The Highland Produce Co. Ltd, Alappuzha V. DCIT, Alappuzha

ITA 7/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58241 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 07-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T R PRASANNAKUMARI
• Assessee Lawyers: P VENUGOPAL
• Section: 115JB

Judgement Text

1 ITA NO.07/COCH/2010 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI SANJAY ARO RA (AM) I.T.A. NO. 07/COCH/2010 (ASSESSMENT YEAR 2005-06) THE HIGHLAND PRODUCE CO LTD VS THE DY.C.I.T., CIR .1 W-21/674, BEACH ROAD ALAPPUZHA ALAPPUZHA PAN : AAACT8099H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P VENUGOPAL RESPONDENT BY : SMT. T.R PRASANNAKUMARI DATE OF HEARING : 17-01-2012 DATE OF PRONOUNCEMENT : 02-02-2012 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME-TAX(A)-IV, KOCHI DATED 29-10-2009 AND PERTAI NS TO ASSESSMENT YEAR 2005-06. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE OF RS. 2,74,000 TOWARDS PROVISION FOR LEAVE ENCASHMENT. 3. SHRI P VENUGOPAL, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE PROVISION FOR LEAVE ENCASHMENT CANNOT BE CONSIDERED TO BE A CONTINGENT LIABILITY IN VIEW OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF BH ARAT EARTH MOVERS LTD VS COMMISSIONER OF INCOME-TAX 245 ITR 428 (SC). THERE FORE, ACCORDING TO THE LD.REPRESENTATIVE, THE PROVISION MADE FOR LEAVE ENC ASHMENT HAS TO BE ALLOWED AS 2 ITA NO.07/COCH/2010 CLAIMED. REFERRING TO THE JUDGMENT OF THE APEX COU RT IN THE CASE OF APOLLO TYRES LTD VS COMMISSIONER OF INCOME-TAX (2002) 255 ITR 273, THE LD.REPRESENTATIVE SUBMITTED THAT ONCE THE INCOME WAS COMPUTED UNDER SECTION 115JB AN D THE PROFIT & LOSS ACCOUNT WAS CERTIFIED BY THE AUDITOR, THE ASSESSING OFFICER CAN NOT GO BEYOND THE ACCOUNTS CERTIFIED BY THE AUDITORS. AT THE BEST, ACCORDING TO THE LD.REP RESENTATIVE, THE ASSESSING OFFICER CAN SCRUTINIZE THE ACCOUNTS AS TO WHETHER IT IS CERTIFI ED AS REQUIRED BY THE STATUTE. 4. ON THE CONTRARY, SMT. T.R. PRASANNAKUMARI, THE L D.DR SUBMITTED THAT BOOK PROFIT COMPUTED U/S 115JB HAS TO BE ADJUSTED AS PROVIDED I N SECTION 115JB. PROVISION FOR LEAVE ENCASHMENT IS A CONTINGENT LIABILITY. THEREFORE, I T IS TO BE ADDED / INCREASED TO THE PROFIT COMPUTED. ACCORDING TO THE LD.DR, EVEN THOU GH A PROVISION WAS MADE, THE LIABILITY TO PAY THE LEAVE ENCASHMENT COMES WHEN TH E EMPLOYEES EXERCISE THEIR OPTIONS TO ENCASH THE LEAVE. SO LONG AS THE EMPLOYEES HAVE NOT EXERCISED THEIR OPTION THERE IS NO QUESTION OF ANY PAYMENT TOWARDS LEAVE ENCASHMENT . THEREFORE, ACCORDING TO THE LD.DR, IT IS ONLY A CONTINGENT LIABILITY. ACCORDIN GLY, AS PROVIDED IN SECTION 115JB IT HAS TO BE ADDED TO THE INCOME COMPUTED U/S 115JB OF THE AC T. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ONLY CONTENTION OF THE LD.DR IS THAT PROVISION FOR LEAVE ENCASHMENT IS A CONTINGENT LIABILITY. THIS ISSUE W AS EXAMINED BY THE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS LTD (SUPRA). THE APEX COURT, AFTER CONSIDERING THE JUDICIAL PRONOUNCEMENT ON THE SUBJECT FOUND THAT MEETING THE LIABILITY INCURRED BY THE COMPANY UNDER THE LEAVE ENCASHMENT SCHEME PROPORTIONATE WIT H ENTITLEMENT EARNED BY EMPLOYEES OF THE COMPANY INCLUSIVE OF OFFICERS AND THE STAFF SUBJECT TO CEILING OF ACCUMULATION AS APPLICABLE ON THE RELEVANT DATE IS ENTITLED TO DEDUCTION OUT OF THE GROSS RECEIPT FOR THE ACCOUNTING YEAR DURING WHICH THE PR OVISION IS MADE FOR THE LIABILITY. THE APEX COURT SPECIFICALLY OBSERVED THAT THE LIABILITY IS NOT A CONTINGENT LIABILITY. IN VIEW OF THE JUDGMENT OF THE APEX COURT, THE PROVISION MADE FOR LEAVE ENCASHMENT CANNOT BE CONSIDERED TO BE A CONTINGENT LIABILITY. THEREFORE , THERE IS NO QUESTION OF ANY ADDITION. 3 ITA NO.07/COCH/2010 BY RESPECTFULLY FOLLOWING THE JUDGMENT OF THE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS LTD (SUPRA), THE ORDERS OF THE LOWER AUTHORI TIES ARE SET ASIDE AND THE ADDITION MADE BY THE ASSESSING OFFICER TO THE EXTENT OF RS. 2,74,000 IS DELETED. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 02 ND DAY OF FEBRUARY, 2012. SD/- SD/- (SANJAY ARORA) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 02 ND FEBRUARY, 2012 PK/- COPY TO: 1. THE HIGHLAND PRODUCE CO LTD, W-21/674, BEACH ROAD, ALAPPUZHA 688 012 2. THE DY.CIT, CIR.1, ALAPPUZHA 3. THE COMMISSIONER OF INCOME-TAX(A)-IV, KOCHI 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH