M/s. MPCON LTD., Bhopal V. The ACIT 2(1), Bhopal

ITA 393/IND/2014

• Counselvise Citation: 39322714 RSA 2014
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 15-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Section: 43B; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE P.K. BANSAL, ACCOUNTANT MEMBER AND SHRI MUKU L KR. SHRAWAT, JUDICIAL MEMBER PAN NO. AABCM0090J ITA NO. 393/IND/2014 A.Y. : 2005-06 MPCON LIMITED, BHOPAL VS. ACIT, 2(1), BHOPAL. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AMIT JAIN, C. A. REVENUE BY : SHRI R. A. VERMA, SR. DR / // / DATE OF HEARING : 16.09.2014 /DATE OF PRONOUNCEMENT: 13/10/2014 / O R D E R PER P.K.BANSAL, A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-I, BHOPAL, DATED 17.02.2014. 2. IN THIS APPEAL, THE ASSESSEE HAS TAKEN THREE GROUND S, BUT THE GROUND NOS. 2 & 3 SINCE NOT PRESSED, THEREFORE, THERE SURVIVES ONLY ONE GROUND, WHICH READS AS UNDER :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED ON LAW BASIS BY WRON GLY DISALLOWING PROVISION FOR LEAVE ENCASHMENT EXPENDITURE OF RS. 21,08,065/- AS INCOME OF THE ASSESSEE, IGNORING THE FACTS AND SUBMISSIONS MADE O N RECORD. MPCON LIMITED, BHOPAL I.T.A.NO. 393/IND/2014 A.Y. 2005-06 2 3. THE FACTS RELATING TO THIS GROUND IS THAT THE ASSES SEE HAS CLAIMED THE DEDUCTION AMOUNTING TO RS. 21,08,065/- IN RESPECT OF THE PROVISION FOR LEAVE ENCASHMENT, WHICH HAS BEEN SHOWN IN HIS BOOKS OF ACCOUNTS ON THE BASIS OF THE RESOLUTION PA SSED IN THE BOARD MEETING HELD ON 18.2.2005 AS PER THE DETAILS GIVEN IN RESPECT OF THE 40 EMPLOYEES. THE ASSESSEE CLAIMED T HAT LIABILITY HAS BEEN CRYSTALLIZED DURING THE YEAR IN VIEW OF TH E BOARDS RESOLUTION, THEREFORE, IS ENTITLED FOR THE DEDUCTIO N. THE ASSESSING OFFICER DISALLOWED THE SAME. AS THE ASSESSEE HAS SH OWN THE LIABILITY, WHICH RELATES UP TO THE PERIOD 31.3.2004 IN THE PROFIT AND LOSS ACCOUNT IN SCHEDULE O UNDER PRIOR PERIOD ADJUSTMENT. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE LD. CIT(A) CONFIRMED THE DISALLOWANCE BY OBSERVING AS UNDER :- 3 .4 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND FACTS OF THE CASE. ON PERUSAL OF PROFIT AND LOSS ACCOUNT, IT IS NOTICED THAT THE APPELLANT HAD MADE PROVISION FOR LEAVE ENCASHMENT RELATED TO PRIO R PERIODS AND CLAIMED THE SAME AS DEDUCTION UNDER THE HEAD PRIOR PERIOD ADJUSTMENT. IT MAY BE NOTED THA T THE APPELLANT WAS MAINTAINING ITS BOOKS OF ACCOUNTS ON MERCANTILE SYSTEM OF ACCOUNTING AND, THEREFORE, PROVISION OF EXPENSES RELATING TO EARLIER YEARS CAN NOT BE CLAIMED AS DEDUCTION IN THE CURRENT YEAR. IT IS AN ADMITTED FACT THAT NEITHER THE LEAVE ENCASHMENT CLA IM OF THE EMPLOYEES WAS PERTAINING TO THE YEAR UNDER CONSIDERATION NOR ANY SUCH PAYMENT WAS MADE IN THIS YEAR. THUS, NEITHER THE LIABILITY ACCRUED OR CRYSTA LLIZED NOR EXPENDITURE WAS ACTUALLY INCURRED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER MPCON LIMITED, BHOPAL I.T.A.NO. 393/IND/2014 A.Y. 2005-06 3 CONSIDERATION AND, THEREFORE, THE PROVISION FOR LEA VE ENCASHMENT OF EARLIER YEARS OF RS. 21,08,085/- WAS NOT ALLOWABLE DEDUCTION DURING THE YEAR UNDER CONSIDERATION. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONGWITH THE ORDERS OF THE TAX AUTHORITIES BELOW. WE NOTED THAT THE ASSESSEE HAS PASSED IN ITS BOARD MEETING A RESOLUTION BY WHICH A CORPUS FUND IS TO B E CREATED TOWARDS THE LEAVE ENCASHMENT SCHEME FOR THE FULL TI ME REGULAR EMPLOYEE OF THE COMPANY. ACCORDINGLY, THE ASSESSEE HAS MADE THE PROVISION FOR LEAVE ENCASHMENT AMOUNTING TO RS. 21,08,085/- UP TO 31.3.2004 IN RESPECT OF THE FORTY EMPLOYEES A ND RS. 5,01,537/- FOR THE IMPUGNED ASSESSMENT YEAR. SO FAR AS THE PROVISION OF THE IMPUGNED ASSESSMENT YEAR IS CONCER NED, THIS HAS BEEN SHOWN BY THE ASSESSEE IN ITS PROFIT AND LOSS A CCOUNT UNDER THE HEAD EMPLOYEES REMUNERATION AND BENEFIT. SO F AR AS THE PROVISION FOR LEAVE ENCASHMENT FOR THE YEAR ENDED 3 1.3.2004 IS CONCERNED, THE SUM OF RS. 21,08,085/- HAS BEEN DEBI TED TO ITS PROFIT AND LOSS ACCOUNT UNDER THE HEAD PRIOR PERIO D ADJUSTMENT, AS THIS PROVISION DOES NOT RELATE TO T HE IMPUGNED ASSESSMENT YEAR. WE FIND FORCE IN THE CONTENTION OF THE ASSESSEE. SINCE THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYS TEM OF MPCON LIMITED, BHOPAL I.T.A.NO. 393/IND/2014 A.Y. 2005-06 4 ACCOUNTING AND THE ASSESSEE HAS MADE THIS PROVISION EVEN IN RESPECT OF THE EARLIER YEARS ON THE BASIS OF THE RE SOLUTION PASSED ON THE BOARD MEETING ON 18.2.2005, THEREFORE, THE L IABILITY IN RESPECT OF THIS HAS ARISEN DURING THE IMPUGNED ASSE SSMENT YEAR. THIS LIABILITY, IN OUR OPINION, HAS CRYSTALLIZED DU RING THE YEAR. THE CASE OF THE ASSESSEE IS DULY COVERED BY THE DECISIO N OF HON'BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS . CIT, 245 ITR 428 ( S. C.). UNDER THE MERCANTILE SYSTEM OF AC COUNTING, THE EXPENDITURE HAS TO BE ALLOWED WHEN IT HAS ACCRUED O R CRYSTALLIZED. SINCE THE LIABILITY HAS BEEN ACCRUED DURING THE YEAR, THEREFORE, THE ASSESSEE WILL BE ENTITLED FOR DEDUCT ION. THE LD. SENIOR DR SINCE VEHEMENTLY RELIED ON THE PROVISION OF SECTION 43B, WE NOTED THAT SECTION 43B DEBARS AN ASSESSEE T O ALLOW DEDUCTION WHICH IS OTHERWISE ALLOWABLE UNDER THIS A CT, THUS, SECTION 43B IS AN RESTRICTIVE PROVISION AND IT APPL IED TO A DEDUCTION, WHICH IS ALLOWABLE UNDER THE ACT. CLAUSE (F) OF THIS SECTION IS CLEARLY APPLICABLE IN THE CASE OF THE AS SESSEE. THIS CLAUSE CLEARLY STATES THAT ANY SUM PAYABLE BY THE A SSESSEE AS AN EMPLOYER IN LIEU OF ANY LEAVE AT THE CREDIT OF ITS EMPLOYEE SHALL BE ALLOWED ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 IN THE PREVIOUS YEAR IN WHICH SUM IS ACTUALLY PAID BY THE ASSESSEE. MPCON LIMITED, BHOPAL I.T.A.NO. 393/IND/2014 A.Y. 2005-06 5 WE NOTED THAT THERE IS A PROVISO ALSO UNDER THIS SE CTION. THIS PROVISO STATES THAT NOTHING CONTAINED IN THIS SECTI ON SHALL APPLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY TH E ASSESSEE ON OR BEFORE THE DUE DATE APPLICABLE IN EACH CASE FOR FURNISHING THE RETURN OF INCOME U/S 139(1). 5. THE LD. AUTHORIZED REPRESENTATIVE BEFORE US VEHEME NTLY CLAIMED THAT THE SAID LIABILITY HAS BEEN DISCHARGED BY THE ASSESSEE ON 17.7.2005 I.E. BEFORE THE DATE OF FILIN G THE RETURN. SINCE THIS FACT IS NOT COMING OUT OF THE ORDER OF T HE ASSESSING OFFICER, WE, THEREFORE, SET-ASIDE THE ORDER OF THE CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WIT H THE DIRECTION THAT THE ASSESSING OFFICER SHALL VERIFY WHETHER THE ASSESSEE HAD MADE THE PAYMENT IN RESPECT OF PROVISION FOR THE LE AVE ENCASHMENT RELATING TO THE PRIOR PERIOD BEFORE DUE DATE OF FILING OF THE INCOME TAX RETURN IN THE IMPUGNED ASSESSMENT YE AR I.E. ASSESSMENT YEAR 2005-06. IN CASE THE ASSESSING OFFI CER FINDS AND SATISFIES THAT THE ASSESSEE HAD DISCHARGED THE LIAB ILITY BY MAKING THE PAYMENT AMOUNTING TO RS. 21,08,065/-, THE ASSES SEE BE ALLOWED DEDUCTION. THUS, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. MPCON LIMITED, BHOPAL I.T.A.NO. 393/IND/2014 A.Y. 2005-06 6 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. ORDER PRONOUNCED IN PURSUANCE WITH RULE 34(4) BY PUTTING ITS PRONOUNCEMENT ON THE NOTICE BOARD SD/- SD/- (MUKUL KR. SHRAWAT) (P. K. BANSAL) JUDICIAL MEMBER ACCOUNTANT M EMBER INDORE; DATED: 13/10/2014 CPU*SPS / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. $%$&' # # ( / CONCERNED CIT 4. # # ( ( ) / THE CIT(A), INDORE 5. +,# &' , # # &' , -.% / DR, ITAT, INDORE 6. ,/0 1 / GUARD FILE. / BY ORDER, -# -# -# -# $2 $2 $2 $2 (ASSTT.REGISTRAR) ITAT, IN DORE MPCON LIMITED, BHOPAL I.T.A.NO. 393/IND/2014 A.Y. 2005-06 7 1. DATE OF DICTATION- 16 .09.2014 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .09.2014 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S. .. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 8. DATE OF DESPATCH OF THE ORDER