 7) PAYMENTS OF SUB-CONTRACTORS APPLICABILITY OF PRO VISIONS OF SEC. 40(A)(IA) 8) INTEREST U/S. 234B & 234D. ON CONSIDERING THE COMMONALITY OF ISSUES, FACTS OF T HE ISSUE AND THE REPRESENTATIVES, ALL THE APPEALS ARE CONSOLIDATED AND THEY ARE BEING DISPOSED IN THIS COMPOSITE ORDER. THE ISSUE-WISE ADJUDICATION IS GIVEN THE SUBSEQUENT PARAGRAPHS. 1. ALLOWABILITY OF GRATUITY PREMIUM PROVISION FOR P AYMENT U/S. SEC. 43B VS. 40A(7)(B) OF THE ACT 2. THIS ISSUE IS RELEVANT TO APPEAL VIDE ITA NO. 1019 /PN/09 FOR THE A.Y 2001-02. IN CONNECTION WITH THIS ISSUE, LD. COUNSEL FOR THE ASSESSEE FILED A CHART SHOWING THAT THE IDENTICAL ISSUE WAS COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEE OWN CASE FO R THE A.Y 2003-04 VIDE ITA 381 /PN/07 A COPY OF WHICH IS PLACED AT PAGE 1 OF THE P APER BOOK. IN THIS REGARD, LD. COUNSEL MENTIONED THAT PARA 4 TO 7 ARE RELEVANT. LD. DR FOR REVENUE RELIED ON THE RELEVANT ORDERS OF THE REVENUE. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE SAID ORDER OF THE TRIBUNAL AND REPRODUCED PARA 4 TO 7:- 4. THE OBSERVATION OF THE A.O WAS THAT THE ASSESSE E HAD MADE A PROVISION OF THE PREMIUM PAYABLE TOWARDS THE POLICY TAKEN BY THE ASSESSEE UNDER THE GROUP GRATUITY SCHEME OF THE LIC . ACCORDING TO A.O ONLY A PROVISION WAS MADE HOWEVER THE SAME WAS NOT ACTUALLY PAID DURING THE YEAR UNDER CONSIDERATION. INVOKING THE PROVISIO NS OF SEC. 43B A SHOW CAUSE WAS ISSUED AS TO WHY THE SAID PROVISION BE NO T DISALLOWED BEING NOT PAID. THE EXPLANATION OF THE ASSESSEE WAS AS UNDER: - THE ASSESSEE HAS MADE PROVISION OF RS. 38.22 LAKHS BEING PREMIUM PAYABLE TO LIFE INSURANCE CORPORATION FOR T HE YEAR UNDER CONSIDERATION. THE PREMIUM PAYABLE TO LIC HAS NOT B EEN ADDED BACK IN THE COMPUTATION OF THE INCOME AS REQUIRED B Y SEC. 43B(B) OF THE I.T. ACT, 1961. IN THIS CONNECTION, WE INVITE Y OUR HONORS ATTENTION TO NOTE NO. 3 OF THE INCOME TAX RETURNS W HICH REDS AS FOLLOWS:- PROVISION FOR GRATUITY PREMIUM OF RS. 38.22 LAKHS HAS NOT BEEN DISALLOWED UNDER SECTION 43B(B), VIEW OF THE PROVIS IONS OF SEC. 40A(7)(B). ASSESSEE RELIES ON THE DECISION OF ITAT JABALPUR BENCH IN THE CASE OF MEWAR SUGAR MILLS LTD. VS. DCIT REPORTE D IN TTJ VOLUME- 61 PAGE 633 (COPY ENCLOSED) IN THIS CONNECTION, THE ASSESSEE ALSO WISHES TO SUB MIT FURTHER ON THE SUBJECT AS UNDER:- FOR THE F.Y. UNDER CONSIDERATION, PROVISION FOR GR ATUITY PREMIUM WAS MADE IN THE BOOKS. THOUGH THE PROVISION FOR GRA TUITY IS COVERED U/S. 43B(B), NO DISALLOWANCE HAS BEEN MADE IN VIEW OF THE PROVISIONS OF SECTION 40A(7)(B). ITA NO. 1019,09/PN/09, 1573/PN/08 & 1224/PN/09 (ASSTT. YEAR 2001-02,2004-05 TO 2006-07) PAGE 3 OF 10 PROVISION OF SECTION 40A(7) ARE APPLICABLE ONLY IF THE PROVISION TOWARDS GRATUITY IS MADE. THE DISTINGUISHING FACTOR IS THAT THE COMPANY HAS TAKEN POLICY UNDER /GROUP GRATUITY SCHE ME OF LIC. FURTHER, SECTION 40A(7) IN CLAUSE (B) CATEGORICALLY MENTIONS THAT NOTHING IN CLAUSE (A) SHALL APPLY IN RELATION TO- I) ANY PROVISION MADE BY THE ASSESSEE FOR THE PURPO SE OF PAYMENT OF A SUM BY WAY OF ANY CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND, OR FOR THE PURPOSES OF PAYMENT OF AN Y GRATUITY THAT HAS BECOME PAYABLE DURING THE PREVIOUS YEAR. THE ASSESS EE SUBMITS THAT THE ASSESSEES GRATUITY FUND IS MANAGED BY THE LIC AND IS APPROVED UNDER THE INCOME TAX ACT. MOREOVER, THE PREMIUM PAYABLE TO THE LIC IS BASED, NOT ONLY ON THE WAGES BILL BUT ALSO TAKES INTO ACCOUNT THE INCREMEN T IN SALARY, INTEREST RATE, MORTALITY RATE ETC. ASSESSEE RELIES ON THE JUDGEMENT OF ITAT JAIPUR BEN CH IN CASE OF MEWAR SUGAR MILLS LTD., VS. DCIT 61 TTJ 63 AND OF M ADRAS HIGH COURT IN THE CASE OF TUTTAPULLAM ESTATES VS. CIT (1 991) 191 ITR 131 (MAD.), IN WHICH IT WAS HELD THAT WHERE THE PROVISIONS OF GRATUITY WAS NOT BASED ON ANY ACTUARI AL VALUATION BUT ON THE BASIS OF 15 DAYS WAGES FOR EACH YEAR OF COMP LETED SERVICE AND A GROUP INSURANCE POLICY HAD BEEN TAKEN WITH TH E LIFE INSURANCE CORPORATION, THE ASSESSEE WAS HELD ENTITLED TO CLAI M ONLY THE INCREMENTAL LIABILITY RELATING TO THE ACCOUNTING YE AR AS A DEDUCTION. 5. HOWEVER THE A.O WAS NOT CONVINCED AND HELD THAT SINCE THE PAYMENT OF GRATUITY FUND WAS A LIABILITY OF THE EMP LOYER THEREFORE THE PROVISION WAS TO BE ADDED BACK TO THE TOTAL INCOME. AGAINST THE ADDITION AN APPEAL WAS PREFERRED. IT WAS EXPLAINED THAT SINC E THE ASSESSEE WAS FACING SEVER LIQUIDITY CRUNCH AND ALSO FACING NON-C OOPERATION FROM ITS BANKERS, THEREFORE COULD NOT MAKE THE PAYMENT OF PR EMIUM OF GRATUITY DURING THE YEAR UNDER CONSIDERATION. FURTHER THE RE LIANCE WAS PLACED ON GEORGE WILLIAMSON (ASSAM) LTD. V. CIT 228 ITR 343. LD. CIT(A) WAS NOT CONVINCED AND UPHELD THE ADDITION. 6. WE HAVE HEARD BOTH THE SIDES IN THE LIGHT OF THE MATERIAL PLACED BEFORE US AND CASE LAWS CITED. AT THE OUT SET IT IS WORTH TO MENTION THAT IN THE CASE OF GEORGE WILLIAMSON (ASSAM) LTD. V. CIT 228 ITR 343 (GAUHATI) THE IDENTICAL ISSUE HAD CROPPED UP WHEREI N IT WAS HELD AS UNDER:- IN CASE A PROVISION IS MADE FOR PAYMENT OF GRATUIT Y TO RETIRING EMPLOYEES IN RESPECT OF THE PREVIOUS YEAR, IT IS NO T NECESSARY THAT ACTUAL PAYMENT HAS TO BE MADE. IF SUCH AMOUNT IS EARMARKED FOR PAYMENT OF GRATUITY, I.E., PROVISION IS MADE FOR PAYMENT OF GRATUITY, THE AMOUNT HAS TO BE ALLOWED F OR DEDUCTION. 7. SINCE THE HONBLE COURT HAS HELD THAT A PROVISIO N FOR PAYMENT OF GRATUITY IS EARMARKED FOR PAYMENT THEN SUCH AN AMOU NT DESERVES TO BE ALLOWED AS A DEDUCTION. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE HEREBY FOLLOW THE AFOR EMENTIONED VERDICT AND DIRECT THE A.O TO ALLOW THE CLAIM. ITA NO. 1019,09/PN/09, 1573/PN/08 & 1224/PN/09 (ASSTT. YEAR 2001-02,2004-05 TO 2006-07) PAGE 4 OF 10 4. THUS, FROM THE ABOVE EXTRACT REPRODUCED, IT IS EVIDE NT THAT THE PROVISIONS OF SEC. 40A(7)(B) ARE APPLICABLE TO THE ASSESSEES C LAIM. AS SUCH, THE FUND IN QUESTION IS AN APPROVED ONE. THEREFORE, THE ISSUE IS COVERED BY THE ABOVE REFERRED FINDINGS OF THE TRIBUNAL FOR THE A.Y 2003-04. W E FIND NO REASON TO INTERFERE IN THE SAID ORDER. ACCORDINGLY RELEVANT GROUND O F THE ASSESSEES APPEALS IS ALLOWED IN HIS FAVOUR . 2. TREATMENT OF LOSS GENERATED OUT OF JOINT VENTURE IN QATAR: THIS ISSUE IS RELEVANT TO ITA NO. 1019/PN/09 FOR THE A.Y 2001-02. DURING THE PROCEEDINGS BEFORE, RELYING ON PARA 8 OF THE IMPUG NED ORDER, THE LD. COUNSEL MENTIONED THAT THE ASSESSEE WAS IN JOINT VE NTURE AGREEMENT WITH THE CONSTRUCTION DEVELOPMENT COMPANY (CDC) AT QATAR TO C ARRY OUT ERECTION/CONSTRUCTION ACTIVITY IN QATAR. IN THE PROCESS , ASSESSEE INCURRED NET LOSS OF RS. 53,30,778/- AFTER SETTING UP OF CERTAIN RECEIPT S PAYABLE BY AN ENTERPRISES RELATED TO CDC AT QATAR. A.O DISALLOWED THE CLAIM OF THE LOSSES ESSENTIALLY HOLDING THAT ASSESSEE DID NOT HAVE REQUISITE APPROVAL OF RBI FOR INCURRING OF THE IMPUGNED EXPENDITURE. IT APPEARS THAT THE ASSESSEE WA NTED TO INTRODUCE THE ABOVE SUM OF RS. 53,30,778/- IN THE SHARE CAPITAL IN THE SAID JV. LD. COUNSEL ALSO MENTIONED THAT RBI DID NOT GRANT REQUISITE APPROVAL FO R CONVERSION OF THE SAID EXPENDITURE IN THE FORM OF EQUITY CONTRIBUTION INTO T HE JOINT VENTURE OTHERWISE SUCH EXPENSES ARE ALLOWABLE UNDER AUTOMATIC ROUTE. LD. COUNSEL FURTHER ARGUED STATING THAT THE GENUINENESS OF THE EXPENDITURE IN Q UESTION WAS NOT DOUBTED BY THE REVENUE AND THE SAME IS OBVIOUSLY INCIDENTAL TO ABANDONED PROJECT. THEREFORE, THE SAME IS ALLOWABLE AS THE BUSINESS EXPE NDITURE OF THE ASSESSEE. FURTHER, LD COUNSEL AGRUED THAT THE REVENUE AUTHORITIE S ERRONEOUSLY RELIED UPON THE SUPREME COURT JUDGEMENT IN THE CASE OF MADDI VENK ATARAMAN AND CO. (P) LTD 229 ITR 534(SC) THE FACTS OF WHICH ARE ENTIRELY D IFFERENT. THE BENCH HAS RAISED CERTAIN QUESTIONS ABOUT THE DETAILS OF THE BUS INESS NATURE OF THE EXPENDITURE, NATURE OF AND QUANTUM OF THE GROSS EXPENS ES, WHAT ARE THE IMPUGNED RECEIPTS ADJUSTED TO ARRIVE AT THE IMPUGNED OF LOSS OF RS. 53,30,778/-. LD. COUNSEL FAIRLY ADMITTED THE LACK OF SUCH DETAIL S WITH HIM AND HE MENTIONED THAT IF NEEDED THE ISSUE MAY BE SENT TO THE FILES O F THE A.O FOR EXAMINING OF THIS ISSUES. LD. DR. HAVE NO OBJECTION FOR THE SAME. FURTH ER, LD. COUNSEL RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF SANCHAY FIN ANCE CO. LTD. (2005) 93 TTJ 153. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDE RS OF THE REVENUE AND FROM THE ORDERS, WE FIND THAT NOBODY HAS GONE INTO THE BONAFIDES OF ITA NO. 1019,09/PN/09, 1573/PN/08 & 1224/PN/09 (ASSTT. YEAR 2001-02,2004-05 TO 2006-07) PAGE 5 OF 10 EXPENDITURE, NATURE AND QUANTUM OF THE EXPENDITURE, IF THEY ARE REVENUE OR CAPITAL. REVENUE HAS ALSO NOT EXAMINED THE DETAILS OF THE RECEIPTS ADJUSTED AGAINST THE EXPENDITURE INCURRED BY THE JOINT VENTURE A ND WHAT ARE THE TERMS AND CONDITIONS WHICH RESULTED IN GRANT OF SUCH SET OF F OF INCOME WITH THE IMPUGNED LOSS. THERE IS NO DISCUSSION ON THE STATUS OF THE JV AND IF THE JV IS IN EXISTENCE, HOW THE IMPUGNED LOSS IS THE LOSS OF THE ASSESSEE AND NOT THAT OF THE JV? THERE IS NO DISCUSSION WHETHER THE PROJECT IN QUES TION IS ABANDONED AND THE CIRCUMSTANCES THEREFORE. FURTHER WE FIND THERE IS INSUFFI CIENT INFORMATION WITH REGARD TO THE GENESIS OF THE JOINT VENTURE AND THE STA TUS OF THE JOINT VENTURE. IT IS NOT CLEAR WHETHER THE JOINT VENTURE IN QUESTION IS A SEPARATE LEGAL ENTITY AND THE EXPENDITURE INCURRED ON THE JOINT VENTURE IS THE I NITIAL INVESTMENT OR EQUITY AND THE NATURE THERE OF. CONSIDERING THE COMPLEXITY OF THE ISSUE, IN OUR OPINION, IT IS JUDICIOUSLY APPROPRIATE TO SEND THIS ISSUE BACK TO THE FILES OF THE A.O AS REQUESTED BY THE PARTIES. A.O IS DIRECTED TO EXAMINE ALL THE ISSUES MENTIONED AFRESH AND MAKE A DE NOVO ASSESSMENT PRO-TANTO AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD. ACCORDINGLY, RELATED GROUND S ARE SET ASIDE . 3. TAXABILITY OF INTEREST RECEIVABLE FROM UPSEB: THIS ISSUE IS RELEVANT TO ITA NOS. 1019, 9, 1573 & 1224/PN/09 FOR T HE A.Y 2001-02 & 2004-05 TO 2006-07. IN CONNECTION WITH THIS ISSUE LD. COUNS EL NARRATED THE FACTS BY STATING THE INTEREST IN QUESTION IS RECEIVABLE FROM UP SEB AND THE JUDICIAL CONSIDERATION OF THE ARBITRATION AWARD AS PER THE ASSE SSEE, NO INTEREST HAS BEEN EVER ACCRUED AS THE MATTER IS STILL PENDING BEFORE THE HIGH COURT OF LUCKNOW. LD. COUNSEL FAIRLY MENTIONED THAT THIS ISSUE MAY BE IDEN TICAL ISSUE HAS COME UP FOR DECISION BEFORE THE TRIBUNAL IN THE A.Y 2003-04 IN TH E ASSESSEES OWN CASE. IN THIS REGARD LD. COUNSEL TOOK US TO THE PARA 8 TO DEMO NSTRATE THE SIMILARITY OF THE FACT AND THEREFORE, THE APPLICABILITY OF SAID DECISIO N FOR THIS YEAR ALSO. FURTHER, LD. COUNSEL MENTIONED THAT THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND THE DECISION OF LOWER AUTHORITIES WERE REVERSED BY THE T RIBUNAL AS SEEN FROM PARA 10 OF THE DECISION OF THE TRIBUNAL ORDER DATED 11-09- 2009. ON THE OTHER HAND LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF THE REVE NUE. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDER OF THE TRIBUNAL DATED 11-09-2009 AND PARA 8 TO 10 IN PARTICULAR. THE SE PARAGRAPHS ARE EXHAUSTIVE GIVING DETAILS OF THE FACTS OF THE ARGUME NTS AND FINALLY THE DECISION OF THE TRIBUNAL IN FAOVUR OF THE ASSESSEE. FOR THE SAKE O F COMPLETENESS THE SAME IS REPRODUCED AS UNDER:- ITA NO. 1019,09/PN/09, 1573/PN/08 & 1224/PN/09 (ASSTT. YEAR 2001-02,2004-05 TO 2006-07) PAGE 6 OF 10 8.1. THE OBSERVATION OF THE A.O WAS THAT THOUGH T HERE WAS A MENTION IN THE NOTES APPENDED ALONGWITH THE RETURN BUT THE AMO UNT OF INTEREST FROM UTTAR PRADESH STATE ELECTRICITY BOARD WAS NOT OFFERED TO TAX THOUGH IT HAD ACCRUED TO THE ASSESSEE AS PER THE COURT ORDER. THIS OBSERV ATION OF THE A.O WAS CONTESTED AND THE FACTS IN THIS REGARD WERE NARRATE D AS FOLLOWS:- A) UTTAR PRADESH STATE ELECTRICITY BOARD (UPSEB) A WARDED TO WESTERN INDIA ERECTORS LIMITED (NOW KNOWN AS UB ENGINEERING LIMITED) AS JOB OF ERECTION, TESTING AND COMMISSIONING OF 3 X 210 MW B OILERS AND AUXILIARIES AT AN PARA A TPS IN THE YEAR 1981. B) THE CONTRACT VALUE OF THE PROJECT WAS RS. 5,13,0 3,180/-. C) JOB WAS TO BE COMPLETED WITHIN 3 YEARS + 1 YEARS GRACE PERIOD FROM THE DATE OF COMMENCEMENT OF WORK. D) WORK WAS ACTUALLY COMPLETED ON MARCH 1989. SINCE DELAY WAS ATTRIBUTABLE TO UPSEB, THEY PAID OVERRUN CHARGES. E) COMPANY RAISED BILLS TOWARDS ADDITIONAL CLAIMS F OR REGULAR AS WELL AS EXTRA WORK WHICH WERE NOT ACCEPTED BY UPSEB. THE DISPUTE WAS REFERRED TO HON. MR. JUSTICE D.B. DESHPANDE, RETIRE D JUDGE OF BOMBAY HIGH COURT BY THE ASSESSEE AND HON. MR. JUST ICE B. LUMBA, RETIRED JUDGE OF ALLAHABAD HIGH COURT BY UPSEB. F) SINCE THE ARBITRATORS COULD NOT GIVE JOINT AWARD , THEY PASSED SEPARATE ORDERS ON 18 TH MARCH,1996. G) DUE TO DISAGREEMENT BETWEEN THE ARBITRATORS, MAT TER WAS REFERRED TO HON. MR. JUSTICE JASWANT SINGH, RETIRED JUDGE OF SU PREME COURT, WHO WAS APPOINTED AS AN UMPIRE BY THE TWO ARBITRATO RS. THE UMPIRE GAVE HIS AWARD ON 20 TH MARCH, 1998. H) ON RECEIPT OF THE AWARD, ASSESSEE FILED THE AWAR D WITH THE COURT OF CIVIL JUDGE, SR. DIVN. LUCKNOW ON 17/04/1998 WITH A PRAYER OF PRONOUNCING JUDGMENT AND PASS A DECREE. I) THE UPSEB RAISED OBJECTION AGAINST THE AWARD AND PRAYED THE COURT TO SET IT ASIDE. J) THEN THE COURT OF CIVIL JUDGE, SR. DIVN. LUCKNOW , PRONOUNCED JUDGMENT IN TERMS OF THE AWARD AND MADE THE SAID AWARD A RULE OF THE COURT VIDE ITS ORDER DATED 12/09/2000. K) BASED UPON ABOVE REFERRED FACTS, SUPPORTED WITH LEGAL OPINION, ASSESSEE HAS ALREADY CONSIDERED ENTIRE CLAIM OF RS. 8.84 CRORES AND INTEREST THEREON UPTO 31 ST MARCH, 2000 AMOUNTING TO RS.10.16 CRORES AS INCOME DURING THE RELEVANT PREVIOUS YEARS, WHICH IS ALREADY STATED IN NOTE NO.6 A) OF THE ANNUAL REPORT FOR THE F.Y. 2001-02. L) THEREAFTER, ON 11 TH DECEMBER, 2000, UPSEB FILED APPLICATION WITH HON. HIGH COURT, ALLAHABAD LUCKNOW BENCH, U/S.39 OF THE ARBITRATION ACT, CHALLENGING THE EXECUTION OF JUDGM ENT AND DECREE DATED 12 TH SEPTEMBER, 2000, PASSED BY COURT OF CIVIL JUDGE, LUCKNOW. ONCE THE HONBLE HIGH COURT ADMITTED THE A PPLICATION, THE MATTER HAD BECOME SUBJUDICE AND THE INCOME BECAME U NCERTAIN TILL THE FINAL JUDGMENT IS DELIVERED BY THE HIGH COURT. IT IS ALSO PERTINENT TO NOTE HERE THAT IF THE HONBLE HIGH COURT WOULD H AVE REJECTED UPSEBS APPLICATION DATED 11 TH DECEMBER, 2000, THE ASSESSEE WAS DULY BOUND TO CONSIDER THE INTEREST FOR THE RELEVAN T PERIOD AS INCOME IN ITS BOOKS. M) IT MAY ALSO PLEASE BE NOTED THAT EVEN THE STATUT ORY AUDITORS, IN THEIR REPORT FOR THE F.Y. 2001-02, ALSO EXPRESSED THEIR I NABILITY BY QUALIFYING THE AUDITORS REPORT IN PARA 4 (B) OF TH EIR REPORT. ITA NO. 1019,09/PN/09, 1573/PN/08 & 1224/PN/09 (ASSTT. YEAR 2001-02,2004-05 TO 2006-07) PAGE 7 OF 10 N) FROM THE ABOVE FACTS IT WILL BE SEEN THAT THE MA TTER IS STILL SUBJUDICE AND THOUGH ASSESSEE HAS ACCOUNTED FOR THE INCOME OF RS. 19.01 CRORES TILL THEN, THE ASSESSEE HAS NOT RECOVERED A SINGLE PAI OF THE SAID AMOUNT EVEN TILL DATE. THE ACCOUNTING ENTRIES TO THE TUNE OF RS. 19.01 CRORES WERE PASSED AT THAT POINT OF TIME IN V IEW OF THE DECISION OF THE COURT OF CIVIL JUDGE, SR. DIVISION, LUCKNOW RECEIVED ON 12/09/2000. HOWEVER, AS STATED EARLIER, UPSEB CH ALLENGED THE JUDGMENT OF THE LUCKNOW COURT, NO FURTHER INTEREST IS ACCOUNTED FOR BY THE ASSESSEE COMPANY. 8.2. THE THEORY OF REAL INCOME WAS NOT ACCEPTED BY THE A.O AND ON THE BASIS OF THE ARBITRATION AWARD BEING IN FAVOUR OF T HE ASSESSEE AND THAT WAS CONFIRMED BY THE COURT OF CIVIL JUDGE, SENIOR DIVIS ION, LUCKNOW THE A.O HAS DECIDED TO TAX THE INTEREST ACCRUED ON THE SUM OUTS TANDING CALCULATED AT RS. 2,03,03,959/-. AGAINST THE ADDITION AN APPEAL WAS F ILED. 9. THE FIRST APPELLATE AUTHORITY WAS ALSO NOT CONV INCED AND HELD THAT TILL THE HIGH COURT TAKES AN ADVERSE VIEW TO REVERSE THE DEC ISION OF THE CIVIL JUDGE THE INCOME WILL CONTINUE TO ACCRUE IN THE HANDS OF THE ASSESSEE. FROM THE SIDE OF THE APPELLANT STRONG RELIANCE WAS PLACED ON GODHRA ELECTRICITY CO. LTD. 225 ITR 746, WESTERN INDIA OIL DISTRIBUTING CO. LTD . VS. CIT (BOM.) 206 ITR 359, KEWAL CHAND BAGRI VS. CIT (CAL.) 183 ITR 207 AND M/S. SHOORJI VALLABHDAS AND CO. 46 ITR 144. HOWEVER THE LD. CIT( A) WAS NOT CONVINCED AND FINALLY HELD THAT THE PASSING OF DECREE BY THE COURT OF CIVIL JUDGE, SENIOR DIVISION, LUCKNOW , WAS NOT NEGATIVED BY ANY OF THE AUTHORITIES AND TAKING THE PROBABILITY OF REALIZATION OF INCOME IN REALISTIC M ANNER THE INCOME WOULD CONTINUE TO ACCRUE IN THE HANDS OF THE ASSESSEE AS LONG AS THE JUDGMENTS IN FAVOUR OF THE ASSESSEE HAD NOT BEEN REVERSED. SINCE THE ACTION OF THE A.O WAS AFFIRMED NOW THE ASSESSEE IS FURTHER IN APPEAL. 10. HEARD BOTH THE SIDES AND THE RELEVANT RECORD WAS PERUSED. ON PERUSAL IT IS EVIDENT THAT THE DISPUTE WAS VERY MUC H IN EXISTENCE. IT WAS NOT A CASE OF UNDISPUTED ACCRUAL OF INCOME AND THAT WAS B ECAUSE OF THE REASON THAT THE OTHER SIDE I.E., UPSEB WAS CONTESTING ITS LIABILITY AND THE LIABILITY WAS NOT ACCEPTED BY THE PAYEE THAT IS WHY THE MATTER WA S FIRST REFERRED FOR AN ARBITRATION AND THE HONBLE RETIRED JUDGES OF THE H IGH COURTS WERE INVOLVED AS AN ARBITRATOR BUT THERE WAS NO CONSENSUS AND SEP ARATE ORDERS WERE PASSED DUE TO DISAGREEMENT. THE MATER WAS AGAIN REF ERRED TO HONBLE RETIRED JUDGE OF SUPREME COURT TO ACT AS AN EMPIRE AND THEREAFTER ONE MORE AWARD WAS PRONOUNCED. THE MATTER REACHED TO THE COU RT OF CIVIL JUDGE AND THAT TOO WAS NOT ACCEPTABLE; HENCE THE EXECUTION OF THE JUDGMENT AND THE DECREE WERE FURTHER CHALLENGED BEFORE THE HONBLE A LLAHABAD HIGH COURT. UNDISPUTEDLY AS ON DATE WHEN THE YEAR UNDER CONSIDE RATION WAS SUBJECT TO ASSESSMENT THE MATTER WAS SUB-JUDICE IN THE COURT. IN THE LIGHT OF THIS FACTUAL BACKGROUND ONCE THE CLAIM IS SUBJECT TO CHEQUERED L EGAL HURDLES THE QUESTION IS THAT WHETHER IT IS JUSTIFIABLE TO UPHELD THE VIE W OF THE REVENUE AUTHORITIES THAT THE INCOME HAD ACTUALLY ACCRUED TO THE ASSESSE E AND MORE PRECISELY WHETHER IT WAS THE REAL INCOME WHICH CAN BE SUBJE CT TO TAX I.E., ACCRUAL OF INTEREST INCOME ON THE OUTSTANDING AMOUNT. THE ANSW ER HAS ALREADY BEEN GIVEN BY THE HONBLE COURT SUCH AS IN THE CASE OF G ODHRA ELECTRICITY CO. LTD. 225 ITR 746 (SC) THAT THE INCOME CAN BE TAXED IF IT ACCRUES OR IS RECEIVED BUT THE SUBSTANCE IS THAT THE INCOME MUST EXISTS AND IF INCOME DOES NOT RESULT AT ALL THEN NOT SUBJECTED TO LEVY OF TAX MERELY ON A H YPOTHETICAL INCOME WHICH HAD NOT MATERIALISE IN A PARTICULAR YEAR. IN AN OLD LANDMARK DECISION OF HONBLE SUPREME COURT THE OBSERVATION WAS THAT IF INCOME DO ES NOT RESULT AT ALL, THOUGH AN ENTRY IS MADE IN BOOK KEEPING, BUT IN THE NATURE OF A HYPOTHETICAL INCOME WHICH HAS NOT MATERIALISED THEN CANNOT BE TA XED, CITATION M/S. SHOORJI VALLABHDAS AND CO. 46 ITR 144 (SC). THOUGH THESE TWO DECISIONS ARE SUFFICIENT FOR GUIDANCE BUT FOR THE SAKE OF COMPLET ENESS THE OTHER ORDER REFERRED BY THE LD. AR VIZ. SRI KEWAL CHAND BAGRI V S. CIT (CAL.) 183 ITR 207 IS ALSO TO BE DISCUSSED WHEREIN THE PAST JUDGMENTS HAVE BEEN CONSIDERED AT ITA NO. 1019,09/PN/09, 1573/PN/08 & 1224/PN/09 (ASSTT. YEAR 2001-02,2004-05 TO 2006-07) PAGE 8 OF 10 LENGTH AND THEREAFTER IT WAS HELD THAT IN CASE ASSE SSEE IS UNABLE TO REALISE INTEREST ON LOAN FROM DEBTOR OR IN CASE DEBTOR IS U NABLE TO PAY, THEN IN A SITUATION OF UNCERTAINTY ACCRUAL OF INTEREST IS NOT ASSESSABLE IN THE HANDS OF THE ASSESSEE. FACTS OF THIS CASE HAVE DEMONSTRATED THE EXISTENCE OF UNCERTAINTY SPECIALLY WHEN THE DISPUTE WAS STRONGLY CONTESTED AND DURING THE YEAR UNDER CONSIDERATION WAS STILL SUB-JUDICE BEFOR E HONBLE COURT HENCE NOT JUDICIALLY ADVISABLE TO HOLD THAT SUCH AN INCOME IS THE REAL INCOME IN THE HANDS OF THE ASSESSEE OR HYPOTHETICALLY ACCRUED IN THE HANDS OF THE ASSESSEE THAT TOO FOR THE PURPOSE OF LEVY OF TAX. THE VIEW T AKEN BY THE AUTHORITIES BELOW IS THEREFORE REVERSED AND GROUND ALLOWED. 7. CONSIDERING THE ABOVE COMPARABILITY OF THE FACTS AND THE ARGUMENTS, WE ARE OF THE OPINION THAT THE DECISION OF THE TRIBUNAL HOLDS GOOD FOR THE YEAR UNDER CONSIDERATION ALSO. ACCORDINGLY, THE RELEVANT GROUNDS OF THE ASSESSEES APPEALS ARE ALLOWED. 4. CLAIM OF PRIOR PERIOD EXPENSES: THIS ISSUE IS RELEVANT TO ITA NO. 1019/PN/09 FOR THE A.Y 2001-02. ON FACTS, LD. COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ASSESSEE HAS RUNNING ACC OUNT WITH THE SUBSIDIARY AND DURING THE YEAR THE ASSESSEE HAS COME TO KNOW THA T THE AMOUNTS WERE SHORT RECEIVED FROM THE SAID SISTER CONCERN. THOUGH THE AMOUN TS WERE ERRONEOUSLY TREATED AS BAD DEBTS BY THE ASSESSEE IN HIS BOOKS, T HESE ARE ACTUALLY PRIOR PERIOD EXPENSES INCURRED BY THE ASSESSEE FOR THE SERVICES RECEI VED IN THE PAST. IN THIS REGARD, LD. COUNSEL RELIED ON THE JUDGEMENT OF THE TRIB UNAL IN THE CASE OF TOYO ENGINEERING INDIA LTD. VS. JT. CIT (2006) 5 SOT 616 (MUMBAI) AND POINTED OUT AS TO HOW THIS ISSUE IS NOT COVERED BY THE SPECIAL BEN CH DECISION IN THE CASE OF MUKUND STEELS. LD. COUNSEL STATED THAT HE SHALL FIL E NECESSARY JUDGMENTS IN THIS REGARD WHICH HAVE NOT BEEN FILED BEFORE US. THE ASSESS EE IS UNABLE TO BRING OUT REQUISITE DOCUMENTS OR EXTRACTS FROM THE BOOKS OF ACCOU NTS MAINTAINED BY THE ASSESSEE. IT IS NOT CLEAR AS TO WHEN THE LIABILITY T O EXPAND ACCRUED AND UNABLE TO ESTABLISH AS TO HOW THESE WERE TREATED AS BAD DEBTS IN THE BOOKS IN STEAD OF PRIOR PERIOD EXPENDITURE AND HOW THE MAINTENANCE OF RUNN ING ACCOUNT WITH THE SISTER CONCERN SHALL ABSOLVE THE ACCOUNTABILITY OF MA INTAINING THE PROPER ACCOUNTING OF THE IMPUGNED ENTRIES ETC. CONSIDERING THE COMPLEXITY OF THE OF THE ISSUE AND THE REQUIREMENT OF RELEVANT FACTS AND FU RTHER THE SETTLED NATURE OF THE ISSUE IN QUESTION AT THE LEVEL OF THE SPECIAL B ENCH OF THE TRIBUNAL ON THE ISSUE, WE ARE OF THE OPINION THAT MATTER SHOULD BE REF ERRED TO THE FILES OF THE A.O FOR DECIDING THE ISSUE AFRESH AFTER GIVING REASONABLE O PPORTUNITY OF BEING HEARD TO THE ASSESSEE. A.O SHOULD GIVEN A CATEGORICAL FIN DING HOW THE CLAIM IN QUESTION ARE PRIOR PERIOD EXPENSES. ACCORDINGLY, RELEVANT GROUNDS ARE SET ASIDE . ITA NO. 1019,09/PN/09, 1573/PN/08 & 1224/PN/09 (ASSTT. YEAR 2001-02,2004-05 TO 2006-07) PAGE 9 OF 10 5. ALLOWABILITY OF INTEREST ON TERM LOAN APPLICAB ILITY OF PROVISIONS OF SEC. 43B(E): THIS ISSUE IS RELEVANT TO ITA NO. 09/PN/09 FOR THE A.Y 2004-05 . AT THE VERY OUTSET, BOTH THE PARTIES HAVE MENTIONED THAT THE ISSUE RELATES TO THE APPLICABILITY OF THE PROVISION OF SEC. 43B(E) WHICH IS IN THE STATUTE WITH EFFECT FROM 01-04-1997 INTRODUCED BY THE FINANCE NO. 2 ACT, 1996. FURTHER LD. COUNSEL MENTIONED THAT W.E.F 01-04-2004 T HE CLAUSE (E) WAS AMENDED WHEREBY THE WORDS TERM LOAN WERE REPLACED BY THE LOANS OR ADVANCES . THUS THE INTEREST IN QUESTION IS RELATABLE TO THE TERM LOANS TAKEN FROM THE BANK OF MAHARASHTRA AND DEVELOPMENT CREDIT BAN K AND IT HAS TO BE EXAMINED THE APPLICABILITY OF THE AMENDED PROVISION S. BOTH THE PARTIES CONCURRED IN SENDING THIS ISSUE TO THE FILES OF THE A.O FOR DE CIDING THE ISSUE AFRESH IN THE LIGHT OF THE FACT LAW AND DECISION EXISTING IN THIS REGARD. ACCORDINGLY, THE RELEVANT GROUND IS SET ASIDE TO THE FILES OF THE A.O FOR DECIDING THE ISSUE AFRES H AFTER GIVING OPPORTUNITY TO THE ASSESSEE. 6. CLAIMS OF PROVIDENT FUND: THIS ISSUE IS RELEVANT TO ITA NO. 1573/PN/09 FOR THE A.Y 2005-06. DURING THE PROCEEDINGS LD. COUNSEL FOR THE ASSESSEE STATED THAT THE A.O DISALLOWED THE CLA IM OF PROVIDENT FUND CONTRIBUTION RELYING ON THE THEN EXISTING JUDGEMENTS. FURTHER, LD. COUNSEL MENTIONED THAT THERE ARE VARIOUS JUDGEMENTS IN FAVOUR O F THE ASSESSEE FOR THE PROPOSITION THAT THE P.F CONTRIBUTION IF PAID BEFORE THE DUE DATE FOR FILING OF RETURN OF INCOME, THE CLAIM SHOULD BE ALLOWED. SOME O F THESE DECISIONS ARE JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF AIMIL L TD. 321 ITR 508 (DEL.), JUDGEMENT OF SUPREME COURT IN THE CASE OF ALOM EXTRUSI ONS LTD. 319 ITR 306 (SC). 8. WE HAVE HEARD BOTH PARTIES AND PERUSED THE ORDERS OF THE REVENUE AS WELL AS THE JUDGEMENTS CITED BY THE ASSESSEE. ON TH E BASIS OF UNDISPUTED FACT THE AMOUNTS IN QUESTION WERE PAID AFTER THE END OF TH E MARCH AND BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME AND ALSO IN V IEW OF THE SUPREME COURT DECISION IN THE CASE OF ALOM EXTRUSIONS LTD. (SUPRA) FOR THE PROPOSITION THAT THE DELETION OF THE 2 ND PROVISO TO SEC. 43B IS CLARIFICATORY IN NATURE. NOTHIN G CONTRARY IS BROUGHT TO OUR NOTICE BY THE REVENUE. WE ARE OF THE OPINION THE ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, GRO UNDS ARE ALLOWED. 7. PAYMENTS OF SUB-CONTRACTORS APPLICABILITY OF P ROVISIONS OF SEC 40(A)(IA ): THIS ISSUE IS RELEVANT TO ITA NOS. 1573/PN/09 AND 1224/PN/09. MENTIONING THAT THE AMOUNTS TO THE SUB-CONTRACTORS W ERE ALREADY ITA NO. 1019,09/PN/09, 1573/PN/08 & 1224/PN/09 (ASSTT. YEAR 2001-02,2004-05 TO 2006-07) PAGE 10 OF 10 PAID BEFORE THE END OF THE FINANCIAL YEAR AND THERE A RE NO PAYMENTS PAYABLE, LD. COUNSEL ARGUED STATING THAT SAME HAS TO BE DECIDED I N ACCORDANCE WITH DECISION OF THE TRIBUNAL OF THE JAIPUR BENCH IN THE CASE OF JA IPUR VIDYUT VITRAN NIGAM LTD. (2009) 123 TTJ (JP) 888 WHICH IS RELEVANT FOR THE PROP OSITION THAT THE CONTRACT AMOUNTS PAYABLE ARE ALONE ARE COVERED BY THE PROVISI ONS OF SEC. 40(A)IA) OF THE ACT AND NOT THE AMOUNTS PAID BY THE ASSESSEE DURING THE RELEVANT FY. ON THE OTHER HAND LD. DR FOR THE REVENUE RELIED ON THE ORD ERS OF THE REVENUE AND TAKEN US TO THE RELEVANT ORDERS AND MENTIONED THAT THI S ISSUE MUST GO TO THE FILES OF THE A.O FOR APPLYING THE ABOVE REFERRED JUDGEMENT OF THE TRIBUNAL AFTER CONSIDERING EXACT CONTRACT PAID DURING THE YEAR OR OTHERW ISE. WE FIND THAT DRS ARGUMENT HAS A WEIGHT. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE FILES OF THE A.O FOR DECIDING THE ISSUE AFRESH IN THE LIGHT OF THE SAID DECISIONS AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. INTEREST U/S. 234B & 234D: THIS ISSUE IS RELEVANT TO ITA NOS. 1573/PN/09 AND 1224/PN/09 FOR THE A.Y 2005-06 & 20 06-07. THE CIT(A) DISMISSED THIS GROUND THAT THE CHARGING OF INT EREST IS CONSEQUENTIAL IN NATURE. WE FIND NO REASON TO INTERFERE TO SAME. A.O IS DIRECTED TO GIVE EFFECT TO THE CHARGING OF THE INTEREST AS PER THE CHANGES IN THE FIGURES AND ALSO AS PER THE EXISTING LAW IN FORCE. THUS GROUNDS ARE ALLOWED. 9. IN THE RESULT ALL THE FOUR APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON 30 TH NOVEMBER, 2010. SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 30 TH NOVEMBER, 2010 R COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-III, PUNE 4. CIT-(IV), PUNE 5. D.R. ITAT A BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE