H.P.Tourism Development Corporation Ritz Annexe, Shimla V. ACIT, Shimla

ITA 1240/CHANDI/2010

• Counselvise Citation: 124021514 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 01-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 43B; 115JB; 263; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.1240/CHD/2010 ASSESSMENT YEAR: 2007-08 H.P.TOURISM DEVELOPMENT V ACIT, CIRCLE, CORPORATION, RITZ ANNEXE, SHIMLA. THE RIDGE, SHIMLA-1. PAN: AACH-4038E (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VISHAL MOHAN RESPONDENT BY : SMT. JAISHREE SHARMA DATE OF HEARING : 01.03.2012 DATE OF PRONOUNCEMENT : 21.03.2012 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER DATED 24.09.2010 PASSED BY THE LD . CIT(A) U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SHORT 'THE AC T'). 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) IS NOT JUSTIFIED IN HOLDING THE PROVISION CR EATED FOR MEETING THE LIABILITY ON ACCOUNT OF LEAVE ENCASHMENT OF RS.9,76,20,646/- NOT TO BE AN ASCERTAINED LIABILITY AND AS SUCH DISALLOWING THE DEDUCTION OF THE SAME FOR THE PURPOSE OF COMPUTATIO N OF BOOK PROFIT UNDER SECTION 115JB OF THE INCOME-TA X ACT,1961. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE APPLICABIL ITY OF 2 SECTION 43B OF THE INCOME-TAX ACT,1961 IN RESPECT O F DEFERRED LUXURY TAX OF RS.1,74,254/-. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.65,000/- MADE ON ACCOUNT OF THE PROVISION CREATE D ON ACCOUNT OF TA/DA OF STATUTORY AUDITORS. 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A) IS NOT JUSTIFIED IN DIRECTING THE LD. AO TO GIVE CREDIT FOR BF LOSSES AS PER THE LAST ASSESSMENT ORD ER. 3. IN RESPECT OF GROUND NOS. 2 & 3, ASSESSEE STATED THAT THE SAME ARE NOT PRESSED. HENCE, THE SAME ARE DISMISSED AS NOT PRESSED. 4. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, IT TRANSPIRED THAT THE DIRECTIONS ISSUED BY THE CIT(A) , IN RESPECT OF GROUND NO.4, ARE IN CONSONANCE WITH THE FACT-SITUAT ION OF THE CASE AND RELEVANT PROVISIONS OF THE ACT. CONSEQUEN TLY, SUCH DIRECTIONS ISSUED BY CIT(A) NEED NO INTERFERENCE. HENCE, GROUND NO. 4 OF APPEAL OF THE ASSESSEE IS DISMISSED. 5. IN GROUND NO.1, THE ASSESSEE CONTENDED THAT CIT( A) IS NOT JUSTIFIED IN HOLDING THAT THE PROVISION CREATED FOR MEETING THE LIABILITY ON ACCOUNT OF LEAVE ENCASHMENT OF RS.9,76 ,20,646/-, NOT TO BE AN ASCERTAINED LIABILITY AND AS SUCH, DIS ALLOWING THE DEDUCTION OF THE SAME FOR THE PURPOSE OF COMPUTATIO N OF BOOK PROFIT U/S 115JB OF THE ACT. 6. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, LD. 'AR' REFERRED TO THE DECISION OF THE APEX COURT IN THE C ASE OF M/S BHARAT EARTH MOVERS V CIT 245 ITR 428 (S.C) AND THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V PANASONIC HOME APPLIANCES 323 ITR 244 (MAD). LD. ' AR' ALSO REFERRED TO THE COMPUTATION OF INCOME, WHEREBY THE IMPUGNED 3 PROVISIONS HAVE BEEN ADDED BACK TO THE INCOME OF TH E ASSESSEE. LD. 'AR' ALSO REFERRED TO PAGE 28 OF THE PAPER BOOK WHICH REPRESENTS ACTUARIAL CERTIFICATE, WHICH INCORPORATE S DETAILS OF EMPLOYEES, TOTAL MONTHLY SALARY, NUMBER OF ENCASHAB LE LEAVE. THEREFORE, DETAILS OF MONTH-WISE LEAVE ENCASHMENT A S ON 31.3.2007 HAS BEEN INDICATED AT RS.9,76,20,646/-. LD. 'DR' PLACED RELIANCE ON THE ORDER OF THE LOWER AUTHORITI ES. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS, FACT- SITUATION OF THE CASE, RELEVANT CASE LAWS AND PAPER BOOK FILED BY THE ASSESSEE. THE BRIEF FACTS OF THE CASE ARE, THA T THE AO NOTICED THAT AS PER FORM NO. 29B UNDER SECTION 115J B OF THE INCOME-TAX ACT,1961, FOR COMPUTING BOOK PROFIT AND DETERMINING TAX LIABILITY OF MAT, THE TAX AUDITORS AS WELL AS T HE ASSESSEE HAS SHOWN LOSS OF RS.6,21,35,739/- AND AFTER ADDING PROVISIONS/DISALLOWANCE, NET PROFIT HAS BEEN WORKED OUT AT RS.3,93,25,375/-. UNDER THE PROVISIONS, THE ASSESS EE HAS MADE PROVISION OF RS.9,76,20,646/- ON ACCOUNT OF LEAVE E NCASHMENT. IT WAS HELD BY THE LD. AO THAT SINCE THE PROVISION IS NOT ASCERTAINED LIABILITY, AS SUCH THE SAME HAD BEEN DI SALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 8. THE RELEVANT FINDINGS OF LD. CIT(A), ON THE ISSU E, AS CONTAINED IN PARA 6 AND 6.1 ARE REPRODUCED HEREUNDE R : 6. THE FACTS OF THE CASE AS WELL AS THE SUBMISSION OF THE APPELLANT HAVE BEEN CONSIDERED BY THE UNDERSIGNED. THE APPELLANTS RELIANCE ON BHARAT EARTH MOVERS 245 ITR 428 (S.C) IS MISPLACED KEEPING IN VIEW THE DIFFERENT FA CTS IN THE CASE OF THE APPELLANT. WHEREAS IN THE CASE RELIED U PON (SUPRA) THE LIABILITY FOR LEAVE ENCASHMENT WAS ACTU ALLY INCURRED BY THE ASSESSEE APPELLANT, IN THE PRESENT CASE, IT IS ONLY PROVISION CREATED FOR MEETING LEAVE ENCASHM ENT 4 LIABILITY AT THE TIME OF ACTUAL AVAILMENT OF LEAVE AT THE TIME OF RETIREMENT/LEAVING THE SERVICES OR TERMINATION O F SERVICES ETC. IT IS PURELY A CONTINGENT LIABILITY. LIABILIT Y IS NEITHER EXISTING NOR ACCRUED. THE RATIO OF CIT V BHARAT GEN ERAL AND TEXTILE MILLS LTD. (1986) 157 ITR 158 (CAL) AND CIT V SULEMAN KHAN & MAHBOOB KHAN, TOBACCO (P) LTD. (AP) 174 ITR 200 (A) APPLIES DIRECTLY TO THE FACTS OF THE CA SE WHEREIN IT WAS LAID DOWN THAT THE LIABILITY CLAIMED TOWARDS PROVISION FOR LEAVE WITH WAGES IS NEITHER EXISTING NOR AN ACCRUED ONE, NOR IS IT CAPABLE OF BEING CERTAIN AND DEFINITE, IT IS PURELY A CONTINGENT ONE DEPENDING UPON ACTUAL AVAIL OF LEAVE BY WORKERS. 6.1 THE CASE OF THE APPELLANT FALLS UNDER CLAUSE (C ) OF EXPLANATION 1 TO SECTION 115JB WHICH PROVIDES AS UN DER: EXPLANATION- FOR THE PURPOSE OF THIS SECTION, BOO K PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-S ECTION (2) AS INCREASED BY (A) - (B) (C) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; OR THEREFORE, THE ADDITION OF RS.9,76,20,646/- ON ACCO UNT OF PROVISION FOR LEAVE ENCASHMENT IS CONFIRMED BEING A CONTINGENT LIABILITY. AS A RESULT, THIS GROUND OF A PPEAL IS DISMISSED. 9. THE PRESENT ISSUE RAISED IN FIRST GROUND OF APPE AL IS COVERED BY THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V PANASONIC HOME APPLIANCES. THE RELEVA NT PART OF THE DECISION IS REPRODUCED HEREUNDER: BUSINESS EXPENDITURE-PROVISION FOR LEAVE ENCASHMEN T OF EMPLOYEES-AMOUNT DEDUCTIBLE-INCOME-TAX ACT,1961, S. 37. 5 WHILE COMPLETING THE ASSESSMENT FOR THE ASSESSMENT YEAR 1998-99, THE AO ALLOWED THE RELIEF CLAIMED IN RESPECT OF THE PROVISION MADE FOR LEAVE ENCASHMENT OF RS.1. 19 LAKHS. THE CIT(A) SET ASIDE THE ASSESSMENT ORDER U NDER SECTION 263 OF THE INCOME-TAX ACT,1961, ON THE GROU ND THAT IT WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS O F THE REVENUE. THE COMMISSIONER OF INCOME-TAX DIRECTED TH E AO TO MODIFY THE ASSESSMENT BY DISALLOWING AND ADDING BACK THE PROVISION FOR DOUBTFUL DEBTS AND THE PROVISION FOR LEAVE ENCASHMENT IN COMPUTING THE BOOK PROFITS FOR THE PU RPOSE OF LEAVE OF RS.1.19 LAKHS CLAIMED BY THE ASSESSEE WAS ALLOWABLE, SINCE THE LIABILITY WAS ALLOWABLE.ON APP EAL : HELD, DISMISSING THE APPEAL, THAT THE ORDER OF THE TRIBUNAL WAS JUSTIFIED. BHARAT EARTH MOVERS V CIT (2000) 245 ITR 428 (S.C) (PARAS 1,2,3,5) REFERRED TO.) 10. THE CONTENTION OF THE LD. 'AR' IS ALSO SUPPORTE D BY THE EXPLANATION 1 SUB-CLAUSE (C) OF THE PROVISIONS OF S ECTION 115JB OF THE ACT. IN VIEW OF THE ABOVE LEGAL AND FACTUAL DISCUSSIONS, FINDINGS OF THE LD. CIT(A) ARE SET ASIDE AND THIS G ROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH,2012. SD/- SD/- (H.L.KARWA) (MEHAR SINGH) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 21 ST MARCH,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT ,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH