OTIS ELEVATOR COMPANY (I) LTD, MUMBAI V. DCIT 9(2), MUMBAI

ITA 6258/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55881 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 24-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: FIROZE ANDHYARUJINA
• Keywords: Business expenditure

Judgement Text

` IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH BEFORE SHRI D. MANMOHAN, VICE PRESIDENT & BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.6258/MUM/2009 A.Y 2005-06 OTIS ELEVATOR COMPANY (INDIA) LTD., MAGNUS TOWERS, 9 TH FLOOR, MIND SPACE, LINK ROAD, MALAD WEST, MUMBAI 400 064. PAN: AAACO 0481 E VS. DY. COMMISSIONER OF INCOME TAX 9(2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI FIROZE ANDHYARUJINA. RESPONDENT BY : SHRI A.C.TEJPAL. CIT DR DATE OF HEARING: 17-2-2011 DATE OF PRONOUNCEMENT: 30-11-11 O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWING G ROUND: GROUND NO.1: PROVISION FOR EX-GRATIA RS. 3,82,18, 689 ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LA W, THE HONBLE CIT (A) ERRED IN CONFIRMING THE DISALLOWANC E OF THE PROVISION FOR EX-GRATIA ON THE GROUND THAT THERE WA S NO DEFINITE ACCRUAL OR OBLIGATION CREATED ON THE LAST DATE OF T HE ACCOUNTING YEAR FOR PAYMENT OF EX-GRATIA. THE APPELLANT PRAYS THAT THE PROVISION FOR EX-GRATI A HAS BEEN MADE ON ACCRUAL BASIS IN THE NORMAL COURSE OF BUSIN ESS AND HENCE, THE SAME SHOULD BE ALLOWED. 2. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS DEBITED A SUM OF RS.3,82,18,689/- ON ACCOUNT OF PROVISION FOR EXGRAT IA. FOLLOWING THE EARLIER YEARS ORDER AO OBSERVED THAT IT WAS ONLY A CONTINGENT LIABILITY AND, THEREFORE, THIS EXPENDITURE WAS NOT ALLOWED. ITA NO.6258 OF 2009 2 3. ON APPEAL, THE DISALLOWANCE WAS CONFIRMED BY THE LD. CIT(A). 4. BEFORE US, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IN EARLIER YEARS RIGHT FROM A.Y 1990-91 TO 1999-2000 THIS ISSU E HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND IN THIS REGARD HE FIL ED COPIES OF THE FOLLOWING ORDERS OF THE TRIBUNAL: A) I.T.A.NOS.70-M-01, 617-M-02 & 4267-M-02 B) I.T.A.NOS.6789-M-95, 2733-M-96 & ORS. HE FURTHER SUBMITTED THAT THIS DECISION HAS BEEN FO LLOWED EVEN IN A.Y 2002-03 THEREFORE, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. 5. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF THE AO AND CIT(A). 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THIS DISALLOWANCE WAS DELETED BY THE TRIBUNAL IN I.T.A.N O.6789-M-95 & ORS. VIDE PARA 47 AS UNDER: 47. REGARDING ALLOWABILITY IN THE RELEVANT YEAR, WE ARE OF THE VIEW THAT THE LIABILITY HAD ARISEN DURING THE YEAR. ALTHOUGH IT WAS QUANTIFIED LATER ON. AS PER ACCOUNTING STANDARDS-I NOTIFIED U/S.145[2) THE REVENUES AND COSTS ARE ACCRUED AS TH EY ARE EARNED OR INCURRED AND NOT AS MONEY IS RECEIVED OR PAID. IN VIEW OF THE SAID MATCHING CONCEPT OF ACCOUNTING AND IN VIEW OF THE DECISION OF APEX COURT IN THE CASE OF BHARAT EA RTH MOVERS, SUPRA, WE HOLD THAT SAID EX-GRATIA PAYMENT WAS NOT A CONTINGENT LIABILITY. IT ALSO FAILS WITHIN THE TESTS LAID DOWN BY THE HONBLE SUPREME COURT IN THE SAID CASE. IN VIEW OF THE ABOV E DISCUSSION, THE ORDER BF THE CIT(A) IS VACATED AND THE THIRD GR OUND IS ALLOWED. THIS ORDER WAS FOLLOWED IN A.YRS. 1997-98 TO 1999-2 000. EVEN IN A.Y 2002-03 IN I.T.A.NO.1480/M/09 AN IDENTICAL ISSUE HA S BEEN DECIDED IN ITA NO.6258 OF 2009 3 FAVOUR OF THE ASSESSEE BY THE CIT(A) BY THE TRIBUNA L VIDE PARA-5 & 6 WHICH IS ARE UNDER: 5. AS FAR AS ISSUE RAISED IN SECOND GROUND IS CONC ERNED THE SAME HAS BEEN DECIDED BY THE ID. CIT(A) BY RECORDING THE FOL LOWING OBSERVATIONS: THE APPELLANT CANVASSED BEFORE THE TRIBUNAL THAT T HE EX-GRATIA PAYMENT TO STAFF WAS NOT ADHOC EX-GRATIA PAYMENT BU T DETERMINED AND QUANTIFIED ON THE BASIS OF VARIOUS FACTORS INCLUDIN G PRODUCTIVITY SO RELEVANT TO THE BUSINESS OF THE APPELLANT AND THIS EX-GRATIA, BASED ON PERFORMANCE WAS PAID OUT AT DIWALI TIME. THE APPELL ANT FURTHER CANVASSED BEFORE THE TRIBUNAL THAT THE LIABILITY EX ISTED IN THIS EAR THOUGH WAS DISCHARGED IN THE NEXT YEAR AND HAS RELI ED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF BHARAT EARTH MO VERS V. CIT (245 ITR. 428) AND OF JURISDICTIONAL HIGH COURT IN THE C ASE OF CIT VS. UNITED MOTORS (INDIA) LTD. (181 ITR 347). THE HONB LE TRIBUNAL RESPECTFULLY FOLLOWING THE DECISION OF BHARAT EARTH MOVERS (SUPRA) HELD THAT SUCH EX-GRATIA PAYMENT WAS NOT A CONTINGE NT LIABILITY BUT A CRYSTALLIZED LIABILITY AND HELD SUCH PROVISION TO B E DEDUCTIBLE AS BUSINESS EXPENDITURE. 6. IN VIEW OF THE ABOVE FINDING OF THE LD. CIT(A) A ND EARLIER YEARS ORDERS OF THE TRIBUNAL WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A), THEREFORE, THE SAME IS CONFIRMED. 7. IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 30/11/2011. SD/- SD/- (D.MANMOHAN) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI: 30/11/2011. P/-*