Steel Authority of India Ltd., New Delhi V. ACIT, New Delhi

ITA 751/DEL/2011

• Counselvise Citation: 75120114 RSA 2011
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 29-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 07-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIRANJAN KOVLI
• Assessee Lawyers: P N SHASTRY
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 43B; 14A; 32; 263; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G NEW DELHI) BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.751/DEL/2011 ASSESSMENT YEAR : 2007-08 STEEL AUTHORITY OF INDIA ADDL. CIT, LTD., ISPAT BHAWAN, RANGE-9, CIRCLE-9(1), LODHI ROAD, NEW DELHI. V. NEW DELHI. AND I.T.A. NO. 1488/DEL/2011 ASSESSMENT YEAR: 2007-08 DCIT, STEEL AUTHORITY OF INDIA CIRCLE-9(1), LTD., ISPAT BHAWAN, NEW DELHI. V. LODHI ROAD, NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAACS7062 AAACS7062 AAACS7062 AAACS7062- -- -F FF F APPELLANT BY : SHRI M.P. RASTOGI, ADVOCATE & SHRI P.N. SHASTRY, C.A. RESPONDENT BY : SHRI NIRANJAN KOVLI, CIT-DR ORDER PER TS KAPOOR, AM: THESE CROSS APPEALS ARE FILED BY THE ASSESSEE AS WELL AS BY T HE REVENUE AGAINST THE ORDER OF LD CIT(A) DATED 25.11.2 010. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER:- ITA NO../DEL/ 2 1. THE CIT [A] HAS ERRED IN CONFIRMING THE DISALLOWA NCE OF PRO- RATA DEPRECIATION OF RS. 5926.05 LACS ON ACCOUNT OF D OWNWARD REVALUATION OF ASSETS [BY REDUCTION] IN A.Y. 2000-01. 2. THE CIT [A] HAS ERRED IN CONFIRMING THE DISALLOWAN CE OF ADDITIONAL DEMAND OF ROYALTY OF RS 31 LAKHS PAID DURI NG THE YEAR TO THE GOVERNMENT SHOWN IN THE P & L A/C AS 'ADJUSTMEN TS RELATING TO EARLIER YEARS' AS PRIOR PERIOD EXPENSES DESP ITE THE FACT THAT LIABILITY FOR THEM GOT CRYSTALLIZED/ SETTLE D DURING THE YEAR UNDER CONSIDERATION AND IT BEING ALLOWABLE U/ S 43B OF THE INCOME TAX ACT. 3. THE CIT [A] HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE AO BY TREATING THE 'FIBER OPTIC COMPUTER NETWORKING ' AS AN ORDINARY ASSET INSTEAD OF BEING A PART OF THE COMPUTER SYSTEMS AND CONSEQUENTLY DISALLOWING RS. 14.97 LACS OF DEPRECIA TION CLAIMED AND THE DISALLOWANCE /AL1OWANCE IS NOT CORREC T ON FACTS. 4. THE CIT [A] HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE AO BY TREATING THE 'UPS' OF COMPUTERS AS AN ORDINARY ASSET INSTEAD OF BEING A PART OF THE COMPUTER SYSTEMS DUE TO WRONG APPRECIATION OF INFORMATION AND CONSEQUENTLY D ISALLOWING RS. 6.73 LACS OF DEPRECIATION CLAIMED. 5. THE CIT [A] HAS ERRED IN CONFIRMING THE DISALLOWAN CE OF RS 201 LAKHS U/S 14A READ WITH RULE 8D WITH DISREGARD TO THE DECISION OF THE BOMBAY HIGH COURT ON THE ISSUE. 6.1 THE CIT [A] HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF DEPRECIATION ON THE INTANGIBLE ASSET OF MINING RIGHTS DESPITE ITA NO../DEL/ 3 CHANGES IN SECTION 32 OF THE INCOME TAX ACT 1961, AN D OR IN THE ALTERNATE CLAIM THAT THE ADDITION TO MINING RIGHTS I N THE CURRENT YEAR WERE OF REVENUE IN NATURE, DESPITE THE FACT THA T THE HON'BLE ITAT HAD SET ASIDE SIMILAR ISSUES BESIDES IN OTHER YEARS AND THE CIT [A] HAVING ALLOWED IT AS A REVENUE EXPENSE IN SOME YEARS. 6.2 THE CIT [A] HAS ERRED IN NOT PROPERLY DEALING W ITH THE ISSUE OF CONSEQUENTIAL ALLOWANCE OF THE CLAIM OF DEPRECIAT ION ON THE INTANGIBLE ASSET OF MINING RIGHTS FROM 1-4-1998 UNDER SECTION 32 (1 ) (II) OF THE INCOME TAX ACT. 7. THAT THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOU T PREJUDICE TO EACH OTHER. 8. THAT THE APPELLANT SEEKS LEAVE TO ADD, AMEND, ALT ER, ABANDON OR SUBSTITUTE ANY OF THE ABOVE GROUNDS AT THE TIME OF HEARING OF APPEAL. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER:- 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN LAW AS WELL AS ON MERITS IN DELETING THE ADDI TION OF RS.65.80 LACS MADE BY AO ON ACCOUNT OF DEPRECIATION ON WATER SUPPLY & SEWERAGE PLANT.' 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. C IT(A) ERRED IN LAW AS WELL AS ON MERITS IN DELETING THE ADDI TION OF RS.1445 LACS MADE BY AO ON ACCOUNT OF INTEREST ON FOR EIGN EXCHANGE FLUCTUATION. ITA NO../DEL/ 4 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. C IT(A) ERRED IN LAW AS WELL AS ON MERITS IN DELETING THE ADDI TION OF RS.35.64 LACS MADE BY AO ON ACCOUNT OF DEPRECIATION ON ASSETS NOT IN ACTIVE USE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. C IT(A) ERRED IN LAW AS WELL AS ON MERITS IN DELETING THE ADDI TION OF RS.2186 LACS MADE BY AO ON ACCOUNT OF LONG SERVICE AW ARDS PROVIDED ON ACCRUAL BASIS. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. C IT(A) ERRED IN LAW AS WELL AS ON MERITS IN DELETING THE ADDI TION OF RS.9775 LACS MADE BY AO ON ACCOUNT OF LTC BEING ELIG IBLE FOR ENCASHMENT NOT BEING CAPABLE OF BEING ASCERTAINED IN DEFINITE TERMS WITH REASONABLE CERTAINLY. .. 6.THE APPELLANT CRAVES TO AMEND MODIFY, ALTER,' ADD OR FOREGO ANY GROUND OF APPEAL AT ANY TIME BEFORE OR DURING T HE HEARING OF THIS APPEAL. 3. THE BRIEF FACTS OF THE CASE A RE THAT THE ASSESSEE IS A GOVT. OF INDIA UNDERTAKING AND IS ENGAGED IN THE MANUFACTURE, PROCESS, SALE, AND EXPORT OF IRON AND STEEL OF VARIOUS GRADES. THE ASSE SSEE IS ALSO ENGAGED IN THE FIELD OF MINING, GENERATION AND DIST RIBUTION OF ELECTRICITY FOR CONSUMPTION THROUGH THERMAL POWER STATION. THE ASSESSEE IS ALSO ENGAGED IN THE PROCESSING OF COAL INTO COKE WHICH GEN ERATES BY PRODUCTS LIKE TAR COAL, PHENYL ETC. THE RETURN OF IN COME FOR THE ASSESSMENT YEAR 2007-08 WAS ELECTRONICALLY FILED ON 31.1 0.2007. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSING OFFICER WH ILE FINALIZING THE ASSESSMENT MADE THE FOLLOWING ADDITIONS:- ITA NO../DEL/ 5 1. CLAIM OF DEPRECIATION ON ASSETS CONSEQUENT T O WAIVER OF LOAN. ` .5926.05 LAKHS. 2. ADJUSTMENT PERTAINING TO PREVIOUS YEARS. ` . 31 LAKHS 3. DEPRECIATION ON WATER SUPPLY & SEWERAGE PLANT. ` . 65.80 LAKHS 4. DIFFERENCE IN FOREIGN EXCHANGE FLUCTUATI ON. ` . 1445.00 LAKHS 5. DEPRECIATION ON ASSETS NOT IN ACTIVE USE. ` . 35.64 LAKHS 6. DEPRECIATION ON COMPUTER FIBRE OPTIC NETWORKING. ` . 14.97 LAKHS 7. DEPRECIATION ON UPS/INVERTERS. ` . 6.73 LAKHS 8. DISALLOWANCE U/S 14A. ` . 201 LAKHS 9. DELAY IN DEPOSIT OF PF. ` . 298.46 LAKHS 10. PROVISION FOR LONG SERVICE AWARD. ` . 2186 LAKHS. 11. PROVISION FOR LTC ENCASHMENT. ` . 9775 LAKHS. 4. DISSATISFIED WITH THE ORDER OF ASSESSING OFFICER, THE ASSESSEE FILED APPEAL BEFORE LD CIT(A). IN RESPECT OF EACH DISALLOWA NCE BRIEF FACTS, SUBMISSIONS BY ASSESSEE AND FINDINGS OF LD CIT(A) ARE AS UN DER:- 1. 1. 1. 1. EXCESS EXCESS EXCESS EXCESS CLAIM OF DEPRECIATION ON ASSETS CONSEQUENT TO W AIVER OF CLAIM OF DEPRECIATION ON ASSETS CONSEQUENT TO WAIVER OF CLAIM OF DEPRECIATION ON ASSETS CONSEQUENT TO WAIVER OF CLAIM OF DEPRECIATION ON ASSETS CONSEQUENT TO WAIVER OF LOAN: LOAN: LOAN: LOAN: 5. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBS ERVED THAT ASSESSEE WAS GRANTED WAIVER OF LOAN TO THE EXTENT O F 5.073 CRORES BY THE GOVT. OF INDIA OUT OF LOANS GRANTED BY IT FRO M STEEL DEVELOPMENT FUND. DURING THE YEAR, THE ASSESSING OFFICER FURTHER O BSERVED THAT ASSESSEE IN TURN HAD WAIVED LOANS TO THE EXTENT OF 2072 CRORES GRANTED BY IT TO INDIAN IRON & STEEL CO. LTD. AND THE BALAN CE AMOUNT OF ` .3001 CRORES WAS TRANSFERRED TO CAPITAL RESERVE WHICH WAS UTIL IZED BY THE ASSESSEE TO RE-VALUE DOWN WARDS ITS FIXED ASSETS WHICH HAD G OT CAPITALIZED AT A HIGH VALUE ON ACCOUNT OF VA RIOUS EXPENSES DURING CONSTRUCTION. THE ASSESSING OFFICER DISALLOWED T HE DEPRECIATION ON PROPORTIONATE BASIS ON REDUCTION AMOUNT OF A SSETS RELYING UPON THE PROVISIONS OF SECTION 43(1), 43( 6) & 32 (1) WHICH ACCORDING TO HIM CLEARLY ALLOWED DEPRECI ATION ON ITA NO../DEL/ 6 REDUCED WRITTEN DOWN VALUE OF ASSETS. IN THIS RESPECT EX PLANATION 10 TO SECTION 43(1) WHICH STATES THAT WHERE A PORTION OF THE COST OF AN ASSET ACQUIRED BY THE ASSESSEE HAS BEEN MET DIRECTLY OR INDIR ECTLY BY THE CENTRAL GOVT. OR BY STATE GOVT. OR ANY AUTHORITY EST ABLISHED UNDER ANY LAW IN THE FORM OF A SUBSIDY OR GRANT THEN SO MUCH OF THE COST AS IT RELATABLE TO SUCH SUBSIDY OR GRANT OF REIMBURSEMENT SHA LL NOT BE INCLUDED IN THE ACTUAL COST OF THE ASSETS OF THE ASSESSEE. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT WHEN A LOAN IS OBTAINED IT IS OF A CAPITAL NATURE AND WHEN LOAN IS UTILIZED, IT DOES NOT BECOME AN EXPENSE. THEREFORE, WHEN A LOAN IS WAIVED/WRITTEN OF F BY AN ASSESSEE, IT IS NOT AN ALLOWABLE DEDUCTION AS IT IS CAPITAL IN NATURE AND SIMILARLY WHEN THE LOAN IS WAIVED IN FAVOUR OF ASSESSEE IT RETAIN ITS CAPITAL NATURE AND DOES NOT RESULT INTO A TAXABLE RECEIPT. I T FURTHER SUBMITTED THAT WHEN AN ASSET IS REVALUED UP-WARD DEPRECIATION AL LOWANCE AS PER INCOME TAX ACT REMAINS AS PER WDV OF ASSETS. SIMILARLY, THE ASSESSEE PLEADED THAT WHEN FIXED ASSETS OF A COMPANY ARE REVALU ED DOWNWARD DUE TO RECEIPT OF GRANT OR WAIVER OF LOAN, THE CONSE QUENT REDUCTION IN DEPRECIATION ON THE AMOUNT OF WAIVER IS NOT JUSTIFIED . HOWEVER, THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTION OF THE ASSESSEE AND MADE THE ADDITION. 6. BEFORE THE LD CIT(A), THE ASSESSEE REITERATED ITS ARG UMENTS. THE LD CIT(A) HOWEVER, OBSERVED THAT HON'BLE ITAT IN ITS ORDER DATED 25.6.2009 FOR ASSESSMENT YEARS 2000-01 TO 2002-03 HAD C ONFIRMED THE SIMILAR ADDITION. FOLLOWING THE SAME, THE LD CIT(A) C ONFIRMED THE ACTION OF ASSESSING OFFICER. 2. ADJUSTMENT PERTAINING TO PREVIOUS YEAR 2. ADJUSTMENT PERTAINING TO PREVIOUS YEAR 2. ADJUSTMENT PERTAINING TO PREVIOUS YEAR 2. ADJUSTMENT PERTAINING TO PREVIOUS YEARS SS S: :: :- -- - ITA NO../DEL/ 7 7. THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THERE WAS PAYMENT OF ` .31 LAKHS PAID TO GOVT. OF INDIA ON ACCOUNT OF ADDITIONAL ROYALTY IN RESPECT OF RAW MATERIAL AC QUIRED IN EARLIER YEARS. THE ASSESSEE HAD EXPLAINED THAT ADDITIONAL ROYALT Y OF ` .31 LAKHS PAID IN THIS YEAR ON ACCOUNT OF IRON ORE EXTRACTED I N EARLIER YEAR WAS AN ALLOWABLE EXPENSE IN TERMS OF SECTION 43B OF THE INCOM E TAX ACT, 1961 AND ALSO SUBMITTED THAT LD CIT(A) HAD BEEN ALLOWING THIS EXPENSES FROM ASSESSMENT YEAR 2001-02. THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND HELD THAT DEBIT WAS NOT ADMISSIBLE AS IT WAS NOT PROVED THAT LIABILITY HAD INC URRED DURING THE YEAR UNDER CONSIDERATION. 8. BEFORE THE LD CIT(A), THE ASSESSEE PLEADED THAT PERI ODICALLY AMOUNT PAYABLE BY THE COMPANY TO GOVT. ON ACCOUNT O F ROYALTY IS DETERMINED AND IN SUCH CIRCUMSTANCES, WHEN HIGHER QUAN TUM OF ROYALTY IS DETERMINED AND THE DIFFERENCE BETWEEN THE DETERMINED AND ALREADY AMOUNT IS DEMANDED, THE SAME IS PAID AND SINCE IT WAS A STATUTORY PAYMENT AND HENCE WAS ALLOWABLE U/S 43B OF I NCOME TAX ACT. THE ASSESSEE FURTHER EXPLAINED THAT IN THE YEAR UNDER CONSIDERATION THE AMOUNT OF ` .30,57,629/- WAS DETERMINED AS ADDITIONAL ROYALTY FRO M DURGAPUR STEEL PLANT WHICH WAS PAID AND ARGUED THAT SINCE THE ADDITIONAL ROYALTY WAS DETERMINED BY THE GOVT. IN TH E YEAR UNDER CONSIDERATION, THE LIABILITY FOR THIS EXPENDITURE HAS ARISEN AS WELL AS ACCRUED IN THIS YEAR AND THUS ALLOWABLE IN THE CURR ENT YEAR. THE LD CIT(A), HOWEVER, HELD THAT ROYALTY HAS NOT BEEN INCL UDED IN SECTION 43B OF THE ACT AND THE ALTERNATE PLEA OF ASSESSEE THAT LIA BILITY HAD ARISEN DURING THE YEAR WAS NOT ACCEPTABLE IN THE ABSENCE OF ANY EVIDENCE FURNISHED TO THIS EFFECT BY THE APPELLANT. THEREFORE, THE ADDITION OF ` .31 LAKHS WAS UPHELD. ITA NO../DEL/ 8 3. DISALLOWANCE 3. DISALLOWANCE 3. DISALLOWANCE 3. DISALLOWANCE OF DEPRECIATION OF DEPRECIATION OF DEPRECIATION OF DEPRECIATION O OO ON NN N W WW WATER ATER ATER ATER S SS SUPPLY & UPPLY & UPPLY & UPPLY & S SS SEWERAGE EWERAGE EWERAGE EWERAGE P PP PLANT LANT LANT LANT: :: :- -- - 9. THE ASSESSING OFFICER NOTED THAT THE WATER SUPPLY AND SEWERAGE PLANT IN ADDITION TO MEETING THE REQUIREMENTS OF VAR IOUS FACTORIES WAS ALSO UTILIZED FOR RESIDENTIAL TOWNSHIPS SET UP BY THE ASSE SSEE AT DIFFERENT FACTORY SITES. HE OBSERVED THAT IN THE EARL IER YEAR THE APPELLATE AUTHORITY HAD HELD THAT 75% OF EXPENDITUR E ON THESE PLANTS WAS FOR BUSINESS PURPOSES AND BALANCE 25% WAS FOR RESIDENTI AL PURPOSE AND DEPRECIATION ON THIS 25% VALUE OF PLANT W AS ALLOWED TO THE ASSESSEE @ 5% AGAINST CLAIM OF ASSESSEE AT 25%. THE ASSE SSEE DURING ASSESSMENT PROCEEDINGS SUBMITTED THAT IN ASSESSMENT Y EAR 1985-86, THE LD CIT HAD PASSED AN ORDER U/S 263 OF THE ACT WHEREBY HE HAD DIRECTED THAT 75% OF THE WATER SUPPLY AND SEWERAG E PLANT SHOULD BE DETERMINED AS PLANT & MACHINERY AND THE BALANCE 2 5% BE TREATED IT AS BUILDING FOR THE PURPOSES OF DEPRECIATION. THE ASSESSEE DID NOT FILE APPEAL AGAINST THE ORDER U/S 263 DUE TO LACK OF PROPE R ADVICE AND DEPARTMENT HAD FOLLOWED THE DIRECTIONS U/S 263 OF CIT IN ASSESSMENT YEAR 1985-86 AND IN ALL THE SUBSEQUENT YEARS AND DISAL LOWED ON PRO RATA BASIS DEPRECIATION ON 25% OF VALUE OF WATER & SEW ERAGE PLANT. THE ATTENTION OF ASSESSING OFFICER WAS ALSO INVITED TO C ERTIFICATE DATED 12.12.1966 WHEREIN IT WAS CLARIFIED THAT AN ITEM OF PLANT AND MACHINERY WILL BE ELIGIBLE FOR SAME DEPRECIATION EVE N IF USED IN RESIDENCE OF THE EMPLOYEES. BEFORE ASSESSING OFFICER IT W AS FURTHER SUBMITTED THAT THE HON'BLE ITAT D BENCH NEW DELHI VIDE ITS ORDER DATED 15.9.2006 IN RESPECT OF ASSESSMENT YEAR 1995-96 AN D 1996-97 HAD HELD THAT WATER SUPPLY AND SEWERAGE PLANT HAD TO BE TREATED AS PLANT & MACHINERY. THE ASSESSEE FURTHER SUBMITTED THAT T HIS ORDER OF ITAT HAS BEEN FOLLOWED FOR ALL THE YEARS UP TO ASSESSMEN T YEAR 2003- 04 AND REVENUE HAS NOT PREFERRED ANY APPEAL BEFORE A NY HIGH COURT. ITA NO../DEL/ 9 THE ASSESSING OFFICER, HOWEVER, DID NOT AGREE WITH THE CONTENTIONS OF ASSESSEE AND MADE AN ADDITION OF ` .65.80 LAKHS. 10. BEFORE LD CIT(A), THE SAME ARGUMENTS WERE REITERA TED AND FOLLOWING THE EARLIER ITAT ORDER IN RESPECT OF ASSESSMEN T YEAR 2000-01, 2001-02 AND 2002-03 DATED 25.9.2009, THE LD CIT(A) DELETED THE ADDITION OF ` .65.80 LAKHS. 4. DIFFERENCE IN 4. DIFFERENCE IN 4. DIFFERENCE IN 4. DIFFERENCE IN F FF FOREIGN OREIGN OREIGN OREIGN E EE EXCHANGE XCHANGE XCHANGE XCHANGE F FF FLUCTUATION: LUCTUATION: LUCTUATION: LUCTUATION:- -- - 11. THE ASSESSEE HAD AVAILED A LOAN FROM KFW GERMANY FO R EXPANSION AND MODERNIZATION OF ITS STEEL PLANT AND THE TERM LOAN CARRIED INTEREST RATE OF 8.75% THE COMPANY WAS TO GET SUBSIDY EQUAL TO 4% OF LOAN FOR THE PURPOSE OF PUTTING UP POLLUTIO N EQUIPMENT PLANTS AND ANOTHER 4% OF LOAN IN THE FORM OF SUBSIDY WAS TO B E GIVEN TO THE COMPANY FOR MEETING FOREIGN EXCHANGE FLUCTUATION ON THE KFW LOANS. THE ASSESSING OFFICER OBSERVED THAT COMPANY IS DEBITING I NTEREST @ 8.75% AND IS CREDITING 4% TO POLLUTION EQUIPMENT RESE RVE AND 4% TO FOREIGN EXCHANGE FLUCTUATION RESERVE AND BALANCE 0.7 5% IS REMITTED AS INTEREST. THE ASSESSEE EXPLAINED THAT WHEN THE ASSESSEE PURC HASES POLLUTION CONTROL EQUIPMENT, IT DOES NOT DEBIT IT TO POLLUTION CONTROL EQUIPMENT ACCOUNT BUT DEBIT IT TO POLLUTION EQUIPME NT RESERVE ACCOUNT AND THUS NO DEPRECIATION IS CLAIMED TO THAT E XTENT. SIMILARLY, IT EXPLAINED THAT EXCHANGE FLUCTUATION OCCURS ON KFW LOANS AND THE SAME IS DEBITED OR CREDITED TO FOREIGN EXCHANGE FLUCT UATION RESERVE. THUS THE EXCHANGE FLUCTUATION IS NEITHER CAPITALIZED IN TERMS OF SECTION 43A NOR DEPRECIATION IS CLAIMED IN TERMS OF SECTION 32 TO 43 OF IT ACT. THE ASSESSEE FURTHER EXPLAINED THAT EXCHANGE RATE IF RE MAINED FAVOURABLE IN A YEAR UNDER CONSIDERATION VIS-A-VIS GE RMAN MARK THEN THE EXCHANGE RESERVE DOES NOT GET UTILIZED AND IF THE EXCHANGE RATE IN ITA NO../DEL/ 10 A YEAR BECOMES ADVERSE VIS-A-VIS GERMAN MARK THEN THE A MOUNT OF RESERVE DURING THE YEAR AS WELL AS ANY AMOUNT REMAININ G UN-UTILIZED FROM EARLIER YEARS GETS UTILIZED AND THEREFORE IN THE PROCESS THE COMPANY WAS NEITHER GETTING BENEFIT OF 4% INTEREST SUB SIDY NOR GETTING FOREIGN EXCHANGE FLUCTUATION SUBSIDY. THE ASSESSEE REFERR ED TO THE DECISION OF ITAT IN ITS OWN CASE FOR ASSESSMENT YEAR 1998 -99 IN WHICH WHOLE INTEREST INCLUDED TRANSFER TO RESERVES WAS ALLOWED . IT WAS FURTHER SUBMITTED THAT HON'BLE ITAT IN THE ASSESSMENT YEAR 2000- 01 TO 2002- 03 FOLLOWING THE ORDER OF ASSESSMENT YEAR 1998-99 HAD D ELETED SIMILAR ADDITIONS. HOWEVER, THE ASSESSING OFFICER OBSERVED THAT O UT GO OF INTEREST TO KFW WAS ONLY 0.75% OF INTEREST AND FOR THE REMAINING 8% INTEREST IT WAS A CLEAR CASE OF REMISSION OF LIABILITY A ND THEREFORE THE CLAIM OF ASSESSEE ON ACCOUNT OF 8% OF INTEREST ON ACCRUA L BASIS WAS NOT JUSTIFIED. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF ` .1445 LAKHS BY PUTTING RELIANCE ON THE DECISION OF ITAT IN THE C ASE OF RBNS SUGAR MILLS LTD. V. DCIT REPORTED AT 85 ITD 552 (DEL.). 12. BEFORE THE LD CIT(A), THE ARGUMENTS AS PLACED BEF ORE THE ASSESSING OFFICER WERE REITERATED AND IT WAS EXPLAINED T HAT DURING THE YEAR THERE WAS AN OPENING BALANCE OF ` 1395 LAKHS IN FOREIGN EXCHANGE FLUCTUATION RESERVE WHICH AFTER CREDITING ` .1580 LAKHS DURING THE YEAR HAD REACHED TO ` .2975 LAKHS AND THE WHOLE OF THE RESERVE WAS UTILIZED DURING THIS YEAR BECAUSE OF APPRECIATION OF MARK WITH RESPECT TO RUPEE. IT WAS ALSO SUBMITTED BEFORE LD CIT(A) THAT HON'BLE IT AT BY FOLLOWING ITS EARLIER ORDER IN ASSESSMENT YEAR 1998-99 HAD DELETED THE SIMILAR ADDITIONS IN RESPECT OF ASSESSMENT YEAR 2001-02 TO 2002-0 3 VIDE ORDER DATED 25.6.2009. SIMILARLY, IT WAS BROUGHT TO THE N OTICE OF LD CIT(A) THAT ITAT VIDE ORDER DATED 30.3.2010 HAD DELETED TH E SIMILAR DISALLOWANCE FOR ASSESSMENT YEAR 2006-07. THE LD CIT(A) ON THE BASIS ITA NO../DEL/ 11 OF ORDER OF ITAT FOR ASSESSMENT YEAR 2006-07 DIRECTED T O DELETE THE ADDITION OF ` .1445 LAKHS. 5. DEPRECIATION ON ASSETS NOT IN ACTIVE USE 5. DEPRECIATION ON ASSETS NOT IN ACTIVE USE 5. DEPRECIATION ON ASSETS NOT IN ACTIVE USE 5. DEPRECIATION ON ASSETS NOT IN ACTIVE USE: :: :- -- - 13. THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDIN GS NOTED THAT AUDITORS IN THE ACCOUNTS FOR THE YEAR ENDED 31. 3.2001 HAD APPENDED A NOTE TO THE EFFECT THAT ASSETS WITH WDV OF ` .1178 LAKHS WERE NOT IN ACTIVE USE AND HE FURTHER OBSERVED THAT C LAIM OF DEPRECIATION ON SUCH UN-USED ASSETS IS CONTINUOUSLY BEING CLAIMED BY THE ASSESSEE AND WAS BEING DISALLOWED BY THE DEPARTMENT CONTINUOUSLY. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFF ICER THAT WDV OF ASSETS SHOWN WERE UNDER THE COMPANIES ACT, 1956 A ND AS PER ACCOUNTING STANDARD THE FIXED ASSETS SHOULD BE DEPRECIA TED TO THE EXTENT OF COST LESS REALIZABLE SCRAP AND IN THE EVENT O F NON DETERMINATION OF SCRAP VALUE 5% OF COST HAS TO BE TAKE N AS SCRAP VALUE AND NO FURTHER DEPRECIATION HAS TO BE CHARGED. IT F URTHER EXPLAINED THAT WDV OF SUCH ASSETS HAD COME DOWN TO 5% AFTER 95% ALREAD Y BEING CHARGED AS DEPRECIATION OVER THE YEARS. IT WAS FURTHER SUBMITTED THAT THESE ASSETS WERE LESS IN USE AND IN BLOCK CONCEPT OF ASSETS UNDER THE IT ACT INDIVIDUAL ASSETS LOOSE THEIR IDENTITY AND DEP RECIATION CAN BE ALLOWED ONLY WHEN THE WHOLE BLOCK IS NOT IN USE OR A T LEAST A TOTAL INDUSTRIAL UNIT IS NOT IN USE. THE ASSESSEE ALSO SUBMITTED THAT LD CIT(A) VIDE ORDER DATED 29.5.2006 HAS DELETED THE SAID DISALL OWANCE OF ADDITION IN RESPECT OF ASSESSMENT YEAR 2001-02 AND THE D ECISION WAS FOLLOWED BY LD CIT(A) IN APPEAL FOR ASSESSMENT YEAR 200 2-03 AND 2003- 04. IT WAS ALSO SUBMITTED THAT DEPARTMENT HAD NOT PREF ERRED ANY SECOND APPEAL ON THIS ISSUE. THEREFORE, THE MATTER HAD ACHIEVED FINALITY. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEP T THE CONTENTIONS ITA NO../DEL/ 12 OF THE ASSESSEE AND RELYING UPON NUMBER OF CASES MADE AN ADDITION OF 35.64 LAKHS. 14. BEFORE LD CIT(A), THE SAME ARGUMENTS WERE ADVANCE D WHICH WERE TAKEN BEFORE ASSESSING OFFICER AND LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE DELETED THE DISALLOWANCE OF ` .35.64 LAKHS. 6. 6. 6. 6. DEPRECIATION ON DEPRECIATION ON DEPRECIATION ON DEPRECIATION ON C CC COMPUTERS OMPUTERS OMPUTERS OMPUTERS F FF FIBRE IBRE IBRE IBRE O OO OPTIC PTIC PTIC PTIC N NN NETWORKING (`.14.97 ETWORKING (`.14.97 ETWORKING (`.14.97 ETWORKING (`.14.97 LAKHS): LAKHS): LAKHS): LAKHS): 15. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD MADE A DDITION IN ASSESSMENT YEAR 2005-06 TO THE TUNE OF ` .265.29 LAKHS ON ACCOUNT OF PURCHASE OF COMPUTER FIBRE OPTIC NETWORKING AND H AD BEEN CLAIMING DEPRECIATION @ 60% BEING APPLICABLE TO COMPUTER BLO CK. THE ASSESSING OFFICER HAD ALLOWED DEPRECIATION ONLY @ 25% IN RESPE CT OF ASSESSMENT YEAR 2005-06 AND @ 15% IN ASSESSMENT YEAR 2006-07 ON TH E BASIS OF APPLICABLE RATES OF DEPRECIATION TO PLANT & MACHINER Y AND DURING THE YEAR UNDER CONSIDERATION ALSO ALLOWED DEPRECIATION @ 15%. 16. THE LD ARS CONTENTION THAT COMPUTER FIBRE OPTIC WAS AN INTEGRAL PART OF COMPUTER SYSTEM AS COMPUTER IN OFFICE OR PLAN T IS CONNECTED TOGETHER BY NET WORKING SYSTEM WAS NOT ACCEPTED BY THE ASSESSING OFFICER AND HE MADE A NET DISALLOWANCE OF 0.41 LAKHS ON THE BASIS OF DISALLOWANCE OF ` .14.97 LAKHS AND FURTHER ADDITIONAL ALLOWANCE OF ` .15.38 LAKHS IN RESPECT OF ASSESSMENT YEAR 2003-04. THE LD AR OF THE ASSESSEE SUBMITTED BEFORE LD CIT(A) THAT IN ORDER TO BRI NG THE COMPUTER INTO NETWORKING SPECIALIZED OPTIC FIBRE CAB LE ARE USED AND COMPUTER SIGNAL WAVES HAVE TO BE STRUCTURED AS COMPARED TO ELECTRIC WAVES OR TELEPHONIC WAVES AND THUS THE OPTIC FIBRE CA BLE USED FOR NET WORKING OF COMPUTERS ARE SUCH THAT THEY CANNOT BE USED FOR ANY OTHER ITA NO../DEL/ 13 PURPOSE AND THEY CAN BE USED IN CONJUNCTION WITH COMP UTERS WHICH MAKES THEM AN INTEGRAL PART OF COMPUTER. IT WAS ALSO SUBMITTED THAT NETWORKING WAS AN INTEGRAL PART OF COMPUTER SYSTEM WIT HOUT WHICH THE DATA FROM THE MAIN CPU OF THE COMPUTER CAN NEITHER BE ASSESSED NOR STORED BACK IN THE COMPUTER AFTER PROCESSING. RELIANCE WAS PLACED ON THE DECISION OF SUPREME COURT V. KARNATAKA POWER COR PORATION 247 ITR 268 WHEREIN IT WAS HELD THAT BUILDING USED FOR POWER GENERATING PLANT WAS PART OF GENERATING SYSTEM AND WAS ELIGIBLE FOR DEP RECIATION AS PLANT & MACHINERY. SIMILARLY RELIANCE WAS PLACED ON THE DECISION OF ITAT CALCUTTA BENCH IN ITO V. SAMIRAM MAJUMDAR 98 I TD 119 AND ITAT DELHI BENCH DECISION IN EXPEDITIOUS INTERNATIONAL V. ADDL. CIT 118 TTJ 652 WHEREIN IT WAS HELD THAT PRINTER, SCANNER NT SERV ER WERE INTEGRAL PARTS OF COMPUTER SYSTEM. HOWEVER, THE LD CIT(A) DID NOT ACCEPT THE CONTENTIONS OF ASSESSEE AND UPHELD THE ORDER OF ASSESSING OF FICER. 7 77 7. DEPRECIATION ON UPS/INVERTERS: . DEPRECIATION ON UPS/INVERTERS: . DEPRECIATION ON UPS/INVERTERS: . DEPRECIATION ON UPS/INVERTERS:- -- - 17. THE ASSESSING OFFICER OBSERVED THAT THERE WAS ADDITIO N OF ` .9.22 LAKHS ON ACCOUNT OF UPS INVERTER IN THE COMPUTER BLO CK OF ASSET AND DEPRECIATION @ 60% HAD BEEN CLAIMED. THE ASSESSING OFFI CER HELD THAT UPS/INVERTER WERE PART OF OFFICE EQUIPMENT AND DEPR ECIATION @ 15% WAS ALLOWABLE AS AGAINST CLAIM OF 60%/. IN VIEW OF TH E ABOVE, THE ADDITION OF ` .6.73 LAKHS WAS MADE ON ACCOUNT OF EXCESS DEPRECIATION. 18. BEFORE LD CIT(A) IT WAS SUBMITTED THAT UPS ARE IN STALLED ALONG WITH COMPUTERS IN ORDER TO ENSURE THAT DATA UNDER PRO CESS IS NOT LOST IN CASE OF POWER SUPPLY FAILURE. IT WAS ALSO SUBMITTED THAT UPS AND COMPUTERS WERE OF LIMITED CAPABILITY AND THEY CANNOT BE USED FOR ANY OTHER PURPOSE AND CAN BE USED IN CONJUNCTION WITH COM PUTER WHICH MAKES THEM AN INTEGRAL PART OF COMPUTER. THE CASE LAW OF KARNATAKA ITA NO../DEL/ 14 POWER CORPORATION 247 ITR 268 WAS RELIED UPON WHEREI N IT WAS HELD THAT A BUILDING STRUCTURE WILL BE ELIGIBLE FOR DEPRE CIATION AS A BUILDING OR PLANT ON THE BASIS OF ITS STRUCTURE TO SERVE SPECIAL TEC HNICAL REQUIREMENT AND IT WAS HELD THAT BUILDING STRUCTURE W AS AN INTEGRAL PART OF GENERATING SYSTEM AND THUS WAS A PLANT ELIGIB LE FOR DEPRECIATION. SIMILARLY RELIANCE WAS PLACED ON THE J UDGMENT OF ITAT CALCUTTA BENCHES REPORTED IN 98 ITD 119 WHEREIN IT W AS HELD THAT A PRINTER AND SCANNER BEING AN INTEGRAL PART OF COMPUT ER HAS TO BE TREATED AS COMPUTER FOR THE PURPOSE OF ALLOWING HIGHE R DEPRECIATION. THE LD CIT(A) FOLLOWING THE CIT(A)S ORDER IN THE CA SE OF ASSESSEE IN RESPECT OF ASSESSMENT YEAR 2006-07 DID NOT AGREE WITH TH E CONTENTION OF ASSESSEE AND CONFIRMED THE ACTION OF ASSESSING OFFICER. 8 88 8. . . . DISA DISA DISA DISALLOWANCE U/S 14A: LLOWANCE U/S 14A: LLOWANCE U/S 14A: LLOWANCE U/S 14A:- -- - 19. DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBS ERVED THAT ASSESSEE HAD MADE INVESTMENT AMOUNTING TO ` .51379 LAKHS AS ON 31.3.2007 AND HAD EARNED DIVIDEND INCOME OF ` .1734 LAKHS WHICH WAS CLAIMED AS EXEMPT. ON BEING ASKED TO EXPLAIN THAT WH Y PROPORTIONATE EXPENSES ATTRIBUTABLE TO EXEMPTED INCOME WERE NOT RED UCED, THE ASSESSEE SUBMITTED THAT AS AGAINST 39000 CRORES OF GROSS REC EIPTS OF THE COMPANY, ` .1734 CRORES FROM DIVIDEND WAS A NOMINAL RECEIPT AND DIVIDEND WAS RECEIVED MAINLY FROM JOINT VENTURE COMP ANIES WHERE IT HOLDS 50% OF THE SHARES AND WHICH WERE SUPPLIERS TO THE COMPANY AND THEREFORE THESE INVESTMENTS IN THE FORM OF SHARES WAS ALSO FOR THE PURPOSES OF BUSINESS. IT FURTHER SUBMITTED THAT EARNING OF DIVIDEND WAS INCIDENTAL TO THE INVESTMENT AND NO EXTRA EFFORTS WER E MADE BY THE ASSESSEE COMPANY AND ON THE DECLARATION OF DIVIDEND, DI VIDEND WARRANTS COMES AUTOMATICALLY AND THEREFORE THERE IS A SIMPLE CLERICAL JOB OF DEPOSITING DIVIDEND CHEQUES IN THE BANK ACCOUN T FOR WHICH NO ITA NO../DEL/ 15 MAJOR OR ADDITIONAL COST WAS INVOLVED. IT FURTHER SUBM ITTED THAT DIVIDEND WAS RECEIVED FROM JOINT VENTURE COMPANIES TO WHICH ASSESSEE HAD TRANSFERRED ITS ASSETS AND GOT SHARES FOR A PART OF C ONSIDERATION AND SINCE THE ASSETS WERE QUITE OLD AND NO LOANS WERE OU TSTANDING AGAINST SUCH ASSETS, THEREFORE, THERE WAS NO BORROWING AND CONSEQUENTLY NO INTEREST EXPENDITURE FOR ACQUISITION O F SHARE WAS INCURRED. IT WAS FURTHER SUBMITTED BEFORE ASSESSING OFFI CER THAT IN ASSESSMENT YEAR 2001-02, THE ASSESSING OFFICER HAD MADE A N OMINAL DISALLOWANCE OF 5% OF GROSS DIVIDEND U/S 14A AND LD CIT (A) HAD REDUCED THE DISALLOWANCE TO 1%/. LD ASSESSING OFFICER IN ASSESSMENT YEAR 2005-06 HAD MADE A DISALLOWANCE OF 1% OF GROSS DI VIDEND IN VIEW OF CIT(A)S ORDER FOR THE ASSESSMENT YEAR 2001-02. THE ASSESSEE FURTHER SUBMITTED DETAILED WORKING SHOWING THAT LOANS OUTSTANDING IN THE BOOKS WAS FOR SPECIFIC PURPOSE AND NO LOANS WERE RA ISED FOR MAKING INVESTMENT IN SHARES AND IN FACT IT WAS SUBMITTED THAT C OMPANY WAS THE NET EARNER OF INTEREST INSTEAD OF PAYER OF INTERE ST. THE ASSESSING OFFICER, HOWEVER, DID NOT AGREE WITH THE CONTENTION S OF ASSESSEE AND AS PER RULE 8D CALCULATED THE DISALLOWANCE OF INTEREST ON THE BASIS OF 0.5% OF AVERAGE INVESTMENT HELD AT THE BEGINNING AND END OF THE YEAR BY RELYING ON THE DECISION OF SPECIAL BENCH IN THE C ASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. 117 ITD 169 AND DISALLOWED AN A MOUNT OF ` .201 LAKHS U/S 14A OF THE ACT. 20. BEFORE LD CIT(A) THE ASSESSEE REPEATED THE SAME ARGU MENTS AS BEFORE ASSESSING OFFICER AND SUBMITTED THAT COMPANY HAD DECENTRALIZED ADMINISTRATION AND HAS SEPARATE MANAGING DIRECTOR FOR EACH OF THE EIGHT PLANTS TO MANAGE THEIR AFFAIRS. THE LD CIT(A) FOLLOWING THE LD CIT(A)S ORDER IN THE EARLIER YEAR FOR ASSESSMENT YEAR 2006-07 SUSTAINED THE DISALLOWANCE AS PER PRESCRIBED FORMULA AN D UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER. ITA NO../DEL/ 16 9 99 9. DELAY IN DEPOSIT OF PF ( . DELAY IN DEPOSIT OF PF ( . DELAY IN DEPOSIT OF PF ( . DELAY IN DEPOSIT OF PF ( ` ` ` ` . 298.46 LAKHS). . 298.46 LAKHS). . 298.46 LAKHS). . 298.46 LAKHS). 21. THE ASSESSING OFFICER HAD DISALLOWED A SUM OF ` .298.46 LAKHS ON ACCOUNT OF DELAY IN DEPOSIT OF PF. ON APPEAL, THE L D CIT(A) DELETED THE ADDITION OF ` .298.46 LAKHS ON THE BASIS OF PROVISION WHICH WAS ADDED IN FINANCE ACT, 1987 WHEREBY THE EXPENSES WERE ALLOWED F OR DEDUCTION WHERE THE LIABILITY FOR THESE BEEN DISCHARGED BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME. THE REVENUE HAS NOT GONE AGAINST THIS DELETION BY THE LD CIT(A) AND HENCE THIS IS NOT BEFOR E US FOR ADJUDICATION. 10 1010 10. PROVISION FOR LONG SERVICE AWARD: . PROVISION FOR LONG SERVICE AWARD: . PROVISION FOR LONG SERVICE AWARD: . PROVISION FOR LONG SERVICE AWARD: ` ` ` ` . 2186 LAKHS. . 2186 LAKHS. . 2186 LAKHS. . 2186 LAKHS. 22. THE ASSESSING OFFICER OBSERVED THAT FROM THE COMPUTA TION OF INCOME THE ASSESSEE HAD REDUCED ` .2186 LAKHS TOWARDS PROVISION FOR LONG SERVICE AWARD. ON BEING ASKED TO EXPLAIN, THE A SSESSEE EXPLAINED THAT THE EMPLOYER GIVES LONG SERVICE AWARD TO EMPLOYE ES WHO HAVE BEEN IN SERVICE OF THE COMPANY FOR MORE THAN 25 YEAR S. THE ASSESSEE EXPLAINED THAT AS PER ACCOUNTING STANDARD -15 (WHICH PROVIDES FOR TREATMENT OF LONG TERM BENEFITS TO THE EMPLOYEES BASED UPON NUMBER OF YEARS OF SERVICE LIKE GRATUITY, LEAVE ENCASHMENT ET C.) THESE HAS TO BE PROVIDED ON ACCRUAL BASIS INSTEAD OF CHARGING IN TH E YEAR OF INCURRING IT AND THEREFORE IT HAD CHARGED IT IN ITS P&L ACCOUNT ON THE BASIS OF ACCRUAL. IT FURTHER SUBMITTED THAT AS PER SECT ION 211 OF THE COMPANIES ACT IT WAS MANDATORY FOR ALL THE COMPANIES T O PREPARE THEIR ACCOUNTS AS PER PRESCRIBED ACCOUNTING STANDARD. RELIANC E WAS PLACED IN THE CASE OF CIT V., INSILCO LTD. 179 TAXMAN 55. H OWEVER, THE ASSESSING OFFICER DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE AS ACCORDING TO HIM, THE DEPARTMENT HAD FILED A SLP BE FORE HON'BLE ITA NO../DEL/ 17 SUPREME COURT AGAINST THE DECISION OF HON'BLE DELHI H IGH COURT. RELYING UPON THE HON'BLE SUPREME COURT JUDGMENT IN THE CASE OF BHARAT EARTH MOVER LTD. V. CIT 245 ITR 428 MADE AN ADDITION OF ` .2186 LAKHS. 23. BEFORE THE LD CIT(A), THE ASSESSEE REPEATED THE SAM E ARGUMENTS BEFORE THE ASSESSING OFFICER. THE LD CIT(A) AFTER CONSI DERING THE SUBMISSIONS OF ASSESSEE DELETED THE ADDITION OF ` .2186 LAKHS. 1 11 11 11 1. PROVISION FOR LTC ENCASHMENT . PROVISION FOR LTC ENCASHMENT . PROVISION FOR LTC ENCASHMENT . PROVISION FOR LTC ENCASHMENT: :: :- -- - 24. THE ASSESSING OFFICER ALSO OBSERVED FROM CLAUSE 5.2. O F SCHEDULE-III TO AUDITED ACCOUNTS THAT THE ASSESSEE COMPA NY HAD PROVIDED ` .97.75 CRORES TOWARDS LTC ENCASHMENT FACILITY IN RESPE CT OF EMPLOYEES WHO HAD NOT AVAILED THE FACILITY UP TO 31 ST MARCH, 2007. ON BEING ASKED THE ASSESSEE COMPANY REPLIED THAT ACCOUNTIN G STANDARD - 15 ON EMPLOYEES BENEFITS PROVIDE THAT LONG TERM EMPLO YEES BENEFITS ARE THOSE WHICH ARE NOT PAYABLE WHOLLY WITHIN 12 MON THS AFTER THE END OF PERIOD IN WHICH EMPLOYEES RENDER THE RELATED SERVI CE. HE SUBMITTED THAT AS ON THE BALANCE SHEET DATE, THE PRESENT VALUE O F NET BENEFITS/OBLIGATION ACCRUED IS TO BE RECOGNIZED AS A L IABILITY FOR LONG TERM EMPLOYEES BENEFITS. THE ASSESSEE FURTHER SUBMITTED TH AT EMPLOYEES OF THE COMPANY WERE ELIGIBLE TO CLAIM LTC ANY WHERE IN INDIA IN A BLOCK PERIOD OF FOUR YEARS AND IN LIEU OF NON AVAILING OF LTC THE COMPANY HAD AGREED TO EN-CASH AND PAY LTC AT A D ETERMINED RATE TO SUCH EMPLOYEES WHO COULD NOT AVAIL THE LTC. THE ASSE SSEE FURTHER SUBMITTED THAT IN A MERCANTILE SYSTEM OF ACCOUNTING TH ESE KNOWN EXPENSES WERE BOOKED ON ACCRUAL BASIS AND WERE ALLOWABL E UNDER THE IT ACT. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTEN TIONS OF THE ASSESSEE AND HELD THAT LIABILITY SHOULD BE CAPABLE OF B EING TRANSLATED ITA NO../DEL/ 18 IN DEFINITE TERMS WITH A REASONABLE CERTAINTY AND MAD E AN ADDITION OF ` 9775 LAKHS. 25. BEFORE THE LD CIT(A) THE ARGUMENTS AS PUT BEFORE ASSESSING OFFICER WERE REPEATED AND SUBMITTED THAT ASSESSING OFFIC ER HAD DISALLOWED IT AS A CONTINGENT AND UN-ASCERTAINED LIABI LITY WHEREAS THE LIABILITY FOR ENCASHMENT OF LTC WAS A DEFINITE AND DETERMINED LIABILITY AS PER SERVICE CONDITIONS. THE LD CIT(A) AFTER GOING T HROUGH THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION OF ` .9775 LAKHS. 26. AGGRIEVED BY THE ORDER OF LD CIT(A), THE DEPART MENT AS WELL AS THE ASSESSEE HAS FILED SEPARATE APPEALS BEFORE THIS TRIBUN AL. 27. AT THE OUTSET, THE LD AR INVITED OUR ATTENTION T O THE SUMMARY OF GROUNDS OF APPEALS BY REVENUE AS WELL AS BY ASSESSEE. IN R ESPECT OF ASSESSEES APPEAL, THE LD AR SUBMITTED THAT GROUND NO.1 I S COVERED AGAINST THE ASSESSEE AND INVITED OUR ATTENTION TO THE H ON'BLE TRIBUNALS ORDER DATED 25.6.2009 IN RESPECT OF ASSESSMENT YEAR 2000 -01, 01-02 & 02-03 AND OUR ATTENTION WAS INVITED TO PAGE 83 OF PA PER BOOK WHEREIN RELEVANT FINDINGS OF HON'BLE TRIBUNAL REGARDING GROU ND NO.1 WERE PLACED. 28. THE LD DR AGREED WITH THE LD AR. 29. THEREFORE, FOLLOWING THE EARLIER YEAR JUDGMENT OF HON'BLE TRIBUNAL, PLACED AT P[AGE 93 OF PAPER BOOK WE ALSO D ECIDE THE FIRST GROUND OF APPEAL AGAINST THE ASSESSEE. THEREFORE, FIRS T GROUND OF APPEAL IS DISMISSED. ITA NO../DEL/ 19 30. AS REGARDS GROUND NO.2 REGARDING ROYALTY OF ` .31 LAKHS, THE LD AR ARGUED THAT UNDER THE MINING & MINERALS DEVELOPMENT & REGULATION ACT, THE PAYMENT OF ROYALTY AND CESS IS A STATUTORY LIA BILITY AND IS SQUARELY COVERED BY THE PROVISIONS OF SECTION 43B OF T HE ACT. THE LD AR FURTHER ARGUED AND INVITED OUR ATTENTION TO ANNEXUR E NO.21 OF FORM 3CD WHEREIN ROYALTY AND CESS IS BEING DEPICTED AS DISALL OWED U/S 43B IN THIS YEAR AS WELL AS IN THE PAST. A COPY OF MINES & MINERALS DEVELOPMENT & REGULATION ACT, 1957 WAS PLACED BEFORE THE BENCH AND OUR ATTENTION WAS INVITED TO CLAUSE 9(1) & (2) OF THE SAID ACT. THE LD AR FURTHER SUBMITTED THAT MINING IN INDIA IS GOVERNED BY MINES & MINERAL DEVELOPMENT & REGULATION ACT AND PAYMENT OF ROYALTY IS GOVERNED BY CLAUSE 9(1)& (2) AND SINCE THE ACT IS A ST ATUTORY REGULATION, THE PAYMENTS MADE TO GOVT. ON THE BASIS OF THIS ACT IS NECESSARILY A STATUTORILY PAYMENT AND THEREFORE WAS EL IGIBLE FOR DEDUCTION U/S 43B OF THE ACT. HE FURTHER ARGUED THAT THE ASSESSEE HAS BEEN CLAIMING SIMILAR DEDUCTION FOR THE PAST SO MANY Y EARS AND IN EACH YEAR THE DEDUCTION WAS ALLOWED. 31. ON THE OTHER HAND, THE LD DR ARGUED THAT ROYALT Y DOES NOT FALL UNDER THE ELIGIBLE PAYMENTS FOR DEDUCTION U/S 43B AND THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF BOOK KEEPING AND TH EREFORE THE LIABILITY MUST ARISE IN THE YEAR OF DEBIT AND THEREFO RE THE ASSESSING OFFICER HAD RIGHTLY DISALLOWED THE PAYMENT OF ROYALT Y AMOUNTING TO ` .31 LAKHS RELATING TO EARLIER YEAR. 32. IN HIS REJOINDER, THE LD AR SUBMITTED THAT SECTION 43B (A) STATES THAT ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF TAX, DUTY , CESS OR FEE BY WHATEVER NAME CALLED UNDER ANY LAW FOR THE TIME BEING IMPOSED IS ELIGIBLE FOR DEDUCTION U/S 43B OF THE ACT. HE SUBMIT TED THAT THE ITA NO../DEL/ 20 PAYMENT OF ROYALTY IS COVERED UNDER THE STATUTE (WHAT EVER NAME CALLED). 33. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE H AVE OBSERVED THAT THE ASSESSEE HAS BEEN CLAIMING DEDUCTION U/S 43B ON ACCOU NT OF ROYALTY AND CESS CONTINUOUSLY SINCE FOR THE LAST SO MANY YEARS AND MOREOVER SECTION 43B THOUGH SPECIFICALLY DOES NOT COV ER THE TERM ROYALTY OR CESS BUT BY IMPLICATION COVERS ALL STATUTORY PAYMENTS. THE MINES & MINERALS DEVELOPMENT REGULATION ACT, 1957 IS A STATUTORY ACT AND ALL PAYMENTS PAID TO GOVT. UNDER THE PROVISION OF THIS ACT ARE NECESSARILY STATUTORY PAYMENTS. MOREOVER, KEEPING IN VI EW THE CONSISTENCY, WE ARE OF THE OPINION THAT THE PAYMENT M ADE BY THE ASSESSEE WAS COVERED BY THE PROVISIONS OF SECTION 43B OF TH E ACT AND THEREFORE THE SECOND GROUND IS DECIDED IN FAVOUR OF T HE ASSESSEE. 34. AS REGARDS GROUND NO.3 & 4, THE LD AR SUBMITTED TH AT UPS OF COMPUTERS AND FIBRE OPTIC COMPUTER NETWORKING IS A PA RT OF COMPUTER SYSTEM WITHOUT WHICH COMPUTERS CANNOT BE RUN AND THERE FORE WERE ELIGIBLE FOR DEPRECIATION @ 60% INSTEAD OF NORMAL RA TE OF DEPRECIATION. RELIANCE WAS PLACED ON THE JUDGMENT OF BSE YAMUNA PO WER LTD. PLACED AT PAGE 182 OF PAPER BOOK WHEREIN THE HON'BL E DELHI HIGH COURT HAD HELD THAT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS PRINTER, SCANNER AND SERVER FORM AN INTEGRAL PART OF COMPUTER SYSTEM AND WITHOUT THEM THE COMPUTERS CANNOT BE USED AND THEREFO RE THEY WERE ENTITLED TO DEPRECIATION AT HIGHER RATE OF 60%. 35. THE LD DR, ON THE OTHER HAND, SUBMITTED THAT TH E CASE LAWS RELIED UPON BY THE LD AR RELATED TO PRINTER, SCANNER AND NOT OPTICAL FIBRE. HE FURTHER ARGUED THAT COMPUTER FIBRE IS NOT A PART OF COMPUTER ITA NO../DEL/ 21 AND THESE ARE SIMPLY LIKE ELECTRICAL WIRING AND COMPU TER CAN FUNCTION WITHOUT FIBRE OPTICAL AND ITS LIFE IS VERY LONG AS CO MPARED TO COMPUTER. IN RESPECT OF DEPRECIATION ON UPS/INVERTER, THE LD D R RELIED UPON THE JUDGMENT OF NESTLE INDIA LTD. AS DECIDED BY ITAT WHER EIN IT WAS HELD THAT UPS/INVERTER WERE NOT PART OF COMPUTER SYSTEM. 36. IN HIS REJOINDER, THE LD AR SUBMITTED THAT FIBRE OPTIC CANNOT WORK INDEPENDENTLY. IN THIS RESPECT HE RELIED UPON THE CASE LAWS OF KARNATAKA POWER CORPORATION 247 ITR 268 (SUPRA) WHER EIN HON'BLE SUPREME COURT HELD THAT BUILDING CONSTRUCTED FOR POW ER PLANT WAS ELIGIBLE FOR DEPRECIATION ALLOCABLE TO PLANT & MACH INERY. SIMILARLY, RELIANCE WAS PLACED ON THE JUDGMENT OF DCIT V. DATA CRAFT INDIA LTD. 133 TTJ 377 WHEREIN ROUTER AND SWITCHES WERE HELD TO BE PART OF COMPUTERS AND WERE HELD TO BE ELIGIBLE FOR DEPRECIAT ION @ 60%. AS REGARDS JUDGMENT OF NESTLE INDIA LTD. RELIED UPON BY THE LD DR HE ARGUED THAT THIS WAS A VERY OLD JUDGMENT AS COMPARED T O HON'BLE DELHI HIGH COURT JUDGMENT RELIED UPON BY HIM. IN VIEW OF ABOVE, HE ARGUED THAT COMPUTER FIBRE NETWORKING AND UPS/INVERTERS WER E ELIGIBLE FOR DEPRECIATION @ 60%. 37. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE H OLD THAT THE COMPUTER PERIPHERALS SUCH AS UPS SYSTEM/INVERTER ARE ESSE NTIALLY PART OF COMPUTER SYSTEM AND COMPUTER IN THE MODERN AGE CAN NOT WORK INDEPENDENTLY WITHOUT THESE BASIC PERIPHERALS. THEREFO RE, FOLLOWING VARIOUS JUDGMENTS OF HON'BLE COURTS WE HOLD THAT UPS/INVERTERS/PRINTERS ARE ELIGIBLE FOR DEPRECIATION @ 60%. THEREFORE, GROUNDS NO.3 OF ASSESSEES APPEALS IS ALLOWED. ITA NO../DEL/ 22 38. AS REGARDS DEPRECIATION ON COMPUTER FIBRE NETWORK ING, WE AGREE WITH THE ARGUMENT ADVANCED BY LD DR THAT IT IS LIKE WIRING WHICH IS USED FOR INTER CONNECTING THE COMPUTERS. HOWEVER, ON THE PRINCIPLE THAT A CIVIL FOUNDATION FOR PLANT PARTAKES THE NATUR E OF PLANT FOR DEPRECIATION, SIMILARLY AN AC OR T.V. INSTALLED IN A BUS PARTAKES THE NATURE OF COMMERCIAL VEHICLE AND AN ELECTRIC CABLE WHEN USED IN A BUILDING PARTAKES THE NATURE OF BUILDING WHILE IT BE COMES PART & PLANT WHICH USED IN A MACHINE. FOLLOWING THE SAME PRINCIPLE , WE HOLD THAT COMPUTER FIBRE NETWORKING WHEN USED IN CONJUNCTION W ITH COMPUTERS WILL BE ELIGIBLE FOR DEPRECIATION AS IS AVAILABLE TO COMPUTERS. THEREFORE, GROUND NO.4 IS ALSO ALLOWED. 39. AS REGARDS GROUND NO.5, REGARDING DISALLOWANCE U/ S 14A, THE LD AR SUBMITTED THAT RULE 8D IS APPLICABLE PROSPECTIVELY FROM ASSESSMENT YEAR 2008-09 AND IS NOT APPLICABLE FOR THE YEAR UND ER CONSIDERATION. IN THIS RESPECT OUR ATTENTION WAS INVITED TO THE CASE OF L AW MAXCOPP INVESTMENT LTD. WHEREIN IT WAS HELD THAT RULE 8D WAS A PPLICABLE FROM ASSESSMENT YEAR 2008-09. 40. ON THE OTHER HAND, THE LD DR SUBMITTED THAT SECTI ON 14A CLEARLY STATES THAT WHERE ASSESSEE HAS NOT CLAIMED ANY EXPENSE AGAI NST EXEMPTED INCOME, PROPORTIONATE DISALLOWANCE OF EXPEN SES HAS TO BE MADE. HE FURTHER SUBMITTED THAT EVEN IN MAXOPP INVE STMENT LTD. THE HON'BLE COURT HAD HELD THAT ALL EXPENSES ARE TO BE DI SALLOWED ON PROPORTIONATE BASIS. THOUGH RULE 8D WAS NOT APPLICABL E BUT THE ASSESSING OFFICER HAS CALCULATED THE DISALLOWANCE AS PER P ROVISIONS OF RULE 8D. HE SUBMITTED THAT IT CAN BE SET ASIDE TO ASSESSI NG OFFICER FOR CALCULATION OF DISALLOWANCE U/S 14A ON A REASONABLE ME THOD. ITA NO../DEL/ 23 41. IN HIS REJOINDER, THE LD AR ARGUED THAT THERE WE RE NO BORROWINGS FOR MAKING INVESTMENTS AND ASSESSING OFFICER HAS SIMPLY MA DE THE ADDITIONS WITHOUT RECORDING ANY FINDINGS. 42. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HOLD THAT PROVISIONS OF SECTION 14A ARE APPLICABLE TO THE COMPANY AND RUL E 8D WAS THOUGH NOT APPLICABLE TO THE COMPANY IN THE YEAR UNDER CON SIDERATION BUT THE HON'BLE COURT IN THE CASE LAW OF MAXOPP INVESTMENT LT D AT CLAUSE 42 HAS RECOGNIZED THE FACT THAT THOUGH SECTION 14A AND RULE 8D WOULD OPERATE PROSPECTIVELY BUT THAT DOES NOT MEAN THAT T HE ASSESSING OFFICER IS NOT TO SATISFY HIMSELF WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REGARD TO SUCH EXPENDITURE. IF THE ASSESSING OFFICER IS SATISFIED THAT THE ASSESSEE HAS CORRECTLY REFLECTED THE AM OUNT OF SUCH EXPENDITURE HE HAS TO DO NOTHING FOR THIS. ON THE OT HER HAND, IF HE IS SATISFIED ON THE OBJECTION AND ANALYSIS AND FOR COGENT REASON THAT THE AMOUNT OF SUCH EXPENDITURE AS CLAIMED BY THE ASSESSEE I S NOT CORRECT, HE IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPEND ITURE ON THE BASIS OF REASONABLE AND ACCEPTABLE METHOD OF APPORTION MENT. FOLLOWING THE FINDINGS OF HON'BLE HIGH COURT, WE SET ASIDE THIS MATTER TO THE OFFICE OF ASSESSING OFFICER FOR CALCULATION OF DISA LLOWANCE U/S 14A ON THE BASIS OF REASONABLE AND ACCEPTABLE METHOD OF A PPORTIONMENT OF EXPENSES. 43. AS REGARDS GROUND NO.6 RELATING TO PAYMENT FOR MI NING RIGHTS, THE LD AR SUBMITTED THAT THE HON'BLE ITAT IN ASSESSMENT YEAR 2002-03 & 2003-04 HAD SET ASIDE THE SIMILAR MATTER TO THE OFF ICE OF ASSESSING OFFICER. THEREFORE, HE SUBMITTED THAT THE SAME CAN BE REMITTED BACK TO THE OFFICE OF ASSESSING OFFICER. OUR ATTENTION WAS INVI TED TO PAGE 98 OF ITA NO../DEL/ 24 PAPER BOOK WHEREIN THE TRIBUNALS ORDER DATED 25.6.2 009 COVERING THE RELEVANT ASPECT WAS PLACED. 44. ON THE OTHER HAND, THE LD DR SUBMITTED THAT SINCE MINING RIGHTS DO NOT FORM PART OF INTANGIBLE ASSETS AND THEREFORE NO DEPRECIATION IS ALLOWABLE AND THE ASSESSING OFFICER HAS RIGHTLY DELETED THE ALLOWANCE OF DEPRECIATION. 45. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE F IND THAT SIMILAR DISPUTE HAD ARISEN IN THE ASSESSMENT YEAR 2002-03 & 2003- 04 AND HON'BLE ITAT VIDE ORDER DATED 25.6.2009 HAD REMANDE D BACK THE MATTER TO THE OFFICE OF ASSESSING OFFICER FOR DETERMINA TION AS TO WHETHER MINING RIGHTS ARE INTANGIBLE ASSETS OR NOT. TH EREFORE, FOLLOWING THE ABOVE TRIBUNAL ORDER, WE ALSO REMIT THE MATTER B ACK TO THE OFFICE OF ASSESSING OFFICER FOR CONSIDERATION AS TO WHETHER MINING RIGHTS ARE INTANGIBLE ASSETS OR NOT AND ACCORDINGLY EXAMINE THE C LAIM OF ASSESSEE AS TO WHETHER EXPENDITURE INCURRED ON ACQUISITION OF MINING RIGHTS IS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. 46. IN RESPECT OF APPEAL FILED BY THE DEPARTMENT, TH E LD AR SUBMITTED THAT GROUND NO.1 REGARDING DEPRECIATION ON WATER SUP PLY AND SEWERAGE PLANT IS COVERED BY THE ORDER OF LD CIT(A) I N ASSESSMENT YEAR 1995-96 & 2001-02 TO 2006-07. SIMILARLY, GROUND NO .2 REGARDING INTEREST CLAIMED ON KFW GERMAN LOAN WAS ALSO COVERED B Y THE ORDER OF LD CIT(A) ON THE BASIS OF ORDER OF ITAT FOR ASSESSMENT YE AR 1998-99, 2000-01, 01-02 & 02-03. HE FURTHER ARGUED THAT BOTH GROUNDS WERE COVERED IN FAVOUR OF THE ASSESSEE. ITA NO../DEL/ 25 47. THE LD DR, ON THE OTHER HAND, RELIED UPON THE O RDER NO ASSESSING OFFICER. 48. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE F IND THAT THE DISPUTE RAISED BY THE REVENUE ARE SQUARELY COVERED BY THE EAR LIER ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSEE IN RESPECT OF ASSESSMENT YEA RS 1995- 96 TO 2006-07 IN RESPECT OF GROUND NO.1 AND FROM 199 8-99 TO 2002-03 IN RESPECT OF GROUND NO.2 IN FAVOUR OF THE ASSESSEE. FOL LOWING THE EARLIER ORDER PASSED BY THE LD CIT(A) ON THE BASIS OF I TAT ORDER WE ALSO HOLD THAT DEPRECIATION ON WATER SUPPLY AND SEWERAGE PLANT WAS ADMISSIBLE AS CLAIMED BY THE ASSESSEE AND INTEREST CLAIMED ON KFW GERMAN LOAN WAS ALSO ADMISSIBLE. THEREFORE, WE HOLD TH AT LD CIT(A) HAD RIGHTLY DELETED THE ADDITION. GROUND NO.1 & 2 O F REVENUES APPEAL ARE DISMISSED. 49. GROUND NO.3 RELATES TO DEPRECIATION ON ASSETS NOT I N ACTIVE USE. THE LD AR SUBMITTED THAT THIS ISSUE AROSE FOR THE FIRST TIME IN ASSESSMENT YEAR 2001-02 WHEREIN FIXED ASSETS WITH WDV .5% OF COST WERE CLASSIFIED AS ASSETS NOT IN ACTIVE USE AND NO DEPRECI ATION WAS CHARGED UNDER COMPANIES ACT AS PER ACCOUNTING STANDAR D AND THESE ASSETS HAD GOT MERGED INTO BLOCK OF ASSETS ON BLOCK CONCE PT INTRODUCED IN SECTION 32 OF THE INCOME TAX ACT, 1961 FROM 1998-99 ONWARDS. HE FURTHER ARGUED THAT LD CIT(A) HAS DELETED THE SIMILAR DISALLOWANCE IN ASSESSMENT YEAR 2001-02 AND DEPARTMENT HAS NOT PREFERRED ANY APPEAL AGAINST THE SAID DELETION. RELIA NCE WAS PLACED IN THE CASE OF CIT V. BHARAT ALUMINIUM CO. LTD. (2010) 187 TAXMAN 111 (DELHI) WHEREIN IT WAS HELD THAT EXPRESSION USED FOR B USINESS PURPOSES WOULD MEAN USE OF BLOCK OF ASSETS AND NOT ANY SPECIFIC ASSET. ITA NO../DEL/ 26 50. THE LD DR, ON THE OTHER HAND, PUT RELIANCE ON T HE ORDER OF ASSESSING OFFICER AND ALSO RELIED UPON THE CASE LAW REPOR TED IN THE CASE OF VINYL CEMENT LTD. 25 SOT 235. (MUM.). 51. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE F IND THAT THE ASSESSEE HAD RIGHTLY CLASSIFIED ASSETS NOT IN ACTIVE USE AND HAD STATED THAT NO DEPRECIATION HAS BEEN CHARGED AS PER COMPANI ES ACT. HOWEVER, FROM 1988-89 AFTER INTRODUCTION OF BLOCK O F ASSET THE INDIVIDUAL ASSET HAS LOST ITS IDENTITY AND IT DOES NOT MA TTER WHETHER SOME PART OF BLOCK OF ASSET DID NOT FUNCTION DURING A PARTICULAR YEAR. IT IS SUFFICIENT IF SOME OF THE BLOCK OF ASSETS IS OPERATIONA L DURING THE YEAR. THE BENEFIT OF DEPRECIATION IS AVAILABLE TO BL OCK OF ASSET. THE CASE LAW RELIED UPON BY THE LD DR RELATES TO A CASE WH ERE AN ASSET WAS NOT WORKING AND WAS SOLD BY ASSESSEE IN NEXT YEAR. THE AD JUSTMENT IN WDV OF THE BLOCK OF ASSETS WAS MADE BY ASSESSING OFFICER IN THE YEAR IN WHICH THAT PLANT DID NOT WORK INSTEAD OF THE YEA R IN WHICH IT WAS SOLD. WHEREAS IN PRESENT CASE, THE DEPRECIATION AS PER C OMPANIES ACT WAS NOT CHARGED AS THEIR WDV HAD REACHED 5% AND THESE WERE THOUGH NOT IN ACTIVE USE BUT THESE WERE USED LESS AS COMPARED TO OTHER ASSETS AND THEREFORE WERE ELIGIBLE FOR DEPRECIATION. THERE FORE, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF LD CIT(A). GROUND NO. 3 IS ALSO DISMISSED. 52. AS REGARDS GROUND NO.4 REGARDING DISALLOWANCE OF L IABILITY FOR LONG SERVICE AWARD WHICH THE ASSESSEE HAD CLAIMED ON THE BASIS OF ACCRUAL VALUATION AS PER ACCOUNTING STANDARD AS-15., THE LD AR SUBMITTED THAT LIABILITY WAS A DEFINITE AND DETERMINE D LIABILITY DISCHARGEABLE IN FUTURE AND WAS PROVIDED ON SCIENTIFIC BASIS AS REFERRED TO BY HON'BLE SUPREME COURT IN METAL BOX OF INDIA V . WORKMEN 73 ITR 53 AND BHARAT EARTH MOVER LTD. 235 ITR 428 (SC). T HE LD AR FURTHER ITA NO../DEL/ 27 SUBMITTED THAT DISALLOWANCE WAS DELETED BY THE LD CIT (A) BY FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT OF DELHI IN CIT V. INSILCO LTD. 179 TAXMAN 55. 53. THE LD DR, ON THE OTHER HAND, ARGUED THAT THE L IABILITY WAS AN ESTIMATED LIABILITY AND THEREFORE THE LD CIT(A) HAS D ELETED THE DISALLOWANCE BY NOT PROPERLY UNDERSTANDING THE FACTS OF THE CASE. 54. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE F IND THAT AS PER SERVICE AGREEMENT WITH THE EMPLOYEE THE DETERMINATIO N OF LIABILITY FOR LONG SERVICE AWARD WAS CALCULATED AS PER ACCOUNTING STA NDARD AS-15 NORMS AND WERE RIGHTLY PROVIDED FOR IN THE BOOKS OF T HE COMPANY AS THE LIABILITY HAD ARISEN AS ON THE DATE OF BALANCE SHE ET AND THE ASSESSEE HAD RIGHTLY DEBITED THE CORRESPONDING AMOUNT TO THE P&L ACCOUNT. THEREFORE, WE DO NOT SEE ANY INFIRMITY IN T HE ORDER OF LD CIT(A). GROUND NO.4 IS ALSO DISMISSED. 55. AS REGARDS GROUND NO.5, REGARDING DELETION OF DISA LLOWANCE OF LIABILITY FOR LTC ENCASHMENT HOLDING IT TO BE UNASCER TAINED AND CONTINGENT LIABILITY, THE LD AR SUBMITTED THAT AS PER THE AGREEMENT OF SERVICE, LTC ENTITLEMENT WAS ELIGIBLE FOR ENCASHMENT O N A PRE- DETERMINED/AGREED BASIS BY THOSE EMPLOYEES WHO COULD NO AVAIL LTC IN THE RELEVANT BLOCK PERIOD DUE TO EXIGENCIES OF BU SINESS AND THE LIABILITY WAS NOT UNASCERTAINED/CONTINGENT BUT DEFINI TE AND DETERMINED AND WAS ALSO PAID IN FULL IN THE SUBSEQUENT YEARS. BESIDE , THE EMPLOYEES WHO HAD EN-CASHED THE LTC ENTITLEMENT WERE SUBJECTED TO INCOME TAX AS A PERQUISITE AND LD CIT(A) HAD ALLOWED THE SAME KEEPING IN VIEW THAT THE AMOUNT WAS TAXED. ITA NO../DEL/ 28 56. THE LD DR, ON THE OTHER HAND, RELIED UPON THE O RDER OF ASSESSING OFFICER. 57. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE F IND THAT LTC ENTITLEMENT WAS ELIGIBLE FOR ENCASHMENT AND THE COMPA NY HAD PROVIDED FOR ITS LIABILITY ON THE BASIS OF ACCRUAL MET HOD. THE LTC ENCASHMENT WAS LIABLE TO TAX IN THE HANDS OF EMPLOYEE S UNDER THE I.T. ACT. THE PROVISIONS ON ACCOUNT OF LTC ENCASHMENT WERE MADE IN ACCORDANCE WITH ACCOUNTING STANDARD AS-15 WHICH ARE MANDATORY. THE ASSESSING OFFICER HAD DISALLOWED THE PROVISION AS UNDEFINI TE AND UNDETERMINED LIABILITY WITHOUT GOING INTO THE FACTS OF THE CASE. WE ARE OF THE CONSIDERED OPINION THAT PROVISION OF LTC ENCASH MENT PROVIDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS ON THE BASIS OF A S-15, WAS A DEDUCTIBLE AMOUNT FROM THE PROFITS OF THE COMPANY. T HEREFORE, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF LD CIT(A). GR OUND NO.5 OF ASSESSEES APPEAL IS ALSO DISMISSED. 58. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE A SSESSEE IS PARTLY ALLOWED WHEREAS THE APPEAL FILED BY THE REVENUE IS D ISMISSED. 59. ORDER PRONOUNCED IN THE OPEN COURT ON 26TH DAY OF OCTOBER, 2012. SD/- SD/- (I.C. SUDHIR) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 26.10.2012. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT ITA NO../DEL/ 29 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 29.8.2012 DATE OF DICTATION 18.10.2012 DATE OF TYPING 19.10.2012 DATE OF ORDER SIGNED BY 26.10.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET 30.10.2012 & SENT TO THE BENCH CONCERNED. PARA 31.