ITO 10(1)(2), MUMBAI V. MAHINDRA UGINE STEEL CO. LTD, MUMBAI

ITA 3213/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1727 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-02-2013
• Assessment Year: 1999-2000
• Appeal Filed On: 21-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: H P MAHAJANI
• Keywords: Opportunity of being heard; Valuation report; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , ! '# $ $ $ $ '% &', ( '# ') BEFORE SHRI DINESH KUMAR AGARWAL, JM AND SHRI SANJAY ARORA, AM './ I.T.A. NOS. 3212 & 3213/MUM/2011 ( ! , -, ! , -, ! , -, ! , -, / / / / ASSESSMENT YEARS : 1997-98 & 1999-2000) ASST.COMMISSIONER OF INCOME-TAXCIRCLE 6(3), ROOM NO. 522, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. / VS. M/S MAHINDRA UGINE STEEL CO. LTD., 74, GANESH APARTMENT, OFF. L.J. ROAD, MAHIM, MUMBAI - 400016. #. ( './ PAN: AAACM4498G ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) ./ 2 3 ' / APPELLANT BY : SHRI MOHIT JAIN 01./ 2 3 ' / RESPONDENT BY : SHRI H.P. MAHAJANI ' 2 4( / // / DATE OF HEARING : 12-02-2013 5&- 2 4( / DATE OF PRONOUNCEMENT : 15-02-2013 / O R D E R PER DINESH KUMAR AGARWAL, JM. : THESE TWO APPEALS PREFERRED BY THE REVENUE ARE DIRE CTED AGAINST THE SEPARATE ORDERS DTD. 9-2-2011 PASSED BY THE LD. CIT (A) FOR THE ASSESSMENT YEARS 1997-98 AND 1999-2000. SINCE FACTS ARE IDENT ICAL AND COMMON ISSUE IS INVOLVED, BOTH THESE APPEALS ARE DISPOSED OF BY THI S COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS. 3212 & 3213/MUM/2011 2 2. BRIEFLY STATED FACTS OF THE CASE EXTRACTED FROM ITA NO. 3212/MUM/2011 FOR A.Y. 1997-98 ARE THAT THE ASSESSEE COMPANY IS E NGAGED IN THE BUSINESS OF MANUFACTURING OF TOOL, ALLOY SPECIAL STEEL AND PROC ESSING CHARGES OF STAMPINGS UNIT. DURING THE COURSE OF ASSESSMENT PROCEEDING T HE ASSESSEE WAS INTER ALIA ASKED TO SUBMIT THE DETAILS IN RESPECT OF LEAVE ENC ASHMENT BENEFIT OF RS. 17,98,331/-. IN REPLY IT WAS SUBMITTED AS UNDER:- NO PROVISION HAS BEEN MADE FOR LABOUR DEMANDS IN T HE RELEVANT PREVIOUS YEAR, REGARDING PROVISION FOR LEAVE ENCASHMENT BENEFIT TH E COMPANY HAS MADE A PROVISION OF RS. 17,98,331/- ON THE, BASIS OF ACTUA RIAL VALUATION. THIS WAS MADE TO COMPLY WITH THE REQUIREMENTS OF ACCOUNTING STANDARD NO.15 BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. WE HAV E RELIED ON THE DECISION OF SUPREME COURT IN THE CASE OF METAL BOX INDIA LTD. ( 73 ITR 53) WHEREIN IT WAS DECIDED THAT ANY LIABILITY THOUGH PAYABLE IN FUTURE SHOULD BE ALLOWED IF IT HAS BEEN SCIENTIFICALLY ARRIVED AT. AS FAR AS THE CRYST ALISATION OF LIABILITY OF LEAVE ENCASHMENT IS CONCERNED, IT IS SUBMITTED THAT EVERY EMPLOYEE AS PER THE TERMS OF EMPLOYMENT IS ENTITLED TO THE ENCASHMENT OF LEAV E ACCUMULATED BY HIM WHICH FOLLOWS THAT THE LIABILITY IS CRYSTALISED IN EVERY YEAR. THE ONLY QUESTION THAT REMAINS IS ABOUT THE QUANTIFICATION OF THE SAM E. HENCE, THE LIABILITY WORKED OUT BY AN INDEPENDENT AUTHORITY (I.E. ACTUAR Y) ON SCIENTIFIC BASIS SHOULD BE ALLOWED AS DEDUCTION IN CONSONANCE WITH THE DECI SION OF THE SUPREME COURT AS MENTIONED ABOVE. HOWEVER, THE A.O. DID NOT ACCEPT THE ASSESSEES EXP LANATION AND TREATED THE IMPUGNED LIABILITY AS CONTINGENT LIABILITY AND ACCO RDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) AFTER D ISTINGUISHING THE DECISION OF THE HONBLE SUPREME COURT IN BHARAT EARTH MOVERS VS . CIT (2000) 245 ITR 428 (SC) HAS OBSERVED THAT THE ASSESSEE HAS NOT BEEN AB LE TO BRING ON RECORD ANY MATERIAL TO SHOW THAT THE TESTS LAID DOWN IN THE SA ID JUDGMENT WERE ACTUALLY SATISFIED BY THE ASSESSEE AND ACCORDINGLY CONFIRMED THE ADDITION MADE BY THE A.O. ON FURTHER APPEAL BEFORE THE TRIBUNAL, THE TR IBUNAL IN ITA NO. 6704/MUM/2002 FOR A.Y. 1997-98 ORDER DTD. 23-1-2008 WHILE OBSERVING THAT THE LD. CIT(A) WITHOUT SPECIFYING AS TO WHICH CONDI TION STIPULATED IN THE SAID ITA NOS. 3212 & 3213/MUM/2011 3 JUDGMENT IS NOT FULFILLED IN THE ASSESSEES CASE, S ET ASIDE THE ORDER PASSED BY THE LD. CIT(A) AND RESTORED THE MATTER TO THE FILE OF THE LD. CIT(A) TO DECIDE THE SAME IN ACCORDANCE WITH THE TESTS LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS (SUPRA) AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. PURSUANT TO THE ORDER PASSED BY THE TRIBUNAL, THE LD. CIT(A) WHILE OBSERVING THAT IT WAS STATED T HAT THE PROVISION OF RS. 17,98,331/- FOR LEAVE ENCASHMENT WAS MADE ON THE BA SIS OF ACTUARIAL VALUATION WHICH IS NOT IN DISPUTE, ALLOWED THE CLAI M OF THE ASSESSEE ON THE GROUND THAT VARIOUS COURTS AND TRIBUNAL HAVE HELD T HAT SUCH PROVISION MADE ON THE BASIS OF ACTUARIAL VALUATION WAS ALLOWABLE A S REVENUE EXPENDITURE. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US TAKING FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) ERRED DELETING THE DISALLOWANCE OF PROVISIO N FOR LEAVE ENCASHMENT OF RS. 17,98,331/- IGNORING THE FACT THAT PROVISION FOR LE AVE ENCASHMENT IS A CONTINGENT LIABILITY AND ACCORDINGLY NOT ALLOWABLE EXPENSE UNDER THE PROVISIONS OF INCOME TAX ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (A) ERRED IN ALLOWING THE ASSESSEES APPEAL WIT HOUT GIVING A FINDING AS TO WHETHER THE ASSESSEE SATISFIES THE TEST LAID DOWN B Y THE HONBLE APEX COURT IN ITS JUDGMENT IN THE CASE OF M/S. BHARAT EARTH MOVER S LTD., 245 ITR 428. 3. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT ( A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE R ESTORED. 4. AT THE TIME OF HEARING THE LD. D.R. SUBMITS THAT THE LD. CIT(A) IS ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE WITHOUT GIVING F INDING AS TO WHETHER THE ASSESSEE SATISFIES THE TESTS LAID DOWN BY THE HONB LE APEX COURT IN THE CASE OF ITA NOS. 3212 & 3213/MUM/2011 4 BHARAT EARTH MOVERS (SUPRA). HE, THEREFORE, SUBMITS THAT THE DISALLOWANCE MADE BY THE A.O. BE RESTORED. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE WHILE RELYING ON THE ORDER OF THE LD. CIT(A) SUBMITS THAT SINCE THE ASSE SSEE HAS MADE PROVISION OF LEAVE ENCASHMENT RS. 17,98,331/- ON THE BASIS OF AC TUARIAL VALUATION WHICH IS NOT IN DISPUTE, THEREFORE, THE LD. CIT(A) WAS FULLY JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. THE RELIANCE WAS ALSO PLACED ON T HE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS (S UPRA). 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS MADE PROVISION FOR LEAVE ENCASHMENT ON THE BASIS OF THE REPORT OF THE ACTUARIAL VALUATION. 7. IN BHARAT EARTH MOVERS (SUPRA) THE HONBLE APEX COURT EXTRACTED AND REPRODUCED THE FOLLOWING PRINCIPLES LAID DOWN BY TH E HONBLE APEX COURT IN THE CASE OF METAL BOX COMPANY OF INDIA LTD. VS. THEIR W ORKMEN (1969) 73 ITR 53 (SC) AS UNDER (PAGE 431-432) :- (I) FOR AN ASSESSEE MAINTAINING HIS ACCOUNTS ON THE MERCANTILE SYSTEM, A LIABILITY ALREADY ACCRUED, THOUGH TO BE D ISCHARGED AT A FUTURE DATE, WOULD BE A PROPER DEDUCTION WHILE WORKING OUT THE PROFITS AND GAINS OF HIS BUSINESS, REGARD BEING HAD TO THE ACCEPTED PRIN CIPLES OF COMMERCIAL PRACTICE AND ACCOUNTANCY. IT IS NOT AS IF SUCH DEDU CTION IS PERMISSIBLE ONLY IN THE CASE OF AMOUNTS ACTUALLY EXPENDED OR PAID ; (II) JUST AS RECEIPTS, THOUGH NOT ACTUAL RECEIPTS B UT ACCRUED DUE ARE BROUGHT IN FOR INCOME-TAX ASSESSMENT, SO ALSO LIABI LITIES ACCRUED DUE WOULD BE TAKEN INTO ACCOUNT WHILE WORKING OUT THE PROFITS AN D GAINS OF THE BUSINESS ; ITA NOS. 3212 & 3213/MUM/2011 5 (III) A CONDITION SUBSEQUENT, THE FULFILMENT OF WHI CH MAY RESULT IN THE REDUCTION OR EVEN EXTINCTION OF THE LIABILITY, WOULD NOT HAVE THE EFFECT OF CONVERTING THAT LIABILITY INTO A CONTINGENT LIAB ILITY ; (IV) A TRADER COMPUTING HIS TAXABLE PROFITS FOR A P ARTICULAR YEAR MAY PROPERLY DEDUCT NOT ONLY THE PAYMENTS ACTUALLY MADE TO HIS EMPLOYEES BUT ALSO THE PRESENT VALUE OF ANY PAYMENTS IN RESPE CT OF THEIR SERVICES IN THAT YEAR TO BE MADE IN A SUBSEQUENT YEAR IF IT CAN BE SATISFACTORILY ESTI- MATED. IT HAS BEEN HELD (PAGE 432) :- APPLYING THE ABOVESAID SETTLED PRINCIPLES TO THE F ACTS OF THE CASE AT HAND WE ARE SATISFIED THAT THE PROVISION MADE BY THE APPELL ANT-COMPANY FOR MEETING THE LIABILITY INCURRED BY IT UNDER THE LEAVE ENCASHMENT SCHEME PROPORTIONATE WITH THE ENTITLEMENT EARNED BY EMPLOYEES OF THE COMPANY, INCLUSIVE OF THE OFFICERS AND THE STAFF, SUBJECT TO THE CEILING ON ACCUMULATI ON AS APPLICABLE ON THE RELEVANT DATE, IS ENTITLED TO DEDUCTION OUT OF THE GROSS RECEIPTS FOR THE ACCOUNTING YEAR DURING WHICH THE PROVISION IS MADE FOR THE LIABILITY. THE LIABILITY IS NOT A CONTINGENT LIABILITY. THE HIGH C OURT WAS NOT RIGHT IN TAKING THE VIEW TO THE CONTRARY. 8. IN THE ABSENCE OF ANY CONTRARY MATERIAL PLACED O N RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE APEX COURT (SUPRA) HOLD THAT SINCE THE ASSESSEE HAS MADE CLAIM OF LEAVE ENCASHMENT ON THE BASIS OF ACTUARIAL VALUATION REPORT, THE LIABIL ITY IS NOT A CONTINGENT LIABILITY AND THE LD. CIT(A) WAS FULLY JUSTIFIED IN ALLOWING THE SAME. THE GROUNDS TAKEN BY THE REVENUE ARE, THEREFORE, REJECTED. ITA NO. 3213/MUM/2011 (A.Y. 1999-2000) 9. ALL THE GROUNDS TAKEN BY THE REVENUE ARE SIMILAR TO THE GROUNDS TAKEN IN THE APPEAL FOR THE A.Y. 1997-98 EXCEPT THE DIFFE RENCE IN THE AMOUNT OF LEAVE ENCASHMENT WHICH IS AT RS. 41,78,000/-. ITA NOS. 3212 & 3213/MUM/2011 6 10. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THE ISSUES ARE MUTATIS MUTANDIS SIMILAR TO THE ISSUE INVOLVED IN A.Y. 1997-98. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE UPHOLD THE ORDER PASSED BY THE LD. CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE. THE GROUNDS TAKEN BY THE REVENUE ARE, THEREFORE, REJECTED. 11. IN THE RESULT, REVENUES APPEALS STAND DISMISSE D. 6 47 %# 2 (6% 2 %4 89 ORDER PRONOUNCED IN THE OPEN COURT ON 15-02-2013. . 2 5&- ( 7 15-02-2013 & 2 @ SD/- SD/- (SANJAY ARORA) (DINE SH KUMAR AGARWAL) ( '# / ACCOUNTANT MEMBER ! '# / JUDICIAL MEMBER MUMBAI; DATED 15-02-2013. .!.'./ R.K. , SR. PS ITA NOS. 3212 & 3213/MUM/2011 7 2 0!4AB B-4 2 0!4AB B-4 2 0!4AB B-4 2 0!4AB B-4/ COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT . 3. C () / THE CIT(A)- 28, MUMBAI 4. C / CIT -26 , MUMBAI 5. BF@ 0!4! , , / DR, ITAT, MUMBAI B BENCH 6. @G, H / GUARD FILE. '1B4 0!4 // TRUE COPY // ' ' ' ' / BY ORDER, I II I/ // /'8 % '8 % '8 % '8 % (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI