DCIT, New Delhi V. M/s Indraprastha Gas Ltd., New Delhi

ITA 2213/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58837 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 06-03-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 04-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S GILL
• Assessee Lawyers: H P AGGARWAL; RAJAT JAIN C AS
• Keywords: Earning of tax free income; Revenue expenditure
• Section: 43B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C: NEW DELHI BEFORE SHRI S.V. MAHROTRA, ACCOUNTANT MEMBER AND SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NOS. 2213 & 5875/DEL/2011 ASSESSMENT YEARS: 2004-2005 & 206-07 DCIT, CIRCLE 11(1), ROOM NO. 312, C.R. BUILDING, NEW DELHI. VS. INDRAPRASTHA GAS LTD., IGL BHAWAN, PLOT NO. 4, COMMUNITY CENTRE, SECTOR-9, R.K. PURAM, NEW DELHI. AAACI5076R (APPELLANT) (RESPONDENT) APPELLANT BY : SH. R.I.S. GILL, CIT(DR) RESPONDENT BY : SHRI H.P. AGGARWAL & SH.RAJAT JAIN, CAS O R D E R PER BENCH THESE APPEALS ARE FILED BY THE REVENUE AND THEY AR E DIRECTED AGAINST TWO SEPARATE ORDERS OF LD. CIT(A) DATED 21.02.2011 FOR THE A.Y. 2004-05 & DATED 19.10.2011 FOR THE A.Y. 2006-2007. 2. ITA NO. 2213/11 FOR THE A.Y. 2004-05 : THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARI NG TOTAL INCOME OF RS. 86,20,06,630/-. THE ASSESSING OFFICER NOTICED FROM NOTE NO. 17 OF SCHEDULE 18 OF NOTES TO ACCOUNTS THAT THE TOTAL PUR CHASES OF NATURAL GAS OF 418,947,730 SCM/KG IN QUANTITY AND RS. 177,67,22 ,682/- IN VALUE ALSO INCLUDED RECONCILIATION QUANTITY OF 187,47,287 SCM/ KG WHICH WORKED OUT TO 4.4% OF THE PURCHASES. THE AO REQUIRED THE ASSE SSEE TO EXPLAIN AS TO WHY THIS RECONCILIATION QUANTITY SHOULD NOT BE ADDE D TO ITS TOTAL INCOME AS THIS QUANTITY OF NATURAL GAS WAS NEITHER BEING REFL ECTED IN SALES NOR IN CLOSING STOCK. THE ASSESSEE EXPLAINED THAT THIS RE CONCILIATION QUANTITY WAS ITA NOS. 2213 & 5875/D/2011 2 IN THE NATURE OF SHORTAGE/LOSS OF NATURAL GAS AND T HE VALUE OF THE SAME WAS ALREADY INCLUDED IN THE COST OF NATURAL GAS AS APPE ARING IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE ASSIGNED FOLLOWING REAS ONS FOR SHORTAGE/LOSS OF NATURAL GAS: - (A) NATURAL GAS IS PURCHASED IN VOLUME-METRIC UNI T, HOWEVER, 97% OF IGLS SALES IS CNG I.E. SOLD BY WEIGHT. THEREFORE, ANY DIFFERENCE IN THE CONVERSION FACTOR FROM VOLUME TO WEIGHT WOUL D HAVE A DIRECT IMPACT ON THE RECONCILIATION DIFFERENCE. IGL RECEIVES NATURAL GAS FROM GAIL, WHICH IS EITHE R EX-LPG PLANT, VIJAYPUR OR EX-LPG AND C2C3 RECOVERY PLANT P ATA, U.P. THE COMPOSITION OF NATURAL GAS IS CHANGING CONTINUO USLY THOUGH NOT SIGNIFICANTLY. THEREFORE, THE SPECIFIC GRAVITY OF THE GAS AND THE CONVERSION FACTOR IS ALSO CONTINUOUSLY CHANGING . HOWEVER, THE GAS ANALYSIS IS CARRIED OUT BY GAIL ONLY ON HOU RLY BASIS AND AN AVERAGE VALUE IS TAKEN IGL ALSO WORKS OUT THE CO NVERSION FACTOR BASED ON THE AVERAGE DAILY VALUES AND FINALL Y ON A MONTHLY BASIS. (B) WHENEVER A NEW EQUIPMENT (COMPRESSOR OR DISPENS ER) IS COMMISSIONER SOME QUANTITY OF GAS IS CONSUMED DURIN G REPETITIVE START/STOP OPERATION AND ALSO IN VENTING DURING SUC H OPERATIONS. SIMILARLY, WHENEVER A SEGMENT OF PIPELINE IS COMMIS SIONER THAT PIPELINE STORES A SIGNIFICANT QUANTITY OF THE GAS. IT IS NOT ALWAYS POSSIBLE TO ACCURATELY ESTIMATE THIS QUANTITY THAT IS CONSUMED OR STORED. THIS, THEREFORE, CONTRIBUTES TO UNCERTAINT Y. (C) ACCORDINGLY THE RECONCILIATION QUANTITY OF 1874 7287 SCM AS APPEARING IN SCHEDULE XVI OF NOTE TO ACCOUNTS IS A CONSUMPTION OF NATURAL GAS AND IS REVENUE EXPENDITURE. THE SAM E SHOULD BE ALLOWED AS A REVENUE EXPENDITURE. 3. THE AO DID NOT ACCEPT THE ASSESSEES CONTENTION AND AFTER CONSIDERING THE MAIN REASON FOR LOSSES WHICH COULD BE THERE, OBSERVED THAT THE COMPANY DID NOT ACCOUNT FOR THE GAS WHICH WAS S TORED IN THE PIPE LINES FOR TRANSMIT, EVEN THOUGH SUCH GAS WAS TAKEN IN THE BOOKS AS PURCHASES. THE ASSESSEE POINTED OUT THAT, IN ANY VIEW OF THE M ATTER, THE STOCK AVAILABLE IN THE PIPE LINES WOULD BE EQUAL TO THE O PENING STOCK, AS SUCH, THERE WOULD BE NO DIFFERENCE IN THE GROSS PROFIT. THE AO, HOWEVER, DID NOT ACCEPT THE ASSESSEES CONTENTION FOR THE FOLLOWING REASONS: - ITA NOS. 2213 & 5875/D/2011 3 2.6 THE CONTENTION OF THE ASSESSEE THAT THE GAS A VAILABLE IN THE PIPELINE AS OPENING STOCK WOULD BE THE SAME AS GAS AVAILABLE IN THE PIPELINE AS CLOSING STOCK IS NOT ACCEPTABLE FOR THE FOLLOWING REASONS: - THE PIPELINE IS USED TO DRAW NATURAL GAS FROM HBJ P IPELINE OF GAIL (INDIA) LTD. AT A PRESSURE RANGING BETWEEN 16 TO 24 KG/SCM AND DISTRIBUTE THE SAME TO MOTHER AS WELL AS ONLINE CNG STATIONS; IT IS A WELL KNOWN FACT, THAT MORE AND MORE QUANTIT Y OF GAS CAN BE STORED IN A PARTICULAR AREA, IF PRESSURE OF THE GAS IS INCREASED. AS SUCH, THERE IS NO DIRECT RELATIONSHI P BETWEEN STORAGE AREA AND AVAILABILITY OF GAS. THE FACT THAT THE PRESSURE IN THE PIPELINE RANGES B ETWEEN 16 & 24 KG/SCM, ITSELF SHOWS THAT THE QUANTITY OF GAS IN TH E PIPELINES KEEP ON INCREASING BY NEARLY ONE THIRD , I.E. MORE THAN ONE THIRD OF THE QUANTITY OF THE GAS CAN BE STORED IN T HE SAME PIPELINE; AND FINALLY, THE LENGTH OF THE PIPELINE OF THE ASSESSEE IS INCREASING EVERY YEAR RESULTING IN STORAGE OF MORE AND MORE GA S IN THE PIPELINE. 4. AFTER CONSIDERING THE GUIDE-LINES ISSUED BY THE INSTITUTE VIDE ACCOUNTING STANDARDS-2 IN REGARD TO VALUATION OF I NVENTORIES THE AO HELD THAT THE GAS HELD IN THE PIPE LINES BY THE ASSESSEE FORMS PART OF THE INVENTORY OR CLOSING STOCK. IN ORDER TO QUANTIFY T HE ACTUAL STOCK OF NATURAL GAS AVAILABLE IN THE PIPE LINES AND TO SEE WHETHER ANY LOSS IN TRANSIT ACTUALLY TOOK PLACE, HE REQUIRED THE ASSESSEE TO PR OVIDE DETAILS OF THE LENGTH OF PIPE LINES AS ON 31.03.2004 AND THE APPRO PRIATE NATURAL GAS STORED IN THAT LENGTH AT PRESSURE OF 16 KG/SCM AND 24 KG/SCM. SINCE, THE ASSESSEE FAILED TO PROVIDE ANY DETAILS, HE COMPUTED THE VALUE AT RS. 2,47,61,450/- AS PER THE DETAILS GIVEN IN PARA 2.9 OF HIS ORDER. LD. CIT(A) DELETED THE ADDITION FOLLOWING THE TRIBUNALS ORDER FOR A.YS. 2002-03 & 2004-05. 5. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEF ORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: - ITA NOS. 2213 & 5875/D/2011 4 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2,47,61,450/- ON ACCOUNT OF RECONCILIATION DIFFERENCE. 6. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE POINT ED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE VARIOUS DEC ISIONS OF TRIBUNAL. WE FIND THAT THE TRIBUNAL VIDE ITS ORDER IN ITA NO. 53 24/DEL/2011 & ITA NO. 5325/DEL/2011DATED 31.01.12 FOLLOWING THE ORDER FOR A.Y. 2005-06 HAS UPHELD THE LD. CIT(A)S ORDER. THE FACTS OF THE YE AR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS AS OBTAINING IN A.Y. 2005-06 . IN THE YEAR UNDER CONSIDERATION ALSO THE AO HAS MADE ADDITION FOR REC ONCILIATION DIFFERENCE IN THE CLOSING STOCK OF GAS. WE FIND THAT TRIBUNAL IN ITS AFORESAID ORDERS FOR A.YS. 2002-03 AND 2003-04 HAS REPRODUCED THE ORDER FOR A.Y. 2005-06 WHICH IS REPRODUCED HEREUNDER AGAIN FOR THE SAKE OF READY REFERENCE: - 5. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE FACTS O F THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS IN AY 2005 -06. IN BOTH THE YEARS, ADDITION WAS MADE BY THE AO FOR RECONCILIATI ON DIFFERENCE IN THE CLOSING STOCK OF GAS. AGAINST THE ORIGINAL ASSESSM ENT ORDER, THE MATTER TRAVELED UPTO THE ITAT. THE ITAT SET ASIDE THE MAT TER BACK TO THE FILE OF THE AO. WHEN THE SECOND ROUND OF APPEAL REACHED IT AT IN AY 2005- 06, THE ITAT CONSIDERED THE WHOLE ISSUE AND UPHELD THE ORDER OF THE CIT(A) WHEREIN HE HAS DELETED THE ADDITION. IN THI S YEAR ALSO, THE CIT(A) IN THE SECOND ROUND OF APPEAL, HAS DELETED T HE ADDITION AND THE REVENUE IS IN APPEAL. THUS, THE FACTS OF THE YEAR UNDER CONSIDERATION ARE ABSOLUTELY IDENTICAL TO THE FACTS IN AY 2005-06 AND, THEREFORE, THE DECISION OF ITAT FOR AY 2005-06 WOULD BE SQUARELY A PPLICABLE. FOR THE SAKE OF READY REFERENCE, WE REPRODUCE HEREIN BELOW THE ARGUMENTS OF PARTIES AND THE FINDINGS OF THE ITAT FOR AY 2005-06 : - 2. BEFORE US, THE LD. DR REFERRED TO THE FINDING OF THE AO TO THE EFFECT THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF QUANTITY OF GAS AVAILABLE IN THE PIPE LINES AND VALUE THEREOF. THEREFORE, IT IS NOT FEASIBLE TO ESTIMATE THE CLOSING STOCK IN SO FAR AS THE NATURAL GAS IN THE P IPE LINES IS CONCERNED. IN THE LIGHT OF THIS FACT HE DISALLOWED THE RECONCILIATION DIFFERENCE IN COMPUTI NG THE TOTAL INCOME. HE HAS ALSO REFERRED TO THE ACCOUNTING STANDARDS-2, ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, ON VALUATION OF ITA NOS. 2213 & 5875/D/2011 5 INVENTORY. IT IS MENTIONED THAT INVENTORIES ARE AS SETS HELD FOR SALE IN THE ORDINARY COURSE OF BUSINESS; I N THE PROCESS OF PRODUCTION; OR IN THE FORM OF MATERIALS AND SUPPLIES TO BE CONSUMED IN PRODUCTION PROCESS OR IN RENDERING OF SERVICES. ACCORDINGLY, THE NATURAL GA S HELD IN PIPE LINES WOULD FORM PART OF THE INVENTORY OF CLOSING STOCK, WHICH OUGHT TO HAVE BEEN TAKEN INTO ACCOUNT FOR THIS PURPOSE. ON THE BASIS OF THESE FINDINGS, IT IS ARGUED THAT SINCE THE ASSESSEE FAIL ED TO PROVIDE ANY INFORMATION IN THE MATTER, THE AO WAS JUSTIFIED IN DISALLOWING THE RECONCILIATION LOSS. THE LD. CIT(APPEALS) MADE OBSERVATIONS ABOUT EXPERT OPINION , BUT THE SAME HAS NOT BEEN OBTAINED AND THE RELIEF H AS BEEN GIVEN ON THE BASIS OF OBSERVATION OF THE TRIBU NAL THAT THE LOSS OF 4% WAS REASONABLE AND THE LOSS IN THIS YEAR IS LOWER THAN THIS PERCENTAGE. HOWEVER, HE DI D NOT CARRY THE MATTER FURTHER TO OBTAIN APPROPRIATE EXPE RT VIEW FROM THE OFFICIALS OF GAIL OR ONGC LTD. WITH A VIEW TO SETTLE THE ISSUE ONCE AND FOR ALL. THEREFO RE, SINCE THE ASSESSEE FAILED TO FURNISH THE DETAILS AS PER THE ORDER OF THE TRIBUNAL, NAMELY, WHETHER THE PERCENTA GE OF LOSS AT ABOUT 3.46% OF PURCHASES HAD TO BE SUBJE CTED TO VERIFICATION, AS REASONABLE LOSS. ACCORDINGLY, IT IS ARGUED THAT THE ADDITION MADE BY THE AO MAY BE RESTORED. 2.1 IN REPLY, THE LD. COUNSEL REFERRED TO THE FI NDING OF THE TRIBUNAL IN ITS CASE FOR A.Y. 2002-03. IN THIS ORD ER, IT HAS BEEN MENTIONED THAT THE RECONCILIATION DIFFEREN CE AS PERCENTAGE OF PURCHASES VARIES BETWEEN 4.01% TO 4.47% IN A.YS. 2000-01 TO 2004-05, WHICH IS AN INFORMATION BASED ON BALANCE-SHEET OF THE ASSESSEE. THE PERCENTAGE OF LOSS WHICH WORKS OUT TO BE 4% OF THE PURCHASES DURING THE YEAR UNDER CONSIDERATION APPEA RS TO BE REASONABLE, SUBJECT TO VERIFICATION. THE INT ENT OF THESE OBSERVATIONS WAS TO FIND OUT THE PERCENTAGE O F LOSS AND EVALUATE IT AGAINST ACCEPTABLE LOSS OF 4%. THIS HAS NOT BEEN DONE. IN FACT, IN THIS YEAR THE LOSS IS ONLY 3.4%, WHICH IS LOWER THAN 4% AND, THEREFORE, THE AO SHOULD HAVE ACCEPTED THE LOSS. IN THESE CIRCUMSTAN CES, THE LD. CIT(A) RIGHTLY DELETED THE ADDITION MADE BY THE AO NOTWITHSTANDING THE FACT THAT EXPERT OPINION WAS NOT OBTAINED FROM GAIL OR ONGC ETC. 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. WE ARE OF THE VIEW THA T ITA NOS. 2213 & 5875/D/2011 6 THE AO WAS BOUND TO FOLLOW THE DIRECTIONS OF THE TRIBUNAL FURNISHED FOR THIS YEAR IN DECISION DATED 22.4.09, IN WHICH IT IS MENTIONED THAT THE MATTER H AS ALREADY BEEN RESTORED TO THE FILE OF THE AO FOR A.Y S. 2002-03 TO 2004-05. ACCORDINGLY, THE MATTER WAS AL SO RESTORED TO THE FILE OF THE AO FOR THIS YEAR. HOWE VER, IN THE ORDER FOR A.Y. 2002-03 DATED 25.07.2008, A CLEA R FINDING WAS GIVEN THAT LOSS OF ABOUT 4% OF PURCHASE S IS REASONABLE SUBJECT TO VERIFICATION. INSTEAD OF VER IFYING THE PERCENTAGE OF LOSS, THE AO REPRODUCED HIS EARLI ER ORDER. THE LOSS OF 3.4% IS BORNE OUT BY AUDITED ACCOUNTS, WHICH IS LOWER THAN THE AVERAGE LOSS OF A BOUT 4%. THEREFORE, THERE SEEMS TO BE NO REASONABLE CAU SE TO MAKE THE DISALLOWANCE OF RECONCILIATION LOSS BY STATING THAT THE DETAILS OF STOCK LYING IN PIPE LIN ES WERE NOT FURNISHED IN QUALITATIVE OR QUANTITATIVE TERMS. WHAT HAD TO BE VERIFIED WAS WHETHER THE LOSS WAS IN THE VICINITY OF 4%, WHICH HAS BEEN HELD TO BE REASONABL E BY THE TRIBUNAL. IN THESE CIRCUMSTANCES, WE DO NOT FI ND ANY ERROR IN THE ORDER OF THE LD. CIT(APPEALS) WHIC H REQUIRES CORRECTION FROM US. 6. SINCE THE FACTS OF THE YEAR UNDER CONSIDERATION ARE IDENTICAL AND THE SHORTAGE IN THE YEAR UNDER CONSIDERATION IS 4%, THE ABOVE DECISION OF THE ITAT WOULD BE SQUARELY APPLICABLE. RESPECTF ULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. ITA NO. 5325/DEL/2011 7. IN THIS APPEAL BY THE REVENUE, FOLLOWING GROUND IS RAISED: - ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 3,09,79,347/- MADE ON ACCOUNT OF RECONCILIATION DIFFERENCE IN THE CLOSING STOCK. 7. SINCE THE FACTS OF THE YEAR UNDER CONSIDERATION ARE IDENTICAL AND THE SHORTAGE IN THE YEAR UNDER CONSIDERATION IS 4.47% O NLY, THE ABOVE DECISION OF ITAT IS SQUARELY APPLICABLE. RESPECTFULLY FOLLO WING THE SAME, WE UPHOLD THE ORDER OF LD. CIT(A) AND DISMISS THE APPEAL FILE D BY THE REVENUE. ITA NOS. 2213 & 5875/D/2011 7 8. ITA NO. 5875/11 FOR A.Y. 2006-07 : - IN THIS YEAR THE ASSESSEE COMPANY HAD FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 1,71,06,56,516/-. THE ASSESSME NT WAS COMPLETED AFTER MAKING FOLLOWING DISALLOWANCES: - I) CLAIM OF LEAVE ENCASHMENT TO THE EXTENT OF RS. 1 8,20,068/- II) COST OF RECONCILIATION DIFFERENCE IN THE CLOSIN G STOCK OF NATURAL GAS RS. 4,83,29,900/- III) DISALLOWANCE U/S 14A RS. 20,93,850/-. 9. LD. CIT(A) WHILE PARTLY ALLOWING THE ASSESSEES APPEAL DELETED THE DISALLOWANCE ON ACCOUNT OF PROVISION FOR LEAVE ENCA SHMENT AND ADDITION ON ACCOUNT OF RECONCILIATION DIFFERENCE IN THE CLOSING STOCK AND RESTRICTED THE DISALLOWANCE U/S 14A FROM RS. 20,93,850/- TO RS. 2, 66,943/-. 10. BEING AGGRIEVED, THE DEPARTMENT IS IN APPEAL BE FORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 18,20,268 /- MADE ON ACCOUNT OF DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 4,83,29,9 00/- MADE ON ACCOUNT OF COST OF RECONCILIATION DIFFERENCE IN THE CLOSING STOCK OF NATURAL GAS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF RS. 20,93, 850/- TO RS. 2,66,943/- MADE U/S 14A OF THE I.T. ACT, 1961. 11. BRIEF FACTS APROPOS GROUND NO. 1 ARE THAT ASSES SEE HAD MADE A PROVISION FOR LEAVE ENCASHMENT OF RS. 36,84,064/-. DURING THE F.Y. 2005- 06 IN THE NOTES TO ACCOUNTS IT WAS MENTIONED THAT T HE LIABILITY IN RESPECT OF LEAVE ENCASHMENT WAS PROVIDED ON THE BASIS OF ACTUA RIAL VALUATION AS ON THE BALANCE SHEET DATE. THE AO REQUIRED THE ASSESS EE TO SHOW CAUSE AS TO WHY PROVISION MADE DURING THE YEAR TO THE EXTENT OF RS. 36,84,064/- BE ITA NOS. 2213 & 5875/D/2011 8 NOT DISALLOWED WITHIN THE MEANING OF SECTION 43B(F) OF THE INCOME TAX ACT. AFTER CONSIDERING THE ASSESSEES CONTENTION THE AO DISALLOWED RS. 18,20,068/- AFTER OBSERVING AS UNDER: - 3.2 THE ASSESSEE DURING THE F.Y. 2005-06 PAID RS. 10,24,149/-. OUT OF WHICH RS. 572011/- WAS ALLOWED IN THE PREVIOUS YEAR I.E. F.Y. 2004-05 AS PER THE PROVISO TO SECTION 43(B). THERE FORE, THE BALANCE AMOUNT 4,52,138/- ARE TO BE CONSIDERED AS A CTUAL PAID DURING THE YEAR. FURTHER AS PER THEIR SUBMISSION B EFORE THE UNDERSIGNED DT. 26.12.2008 IT WAS SUBMITTED THAT DU RING THE IMMEDIATELY SUCCEEDING F.Y. I.E. 2006-07 THE ASSESS EE COMPANY HAVE ACTUALLY PAID LEAVE ENCASHMENT AMOUNTING TO RS . 14,11,858/-. 3.3 THE ASSESSEE VIDE ITS SUBMISSION DATED 24.12.20 08 SIGHTED A CALCUTTA HIGH COURT JUDGMENT OF 2007. EXIDE INDUST RIES LIMITED, 292 ITR 470 WHEREIN THE HONBLE CALCUTTA HIGH COURT HAS STRUCK DOWN THE PROVISIONS OF SECTION 43B(F) AS UNCONSTITU TIONAL. IT WAS HELD BY CALCUTTA HIGH COURT SECTION 43B(F) IS STRUCK DOWN BEING ARBITRARY, UNCONSCIONABLE AND BE HORS THE APEX COURT DECISION IN THE CASE OF BHARAT EARTH MOVERS [2000] 245 ITR 428. 3.4 IN THE CASE OF BHARAT EARTH MOVERS VS. CIT 245 ITR 428 (SC) PROVISION FOR LEAVE ENCASHMENT WAS HELD TO BE DEDUC TIBLE REJECTING THE ARGUMENT OF THE REVENUE THAT IT IS NOT ACCRUED LIABILITY BUT A CONTINGENT LIABILITY. 3.5 SECTION 43B(F) INSERTED BY FINANCE ACT, 2001 WI TH EFFECT FROM 1 ST APRIL, 2002 MADE CLAIM OF DEDUCTION WITH REGARD TO ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER IN LIEU OF A NY LEAVE AT THE CREDIT OF HIS EMPLOYEE ONLY ON PAID BASIS. BY VI RTUE OF THE PROVISO TO SECTION 43B(F) THE PAYMENT WAS ALLOWABLE IN THE F.Y. TILL THE DUE DATE FOR FURNISHING OF RETURN U/S 139(I) OF THE I.T. ACT, 1961. 3.6 IN THE CASE OF THE ASSESSEE COMPANY THE FACTUAL POSITION IS AS UNDER: 1. PROVISION OF LEAVE ENCASHMENT ENDING MAR., 2006 - 50,81,684 2. PROVISION MADE IN F.Y. 2005-06 - 36,84,064 3. PAID DURING THE F.Y. 2005-06 - 4,52,138 4. LEAVE ENCASHMENT ACTUALLY PAID UPTO THE DUE DATE U/S 139(1) - 14,11,858 5. LEAVE ENCASHMENT LIABLE FOR DISALLOWANCE AS PER SECTION 43B(F) - 18,20,068 ITA NOS. 2213 & 5875/D/2011 9 3.7 THE CALCUTTA HIGH COURT JUDGMENT REPORTED IN 29 2 ITR 470 BEING DISTINGUISHABLE ON FACTS IS NOT APPLICABLE ON THE A SSESSING OFFICER WORKING UNDER THE JURISDICTION OF THE DELHI HIGH CO URT. 3.8 IN VIEW OF THE ABOVE DISCUSSION THE CLAIM OF LE AVE ENCASHMENT TO THE EXTENT OF RS. 18,20,068/- IS DISALLOWED U/S 43B (F) OF THE I.T. ACT, 1961 AND ADDED TO THE INCOME OF THE ASSESSEE. LD. CIT(A), INTER-ALIA, FOLLOWING THE ORDER FOR A.Y . 2005-06 OF ITAT DATED 22 ND APRIL, 2009 DELETED THE DISALLOWANCE. 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF ITAT IN ASSESSEES OWN CASE VIDE ITA NO . 471/DEL/2009, DATED 22.04.2009 WHEREIN TRIBUNAL DELETED THE DISALLOWANC E FOLLOWING THE DECISION OF HONBLE HIGH COURT OF CALCUTTA IN THE C ASE OF EXIDE INDUSTRIES LTD., 292 ITR 470 OBSERVING AS UNDER: - 2. AT THE TIME OF HEARING, IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE ISSUE IN THE 1 ST GROUND WHICH WAS AGAINST THE ACTION OF LD. CIT(A) IN DELETING THE ADDITION ON ACCOUNT OF LEAVE ENCASHMEN T WAS SQUARELY COVERED BY THE DECISION OF HONBLE HIGH COURT OF CA LCUTTA IN THE CASE OF EXIDE INDUSTRIES LTD. 292 ITR 470 WHEREIN THE HO NBLE HIGH COURT OF CALCUTTA HAD FOLLOWED THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF BHARAT EARTH MOVERS 245 ITR 428 AND HAS HEL D THAT THE LIABILITY ON ACCOUNT OF LEAVE ENCASHMENT IS AN ASCERTAINED LI ABILITY AND IS AN ALLOWABLE EXPENDITURE. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE HIGH COURT OF CALCUTTA AS ALSO THE PRINCIPLES OF LA ID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH M OVERS REFERRED TO SUPRA THE FINDINGS OF LD. CIT(A) ON THIS ISSUE STAN DS UPHELD. 13. RESPECTFULLY FOLLOWING THE AFORESAID DECISION O F TRIBUNAL, WE CONFIRM THE ORDER OF LD. CIT(A). 14. IN THE RESULT, THIS GROUND IS DISMISSED. 15. APROPOS GROUND NO. 2, WE HAVE CONSIDERED THE IS SUE IN A.Y. 2004- 05 AND HAVE CONFIRMED THE ORDER OF LD. CIT(A). IN THE YEAR UNDER ITA NOS. 2213 & 5875/D/2011 10 CONSIDERATION THE AO HAS OBSERVED IN PARA 4.5 THAT THE LOSS CLAIMED ON THIS COUNT IS 2.14% OF TOTAL PURCHASES OF NATURAL GAS DU RING THE YEAR WHICH IS MUCH LESS THAN 4.4% ALLOWED IN EARLIER ASSESSMENT Y EAR. THEREFORE, FOLLOWING THE REASONING FOR A.Y. 2005-06 NOTED EARL IER, WE CONFIRM THE ORDER OF LD. CIT(A). IN THE RESULT, THIS GROUND IS DISMI SSED. 16. BRIEF FACTS APROPOS GROUND NO. 3 ARE THAT THE A O NOTICED THAT THE ASSESSEE COMPANY HAD SHOWN EXEMPT INCOME TO THE EXT ENT OF RS. 2,66,94,310/-. HE REQUIRED THE ASSESSEE TO SUBMIT AS TO WHY DISALLOWANCE U/S 14A BE NOT MADE. AFTER CONSIDERIN G THE ASSESSEES CONTENTION, HE MADE PROPORTIONATE DISALLOWANCE OUT OF INTEREST EXPENSES AND ADMINISTRATIVE EXPENSES AND COMPUTED THE DISALL OWANCE AT RS. 20,93,850/-. LD. CIT(A) FOLLOWING THE DECISION FOR A.Y. 2007-08, RESTRICTED THE DISALLOWANCE TO 1% OF TOTAL EXEMPT INCOME AND T HUS, REDUCED THE DISALLOWANCE FROM RS. 20,93,852/- TO RS. 2,66,943/- . 17. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. WE FIND THAT THE H ONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT & OTH RS. HAS, INTER-ALIA, OBSERVED THAT AO IS REQUIRED TO DETERMINE THE AMOUN T OF EXPENDITURE ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. THIS DECISION WAS NOT AVAILABLE TO THE ASSESSING OFFICER WHEN HE PASSED THE ASSTT. ORDER. WE, THEREFORE, RESTORE THE MATTER TO THE FILE OF AO FOR QUANTIFYING THE EXPENDITURE IN VIEW OF THE OBSERVAT IONS MADE BY THE HONBLE DELHI HIGH COURT IN THE AFORESAID JUDGMENT. 18. IN THE RESULT, THIS GROUND IS ALLOWED FOR STATI STICAL PURPOSES. ITA NOS. 2213 & 5875/D/2011 11 19. IN THE RESULT, DEPARTMENTS APPEAL IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 06.03.2012 SD/- SD/- (I.P. BANSAL) JUDICIAL MEMBER (S.V. MAHROTRA) ACCOUNTANT MEMBER DATED: 06.03.2012 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR