M/s. Garg Acrylics Ltd., New Delhi V. DCIT, New Delhi

ITA 5227/DEL/2011

• Counselvise Citation: 522720114 RSA 2011
• Duration Of Justice: 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 25-01-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 24-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R I S GILL ORD ORD ORD
• Keywords: Capital receipt
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH C BENCH C BENCH C BENCH C : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI A.D.JAIN A.D.JAIN A.D.JAIN A.D.JAIN, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.5227/DEL/2011 5227/DEL/2011 5227/DEL/2011 5227/DEL/2011 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2008 2008 2008 2008- -- -09 0909 09 M/S GARG ACRYLICS LIMITED, M/S GARG ACRYLICS LIMITED, M/S GARG ACRYLICS LIMITED, M/S GARG ACRYLICS LIMITED, 209, M.G.HOUSE, 209, M.G.HOUSE, 209, M.G.HOUSE, 209, M.G.HOUSE, COMMUNITY CENTRE COMMUNITY CENTRE COMMUNITY CENTRE COMMUNITY CENTRE, ,, , WAZIRPUR INDUSTRIAL AREA, WAZIRPUR INDUSTRIAL AREA, WAZIRPUR INDUSTRIAL AREA, WAZIRPUR INDUSTRIAL AREA, NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 052. 110 052. 110 052. 110 052. PAN : AAACG3332N. PAN : AAACG3332N. PAN : AAACG3332N. PAN : AAACG3332N. VS. VS. VS. VS. DY.COMMISSIONER OF INCOME TAX, DY.COMMISSIONER OF INCOME TAX, DY.COMMISSIONER OF INCOME TAX, DY.COMMISSIONER OF INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE- -- -2(1), 2(1), 2(1), 2(1), NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR, CA. RESPONDENT BY : SHRI R.I.S.GILL, CIT-DR. ORD ORD ORD ORDER ER ER ER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THIS APPEAL OF THE ASSESSEE IS FILED AGAINST THE O RDER OF LEARNED CIT(A) DATED 9 TH AUGUST, 2011 FOR THE AY 2008-09. 2. GROUND NO.1 OF THE ASSESSEES APPEAL READS AS UN DER:- THAT THE ORDER U/S 250 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XV, NEW DELHI IS AGAINST LAW AND FACTS AND ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LEARNED D CIT, CIRCLE-12(1), NEW DELHI IN MAKING AN ADDITION OF RS.2,58,10,056/- BY HOLDING THAT THE SALES TAX SUBS IDY GRANTED BY THE STATE OF PUNJAB WAS IN THE NATURE OF A REVENUE RECEIPT AND NOT A CAPITAL RECEIPT. ITA-5227/DEL/2011 2 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THIS ISSUE TO BE SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR THE AY 2006-07 WHEREIN THE ITAT, WHILE DISPOSING OF THE CR OSS-APPEAL OF THE REVENUE IN ITA NO.1559/DEL/2010 AND, AFTER DISCUSSI NG AT LENGTH, HELD AS UNDER:- 18. THE NEXT DISPUTE IN THE REVENUES APPEAL READS AS UNDER: 3. ON THE FACTS AND CIRCUMSTANCES, WHETHER LD. CIT(APPEALS) WAS JUSTIFIED ON FACTS OF THE CASE AND IN LAW IN DELETING THE DISALLOWANCE OF RS.2,46,12,660/- ON AC COUNT OF SUBSIDY RECEIVED BY THE ASSESSEE COMPANY AND CLAIM ED AS CAPITAL RECEIPT WHEREAS THE AO HAS RIGHTLY TREATED THE SAME AS REVENUE RECEIPT AND DISALLOWED THE SAME CI TING VARIOUS JUDICIAL PRONOUNCEMENTS. THE ASSESSEE COMPANY HAD BEEN GRANTED SALES-TAX SUB SIDY BY THE STATE OF PUNJAB TO THE TUNE OF RS 12.45 CROR ES. DURING THE RELEVANT YEAR, THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.2,46,12,660/- BEING UTILIZED OUT OF TH E TOTAL SUBSIDY AND THE SAME HAS BEEN TREATED AS CAPITAL RE CEIPT. WHEN ASKED TO JUSTIFY THE TREATMENT OF SUBSIDY OF S ALES-TAX DONE IN THE COMPUTATION OF INCOME, THE ASSESSEE SUBMITTED A COPY OF THE POLICY OF THE PUNJAB GOVERN MENT AND THE ASSESSEE STATED THAT: THE COMPANY HAS SET UP UNIT NO.II IN THE FINANCIAL YEAR 2001-02. THE FIXED CAPITAL INVESTMENT OF RS.8.30 CR ORES HAS BEEN INCURRED ON IT. WITH A VIEW TO ENCOURAGE THE S ETTING UP OF NEW INDUSTRIAL UNITS IN THE STATE OF PUNJAB, THE STATE GOVERNMENT HAS GRANTED SUBSIDY IN THE NATURE OF SAL ES TAX EXEMPTION TO NEW UNITS @ 150% OF THE AMOUNT INVESTE D IN LAND & BUILDING, PLANT & MACHINERY ETC. IN ACCORDAN CE WITH THE SCHEME AN AMOUNT OF RS.12.45 CRORES HAS BEEN GRANTED AS SALES TAX SUBSIDY TO THE COMPANY. DURING THE FINANCIAL YEAR 01.04.2005 TO 31.03.2006 (ASSESSMENT YEAR 2006-07) AN AMOUNT OF RS.2,46,12,660/- HAS BEEN UTI LIZED OUT OF THE TOTAL SUBSIDY. SINCE THEN SAME IS IN THE NATURE OF CAPITAL RECEIPT, IT HAS BEEN DEDUCTED FROM THE ASSE SSABLE INCOME FOR THE A.Y 2006-07. ITA-5227/DEL/2011 3 18.1 THE ASSESSEE WAS ASKED BY THE AO, AS TO WHY NO T THE SALES TAX SUBSIDY MAY BE TREATED AS REVENUE RECEIPT . THE ASSESSEE DID NOT REPLY AND THE AO, APPLYING THE PRI NCIPLE OF THE DECISION OF THE SUPREME COURT IN THE CASE OF SA HNEY STEEL AND PRESS WORKS LTD. VS. CIT 228 ITR 253 (SC) CAME TO THE CONCLUSION THAT THE SALES TAX INCENTIVE RECE IVED BY THE ASSESSEE IS CLEARLY ON THE REVENUE ACCOUNT AND NOT CAPITAL RECEIPT AS CLAIMED BY IT. THE ADDITION OF RS.2,46,12,660/- WAS MADE. 19. THE CIT (APPEALS) EXAMINED THE CASE OF THE ASSE SSEE AND GAVE THE FOLLOWING FINDINGS: 19. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPEL LANT, FINDINGS OF THE AO AND THE FACTS ON RECORD. PERUSAL OF THE PUNJAB GENERAL SALES TAX ACT, 1948 SHOWS THAT THE S TATE GOVERNMENT HAS EXEMPTED CERTAIN CLASS OF INDUSTRIES FROM PAYMENT OF SALES TAX WHICH HAVE BEEN DEFENDING PUNJ AB GENERAL SALES TAX DEFINED IN THE PUNJAB AND EXEMPTI ON RULES, 1991. IT IS STATED THAT IT WILL APPLY TO UNI TS WHEREIN MODERNIZATION, EXPANSION OR DIVERSIFICATION IN TERM S OF INDUSTRIAL POLICY IS CARRIED OUT. INDUSTRIAL POLICY HAS BEEN DEFINED AS THE INDUSTRIAL POLICY OF 1992 OR INDUSTR IAL POLICY OF 1996 AS THE CASE MAY BE, NOTIFIED BY THE GOVERNM ENT OF PUNJAB. AS PER THE PROVISIONS OF THE RULES DEFERMEN T OF OR EXEMPTION FROM THE PAYMENT OF TAX UNDER THE ACT IS ADMISSIBLE TO A UNIT IN B GROWTH AREA FOR A PERIO D OF 84 MONTHS. AS PER RULE-4 AND 4A THE QUANTUM OF ENTITLE MENT IN B GROWTH AREA WILL BE 150% OF THE FIXED CAPITA L INVESTMENT. IT HAS BEEN FURTHER MENTIONED THAT THE UNITS WHICH UNDERGO EXPANSION MODERNIZATION SHALL BE ENTI TLED TO THE BENEFIT UNDER SUB-RULE (1) WHICH DEFINES THE QUANTUM OF BENEFIT. AS PER THE INDUSTRIAL POLICY,19 96 IT HAS BEEN MENTIONED THAT TO ENCOURAGE THE GROWTH OF EXIS TING INDUSTRIAL UNITS THE BENEFIT OF INVESTMENT INCENTIV E AND SALES TAX CONCESSION SHALL BE ALLOWED ON EXPANSION PROVIDED THE FIXED CAPITAL INVESTMENT IS INCREASED BY AT LEAST 50%. PERUSAL OF THE ABOVE SCHEMES SHOWS THAT THE INCENTIVE HAS BEEN GRANTED BY THE STATE GOVERNMENT TO INDUCE THE FOSTER RAPID AND WIDE GROWTH OF INDUSTRI ALIZATION OF THE STATE. THE QUANTUM OF BENEFIT HAS TO BE WORK ED OUT ON THE BASIS OF THE FIXED CAPITAL INVESTMENT MADE B Y THE INDUSTRY. IN THE CASE OF THE APPELLANT IT IS OBSERV ED THAT THE UNIT IS IN AN AREA WHICH HAS BEEN NOTIFIED AS A SPE CIFIED AREA BY THE GOVERNMENT. THE GOVERNMENT OF PUNJAB VI DE ITS NOTIFICATION MENTIONED ABOVE HAS NOTIFIED THAT THE STATE GOVERNMENT WAS OF THE OPINION THAT FOR PROMOTING TH E ITA-5227/DEL/2011 4 DEVELOPMENT OF CERTAIN INDUSTRIES IN THE STATE IT W AS NECESSARY TO GRANT EXEMPTION FROM SALES TAX TO A NE W UNIT AND ALSO TO UNITS WHICH HAD UNDERTAKEN AN EXTENSION MODERNIZATION OR DIVERSIFICATION. THE AMOUNT OF TAX EXEMPTION ALLOWED WAS ON THE BASIS OF FIXED CAPITAL INVESTMENT MADE BY THE ASSESSEE. THE HONBLE SUPREM E COURT IN THE CASE OF SAWHNEY STEEL AND PRESS WORKS LTD. 228 ITR 253 HAS HELD THAT IF MONEY IS GIVEN TO THE ASSESSEE FOR ASSISTING THEM IN CARRYING OUT THEIR BUSINESS O PERATION AND THE MONEY WAS GIVEN ONLY AFTER AND CONDITIONAL UPON THE COMMITMENT OF COMMENCEMENT OF PRODUCTION THE SUBSIDY MUST BE TREATED AS ASSISTANCE FOR THE PURPO SE OF TRADE. IN THE INSTANT CASE THE SUBSIDY HAS BEEN GRA NTED TO THE APPELLANT COMPANY BY THE STATE GOVERNMENT NOT F OR THE PURPOSE OF CARRYING OUT ITS BUSINESS IN A MORE PROFITABLE MANNER BUT MERELY IN CONSIDERATION OF SE TTING UP OR EXPANDING OR MODERNIZING THE PRODUCTION UNITS IN SPECIFIED AREAS. THE DECISION OF THE HONBLE ITAT D ELHI BENCH IN THE CASE OF BHUSHAN STEELS AND STRIPS LTD VIDE ITA NO. 113/DELHI/2001 WHICH HAS BEEN RELIED UPON BY TH E APPELLANT HAS CONSIDERED THE SAME ISSUE IN WHICH TH E FACTS OF THE APPELLANTS CASE ARE SIMILAR. THE HONBLE IT AT HAS HELD THE SUBSIDY TO BE A CAPITAL RECEIPT. THE HONB LE ITAT MUMBAI (SPECIAL BENCH) IN THE CASE OF DCIT VS. RELI ANCE INDUSTRIES LTD 88 ITD 273 HAS HELD THAT IF SUBSIDY IS GIVEN FOR SETTING UP FOR EXPANSION OF INDUSTRY IN A BACKW ARD AREA, IT WILL BE CAPITAL IRRESPECTIVE OR MODALITY OR SOU RCE OF FUNDS THROUGH OR FROM WHICH IT IS GIVEN AND THAT IF MONEY IS GIVEN FOR ASSISTING ASSESSEE IN CARRYING OUT BUSINESS OPE RATIONS ONLY AFTER A CONDITION UPON COMMENCEMENT OF PRODUCT ION IT WOULD BE REVENUE. THE ABOVE FINDINGS HAVE BEEN GIVE N AFTER CONSIDERING THE DECISIONS IN THE CASE OF SAWH NEY STEEL AND PRESS WORKS LTD AND DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF P.J.CHEMICALS LTD. THE DECISIONS IN THE CASE OF CIT VS. PONNI SUGARS AND C HEMICALS LTD AND CIT VS. DUSAD INDUSTRIES LTD HAVE ALSO BEEN CONSIDERED. IN THE APPELLANTS CASE THE QUANTUM OF THE INCENTIVE DEPENDED ON THE AREA IN WHICH THE INDUSTR Y WAS LOCATED. FURTHER THE INCENTIVE WAS SUBJECT TO MONET ARY CEILINGS DIRECTLY RELATED TO FIXED CAPITAL INVESTME NT. THUS IT IS SEEN THAT THE SCHEME UNDER WHICH INCENTIVE HAS B EEN GRANTED HAS FOCUS ON THE LOCATION OF INDUSTRY AND T HE AMOUNT OF FIXED CAPITAL INVESTMENT. AFTER CAREFUL CONSIDERATION OF THE FACTS OF THE CASE AND ALSO REL YING ON THE DECISION OF THE JURISDICTIONAL BENCH OF ITAT IN THE CASE OF BHUSHAN STEEL AND STRIPS LTD, I AM OF THE CONSID ERED OPINION THAT THE SALES TAX SUBSIDY RECEIVED BY THE ITA-5227/DEL/2011 5 APPELLANT IS IN THE NATURE OF CAPITAL RECEIPT. THE DISALLOWANCE MADE BY THE A.O IS DELETED AND THIS GR OUND OF APPEAL IS ALLOWED. 20. THE DEPARTMENT IS AGGRIEVED. THE LEARNED D.R. S TRONGLY SUPPORTED THE ORDER OF THE A.O. ACCORDING TO HIM TH E PRINCIPLE LAID DOWN BY THE SUPREME COURT IN THE CAS E OF SAWHNEY STEEL AND PRESS WORKS LTD. (228 ITR 253) AR E CLEARLY APPLICABLE IN RESPECT OF THE SALES-TAX RECE IVED BY THE ASSESSEE. HE ALSO SUBMITTED THAT UNDER THE INCE NTIVE SCHEME OF THE GOVERNMENT, THE ASSESSEE IS ONLY ENTI TLED TO DEFERMENT OF SALES-TAX PAYMENT, CALCULATED AT A PERCENTAGE OF FIXED CAPITAL INVESTMENT. IN FACT, AC CORDING TO HIM, THE SALES-TAX INCENTIVE WILL BE TREATED AS A DEFERRED LOAN AND THE ASSESSEE IS REQUIRED TO REIMBURSE THE SAID LOAN TO THE GOVERNMENT. 21. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, HEAVILY RELIED UPON THE ORDER OF THE CIT (A) AND THE FACTS OF HIS CASE, ACCORDING TO HIM, ARE EXACTLY TH E SAME TO THE FACTS OF M/S BHUSHAN STEELS & STRIPS LTD., NEW DELHI (ITA NO.3727/DEL/97 DATED 27.02.2003) WHERE IDENTIC AL SCHEME HAS GONE IN DETAIL BY THE TRIBUNAL AND THE T RIBUNAL AFTER EXAMINING THE SCHEME HELD THAT THE AMOUNTS IN QUESTION ARE TO BE TREATED AS CAPITAL RECEIPT. IN ALL FORCE, THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID DECISION OF THE TRIBUNAL. THE DECISIONS O F THE TRIBUNAL ON THIS ISSUE ARE PLACED IN A SEPARATE COM PILATION IN THE FORM OF PAPER BOOK. THE ASSESSEE HAS ALSO FI LED THE COPY OF THE CERTIFICATE OF ELIGIBILITY FOR GRANT OF INCENTIVES FOR SALES-TAX EXEMPTION IN THE CASE OF THE ASSESSEE VIDE NO. DIC/LDH/63-E DATED 26.6.03 WHEREIN IT IS CERTIF IED THAT THE ASSESSEE WHICH ESTABLISH THE MANUFACTURING UNIT FOR PRODUCTION OF SYNTHETIC YARN, WOOLEN YARN, PROCESSI NG WASTE ON 01.03.2002 IS ELIGIBLE FOR GRANT OF INCENT IVES OF SALES-TAX EXEMPTION FOR A PERIOD OF SEVEN YEARS AND FOR THE MAXIMUM AMOUNT OF RS.12,45,30,000/- FROM 01.03.2002 . IT IS A CASE OF TOTAL EXEMPTION. THE LEARNED COUNSEL P OINTED OUT THE SCHEME PROVIDES FOR TWO OPTIONS, ONE SALES- TAX EXEMPTION AND THE OTHER DEFERRAL SCHEME. THE ASSESS EES UNIT FALLS UNDER THE EXEMPTION SCHEME, UNDER THE SA ME INCENTIVE SCHEME ANNOUNCED BY THE GOVERNMENT. 22. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND GONE THROUGH THE RECORDS. THE LEARNED D.R HAS FILED THE INCENTIVE SCHEME AND THE ASSESSEE HAS ALSO FILED TH E COPY OF THE ELIGIBILITY CERTIFICATE DATED 20.06.2003 ISS UED BY THE ITA-5227/DEL/2011 6 DISTT. INDUSTRIES CENTRE, LUDHIANA IN SUPPORT OF TH E CLAIM. WE HAVE GONE THROUGH THESE DETAILS AND FIND THAT TH E ASSESSEES MANUFACTURING UNIT WHICH WENT INTO PRODU CTION ON 01.03.2002, AND IN TERMS OF GOVERNMENT NOTIFICAT ION NO. INC.II/15/43/96-S/1B/4176 DATED 1.6.1996 IS ELI GIBLE FOR GRANT OF INCENTIVE OF SALES-TAX EXEMPTION FOR THE P ERIOD OF SEVEN YEARS AND FOR THE MAXIMUM AMOUNT OF RS.12,45,30,000/- FROM 01.03.2002. EXACTLY THE SCHE ME IS THE SAME AS WAS EXAMINED BY THE TRIBUNAL IN THE CA SE OF M/S BHUSHAN STEELS & STRIPS LTD. (SUPRA). THE ORDER OF THE CIT(A) IS IN CONFORMITY WITH THE ORDER AND THE DECI SION OF THE INCOME-TAX APPELLATE TRIBUNAL IN THE CASE OF M/ S BHUSHAN STEELS & STRIPS LTD. IN ITA NO.1113/DEL/200 1 AND ALSO THE DECISION OF THE ITAT, SPECIAL BENCH IN THE CASE OF DY. CIT VS. RELIANCE INDUSTRIES LTD. 88 ITD 273 (MU M) (SB). THE ORDER OF THE CIT (A), IN OUR CONSIDERED OPINION , HAVING FOLLOWED THE BINDING DECISIONS OF THE TRIBUNAL, DOE S NOT, THEREFORE, CALL FOR ANY INTERFERENCE. 4. AT THE TIME OF HEARING BEFORE US, THE LEARNED DR TRIED TO DISTINGUISH THE DECISION OF ITAT ON THE GROUND THAT ON THE FACTS OF THE ASSESSEES CASE, THE DECISION OF HONBLE APEX COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. AND OTHERS VS. CO MMISSIONER OF INCOME TAX 228 ITR 253 WOULD BE APPLICABLE. HE RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND STATED THAT SINC E THE SUBSIDY WAS GIVEN AFTER THE COMMENCEMENT OF PRODUCTION AS PER T HE DECISION OF THE HONBLE APEX COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. AND OTHERS (SUPRA), THE SUBSIDY WAS IN THE NATURE OF REVENUE RECEIPT. HOWEVER, WE FIND THAT THE IDENTICAL ISSUE WAS CONSI DERED BY THE ITAT IN ASSESSEES OWN CASE IN THE EARLIER YEAR AND, IN THA T YEAR ALSO, THE LEARNED DR HAS RELIED UPON THE DECISION OF HONBLE APEX COURT IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. AND OTHERS (SUPRA). THE ITAT, AFTER CONSIDERING THE ABOVE DECISION AND THE FACTS OF THE ASSESSEES CASE, HELD THAT THE SUBSIDY WAS NOT A RE VENUE RECEIPT. SINCE THE FACTS OF THE YEAR UNDER CONSIDERATION ARE IDENTICAL, RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TR IBUNAL IN ASSESSEES ITA-5227/DEL/2011 7 OWN CASE FOR AY 2006-07, WE ALLOW GROUND NO.1 OF TH E ASSESSEES APPEAL. 5. GROUND NO.2 OF THE ASSESSEES APPEAL READS AS UN DER:- THAT THE ORDER U/S 250 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) XV, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LEARNED DCIT, CIRCLE 12(1), NEW DELHI IN MAKING AN ADDITION OF RS.4,86,8 89/- REPRESENTING PROVISION FOR GRATUITY TO THE BOOK PRO FIT FOR COMPUTATION OF MAT LIABILITY U/S 115 JB ON THE GROU ND THAT THE SAME CANNOT BE TREATED AS AN ASCERTAINED LIABIL ITY. 6. THE ASSESSING OFFICER HAD MADE THE ADDITION OF ` 4,86,889/- WHILE COMPUTING THE ASSESSEES BOOK PROFIT UNDER SECTION 115JB ON THE GROUND THAT THE PROVISION FOR THE GRATUITY WAS NOT AN ASCERTAINED LIABILITY. IT WAS EXPLAINED BY THE ASSESSEES COUN SEL THAT THE ASSESSEE COMPANY HAS A DEFINED GRATUITY PLAN. EVERY EMPLOYE E WHO HAS COMPLETED FIVE YEARS OR MORE OF SERVICE GETS A GRAT UITY ON DEPARTURE WHICH IS 15 DAYS SALARY FOR EACH COMPLETED YEAR OF SERVICE SUBJECT TO A MAXIMUM AMOUNT OF ` 3,50,000/-. HE STATED THAT THE PROVISION FOR THE GRATUITY HAS BEEN MADE ON THE BASIS OF ACTUARIAL VA LUATION OF THE ASSESSEES LIABILITY AS PER THE DEFINED POLICY OF T HE ASSESSEE COMPANY. THUS, THE ALLEGATION OF THE ASSESSING OFFICER THAT THE LIABILITY OF THE GRATUITY WAS NOT ASCERTAINED IS FACTUALLY INCORRECT . 7. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WHEN THE ASSESSEE HAS A DEFINED GRATUIT Y PLAN AND THE LIABILITY OF THE GRATUITY HAS BEEN ASCERTAINED ON T HE BASIS OF ACTUARIAL VALUATION AS PER THE ASSESSEES GRATUITY PLAN, IT C ANNOT BE SAID THAT THE ITA-5227/DEL/2011 8 LIABILITY OF THE GRATUITY IS UNASCERTAINED LIABILIT Y. THEREFORE, THE ADDITION OF THE PROVISION FOR GRATUITY WHILE COMPUT ING THE BOOK PROFIT IS UNCALLED FOR. THE SAME IS DELETED. GROUND NO.2 OF THE ASSESSEES APPEAL IS ALLOWED. 9. GROUND NO.3 OF THE ASSESSEES APPEAL READS AS UN DER:- THAT THE ORDER U/S 250 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) XV, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LEARNED DCIT, CIRCLE 12(1), NEW DELHI IN MAKING ADDITION OF RS.2,98,080/ - BEING EXPENDITURE ON FOREIGN TRAVEL OF DIRECTORS ON THE G ROUND THAT THE APPELLANT COMPANY COULD NOT JUSTIFY THE BU SINESS CONNECTION OF THE FOREIGN TRAVEL OF DIRECTORS. 10. THE ASSESSING OFFICER DISALLOWED THE EXPENDITUR E INCURRED ON DIRECTORS FOREIGN TRAVEL ON THE GROUND THAT THE LE ARNED AR WAS UNABLE TO JUSTIFY THE BUSINESS CONNECTION OF THE FOREIGN T RAVEL OF THE DIRECTORS. AT THE TIME OF HEARING BEFORE US, IT WAS STATED BY THE LEARNED COUNSEL THAT THE ASSESSEE DERIVES INCOME FROM MANUFACTURING AND SELLING OF DIFFERENT YARNS. THE FOREIGN VISITS OF THE DIRECTO RS WERE FOR EXPLORING THE BUSINESS POSSIBILITIES ABROAD. HOWEVER, WHEN A SPECIFIC QUESTION WAS ASKED TO THE LEARNED COUNSEL ABOUT THE PLACES V ISITED BY THE DIRECTORS AND THE PERSONS MET FOR EXPLORING THE BUS INESS AND WHETHER THERE WAS ANY IMPORT OR EXPORT TO THOSE COUNTRIES O R THOSE PARTIES, THE LEARNED COUNSEL WAS UNABLE TO REPLY. THAT WHEN DED UCTION FOR ANY EXPENDITURE IS CLAIMED, THE BURDEN IS UPON THE ASSE SSEE TO ESTABLISH THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF BUSINESS. IN RESPECT OF FOREIGN TRAVEL, THE ONLY EXPLANATION GIVEN BY THE LEARNED COUNSEL WAS THAT THE DIRECTORS FOREIGN TRAVELING WAS FOR EXPLORING THE BUSINESS OPPORTUNITIES ABROAD . HOWEVER, THIS EXPLANATION WAS TOO VAGUE AND ALSO UNSUBSTANTIATED. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION TO INTERFER E WITH THE ORDERS OF ITA-5227/DEL/2011 9 LOWER AUTHORITIES IN THIS REGARD. ACCORDINGLY, GRO UND NO.3 OF THE ASSESSEES APPEAL IS REJECTED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2012. SD/- SD/- ( (( (A.D.JAIN A.D.JAIN A.D.JAIN A.D.JAIN) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT DATED : 31.01.2012 VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR