M/s. Pearl Polymers Ltd., New Delhi V. DCIT, New Delhi

ITA 6165/DEL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6658 (ITAT-DELHI)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 18-08-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 18-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Assessee Lawyers: R K KAPOOR
• Keywords: Earning of tax free income; Valuation report; Revised return
• Section: 40A(3); 143(3); 14A; 115JB; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F NEW DELHI BEFORE SH. H.S. SIDHU , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 6165 /DEL/ 2013 ASSESSMENT YEAR: 2009 - 10 M/S. PEARL POLYMERS LTD., 204, ROHIT HOUSE, 3, TOLSTOY MARG, NEW DELHI VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 14(1), NEW DELHI PAN : AAACP0182F (APPELLANT) (RESPONDENT) APPELLANT BY SH. R.K. KAPOOR, CA RESPONDENT BY SH. F.R. MEENA, SR.DR DATE OF HEARING 24.08.2016 DATE OF PRONOUNCEMENT 18.11.2016 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER DATED 23/09/2013 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - XVII, LAXMI NAGAR , DELHI FOR ASSESSMENT YEAR 2009 - 10 RAISING FOLLOWING GROUNDS: 1.0 THAT THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT S CASE IN CONFIRMING THE DISALLOWANCE OF RS.4.45.076/ - U/S.40A(3IJOF THE INCOME - TAX ACT, ON WHOLLY UNTENABLE GROUNDS. 1.1 THAT THE LEARNED CIT(A) HAS FAILE D TO APPRECIATE THE CIRCUMSTANCES UNDER WHICH THE CASH PAYMENT EXCEEDING THE PRESCRIBED LIMIT U/S.40A(3) HAD TO BE MADE BY THE ASSESSEE, ALTHOUGH THE PAYEES WERE FULLY IDENTIFIED AND EVEN TDS HAS BEEN MADE. 1.2 THAT THE DISALLOWANCE MADE U/S.40A(3) IS BAD IN LAW. 2 ITA NO. 6165/DEL/2013 AY: 2009 - 10 2.0 THAT THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT S CASE IN CONFIRMING THE DISALLOWANCE MADE BY THE AO U/S. 14A OF THE INCOME - TAX ACT. 2.1 THAT FNE LEARNED CIT(A) HAS FAILED TO TAK E INTO CONSIDERATION VARIOUS PROPOSITIONS WITH REGARD TO DISALLOWANCE U/S.L4A READ WITH RULE 8D, WHICH WERE ADVANCED BEFORE HIM. 2.2 THAT THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT NO PART OF INTEREST WAS LIABLE TO BE DISALLOWED U/S.14A READ WITH RU LE 8D, AS NO BORROWED FUNDS HAD BEEN USED BY THE ASSESSEE FOR THE PURPOSE OF MAKING INVESTMENT. 2.3 THAT THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT THE LOANS SANCTIONED BY THE VARIOUS BANKS, SPECIFICALLY PROHIBITS THE INVESTMENT IN SHARES; AND SUCH LOANS WERE MONITORED BY THE SANCTIONING BANKS AND THEREFORE, THE CONFIRMATION OF DISALLOWANCE U/S.14A READ WITH RULE 8D IN RESPECT OF INTEREST IS BAD IN LAW. 3.0 THAT THE LEARNED CIT(A) HAS GROSSLY ERRED IN INTERPRETING THE PROVISIONS OF SECTION 115JB WHI LE CONFIRMING THE ACTION OF ENHANCING THE BOOK PROFITS BY THE (I) PROVISIONS FOR LEAVE ENCASHMENT AND (II) PROVISIONS FOR GRATUITY, WHICH WAS MADE ON THE BASIS OF ACTUARIAL VALUATION. 4.0 THAT EACH GROUND IS INDEPENDENT OF AND WITHOUT PREJUDICE TO THE OTH ER GROUNDS RAISED HEREIN. PRAYER THE APPELLANT - ASSESSEE PRAYS THAT THE RELIEF AS PER GROUNDS OF APPEAL ABOVE MAY KINDLY BE ALLOWED TO IT AND THE APPELLANT MAY ALSO BE ALLOWED TO ADD, DELETE, AMEND OR SUBSTITUTE ANY GROUND(S) OF APPEAL EITHER AT OR BEFORE THE DATE OF HEARING. 2. T HE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURING AND SALE OF PET JARS AND BOTTLES AND FILED RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 26/09/2009 DECLARING NIL INCOME, WHICH WAS SUBSEQU ENTLY REVISED ON 29/03/2011. IN THE REVISED RETURN , INCOME IN RESPECT OF THE YEAR WAS DECLARED AT RS.2,36,71,703/ - , HOWEVER , 3 ITA NO. 6165/DEL/2013 AY: 2009 - 10 AFTER ADJUSTING BROUGHT FORWARD LOSSES, TOTAL INCOME DECLARED WAS NIL. THE CASE WAS SELECTED FOR SCRUTINY AND NOTI CE UNDER SECTION 143(2) OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE ACT ) WAS ISSUED AND COMPLIED WITH. IN THE SCRUTINY ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE ACT ON 28/12/2011, THE ASSESSING OFFICER ASSESSED THE INCOME UNDER NORM AL PROVISIONS OF THE ACT AT RS.2 ,76,12, 698/ - WHICH WAS ALLOWED TO BE ADJUSTED AGAINST THE BROUGHT FORWARD LOSSES AND BOOK PROFIT UNDER SECTION 115 JB OF THE ACT WAS COMPUTED AT RS.4,42, 50, 717/ - AFTER MAKING ADDI TIONS TO THE BOOK PROFIT OF RS.3,31,27, 516/ - SHOWN BY THE ASSESSEE. 3. ON FUR THER APPEAL BY THE ASSESSEE, THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS), PARTLY ALLOWED THE APPEAL. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 4. THE GROUNDS NO. 1.0 TO 1.2 ARE IN RESPECT OF THE AMOUNT OF RS.4,45, 076/ - DISALLOWED BY THE ASSESSING OFFICER UNDER SECTION 40A(3) OF THE ACT AND SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS). 4.1 THE FACTS IN RESPECT OF ISSUE IN DISPUTE ARE THAT THE ASSESSING OFF ICER OBSERVED THAT A SU M OF RS.4,80, 677/ - WAS SHOWN AS DISALLOWABLE UNDER SE CTION 40A(3) OF THE ACT IN THE TAX AUDIT R EPORT, HOWEVER , THE ASSESS EE DISALLOWED ONLY A SUM OF RS.35, 601/ - IN THE RETURN OF INCOME FILED AND , THEREFORE, THE ASSESSEE WAS ASKED TO EXPLAIN THE ALLOW ABILIT Y OF THE BALANCE AMOUNT. IT WAS SUBMI TTED BY THE ASSESSEE THAT RS.4,45, 076/ - WAS PAID AS FREIGHT CHARGES TO THE TRUCKERS AT THEIR BADDI UNIT. IT WAS FURTHER EXPLAINED THAT THE TRUCK UNION AT BADDI BY THE NAME OF THE NALAGARH TRUCK OPERATORS UNION (IN SHOR T THE UNION ) WAS VERY STRONG AND THE ASSESSEE WAS FORCED TO TAKE THE SERVICES OF THE TRUCKERS REGISTERED UNDER THE UNION , WHICH DID NOT ALLOW ANY OUTSIDE TRUCK TO BRING IN MATERIAL AND TO TAKE THE MATERIAL OUT OF THE STATE OF HIMACHAL 4 ITA NO. 6165/DEL/2013 AY: 2009 - 10 PRADESH. IT WAS S TATED THAT SINCE MOST OF THE TRUCKERS DID NOT HAVE ANY BANK ACCOUNT AND THE ASSESSEE HAD NO CHOICE TO ENGAGE THE SERVICES OF THE TRUCKERS AND THE PAYMENTS FOR FREIGHT CHARGES WAS MADE IN CASH AFTER DEDUCTING TAX AT SOURCE (TDS) AS PER PROVISIONS OF THE ACT . IT WAS SUBMITTED BY THE ASSESSEE THAT THE CASH PAYMENTS WERE MADE BY THE ASSESSEE COMPANY BECAUSE OF THE CIRCUMSTANCES BEYOND THE CONTROL AND HAD BEEN INCURRED BY THE ASSESSEE FOR ITS BUSINESS ACTIVITY, AND HENCE SAME SHOULD BE ALLOWED. THE ASSESSING OFF ICER, HOWEVER DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE. A CCORDING TO HIM THERE WAS NO SUCH PROVISION FOR EXCLUDING THOSE PAYMENTS FROM THE PURVIEW OF THE DISALLOWABILITY UNDER SECTION 40A(3) OF THE ACT, THUS HE DISALLOWED THE SUM OF RS.4,45, 076/ - . BEFORE THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS), THE ASSESSEE SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD MADE A TOTAL FREIGHT PAYMENT OF RS. 47 LAKHS, OUT OF WHICH , ONLY A SUM OF RS.4,45, 076/ - WAS PAID IN CASH. IT W AS SUBMITTED THAT IF THE ASSESSEE ADOPTED FOR AN ALTERNATIVE ARRANGEMENT OF TRUCKERS , WHICH WERE NOT AFFILIATED WITH THE UNION , THE BUSINESS OPERATION OF THE ASSESSEE WOULD HAVE BEEN ADVERSELY AFFECTED. IN SUPPORT OF THE CONTENTION, THE ASSESSEE RELIED O N THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF R . C . GOEL VS. CIT, 2012 TIOL - 2013 - HC - DEL , WHEREIN IT IS HELD THAT WHERE THE NON - PAYMENT OF EXPENDITURE IN CASH, CAN STIFLE THE OPERATION OF THE BUSINESS, IT CAN BE CONSIDERED AS GENUINE CIRCUMST ANCES FOR GRANTING BENEFIT OF SECTION 6DD AND THE IMPLICATION OF DISALLOWANCE UNDER SECTION 40A(3) OF THE ACT SHOULD BE AVOIDED. THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS), HOWEVER , OBSERVED THAT TAX WAS DEDUCTED BY THE ASSESSEE , BUT THE TRUCKERS IN ALL PROBABILITY WOULD CLAIM REFUNDS AND THE REFUND WOULD HAVE TO BE DEPOSITED IN THE BANK AND IN ABSENCE OF BANK ACCOUNT, HOW THE TRUCKERS WOULD DEPOSIT THE REFUNDS AND THUS THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) 5 ITA NO. 6165/DEL/2013 AY: 2009 - 10 DID NOT FIND ANY RATIONAL IN THE ARGUMENT OF THE ASSESSEE THAT SINCE THE TRUCKERS DID NOT HAVE BANK ACCOUNT, THE PAYMENTS TO THEM WAS MADE IN CASH AND ACCORDINGLY, THE DISALLOWANCE WAS UPHELD. 4.2 BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMIT TED THAT RULE 6DD(K) OF INCOME T AX RULES, 1962 (FOR SHORT THE RULES ) COVERS THE TRANSACTION CARRIED OUT IN THE NATURE BY THE ASSESSEE AS THE PAYMENTS WERE MADE FOR THE BONA FIDE SERVICES OBTAINED FROM THE TRUCKERS FOR THE BUSINESS OPERATION OF THE ASSESSEE. IN SUPPORT OF THE CONTENTION THE LEARNED AUTHORIZED REPRESENTATIVE RELIED ON THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF RC GOEL VERSUS CIT (SUPRA). 4.3 ON THE OTHER HAND, THE LEARNED S ENIOR DEPARTMENTAL REPRESENTATIVE RELIED ON THE FINDINGS OF THE LOWER AUTHORITIES. 4.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE SUB - S ECTION (3) AND (3A) OF SECTION 40A OF THE ACT AND PROVISO UNDER SUB - SECTION (3A) DEAL WITH DISALLOWANCE O F CASH PAYMENT EXCEEDING RS.20,000/ - . THE RELEVANT PART OF THE SECTION 40 A IS REPRODUCED AS UNDER : EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES. 40A. (1) . (2) . (3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUP EES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. (3A) WHERE AN ALLOWANCE HAS BEEN MADE IN THE ASSESSM ENT FOR ANY YEAR IN RESPECT OF ANY LIABILITY INCURRED BY THE ASSESSEE FOR ANY EXPENDITU RE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR (HEREINAFTER REFERRED TO AS SUBSEQUENT YEAR) THE ASSESSEE MAKES PAYMENT IN RESPECT THEREOF, OTHERWISE THAN BY AN ACCOUNT P AYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, THE PAYMENT 6 ITA NO. 6165/DEL/2013 AY: 2009 - 10 SO MADE SHALL B E DEEMED TO BE THE PROFITS AND GAINS OF BUSIN ESS OR PROFESSION AND ACCORDINGLY CHAR GEABLE TO INCOME - TAX AS INCOME OF THE SUBSEQUENT YEAR IF THE PAYMENT OR AGGREGATE OF PAYME NTS MADE TO A PERSON IN A DAY, EXCEEDS TWENTY THOUSAND RUPEES: PROVIDED THAT NO DISALLOWANCE SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SUB - SECTION (3) AND THIS SUB - SECTION WHERE A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, IN SUCH CASES AND UNDER SUCH CIRCUMSTANCES AS MAY BE PRESCRIBED 6 , HAVING REGARD TO THE NATURE AND EXTENT OF BANKING FACILITIES AVAILABLE, CONSIDERATIONS OF BUSINESS EXPEDIENCY AND OTHER RELEVANT FACTORS : PROVIDED FURTHER THAT IN THE CASE OF PAYMENT MADE FOR PLYING, HIRING OR LEASING GOODS CARRIAGES, THE PROVISIONS OF SUB - SECTIONS (3) AND (3A) SHALL HAVE EFFECT AS IF FOR THE WORDS 'TWENTY THOUSAND RUPEES', THE WORDS 'THIRTY - FIVE THOUSAND RUPEES' HAD BEEN SUBSTITUTED. 4.5 U NDER THE FIRST PROVISO, THE CIRCUMSTANCES UNDER WHICH PAYMENT EXCEEDING RS. 20,000 / - CAN BE ALLOWED AS D EDUCTION HAVING PRESCRIBED IN R ULE 6DD OF THE R ULES AS UNDER: [ CASES AND CIRCUMSTANCES IN WHICH A PAYMENT OR AGGREGATE OF PAYMENTS EXCEEDING TWENTY THOUSAND RUPEES MAY BE MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCO UNT PAYEE BANK DRAFT. 6DD. NO DISALLOWANCE UNDER SUB - SECTION (3) OF SECTION 40A SHALL BE MADE AND NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION UNDER SUB - SECTION (3A) OF SECTION 40A WHERE A PAYMENT OR AGGREGATE OF PAYMENT S MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES IN THE CASES AND CIRCUMSTANCES SPECIFIED HEREUNDER, NAMELY: ( A ) WHERE THE PAYMENT IS MADE TO ( I ) THE RESERVE BANK OF INDIA OR ANY BANKING COMPANY AS DEFINED IN CLAUSE ( C ) OF SECTION 5 OF THE BANKING REGULATION ACT, 1949 (10 OF 1949); 7 ITA NO. 6165/DEL/2013 AY: 2009 - 10 ( II ) THE STATE BANK OF INDIA OR ANY SUBSIDIARY BANK AS DEFINED IN SECTION 2 OF THE STATE BANK OF INDIA (SUBSIDIARY BANKS) ACT, 1959 (38 OF 1959); ( III ) ANY CO - OPERATIVE BANK OR LAND MORTGAGE BANK; ( IV ) ANY PRIMARY AGRICULTURAL CREDIT SOCIETY OR ANY PRIMARY CREDIT SOCIETY AS DEFINED UNDER SECTION 56 OF THE BANKING REGULATION ACT, 1949 (10 OF 1949); ( V ) THE LIFE INSURANCE CORPORATION OF INDIA ESTABLISHED UNDER SECTION 3 OF THE LIFE INSURANCE CORPORATION ACT, 1956 (31 OF 1956); ( B ) WHERE THE PAYMENT IS MADE TO THE GOVERNMENT AND, UNDER THE RULES FRAMED BY IT, SUCH PAYMENT IS REQUIRED TO BE MADE IN LEGAL TENDER ; ( C ) WHERE THE PAYMENT IS MADE BY ( I ) ANY LETTER OF CREDIT ARRANGEMENTS THROUGH A BANK; ( II ) A MAIL OR TELEGRAPHIC TRANSFER THROUGH A BANK; ( III ) A BOOK ADJUSTMENT FROM ANY ACCOUNT IN A BANK TO ANY OTHER ACCOUNT IN THAT OR ANY OTHER BANK; ( IV ) A BILL OF EXCHANGE MADE PAYABLE ONLY TO A BANK; ( V ) THE USE OF ELECTRONIC CLEARING SYSTEM THROUGH A BANK ACCOUNT; ( VI ) A CREDIT CARD; ( VII ) A DEBIT CARD. EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE AND CLAUSE ( G ), THE TERM BANK MEANS ANY BANK, BANKING COMPANY OR SOCIETY REFERRED TO IN SUB - CLAUSES ( I ) TO ( IV ) OF CLAUSE ( A ) AND INCLUDES ANY BANK [NOT BEING A BANKING COMPANY AS DEFINED IN CLAUSE ( C ) OF SECTION 5 OF THE BANKING REGULATION ACT, 1949 (10 OF 1949)], WHETHER INCORPORATED OR NOT, WHICH IS ESTABLISHED OUTSIDE INDIA; ( D ) WHERE THE PAYMENT IS MADE BY WAY OF ADJUSTMENT AGAINST THE AMOUNT OF ANY LIABILITY INCURRED BY THE PAYEE FOR ANY GOODS SUPPLIED OR SERVICES RENDERED BY THE ASSESSEE TO SUCH PAYEE; ( E ) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF ( I ) AGRICULTURAL OR FOREST PRODUCE; OR ( II ) THE PRODUCE OF ANIMAL HUSBANDRY (INCLUDING LIVESTOCK, MEAT, HIDES AND SKINS) OR DAIRY OR POULTRY FARMING; OR ( III ) FISH OR FISH PRODUCTS; OR ( IV ) THE PRODUCTS OF HORTICULTURE OR APICULTURE, TO THE CULTIVATOR, GROWER OR PRODUCER OF SUCH ARTICLES, PRODUCE OR 8 ITA NO. 6165/DEL/2013 AY: 2009 - 10 PRODUCTS; ( F ) WHERE THE PAYMENT IS MADE FOR THE PURCHASE OF THE PRODUCTS MANUFACTURED OR PROCESSED WITHOUT THE AID OF POWER IN A COTTAGE INDUSTRY, TO THE PRODUCER OF SUCH PRODUCTS; ( G ) WHERE THE PAYMENT IS MADE IN A VILLAGE OR TOWN, WHICH ON THE DATE OF SUCH PAYMENT IS NOT SERVED BY ANY BANK, TO ANY PERSON WHO ORDINARILY RESIDES, OR IS CARRYING ON ANY BUSINESS, PROFESSION OR VOCATION, IN ANY SUCH VILLAG E OR TOWN; ( H ) WHERE ANY PAYMENT IS MADE TO AN EMPLOYEE OF THE ASSESSEE OR THE HEIR OF ANY SUCH EMPLOYEE, ON OR IN CONNECTION WITH THE RETIREMENT, RETRENCHMENT, RESIGNATION, DISCHARGE OR DEATH OF SUCH EMPLOYEE, ON ACCOUNT OF GRATUITY, RETRENCHMENT COMPE NSATION OR SIMILAR TERMINAL BENEFIT AND THE AGGREGATE OF SUCH SUMS PAYABLE TO THE EMPLOYEE OR HIS HEIR DOES NOT EXCEED FIFTY THOUSAND RUPEES; ( I ) WHERE THE PAYMENT IS MADE BY AN ASSESSEE BY WAY OF SALARY TO HIS EMPLOYEE AFTER DEDUCTING THE INCOME - TAX FROM SALARY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 192 OF THE ACT, AND WHEN SUCH EMPLOYEE ( I ) IS TEMPORARILY POSTED FOR A CONTINUOUS PERIOD OF FIFTEEN DAYS OR MORE IN A PLACE OTHER THAN HIS NORMAL PLACE OF DUTY OR ON A SHIP; AND ( II ) DOES NOT MAINTAIN ANY ACCOUNT IN ANY BANK AT SUCH PLACE OR SHIP; ( J ) WHERE THE PAYMENT WAS REQUIRED TO BE MADE ON A DAY ON WHICH THE BANKS WERE CLOSED EITHER ON ACCOUNT OF HOLIDAY OR STRIKE; ( K ) WHERE THE PAYMENT IS MADE BY ANY PERSON TO HIS AGENT WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVICES ON BEHALF OF SUCH PERSON; ( L ) WHERE THE PAYMENT IS MADE BY AN AUTHORISED DEALER OR A MONEY CHANGER AGAINST PURCHASE OF FOREIGN CURRENCY OR TRAVELLERS CHEQUES IN THE NORMAL COURSE OF HIS BUSINESS. EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSIONS AUTHORIZED DEALER OR MONEY CHANGER MEANS A PERSON AUTHORISED AS AN AUTHORIZED DEALER OR A MONEY CHANGER TO DEAL IN FOREIGN CURRENCY OR FOREIGN EXCHANGE UNDER ANY LAW FOR THE TIME BEING IN FORCE.] 9 ITA NO. 6165/DEL/2013 AY: 2009 - 10 4.6 THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT CASE OF THE ASSESSEE IS COVERED UNDER THE EXCEPTION LISTED UNDER RULE 6DD(K) OF THE RULES. 4.7 W E FIND THAT IN RULE 6DD(K) , THE EXCEPTION FROM THE APPLICABILITY OF SECTION 40A(3) HAS BEEN ALLOWED IN THE CASE OF PAYMENT BY THE ASSESSEE TO HIS AGENT, WHO IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVICES ON BEHALF OF THE ASSESSEE. BUT , IN THE INSTANT CASE , THE TRUCK UNION IS NOT AGENT OF THE ASSESSEE. THE TRUCK UNION IS APPARENTLY AGENT OF THE TRUCKERS AND , THEREFORE , THE ASSESSEE CANNOT BE ALLOWED BENEFIT OF THE EXCEPTION CARVED OUT IN RULE 6DD(K)OF THE RULES. SINCE IN THE INSTANT CASE , THE PERSON TO WHOM CASH PAYMENT IS MADE, IS NOT THE AGENT OF THE ASSESSEE, THE R ULE 6DD(K) IS NOT ATTRAC TED IN THE CASE OF THE ASSESS EE . THE LEARNED AUTHORIZED REPRESENTATIVE HAS ALSO RELIED ON THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF RC GOEL VERSUS C IT(SUPRA), WHEREIN THE HON BLE HIGH C OU RT INTERPRETED THE EXPRESSION WHO IS REQUIRED T O MAKE PAYMENT IN CASH UNDER R ULE 6DD(K) OF THE RULES, AS UNDER : 9. IN THE PRESENT CASE, THE PREVIOUSLY NOTED DISCUSSION WOULD REVEAL THAT THE ASSESSEE ENGAGES ITSELF IN EXECUTING CATERING CONTRACTS FOR RAILWAYS IN RESPECT OF TWO TRAINS. IN THOSE TRAINS, ITS PERSONNEL ARE DEPLOYED FOR SALE OF SMALL ARTICLES OF DAILY NECESSITY AND USE TO THE PASSENGERS. PER FORCE, THE PAYMENTS RECEIVED BY THEM ARE NECESSARILY IN CASH. THESE AMOUNTS ARE ITA - 636/2012 PAGE 5 COLLECTED AND IN TURN HANDED OVER TO THE ASSESSEE. THE ASSESSEE IN TERMS OF IT S CONTRACT IS BOUND TO MAINTAIN CONSTANT SUPPLIES IN THE TRAINS AND ENSURE THAT AT NO POINT IN TIME CAN THE PASSENGERS BE DEPRIVED OF THESE ARTICLES (WHICH ARE FOOD ARTICLES, SOFT DRINKS AND OTHER ITEMS NECESSARY FOR TRAVEL). IN THE COURSE OF SUCH TRANSACT IONS, IT SOURCES THESE ARTICLES FROM M/S SHRUTI ENTERPRISES. APPARENTLY, THAT CONCERN IS ALSO A SMALL TIME ONE AND INSISTS ON CASH PAYMENTS FOR ENSURING CONTINUITY AND TIMELY SUPPLIES. WHILST, THE COURT IS CONSCIOUS AND DOES NOT IN ANY MANNER WISH TO COMME NT ADVERSELY ON THE LARGER PUBLIC INTEREST ELEMENT EMBEDDED IN SECTION 40A AND 10 ITA NO. 6165/DEL/2013 AY: 2009 - 10 THE UNDERLYING PRINCIPLE, AT THE SAME TIME, THE COURT ALSO NOTES THAT THE PROVISO SEEKS TO RELIEVE TO A CERTAIN EXTENT, THE MEASURE OF HARDSHIP WHICH MIGHT BE IMPOSED UPON SMALL BUSINESSES AND PROFESSIONALS WHO ARE ENGAGED IN ACTIVITIES AND ARE DEPENDENT ENTIRELY ON TIMELY CASH FLOW. IT IS IN SUCH CASES THAT RULE 6DD - WHICH WAS FORMULATED AS A PROVISO TO SECTION 40A (3) - STEPS IN TO AID SUCH ASSESSEES AND CONCERNS. IN THIS CONT EXT, THE STATUTORY MANDATE IN SECTION 6DD (K), AT LEAST IN THE CIRCUMSTANCES OF THE CASE, HAS TO BE SO CONSTRUED AS TO MEAN THAT BUT FOR THE CASH PAYMENT, THE ASSESSEE WOULD HAVE BEEN DEPRIVED THE BENEFIT OF SUPPLIES ITSELF. THIS COURT CLARIFIES THAT THE I NTERPRETATION OF THE EXPRESSION 'WHO IS REQUIRED TO MAKE PAYMENT IN CASH' HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE IS FACT DEPENDENT, AT LEAST IN THE PRESENT CASE. THE CONSEQUENCE OF INSTANCES OF PAYMENT THROUGH ACCOUNT PAYEE CHEQUES IN SMALL BUSINES S WHICH ARE DEPENDENT ON SUCH SUPPLIES WOULD BE TO COMPLETELY STIFLE, IF NOT STOP, THE BUSINESS ACTIVITIES. IT IS IN THAT SENSE THAT THE EXPRESSION 'REQUIRED' WOULD HAVE TO BE CONSTRUED. 4.8 IT IS EVIDENT THAT THE R ULE 6D D(K) IS HAVING TWO LIMBS, FIRST, I.E ., THE PAYMENT IS MADE BY ASSESSEE TO HIS AGENT, AND SECOND LIMB , I.E., AGENT IS REQUIRED TO MAKE PAYMENT IN CASH FOR GOODS OR SERVICES ON BEHALF OF THE ASSESSEE. THE HON BLE HIGH COURT HAS INTERPRETED THE SECOND LIMB OF THE RULE. 4.9 SINCE IN THE IN STANT CASE , THE TRUCK UNION TO WHOM THE ASSESSEE MADE PAYMENT IN CASH, HAS NOT BEEN ESTABLISHED TO BE AGENT OF THE ASSESSEE, THE DECISION IN THE CASE OF RC GOEL (SUPRA) IS NOT APPLICABLE OVER THE FACTS OF THE INSTANT CASE. 4.10 SINCE THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THAT IT FALLS UNDER ANY OF THE CIRCUMSTANCES SPECIFIED UNDER RULE 6DD OF THE R ULES, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE CANNOT BE ALLOWED CASH PAYMENT EX CEEDING RS.20,000/ - UNDER SECTION 40 A OF THE ACT. ACCORDINGLY , WE UPHOLD THE FINDING OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) ON THE ISSUE IN DISPUTE AND DISMISS THE GROUNDS NO. 1.0 TO 1.2 OF THE APPEAL. 11 ITA NO. 6165/DEL/2013 AY: 2009 - 10 5. IN GROUNDS NO. 2.0 TO 2.3 , THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF RS.33,01, 445/ - UNDER SECT ION 14 A OF THE ACT READ WITH RULE 8D OF RULES. 5.1 FACTS IN BRIEF IN RESPECT OF ISSUE IN DISPUTE ARE THAT THE ASSESSING OFFICER OBSERVED INVESTMENT IN SHARES ETC . IN THE BALANCE SHEET , BUT NO DISALLOWANCE MADE BY THE ASSESSEE FOR EXPENSES TOWARDS EARNING EXEMPT INCOME FROM INVESTMENTS. IT WAS EXPLAINED BY THE ASSESSEE THAT THE SUBSTANTIAL PART OF INVESTMENT WAS MADE IN EARLIER YEARS AND DURING THE YEAR ONLY A SUM OF RS. 2000/ - WAS RECEIVED AS EXEMPT INCOME AND NO DI SALLOWANCE UNDER SECTION 14 A SHOULD BE M ADE. THIS CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED ON EARNING EXEMPT INCOME WAS NOT ACCEPTED BY THE ASSESSING OFFICER IN VIEW OF THE OBSERVATIONS THAT THE COMPANY WAS USING ITS ADMINISTRATIVE, MANAGERIAL AND INFRASTRUCTURAL SETUP FOR EARNING INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT I.E EXEMPT INCOME. THE CONTENTION OF THE ASSESSEE THAT SUBSTANTIAL PART OF INVESTMENTS HAVE BEEN MADE OUT OF ASSESSEE S OWN FUNDS IN THE EARLIER YEARS AND NO INTEREST - BEARING FUNDS HAVE BEEN UTILIZED FOR ACQUISITION OF THE ASSETS, WAS ALSO NOT AC CEPTED BY THE ASSESSING OFFICER . THE ASSESSING OFFICER RELYING ON THE DECISION IN THE CASE OF CHEMINVEST LTD VS. INCOME TAX OFFICER (SPECIAL B ENCH , DELHI) 317 ITR (AT) 86 AND INVOKING RULE 8D OF T HE RULES , COMPUTED THE DISALLOWANCE AT RS. 33,01, 445/ - . THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS), UPHELD THE FINDING OF THE ASSESSING OFFICER. 5.2 BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE, REITERATING THE SUBMISSION MADE BEFORE THE LOWER AUTHORITIES, SUBMITTED THAT THE JUDGMENT OF THE SPECIAL BENCH OF T HE TRIBUNAL IN THE CASE OF CHEM INVESTMENT (SUPRA) HAS BEEN OVER RULED BY THE HON BLE DELHI HIGH COURT , REPORTED IN 378 ITR 33 . HE FURTHER SUBMITTED THAT HON BLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PRIVATE L IMITED VS. 12 ITA NO. 6165/DEL/2013 AY: 2009 - 10 COMMISSIONER OF INCOME TAX, REPORTED IN 372 ITR 694 , HELD THA T DISALLOWANCE UNDER SECTION 14 A OF THE ACT SHOULD BE RESTRICTED TO THE AMOUNT OF DIVIDEND INCOME ONLY, WHICH IS RS. 2000/ - IN THE CASE OF THE ASSESSEE AND , THEREFORE , THE BALANCE AMOUNT OF DISALLOWANCE MIGHT BE DELETED IN THE CASE OF THE ASSESSEE. 5.3 THE LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND , RELIED ON THE FINDING OF THE LOWER AUTHORITIES. 5.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT HON BLE D ELHI HIGH COURT IN THE CASE OF J OINT I NVESTMENTS (SUPRA) HELD AS UNDER: 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DISCLOSED WHY THE APPELLANT/ASSESSEE S CLAIM FOR ATTRIBUTING RS.2,97,440/ - AS A DISALLOWANCE UNDER SECTION 14A HAD TO BE REJECTED. TAIKISHA SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DETERMINE AMOUNTS IS DERIVED AFTER EXAMINATION OF THE ACCOUNTS AND REJECTION IF ANY OF THE ASSESSEE S CL AIM OR EXPLANATION. THE SECOND ASPECT IS THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO - AN ASPECT WHICH IS COMPLETELY UNNOTICED BY THE CIT (A) AND THE ITAT. THE THIRD, AND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE CANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INCOME IS RS.48,90,000 / - , THE DISALLOWANCE ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110% OF THAT SUM, I.E., RS.52,56,197/ - . BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRETED SO AS TO ME AN THAT THE ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME . THIS PROPORTION OR PORT ION OF THE TAX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. 5.5 RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF THE HON BLE DELHI HIGH COURT, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE UNDER SECTION 1 4A OF THE ACT TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. ACCORDINGLY , THE GROUNDS NO. 2.0 TO 2.3 OF THE APPEAL ARE ALLOWED PARTLY. 13 ITA NO. 6165/DEL/2013 AY: 2009 - 10 6. IN GROUND NO. 3, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) IN CONFIRMING THE ENHANCEMENT TO BOOK PROFIT BY WAY OF ADDING PROVISION FOR LEAVE ENCASHMENT AND PROVISION FOR GRATUITY. 6.1 THE FACTS IN RESPECT OF ISSUE IN DISPUTE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE PROVISI ONS FOR LEAVE ENCASHMENT OF RS. 19,52, 281/ - AND GRATUITY OF RS.58,62, 294/ - WERE ADDED BACK BY THE ASSESSEE IN THE REVISED COMPUTATION OF INCOME UNDER NORMAL PROVISIONS OF THE ACT, HOWEVER, BOTH THESE PROVISIONS HAD NOT BEEN ADDED BACK WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB O F THE ACT. IT WAS CONTENDED BY THE ASSESSEE THAT THE PROVISIONS WERE ON THE BASIS OF ACTUARIAL VALUATION REPORT, AND HENCE SHOULD BE CONSIDERED AS ASCERTAINED LIABILITY , THEREFORE , SHOULD NO T BE CONSIDERED FOR SECTION 115 JB OF THE ACT. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION DUE TO FOLLOWING REASONS: 1. THAT THE WORD ASCERTAINED DENOTES QUANTIFICATION/ CRYSTALLIZATION AND IN THE CASE OF THE ASSESSEE THE CLAIM OF EX - GRATIA AND LEAVE ENCASHMENT MIGHT HAVE BEEN SCIENTIFICALLY QUANTIFIED BUT IT WAS NOT CRYSTALLIZED AND SAME WAS NOT PAID. 2. THAT BE TWEEN QUANTIFICATION AN D ACTUAL RELEASE OF PAYMENT TO THE EMPLOYEES , THERE MIGHT BE A POSSIBILITY OF DISMISSAL OF THE EMPLOYEE. 3. T HAT T HE REPORT OF THE ACTUARY VALUE R WAS BASED ON MANY ASSUMPTIONS AND PRESUMPTIONS, WHIC H MIGHT OR MIGHT NOT HAPPEN AND, THEREFORE , THE CLAIM WAS NOT BASED ON TRUE AND SCIENTIFIC PRINCIPLES. 4. THAT T HE EXPENDITURE CLAIMED HAS NOT REFLECTED AS INCOME IN THE HAND OF THE EMPLOYEES, WHICH WAS AGAINST THE GENERAL PR INCIPLE OF TAX PROVISIONS. 14 ITA NO. 6165/DEL/2013 AY: 2009 - 10 6.2 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE FINDING OF THE ASSESSING OFFICER BY OBSERVING THAT THE ASSESSEE HAD NOT SHOWN HOW THE PROVISIONS WERE APPLICABLE FOR ESTIMATION WITH REASONABLE CERTAINTY AND THE AMOUNTS WERE ADDED BACK IN NORMAL COMPUTATION BEING IN THE NATURE OF PROVISIONS. 6.3 BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT LIABILITIES PERTAINING TO THE LEAVE ENCASHM ENT AND GRATUITY WERE ASCERTAINED LIABILITIES AS ON THE DATE OF BALANCE SHEET AND IT WAS ONLY BECAUSE OF THE S PECIFIC PROVISION OF SECTION 4 3B OR 40A(7) OF THE ACT SUCH LIABILITIES ARE ALLOWED UNDER THE NORMAL PROVISIONS OF INCOME T AX ACT ONLY ON PAYMENT B ASIS. IN THIS CONNECTION, THE LEARNED AUTHORIZED REPRESENTATIVE FURTHER SUBMITTED THAT IN THE JUDGMENT OF THE HON BLE SUPREME COU RT IN THE CASE OF BHARAT EARTH M OVERS VS. CIT 245 ITR 428, IT IS HELD THAT PROVISION FOR LEAVE ENCASHMENT REPRESENTED ASCERTAIN ED LIABILITY. HE FURTHER SUBMIT TED THAT IN THE CASE OF APOLLO T YRES LTD . VS. CIT 255 ITR 273, THE HON BLE SUPREME COURT HELD THAT MAT PROVISIONS ARE A COMPLETE CODE IN ITSELF AND THE BOOK PROFITS AS APPROVED BY THE BOARD OF DIRECTORS IS REQUIRED TO BE ADOP TED FOR THE PURPOSE OF CO MPUTING BOOK PROFIT AS PER THE INCOME T AX ACT AND ONLY SUCH ADJUSTMENTS ARE REQUIRED TO BE MADE AS SPECIFICALLY GOVERNED BY THE PROVISIONS OF THE ACT. HE PRAYED THAT IN VIEW OF ABOVE THE FINDING OF THE LEARNER COMMISSIONER OF INCOM E - TAX( APPEALS) MIGHT BE SET - ASIDE. 6.3 THE LEARNED S ENIOR D EPARTMENTAL REPRESENTATIVE, RELYING ON THE FINDINGS OF THE LOWER AUTHORITIES SUBMITTED THAT PROVISIONS FOR LEAVE ENCASHMENT AND GRATUITY ARE NOT ASCERTAINED LIABILITY AND , THEREFORE , THE FINDING OF THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) ON THE ISSUE IN DISPUTE MIGHT BE SUSTAINED. 6.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN DISPUTE BEFORE US IS WHETHER THE PROVISIONS FOR LEAVE 15 ITA NO. 6165/DEL/2013 AY: 2009 - 10 EN CASHMENT AND GRATUITY CAN BE ADDED FOR THE PURPOSE OF COMPUTATION O F BOOK PROFIT UNDER SECTION 115 JB OF THE ACT. FOR THE PURPOSE OF SECTION 115JB OF THE ACT, BOOK PROFIT HAS BEEN DEFINED IN E XPLANATION - 1 . ACCORDING TO THE DEFI NITION TO ARRIVE AT BOO K PROFIT , CERTAIN ITEMS OF INCOME OR EXPENDITURE ARE TO BE ADDED TO THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT . THE ONE OF THE ITEMS IS THE AMOUNT OF PROVISION FOR MEETING LIABILITIES OTHER THAN ASCERTAINED LIABILI TIES. THE RELEVANT PART OF THE E X PLANATION - 1 IS REPRODUCED AS UNDER: SPECIAL PROVISION FOR PAYMENT OF TAX BY CERTAIN COMPANIES. 115JB. (1) (2) EXPLANATION 1 . FOR THE PURPOSES OF THIS SECTION, 'BOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB - SECTION (2), AS INCREASED BY ( A ) .. ( B ) .. ( C ) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISI ONS MADE FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; OR ( D ) . ( E ) . ( F ) . 6.5 THE ASSESSEE HAS CONTESTED THAT THE PROVISIONS FOR LEAVE ENCASHMENT AND GRATUITY ARE ASCERTAINED LIABILITY AND , THEREFORE , CANNOT BE ADDED TO THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT, WHEREAS THE AUTHORITIES BELOW HAS HELD THAT PROVISIONS FOR LEAVE ENCASHMENT AND GRATUITY ARE NOT ASCERTAINED LIABILITY. 6.6 IN THE CASE OF BHARAT EARTH M OVERS (SUPRA), THE HON BLE SUPREME COURT IN RESPECT OF THE ISSUE , WHETHER THE LIABILITIES ARE CONTINGENT OR CERTAIN , HELD AS UNDER: 16 ITA NO. 6165/DEL/2013 AY: 2009 - 10 4. THE LAW IS SETTLED; IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILIT Y. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IS IN PRAESENTI THOUGH IT WILL BE DISCH ARGED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. 5. IN METAL BOX CO. OF INDIA LTD. VS. THEIR WORKMEN (1969) 73 ITR 53 (SC) THE APPELLANT COMPANY ESTIMATED ITS LIAB ILITY UNDER TWO GRATUITY SCHEMES FRAMED BY THE COMPANY AND THE AMOUNT OF LIABILITY WAS DEDUCTED FROM THE GROSS RECEIPTS IN THE P&L A/C. THE COMPANY HAD WORKED OUT ON AN ACTUARIAL VALUATION ITS ESTIMATED LIABILITY AND MADE PROVISION FOR SUCH LIABILITY NOT A LL AT ONCE BUT SPREAD OVER A NUMBER OF YEARS. THE PRACTICE FOLLOWED BY THE COMPANY WAS THAT EVERY YEAR THE COMPANY WORKED OUT THE ADDITIONAL LIABILITY INCURRED BY IT ON THE EMPLOYEES PUTTING IN EVERY ADDITIONAL YEAR OF SERVICE. THE GRATUITY WAS PAYABLE ON THE TERMINATION OF AN EMPLOYEE S SERVICE EITHER DUE TO RETIREMENT, DEATH OR TERMINATION OF SERVICE THE EXACT TIME OF OCCURRENCE OF THE LATTER TWO EVENTS BEING NOT DETERMINABLE WITH EXACTITUDE BEFOREHAND. A FEW PRINCIPLES WERE LAID DOWN BY THIS COURT, THE R ELEVANT OF WHICH FOR OUR PURPOSE ARE EX TRACTED AND REPRODUCED AS UNDER : (I) FOR AN ASSESSEE MAINTAINING HIS ACCOUNTS ON MERCANTILE SYSTEM, A LIABILITY ALREADY ACCRUED, THOUGH TO BE DISCHARGED 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 PRINCIPLES OF COMMERCIAL PRACTICE AND ACCOUNTANCY. IT IS NOT AS IF SUCH DEDUCTION IS PERMISSIBLE ONLY IN CASE OF AMOUNTS ACTUALLY EXPENDED OR PAID; (II) JUST AS RECEIPTS, THOUGH NOT AC TUAL RECEIPTS BUT ACCRUED DUE ARE BROUGHT IN FOR INCOME - TAX ASSESSMENT, SO ALSO LIABILITIES ACCRUED DUE WOULD BE TAKEN INTO ACCOUNT WHILE WORKING OUT THE PROFITS AND GAINS OF THE BUSINESS; (III) A CONDITION SUBSEQUENT, THE FULFILMENT OF WHICH MAY RESULT IN THE REDUCTION OR EVEN EXTINCTION OF THE LIABILITY, WOULD NOT HAVE THE EFFECT OF CONVERTING THAT LIABILITY INTO A CONTINGENT LIABILITY. 17 ITA NO. 6165/DEL/2013 AY: 2009 - 10 (IV) A TRADER COMPUTING HIS TAXABLE PROFITS FOR A PARTICULAR YEAR MAY PROPERLY DEDUCT NOT ONLY THE PAYMENTS ACTUALLY MAD E TO HIS EMPLOYEES BUT ALSO THE PRESENT VALUE OF ANY PAYMENTS IN RESPECT OF THEIR SERVICES IN THAT YEAR TO BE MADE IN A SUBSEQUENT YEAR IF IT CAN BE SATISFACTORILY ESTIMATED. SO IS THE VIEW TAKEN IN CALCUTTA CO. LTD. VS. CIT (1959) 37 ITR 1 (SC) : TC 16R.1 97 WHEREIN THIS COURT HAS HELD THAT THE LIABILITY ON THE ASSESSEE HAVING BEEN IMPORTED, THE LIABILITY WOULD BE AN ACCRUED LIABILITY AND WOULD NOT CONVERT INTO A CONDITIONAL ONE MERELY BECAUSE THE LIABILITY WAS TO BE DISCHARGED AT A FUTURE DATE. THERE MAY B E SOME DIFFICULTY IN THE ESTIMATION THEREOF BUT THAT WOULD NOT CONVERT THE ACCRUED LIABILITY INTO A CONDITIONAL ONE; IT WAS ALWAYS OPEN TO THE TAX AUTHORITIES CONCERNED TO ARRIVE AT A PROPER ESTIMATE OF THE LIABILITY HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. 6. APPLYING THE ABOVESAID SETTLED PRINCIPLES TO THE FACTS OF THE CASE AT HAND WE ARE SATISFIED THAT PROVISION MADE BY THE APPELLANT COMPANY FOR MEETING THE LIABILITY INCURRED BY IT UNDER THE LEAVE ENCASHMENT SCHEME PROPORTIONATE WITH THE ENTIT LEMENT EARNED BY EMPLOYEES OF THE COMPANY, INCLUSIVE OF THE OFFICERS AND THE STAFF, SUBJECT TO THE CEILING ON ACCUMULATION AS APPLICABLE ON THE RELEVANT DATE, IS ENTITLED TO DEDUCTION OUT OF THE GROSS RECEIPTS FOR THE ACCOUNTING YEAR DURING WHICH THE PROVI SION IS MADE FOR THE LIABILITY. THE LIABILITY IS NOT A CONTINGENT LIABILITY. THE HIGH COURT WAS NOT RIGHT IN TAKING THE VIEW TO THE CONTRARY. 7. THE APPEAL IS ALLOWED. THE JUDGMENT UNDER APPEAL IS SET ASIDE. THE QUESTION REFERRED BY THE TRIBUNAL TO THE HIGH COURT IS ANSWERED IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 6.7 SINCE IN THE INSTANT CASE , THE FACTS THA T HOW THE PROVISION FOR LEAVE ENCASHMENT AND GRATUITY HAVE BEEN COMPUTED, ARE NOT BEFORE US AND, THEREFORE , WE ARE UNABLE TO HOLD WHETHER THE PROVISIONS MADE BY THE ASSESSEE TOWARDS THE LEAVE ENCASHMENT AND GRATUITY ARE ASCERTAINED LIABILITIES. IN VIEW OF ABOVE, WE FEEL IT APPROPRIATE TO RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE ACTUARIAL VALUATIONS MADE BY THE ASSESSEE IN RESPECT OF PROVISION FOR LEAVE ENCASHMENT AND GRATUITY AND THEN DECIDE , WHETHER THESE A R E 18 ITA NO. 6165/DEL/2013 AY: 2009 - 10 ASCERTAINED LIABILITY OR NOT , KEEPING IN VIEW OF THE RATIO OF THE HON BLE SUPREME COU RT IN THE CASE OF BHARAT EARTH M OVERS(SUPRA) . NEEDLESS TO MENTION THAT THE ASSESSEE SHALL BE AFFORDED SUFFICIENT OPPORTUNITY OF HEARING. THE GROUND OF THE APPEAL IS ACCO RDINGLY ALLOWED FOR STATISTICAL PURPOSE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED PARTLY FOR STATISTICAL PURPOSE. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 1 8 T H NOV. , 2016 . S D / - S D / - ( H.S. SIDHU ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 8 T H NOVEMBER , 2016 . LAPTOP / - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI