PEC Ltd., New Delhi V. ACIT, New Delhi

ITA 3910/DEL/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7978 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 03-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 20-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KESANG Y SHERPA
• Keywords: Business expenditure; Rule of consistency; Valuation report; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI C.M. GARG : JUDICIAL MEMBER ITA NO. 3910/DEL/2010 ASSTT. YRS: 2007-08 PEC LTD., VS. ADDL. CIT,RANGE-14, HANSALAYA, 9 TH FLOOR, NEW DELHI. NEW DELHI-110001. AND ITA NOS. 5523/DEL/2011 & 3739/DEL/2013 ASSTT. YRS: 2008-09 & 2009-10 ADDL. CIT,RANGE-14, VS. PEC LTD., NEW DELHI. HANSALAYA, 9 TH FLOOR, NEW DELHI-110001. ( APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI SANJAY AGRAWAL CA DEPARTMENT BY : MS. KESANG Y. SHERPA SR. DR DATE OF HEARING : 03/05/2016. DATE OF ORDER : 10/05/2016. O R D E R PER S.V. MEHROTRA, A.M: THE ASSESSEE IS IN APPEAL ASSAILING THE ORDER DA TED 20.9.2011 OF THE LD. CIT(A)-XVII, NEW DELHI IN APPEAL NO. 119/CIT(A) XVII/DEL/10-11 RELATING TO AY 2007-08. THE DEPARTMENT HAS PREFERRE D APPEALS AGAINST 2 CIT(A)S ORDERS IN RELATION TO AY 2008-09 AND 2009- 10. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ASSESSEES APPEAL - ITA NO. 3910/DEL/2010 (AY: 200 7-08): 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A GOVERNMENT OF INDIA ENTERPRISE, IN THE RELEVANT ASSESSMENT YEAR, WAS EN GAGED IN THE BUSINESS OF EXPORT AND IMPORT OF STORES, AGRICULTURAL COMMODITI ES, INDUSTRIAL RAW MATERIAL ETC. THE ASSESSEE COMPANY HAD FILED ITS RE TURN DECLARING TOTAL INCOME AT RS. 47,91,88,024/-. THE ASSESSMENT WAS CO MPLETED AT A TOTAL INCOME OF RS. 49,05,45,523/-, INTER ALIA, MAKING AD DITIONS ON FOLLOWING COUNTS: (I) PROVISION FOR PRODUCTIVITY LINKED REWARD (PLR) RS. 55,00,000/- (II) PRIOR PERIOD EXPENSES RS. 49,53,168/- 3. THE ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A), WHO, WHILE PARTLY ALLOWING THE ASESSEES APPEAL, CONFIRMED THE AFOREM ENTIONED TWO DISALLOWANCES. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1) THAT THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS)-XVII, NEW DELHI (HEREINAFTER REFERRED TO AS CIT (A)) DATED 27-06-2010 IS BAD IN LAW AND WRONG ON FA CTS. 2) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT (A) HAS ERRED IN NOT ALLOWING THE DEDUC TION OF RS. 3 55 LAKHS ON ACCOUNT OF PROVISION MADE FOR THE LIABI LITY RELATING TO PRODUCTIVITY LINKED REWARD FOR THE EMPLOYEES. 3) WITHOUT PREJUDICE TO THE CONTENTION OF THE APPEL LANT IN GROUND NO.2 ABOVE, THE LEARNED CIT(A) HAS FURTHER E RRED IN NOT GIVING DIRECTIONS TO THE ASSESSING OFFICER TO ALLOW THE PROVISION FOR PRODUCTIVITY LINKED REWARD IN THE YEAR IN WHICH PAYMENT HAS BEEN MADE I.E. ASSESSMENT YEAR 2008-09. 4) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE DISALLO WANCE OF RS. 49,53,168/- ON ACCOUNT OF LEGAL EXPENSES HOLDING TH EM TO BE PRIOR PERIOD EXPENDITURE EVEN THOUGH THE JUDGMENT O F THE COURT IN RESPECT OF RS. 38,79,013/- WAS DELIVERED ON 05-0 5-2006 WHICH RELATED TO THE ASSESSMENT YEAR UNDER APPEAL A ND THE BALANCE OF RS. 10,72,024/- CRYSTALLIZED DURING THE YEAR ON ACCEPTANCE OF THE JUDGMENT OF THE COURT. 5) WITHOUT PREJUDICE TO THE CONTENTION OF THE APPEL LANT IN GROUND NO.4 ABOVE, THE LEARNED CIT(A) HAS FURTHER E RRED IN NOT GIVING DIRECTIONS TO THE ASSESSING OFFICER TO ALLOW THE ALLEGED PRIOR PERIOD EXPENSES IN THE YEAR TO WHICH IT RELAT ES ACCORDING TO HIM. 6) THAT THE APPELLANT CRAVES LEAVE TO RESERVE TO IT SELF THE RIGHT TO ADD, ALTER AND/OR VARY ANY GROUND(S) AT OR BEFORE THE TIME OF HEARING. 4. GROUND NOS. 1 & 6 ARE GENERAL AND DO NOT REQUIR E ANY ADJUDICATION. 5. GROUND NOS. 2 & 3: BRIEF FACTS APROPOS THESE TWO GROUNDS ARE THAT ASSESSEE HAD DEBITED RS. 55 LACS TOWARDS PRODUCTIVI TY LINKED REWARD SCHEME. THE AO NOTICED THAT NOTE 19 TO THE NOTES ON ACCOUNT READS AS UNDER: 4 ADMINISTRATIVE OVERHEADS IN THE LINE WITH GOVERN MENT DIRECTIONS, A PRODUCTIVITY LINKED AWARD SCHEME HAD BEEN DESIGNED WHICH HAS BEEN APPROVED BY THE BOARD AND A LSO BY THE GOVERNMENT. AN AMOUNT OF RS. 55 LAKH (PREVIOUS YEAR RS. 55 LAKH ) HAS BEEN CHARGED TO THE ACCOUNTS FOR THE CURRENT YEAR ON THE BASIS OF EXISTING SCHEME WHICH IS UNDER REVI EW. A STUDY BY NATIONAL PRODUCTIVITY COUNCIL IS UNDER PROGRESS. 6. THE AO WAS OF THE OPINION THAT THE AMOUNT SEEMED TO BE A LUMP SUM PROVISION AND, THEREFORE, REQUIRED THE ASSESSEE TO SPECIFY WHETHER THE AMOUNT WAS DEBITED FOR CREATION OF PROVISIONS OR WAS ACTUA LLY PAID. THE ASSESSEE VIDE ITS REPLY DATED 12.10.2009 SUBMITTED AS UNDER: AS PER DEPARTMENT OF PUBLIC ENTERPRISES, MINISTRY OF HEAVY INDUSTRIES, GOVT. OF INDIA GUIDELINES, PSU CAN DIST RIBUTE UPTO 5% OF THE DISTRIBUTABLE PROFIT OF THE COMPANY AS PL R TO THE EMPLOYEES WITH THE APPROVAL OF THE BOARD OF DIRECTO RS. THE PLR SCHEME WAS DESIGNED BY THE NATIONAL PRODUCTIVIT Y COUNCIL AND APPROVED BY THE BOARD OF DIRECTORS FOR 3 YEARS I.E, UPTO F.Y200S-0B. HOWEVER, THE PLR AMOUNT PAID TO AN EMPLOYEE SHOULD NORMALLY WITHIN 50% OF THE BASIC PA Y. THE AMOUNT OF RS. 55 LSKHS WAS PROVIDED AS PER EXIS TING SCHEME BECAUSE THE STUDY BY NPC WAS IN PROGRESS. AS PER REVISED PLR SCHEME, PLR AMOUNT DUE TO EMPLOYEES WOR KED OUT TO RS.123.90 LAKHS WHICH IS 5% OF THE DISTRIBUT ABLE PROFIT OF RS.24.79 CRORES.'. 7. THE AO TREATED THIS AS AN UNASCERTAINED LIABILIT Y BY OBSERVING AS UNDER: 5 FROM THE ABOVE SUBMISSION, THE FOLLOWING POINTS EME RGES: B. THE AMOUNT OF PLR HAS BEEN WORKED OUT ON THE BAS IS OF OLD SCHEME WHICH WAS APPROVED UPTO F.Y.2005-06. THU S, THE PROVISION CREATED FOR THIS YEAR WAS NOT UNDER THE A PPROVED SCHEME. C. THE AMOUNT HAS BEEN CREATED BY WAY OF PROVISIONS ON ESTIMATION BASIS. THE ACTUAL AMOUNT WORKED OUT TO B E RS.123.0 1AKHS WHICH HAS GOT NO CORRELATION WITH THE PROVISI ONS OFRS.55LAKHS AS THESE WHERE THE PROVISIONS ON ESTIMATION BASIS, THE ISSUE WAS FURTHER EXAMINED AND THE ASSESSEE WAS ASKED TO PROV IDE THE ACTUAL PAYMENT OF SUCH AMOUNT DURING THE YEAR. THE ASSESSEE PROVIDED THE DETAILS AND IT WAS FOUND THAT THE PAY MENT WAS MADE NEXT YEAR DURING THE PERIOD FROM JUNE 2007 TO JANUARY 2008. FROM THE ABOVE DISCUSSION, IT CAN VERY WELL B E SEEN THAT THE PROVISION FOR PLR AMOUNTING TO RS.55 LAKHS WAS CREATED WITHOUT ASCERTAINING THE ACTUAL AMOUNT. THE PROVISI ON WAS CREATED MERELY ON ESTIMATION BASIS. 8. LD. CIT(A) CONFIRMED THE AOS ACTION, INTER ALIA , OBSERVING THAT AO WAS JUSTIFIED IN DISALLOWING THE EXPENSES AS NOT AD MISSIBLE DURING THE YEAR UNDER CONSIDERATION AS THERE WAS NO APPROVED SCHEME . HE WAS OF THE OPINION THAT THE PROVISION HAD BEEN MADE ON AD HOC BASIS. 9. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PROVISION HAS BEEN MADE ON PAST HISTORY BASIS. HE REFERRED TO THE REPL Y FILED BY ASSESSEE BEFORE THE AO WHICH HAS BEEN REPRODUCED ABOVE. 6 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORD OF THE CASE. FROM THE REPLY FILED BY THE ASSESSEE BEF ORE THE AO IT IS EVIDENT THAT PSU WERE ENTITLED TO DISTRIBUTE UP TO 5% OF TH E DISTRIBUTABLE PROFIT OF THE COMPANY AS PLR TO THE EMPLOYEES WITH THE APPROVAL O F THE BOARD OF DIRECTORS. ADMITTEDLY, THE PROVISION IS WITHIN 5% L IMIT FIXED BY THE GOVERNMENT OF INDIA AND DULY APPROVED BY BOARD. IT IS NOT DISPUTED THAT IN EARLIER YEARS ALSO THE PROVISION HAD BEEN ALLOWED T O ASSESSEE. 11. IN THE CASE OF CIT VS. BHEL (2013) 352 ITR 88 ( DEL.), THE ASSESSEE, DURING THE ASSESSMENT YEARS 1988-89 AND 1998-99 CLA IMED ADDITION OF ITS LIABILITY ON ACCOUNT OF WAGE REVISION. IT SUBMITTED THAT EVEN THOUGH THE WAGE REVISION PROPOSALS HAD BEEN SUBMITTED TO THE COMPET ENT BODIES OR AUTHORITIES, THE LIABILITY WAS CERTAIN AND ASCERTAI NED ON THE BASIS OF ITS PAST EXPERIENCE AND AFTER TAKING INTO CONSIDERATION THE PREVIOUS PAY COMMISSIONS REPORT, UNION DEMANDS AND THE ABILITY OF THE EMPLOYER TO BEAR THE ADDITIONAL BURDEN. THE CLAIM WAS DISALLOWED BY THE ASSESSING OFFICER BUT ALLOWED BY THE TRIBUNAL. 12. THE HONBLE DELHI HIGH COURT HELD THE LIABILITY AS DEDUCTIBLE ASCERTAINED LIABILITY BY OBSERVING AS UNDER: THAT THE TRIBUNAL HELD THAT THE PROVISION FOR WAGE REVISION WAS BASED ON PAST EXPERIENCE, INTERIM PAY COMMISSIO N OF 7 GOVERNMENT EMPLOYEES, PREVIOUS PAY COMMISSION'S REP ORT OF PUBLIC SECTOR EMPLOYEES, UNION DEMANDS AND OTHER R ELEVANT FACTORS. THE TRIBUNAL ALSO HELD THAT WITH THE EXPIR Y OF ONE WAGE SETTLEMENT OR AGREEMENT, INVARIABLY, THERE WAS A T IME LAG WHEN ANOTHER FRESH WAGE REVISION AGREEMENT WAS NEGOTIAT ED AND ENTERED INTO. THE DEDUCTION CLAIMED FOR THAT PERIOD COULD NOT BE TERMED CONTINGENT BECAUSE THE WAGE AND THE PROBABLE REVISION OR RATES OF REVISION WOULD BE WITHIN THE FAIR ESTIM ATION OF THE EMPLOYER. THUS, THE LIABILITY COULD NOT BE CHARACTE RIZED AS CONTINGENT BUT WAS IN FACT ASCERTAINED AND WAS DEDU CTIBLE. 13. THE ASSESSEE CLEARLY STATED THAT THE AMOUNT HAD BEEN CHARGED ON THE BASIS OF EXISTING SCHEME WHICH WAS UNDER REVIEW. TH AT MERELY BECAUSE THIS SCHEME WAS UNDER REVIEW DID NOT MAKE THE LIABILITY PER SE AS UNASCERTAINED AND, THEREFORE, THE CONCLUSION DRAWN BY LOWER AUTHO RITIES THAT THE CONCLUSION WAS BASED ON ESTIMATION BASIS WAS NOT JU STIFIED, PARTICULARLY IN VIEW OF THE GUIDELINES OF GOVERNMENT OF INDIA AVAIL ABLE AT THAT TIME. WE ARE OF THE CONSIDERED OPINION THAT THE PROVISION HAD BE EN MADE FOR ASCERTAINED LIABILITY. GROUND IS ALLOWED. 14. GROUND NOS. 4 & 5: BRIEF FACTS APROPOS GROUND N OS. 4 & 5 ARE THAT FROM SCHEDULE 19 TO THE ANNUAL ACCOUNT THE AO NOTIC ED THAT THERE WERE DETAILS OF PRIOR PERIOD ADJUSTMENTS, WHICH INCLUDED LEGAL EXPENSES TO THE TUNE OF RS. 49,53,158/-. ON BEING ASKED THE ASSESSE E FILED REPLY DATED 26.10.2009 AND STATED AS UNDER: 8 'WITH REGARD TO LEGAL EXPENSES OF RS. 49,53,168/- T HERE WERE TWO PAYMENTS - RS.10,72,024/- AND RS. 38,79, 013/-. PAYMENT OF RS. 10,72,024/- WAS MADE IN COMPLIANCE WITH THE ORDERS OF CITY CIVIL COURT, AHEMDABAD IN THE CASE O F BANK OF INDIA VS STC/PEC/INDEQUIP & OTHERS: SUIT NO. 1827/1 981. COPY OF EXTRACT FROM THE MINUTES APPROVING SUCH PAY MENT BY BOARD OF DIRECTORS IS ENCLOSED AS ANNEXURE-8. PAYMENT OF RS. 38,79,013/- WAS IN COMPLIANCE WITH T HE ORDERS OF HON'BLE DELHI HIGH COURT IN THE CASE OF TEXMACO LIMITED VS. PEC-YUGOSLAV WAGON CONTRACT 1971. 15. THE AO REJECTED THE ASSESSEES CLAIM OBSERVING AS UNDER: IN ORDER TO VERIFY THE' NATURE OF PAYMENTS, THE AS SESSEE WAS ASKED TO PROVIDE THE COPY OF ABOVE ORDERS. AS FAR A S THE PAYMENT TO BANK OF INDIA IS CONCERNED, THE PAYMENT WAS MADE IN VIEW OF ORDER OF COURT PASSED ON 27.10.2005. TH E COMPANY WAS GUARANTOR OF TRANSACTION ENTERED BETWEEN INDEQU IP ENGINEERING LTD. AND GENERAL ORGANIZATION OF INDUST RIALIZATION, CAIRO. BECAUSE OF DEFAULT ON THE PART OF INDEQUIP ENGINEERING LTD. THE COURT ORDERED PAYMENT BY THE GUARANTOR. O N SEEING THE ABOVE DECISION, IT IS SEEN THAT THE LIABILITY IS ON ACCOUNT OF PAYMENT AS GUARANTOR, WHICH CANNOT BE CONSIDERED AS TRADE LIABILITY. FOR CLAIMING PRIOR PERIOD EXPENDITURE T HE ASSESSEE MUST ESTABLISH THAT THE EXPENDITURE WAS GENUINE BUS INESS EXPENDITURE AND WERE CRYSTALLIZED DURING THE PREVIO US YEAR. IN THE ABOVE CASE NONE OF THE ABOVE CONDITION IS FULFI LLED. THE EXPENDITURE WAS CRYSTALLIZED IN FINANCIAL YEAR 2005 -06 AS THE ORDER OF HON'BLE COURT WAS DELIVERED ON 27.10.2005 AND SECONDLY, IT IS NOT GENUINE BUSINESS EXPENDITURE. AS REGARD THE PAYMENT OF RE. 38,79,013/- IS CONCERN ED, ON EXAMINING THE COURT ORDER IT IS SEEN THAT ABOVE CAS E ARISES AS THE AWARD GRANTED BY ARBITRATOR BETWEEN STATE TRADING C ORPORATION OF INDIA AND TEXMACO LTD. WAS CHALLENGED BEFORE THE HIGH 9 COURT OF DELHI. THERE WAS DISPUTE BETWEEN THE TWO C OMPANIES REGARDING AMOUNT PAYABLE ON ACCOUNT OF DEFECTIVE AN D DELAY IN SUPPLY OF WAGONS. THE ABOVE EXPENDITURE INCLUDING INTEREST COMPONENT FOR DELAY IN PAYMENT LOOKS PENAL IN NATU RE, THEREFORE CANNOT BE REGARDED AS GENUINE BUSINESS E XPENDITURE. IN THE SUBMISSION ASSESSEE HAS SIMPLY SUBMITTED THA T ALL THE ASSETS AND LIABILITY OF STC RELATED TO EXPORT OF TE XTILE AND MACHINERY WAS TRANSFERRED TO IT ON ITS INCORPORATIO N. NO EXPLANATION REGARDING NATURE OF EXPENDITURES WAS SU BMITTED. CONSIDERING THIS, SUCH EXPENSES CANNOT BE ALLOWED A S PRIOR PERIOD EXPENSES. 16. LD. CIT(A) CONFIRMED THE AOS ACTION MAINLY ON THE GROUND THAT LIABILITY DID NOT PERTAIN TO THE YEAR UNDER CONSIDE RATION, INTER ALIA, OBSERVING AS UNDER: THUS, IT CAN BE SEEN THAT IN BOTH THE CASES THE JU DGMENTS OF THE COURT WERE AVAILABLE DURING THE ASSESSMENT YEAR 200 6-07. IT IS NOT THE CASE OF THE APPELLANT THAT THEY WERE NOT AW ARE OF THE LIABILITY ON ACCOUNT OF JUDGMENT OF THE COURT. ON T HE CONTRARY . THE APPELLANT ADMITTED THAT THEY WERE VERY WELL AWA RE OF THE JUDGMENTS. HOWEVER, THE BOARD OF DIRECTORS ACCEPTED THE LIABILITY IN THE ASSESSMENT YEAR 2007-08. IT IS A S ETTLED LAW THAT THE LIABILITY CAN BE ALLOWED ONLY IN THAT YEAR TO W HICH IT PERTAINS OR IN THE YEAR IN WHICH THE SAME HAS BEEN CRYSTALLI ZED. IN THE INSTANT CASE, THE LIABILITY HAS NEITHER ARISEN IN T HE YEAR UNDER CONSIDERATION NOR IT PERTAINS TO THIS YEAR. IN VIEW OF THE ABOVE FACTS, I AM OF THE VIEW THAT THE AO WAS FULLY JUSTI FIED IN DISALLOWING THE SAME. THEREFORE, THE ORDER OF THE A O IS CONFIRMED ON THIS ISSUE. THIS GROUND OF APPEAL IS R EJECTED. 17. AS REGARDS THE SUM OF RS. 10,72,024/-, LD. COUN SEL FOR THE ASSESSEE POINTED OUT THAT THE JUDGMENT WAS DELIVERED ON 27.1 0.2005 AND THEN 10 ASSESSEE TOOK LEGAL OPINION ON THE ISSUE WHICH WAS GIVEN TO IT ON 16.2.2006. THEREAFTER, ON 24.7.2006, BOARD HAD TAKEN DECISION NOT TO PURSUE THE MATTER. THEREFORE, THE LIABILITY ACCRUED DURING THE YEAR UN DER CONSIDERATION. HE FURTHER SUBMITTED THAT SINCE IT WAS A TRADING LIABI LITY THEREFORE THE SAME SHOULD BE ALLOWED EITHER IN THE YEAR UNDER CONSIDER ATION OR IN EARLIER YEAR, IN WHICH, AS PER AO, THE SAME ACCRUED. HE SUBMITTED TH AT SINCE THERE WAS NO CHANGE IN RATE OF TAXATION, THEREFORE, ALLOWABILITY OF THIS AMOUNT CAN BE CONSIDERED IN THE YEAR UNDER CONSIDERATION ALSO. 18. AS REGARDS AOS OBJECTION THAT THIS WAS NOT A T RADING BUSINESS EXPENDITURE, LD. COUNSEL REFERRED TO THE SUBMISSION MADE BEFORE LD. CIT(A) TO THE EFFECT THAT IN THE FIRST CASE STC (PROJECTS DIVISION) SECURED A CONTRACT FOR SUPPLY OF MACHINERY, EQUIPMENT AND SPARES TO GE NERAL ORGANIZATION FOR INDUSTRIALIZATION (GOFI), CAIRO, EGYPT FOR RS. 2.87 CRORES. THE DIVISION ENTERED INTO A CONTRACT WITH M/S INDEQUIP ENGINEERI NG LTD. FOR SUPPLY OF SOME OF THE MACHINERIES FOR RS. 42,00,362/-. THERE WAS A REDUCTION IN THE PRICE BY RS. 2,50,000/- AND THE FINAL PRICE WAS RS. 39,55,682/- . M/S INDEQUIP TOOK FINANCE FROM BANK OF INDIA AND THE DI VISION OF STC UNDERTOOK TO PAY DIRECTLY TO BANK IN 10 INSTALMENTS WITH INTE REST. THE DIVISION DEDUCTED RS. 2,50,000/-, ON ACCOUNT OF SUBSTANDARD SUPPLIES. THE BANK FILED A SUIT OF RECOVERY. MEANWHILE, THE DIVISION DEALING WITH THE CASE WAS VESTED WITH THE 11 APPELLANT WHEN IT WAS INCORPORATED AND STC WAS REST RUCTURED. THE AHMEDABAD HIGH COURT RULED IN FAVOUR OF BANK ON 27- 10-2005. 19. IN THAT BACKGROUND BOARD OF DIRECTORS APPROVED THE ABANDONMENT/ SETTLEMENT OF LEGAL PROCEEDING ON 24.7.2006. 20. LD. COUNSEL FURTHER REFERRED TO THE AUDITED ACC OUNTS (PAGE 18) AND POINTED OUT THAT ASSESSEE HAD EARNED COMMISSION (TR ADE) AMOUNTING TO RS. 2,15,37,682/-. THUS, HE SUBMITTED THAT THE ENTIRE L IABILITY WAS A TRADING LIABILITY. 21. AS REGARDS THE PAYMENT OF RS. 38,79,013/- LD. C OUNSEL POINTED OUT THAT THE STC (PRIOR TO TRANSFER OF CERTAIN BUSINESS DIVI SION TO PEC) ENTERED INTO A CONTRACT WITH YUGOSLAV RAILWAYS COMMUNITY TO SUPPLY WAGONS IN OCTOBER, 1970. THE CONTRACT WAS MODIFIED FROM TIME TO TIME A ND FINALLY ON 10-05- 1976, THE STATE BANK OF INDIA FURNISHED A PERFORMAN CE GUARANTEE ON BEHALF OF ASSESSEE. TEXMACO WAS ONE OF THE SUPPLIERS OF WA GONS. THE WAGONS SUPPLIED WERE DEFECTIVE AND THE COMMUNITY INVOKED T HE PERFORMANCE BANK GUARANTEE. THE MATTERS WERE SETTLED ONLY AFTER INVO KING ARBITRATION AGREEMENT WHICH WERE LODGED WITH INTERNATIONAL CHAM BER OF COMMERCE, PARIS. THE APPELLANT FAULTED THE SUPPLIERS AND INVO KED PERFORMANCE BANK GUARANTEE OF TEXMACO AND RECEIVED RS. 19,79,7251-. TEXMACO WENT FOR ARBITRATION WHEREIN IT WAS HELD THAT ONLY TWO WAGON S WERE DEFECTIVE AND THE 12 TOTAL COMPENSATION WOULD HAVE BEEN RS. 10,47,701/- AND, THEREFORE, EXCESS COMPENSATION WAS CLAIMED FOR RS. 9,32,024/-. TEXMAC O INITIATED LEGAL PROCEEDINGS AND WAS AWARDED THE SUM OF RS. 38,79,0 13/- VIDE ORDER DATED 05-05-2006. 22. LD. COUNSEL POINTED OUT THAT SINCE THE JUDGMENT WAS DELIVERED ON 5.5.2006 AND THE MANAGEMENT DECIDED TO MAKE THE PAY MENT DURING THIS YEAR ONLY, THEREFORE, THE LIABILITY CRYSTALIZED DURING THE YEAR. 23. LD. DR RELIED ON THE ORDER OF LD. CIT(A). 24. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE RECORD OF THE CASE. AS FAR AS THE EXPENDITURE OF RS. 10,72 ,024/- IS CONCERNED, IT IS NOT DISPUTED THAT ASSESSEE WAS PROCURING GOODS FROM OUTSIDE AND SUPPLYING IT WITHIN THE COUNTRY. IN THE PROCESS IT WAS EARNING A COMMISSION INCOME. (THE ASSESSEE BECAME THE GUARANTOR IN COURSE OF THESE BUSINESS TRANSACTIONS). THE ASSESSEE HAD ENTERED INTO CONTRACT WITH M/S IND EQUIP ENGINEERING LTD. FOR SUPPLY OF GOODS. BANK OF INDIA HAD FINANCED M/S INDEQUIP ENGINEERING LTD. ASSESSEE FURNISHED GUARANTEE TO BANK OF INDIA WHICH WERE THE FINANCERS OF THE TRANSACTIONS AND AGREED TO PAY BANK OF INDIA IN TEN INSTALMENTS WITH INTEREST. HOWEVER, SUBSEQUENTLY, ASSESSEE MADE DEDU CTION OF RS. 2,50,000/- ON ACCOUNT OF SUBSTANDARD SUPPLIES. BANK FILED SUIT FOR RECOVERY AND THE 13 SAME WAS ALLOWED CALLING UPON ASSESSEE TO MAKE THE PAYMENT OF RS. 10,72,024/-. THEREFORE, IT CANNOT BE SAID THAT THE LIABILITY, WHICH ACCRUED TO ASSESSEE, AS A GUARANTOR WAS NOT IN COURSE OF BUSI NESS. AS FAR AS CRYSTALLIZATION OF LIABILITY DURING THE YEAR UNDER CONSIDERATION IS CONCERNED, WE FIND THAT THE BOARD OF DIRECTORS APPROVED THE A BANDONMENT/ SETTLEMENT OF LEGAL PROCEEDINGS ON 24.7.2006. THEREFORE, THE L IABILITY ACCRUED DURING THE YEAR UNDER CONSIDERATION. THEREFORE, THIS AMOUNT WA S TO BE ALLOWED IN THE YEAR UNDER CONSIDERATION. MOREOVER, WE FIND CONSID ERABLE FORCE IN THE ARGUMENT OF LD. COUNSEL THAT SINCE THERE WAS NO DI FFERENCE IN TAX RATES IN THE TWO YEARS VIZ. ASSESSMENT YEAR 2006-07 AND 2007-08, THEREFORE, THE WHOLE EXERCISE WAS REVENUE NEUTRAL. 25. AS FAR AS THE SECOND SUM OF RS. 38,79,013/- IS CONCERNED, SINCE THE JUDGMENT WAS DELIVERED ON 5.5.2006, WHICH IS EVIDEN T FROM PAGE 77 OF THE PB, THEREFORE, IT IS WRONG TO CONCLUDE THAT THE LIA BILITY CRYSTALLIZED PRIOR TO THE SAID DATE. THEREFORE, THIS AMOUNT WAS RIGHTLY C LAIMED BY ASSESSEE IN AY 2007-08. FURTHER, THIS AMOUNT WAS ALSO PAID BY ASSE SSEE IN COURSE OF SETTLEMENT OF ITS BUSINESS TRANSACTION ON ACCOUNT O F EXCESS COMPENSATION OF RS. 9,32,024/- RECEIVED BY IT, AS IS EVIDENT FROM T HE SUBMISSIONS OF LD. COUNSEL FOR THE ASSESSEE, NOTED BY US. WE, THEREFOR E, ALLOW THE CLAIM OF THE ASSESSEE. GROUND IS ALLOWED. 14 26. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. DEPARTMENTS APPEAL - ITA NO. 5523/DEL/2011 (AY 200 8-09): 27. SOLE EFFECTIVE GROUND RAISED IN THIS APPEAL I S AS UNDER: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION TO THE EX TENT OF RS. 1,15,45,360/- OUT OF RS. 1,51,45,341/- ON ACCOUNT O F PROVISION MADE FOR POST RETIREMENT BENEFIT. 28. BRIEF FACTS OF THE CASE ARE THAT DURING THE YEA R UNDER CONSIDERATION THE ASSESSEE HAD DEBITED AN AMOUNT OF RS. 1,51,45,341/- IN ITS P&L A/C UNDER THE HEAD POST RETIREMENT MEDICAL BENEFITS. THE AO REQU IRED THE ASSESSEE TO EXPLAIN AS TO HOW THIS LIABILITY WAS PAID. IN RESP ONSE, THE ASSESSEE, VIDE REPLY DATED 24.12.2010, SUBMITTED AS UNDER: A COPY OF ACTUARIAL VALUATION REPORT FOR VALUATION OF LIABILITY FOR POST RETIREMENT MEDICAL BENEFIT SCHEME AS ON 31 .03.2008 IS ENCLOSED AS PROOF OF THE FACT THAT THE SAID LIABILI TY WAS AN ASCERTAINED LIABILITY. THE SAME LIABILITY IS ALLOWE D TO US IN PREVIOUS YEAR ALSO. 29. THE AO REJECTED THE ASSESSEES CLAIM, INTER ALI A, OBSERVING THAT ASSESSEE HAD NOT GIVEN ANY REASON IN RESPECT OF ALL OWABILITY OF ITS CLAIM EXCEPT THAT IT WAS BASED ON ACTUARIAL VALUATION. TH E PROVISION MADE IN THE BOOKS OF A/C WAS AN UNASCERTAINED LIABILITY, NOT AL LOWABLE UNDER THE INCOME- TAX ACT. 30. IN APPEAL, THE LD. CIT(A) ALLOWED THE ASSESSEE S CLAIM BY OBSERVING AS UNDER: 15 THE MAIN ISSUE TO BE DECIDED IN THIS APPEAL IS WHE THER THE PROVISION OF RS.1,15,45,360/- IS AN ASCERTAINED LIA BILITY OR CONTINGENT LIABILITY. 'SINCE THE APPELLANT HAD ALRE ADY FILED A COPY OF ACTUARIAL VALUATION AS ON 31.03.2008 BEFORE THE AO ON 24.12.2010, THE AO'S STAND THAT THIS IS NOT AN ASCE RTAINED LIABILITY IS NOT CORRECT. THE SUPREME COURT DECISIO N MENTIONED ABOVE IN THE CASE OF M/S BHARAT EARTHMOVERS IS CLEA RLY APPLICABLE TO THE FACTS OF THIS CASE, WHILE THE CAS E LAWS MENTIONED BY THE AO ARE CLEARLY DISTINGUISHABLE. IT WAS ALSO POINTED OUT BY THE APPELLANT'S AR IN HIS LETTER DAT ED 15.09.2011 THAT THE AO HAD ALLOWED IN THIS ASSESSMENT YEAR ITS ELF SIMILAR LIABILITIES BASED ON ACTUARIAL VALUATION ON GRATUIT Y AND LEAVE ENCASHMENT PROVISION S: FURTHER IT WAS POINTED OUT THAT ON THE PRINCIPLE OF CONSISTENCY THIS PROVISION NEEDS TO BE ALLOWED AS SIMILAR PROVISION FOR POST RETIREMENT MEDICAL BENEF ITS WAS ALLOWED IN SCRUTINY ASSESSMENTS FOR A.Y. 2006-07 AN D 2007-08. THEREFORE, THIS PROVISION OF RS.1,15,45,360/- TOWAR DS POST RETIREMENT MEDICAL BENEFITS IS ALSO AN ALLOWABLE DE DUCTION U/S 37(1) OF THE I.T. ACT, 1961 AND HENCE IS ALLOWED AN D THUS THE GROUND NO.2 IS FULLY ALLOWED. 31. AFTER HEARING BOTH THE PARTIES, KEEPING IN VIEW THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTHMO VERS AND THE PROVISION BEING MADE ON ACTUARIAL VALUATION, WE DO NOT FIND A NY REASON TO INTERFERE IN THE FINDING OF LD. CIT(A) ON THE ISSUE IN QUESTION AND UPHOLD THE SAME. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NO. 3739/DEL/2013 (AY 2009-10): 32. EFFECTIVE GROUNDS RAISED IN THIS APPEAL ARE AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS. 1,01,74,937/- ON AC COUNT OF DISALLOWANCE OF POST RETIREMENT BENEFIT FOR THE EMP LOYEES WITHOUT APPRECIATING THE FACT THAT PROVISION MADE I N THE BOOKS 16 OF ACCOUNT IS NOT AN ALLOWABLE EXPENSE UNDER THE IN COME TAX ACT. 1.1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS O F THE CASE IN DELETING THE ABOVE DISALLOWANCES RELYING UPON TH E DECISION OF HIS PREDECESSOR IN EARLIER YEARS ON THE SIMILAR ISS UES IGNORING THE FACT THAT THE MATTER IS SUB JUDICE BEFORE THE H ONBLE ITAT AND HAS NOT COME TO ITS FINALITY. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS. 18,20,000/- ON ACCO UNT OF EXPENDITURE INCURRED IN INCREASE IN AUTHORIZED SHAR E CAPITAL WITHOUT APPRECIATING THE FACT THAT THE EXPENDITURE INCURRED BEING OF CAPITAL NATURE. 33. GROUND NO. 1: ON IDENTICAL GROUND IN AY 2008-09 , WE HAVE UPHELD THE ORDER OF LD. CIT(A), DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF POST RETIREMENT BENEFIT FOR THE EMPLOYEES. THERE BE ING NO CHANGE IN FACTS FOR THE ASSESSMENT YEAR IN QUESTION, FOR THE SAME REASO NS AS IN AY 2008-09 THE ORDER OF LD. CIT(A) ON THE ISSUE IN QUESTION IS UPH ELD. GROUND IS DISMISSED. 34. GROUND NO. 2: BRIEF FACTS APROPOS GROUND NO. 2 ARE THAT DURING THE ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT ASSESSEE HAD CLAIMED EXPENSES OF RS. 14 LACS IN RESPECT OF FEE PAID TO REGISTRAR OF COMPANIES FOR INCREASE IN AUTHORIZED CAPITAL AND RS. 4,20,000/- AS STAMP DUTY . THE ASSESSEE EXPLAINED AS UNDER: AUTHORIZED SHARE CAPITAL WAS INCREASED TO ISSUE BO NUS SHARES TO THE GOVERNMENT OF INDIA AND ITS EXPENSES WERE DE BITED TO PROFIT AND LOSS ACCOUNT AS REVENUE EXPENDITURE. THE RE IS NO INCREASE IN THE FUNDS OF THE BUSINESS SINCE THE AMO UNT WAS 17 CAPITALIZED OUT OF THE RESERVES OF THE COMPANY. THE REFORE, THE SAME IS REVENUE EXPENDITURE AND NOT CAPITAL EXPENDI TURE. 35. THE AO DISALLOWED THIS AMOUNT TREATING THE SAME AS CAPITAL IN NATURE. LD. CIT(A) FOLLOWING THE DECISION OF HONBLE SUPREM E COURT IN THE CASE OF M/S DALMIA INVESTMENTS 52 ITR 567, ALLOWED THE ASSE SSEES CLAIM BY OBSERVING AS UNDER: GROUND NO. 3 IS REGARDING THE DISALLOWANCE OF RS. 18,20,000/- ON ACCOUNT OF EXPENDITURE INCURRED IN CONNECTION WI TH INCREASE IN AUTHORIZED SHARE CAPITAL OF THE COMPANY FOR ISSU ANCE OF BONUS SHARES. FROM THE SUBMISSION OF THE APPELLANT MENTIONED IN THE ASSESSMENT ORDER, IT IS CLEAR THAT THIS EXPE NSE WAS INCURRED FOR INCREASING THE AUTHORIZED SHARE CAPITA L FOR ISSUE OF BONUS SHARES. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT'S AR RELIED ON THE HON'BLE SUPREME COURT'S DECISION I N THE CASE OF GENERAL INSURANCE CORPORATION REPORTED IN (2006) 156 TAXMAN 96 (SC) DATED 25.09.2006. THE RELEVANT PORTI ON OF THE ABOVE ORDER IS AS FOLLOWS: 'ISSUANCE OF BONUS SHARES DOES NOT RESULT IN ANY INFLOW OF FRESH FUNDS OR INCREASE IN THE CAPITAL EMPLOYED; THE CAPITAL EMPLOYED REMAINS THE SAME. ISSUANCE OF BONUS SHARES BY CAPITALIZATION OF RESERVES IS MERELY A REALLOCATION OF COMPANY'S FUND. IF THAT BE SO, THEN IT CANNOT BE HELD THAT TH E COMPANY HAS ACQUIRED A BENEFIT OR ADVANTAGE OF ENDURING NATURE. THE TOTAL FUNDS AVAILABLE WITH THE COMPANY WILL REMAIN THE SAME AND THE ISSUE OF BONUS SHARES WILL NOT RESULT IN ANY CHANGE IN THE CAPITAL STRUCTURE OF THE COMPANY. ISSUE OF BONUS SHARES DOES NOT RESULT IN THE EXPANSION OF CAPITAL BASE OF COMPANY. 18 5.1. IN THE ABOVE CASE, THE HON'BLE SUPREME COURT H AD DISTINGUISHED BETWEEN THE ISSUE OF FRESH SHARES LE ADING TO INFLOW OF FRESH FUNDS TO THE COMPANY AND THE ISSUE OF BONUS SHARES 'IN WHICH THERE IS NO FRESH INFLOW OF CAPITA L. IT WAS HELD THAT THE ISSUE OF BONUS SHARES 'IS REVENUE EXPENDI TURE FOLLOWING THE EARLIER HON'BLE SUPREME COURT'S DECISION IN THE CASE OF MIS DALMIA INVESTMENTS (52 ITR 567), WHERE IT WAS HELD THAT THERE. IS NO CHANGE IN THE CAPITAL STRUCTURE. RESPECTFULLY FOLLOWING THE ABOVE DECISION, THE ADDITION OF RS.18,20,000/- MADE BY THE AO AS CAPITAL EXPENDITURE IS DELETED AND THIS GROUND NO. 3 ALLOWED . 36. AFTER HEARING BOTH THE PARTIES, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDING OF LD. CIT(A) ON THE ISSUE IN QUESTI ON IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THECAE OF GENERAL INSUR ANCE CORPORATION (SUPRA), AND WE UPHOLD THE SAME. GROUND IS DISMISS ED. 37. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED AND THE REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCEMENT IN OPEN COURT ON 10/05/2016. SD/- SD/- (C.M. GARG) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 10/05/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.