DCIT, New Delhi V. M/s Pepsico India Holding Pvt. Ltd., New Delhi

ITA 822/DEL/2013

• Counselvise Citation: 82220114 RSA 2013
• Duration Of Justice: 2 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 17-07-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 08-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANOJ K CHOPRA
• Keywords: Valuation report
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F, NEW DELHI) BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.822 /DEL/2013 ASSESSMENT YEAR : 2005-06 DCIT, CIRCLE 14(1), VS. M/S. PEPSICO INDIA HOLDING PVT. LTD. NEW DELHI 54, LGF, WORLD TRADE CENTRE, B K ROAD, NEW DELHI-110 001 GIR / PAN:AAACP1272G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANOJ K CHOPRA, SR. DR RESPONDENT BY : SHRI VISHAL KALRA, CA ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY REVENUE AGAINST THE ORD ER OF LD. CIT(A) DATED 30.11.2012. THE SOLE GRIEVANCE OF REVENUE IS THE ACTION OF LD. CIT(A) BY WHICH HE HAD ALLOWED PROVISIONS FOR LEAVE ENCASHMENT AND GRATUITY AS NOT INCLUDABLE TO THE BOOK PROFITS U/S 115JB OF THE I. T. ACT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE A.O. DU RING ASSESSMENT PROCEEDINGS OBSERVED THAT FOR THE PURPOSE OF CALCUL ATION OF MINIMUM BOOK PROFITS U/S 115JB, THE ASSESSEE HAD NOT ADDED BACK THE PROVISIONS FOR GRATUITY AND LEAVE ENCASHMENT WHICH IN HIS OPINION WERE UNASCERTAINABLE AND, THEREFORE, WAS TO BE ADDED BACK. THE ARGUMENT OF ASSESSEE THAT THE PROVISIONS WERE CREATED SCIENTIFICALLY ON THE BASIS OF ACTUARIAL VALUATION AND, THEREFORE, WERE IN THE NATURE OF ASCERTAINED LIABIL ITY WAS NOT ACCEPTED BY ITA NO.822/DEL/2013 2 HIM. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE L D. CIT(A) AND LD. CIT(A) ALLOWED RELIEF TO THE ASSESSEE BY HOLDING A S UNDER: 11. GROUND NO.9 IS REGARDING THE ADDITION OF RS.1, 78,35,000/- AS PROVISION FOR GRATUITY AND RS.53,46,000/- AS PROVIS ION FOR LEAVE ENCASHMENT MADE BY THE AO UNDER 115JB OF THE I. T. ACT, 1961. AS PER THE ASSESSMENT ORDER, THE APPELLANT HAD ADDED B ACK THESE AMOUNTS IN THE COMPUTATION OF INCOME UNDER THE NORMAL PROVI SIONS OF INCOME TAX ACT BUT THE SAME WAS NOT ADDED BACK IN COMPUTIN G BOOK PROFIT UNDER 115JB. THE RELEVANT PORTION OF THE ASSESSMENT ORDER IS AS FOLLOWS: 'THE ASSESSEE'S SUBMISSIONS HAVE DULY BEEN CONSIDER ED. IT IS SEEN THAT ACTUARIAL VALUATION REPORT RELIED UPON BY THE ASSESSEE TO CALCULATE THE LIABILITY ON ACCOUNT OF GRATUITY IS S UBJECT TO A NUMBER OF CONDITIONS AND IS LARGELY BASED ON ESTIMATES AND PR ESUMED FIGURES. THE BASIS OF CALCULATION MIGHT BE SCIENTIFIC BUT TH IS DOES NOT MAKE IT AN ACTUAL/ASCERTAINED LIABILITY. EVEN, IF AN AMOUNT IS AT ALL REQUIRED TO BE SET ASIDE FOR MEETING THE LIABILITIES IN FUTURE, THE SAME CAN BE DONE BY WAY OF CREATION OF A RESERVE RATHER THAN BY CREA TING A PROVISION WHICH IS DIRECTLY CHARGED ON THE TAXABLE PROFIT. TH E RATIO OF BHARAT EARTH MOVERS (SUPRA) PROVIDES FOR ALLOWANCE OF LIAB ILITY ON ACCOUNT OF GRATUITY ONLY IF IT IS ASCERTAINED. THIS JUDGEMENT CONCLUDES THAT PROVISION FOR LEAVE ENCASHMENT IS NOT CONTINGENT LI ABILITY. A CONTINGENT LIABILITY IS A LIABILITY FOR AN EVENT WH ICH MAY OR MAY NOT HAPPEN IN FUTURE AT ALL WHEREAS AN UNASCERTAINED LI ABILITY IS TERMED SO BECAUSE THERE IS UNCERTAINTY REGARDING THE QUANTUM ONLY. IT IS THUS CLEAR THAT THE QUANTUM OF PROVISION FOR GRATUITY AN D LEAVE ENCASHMENT EVEN IF DETERMINED SCIENTIFICALLY ON THE BASIS OF A CTUARIAL VALUATION IS NOT AN ASCERTAINED LIABILITY AT THE YEAR END. HENCE , THE CASE OF BHARAT EARTH MOVERS (SUPRA) IS NOT APPLICABLE TO THE ASSES SEE'S CASE. IN THE AFORESAID CASE LAWS RELIEF WAS PRIMARILY GIVEN TO T HE ASSESSEE ON THE GROUND THAT THE AO FAILED TO GIVE HIS FINDING THAT THE PROVISION HAS BEEN MADE FOR AN UNASCERTAINED LIABILITY. HOWEVER, THE FACTS IN THE PRESENT CASE ARE DIFFERENT. THE PROVISION FOR GRATU ITY AND LEAVE ENCASHMENT AS DISCUSSED ABOVE ARE BASED ON ESTIMATE S AND PRESUMED FIGURES END ARE UNCERTAIN AS FAR AS THEIR QUANTUM I S CONCERNED. IN VIEW OF THIS THE PROVISION FOR GRATUITY OF RS. 1,78 ,35,611/- AND ITA NO.822/DEL/2013 3 PROVISION FOR LEAVE ENCASHMENT OF RS.53,46,000/- AD DED BACK AS PER PROVISIONS OF SECTION 115JB OF THE I. T. ACT.' 11.1. AS PER THE ABOVE, IT IS CLEAR THAT PROVISION FOR GRATUITY AND LEAVE ENCASHMENT WAS MADE ON THE BASIS OF ACTUARIAL VALUA TION. THEREFORE, IT CANNOT BE HELD THAT THESE ARE UNASCERTAINED LIAB ILITIES. AS PER 115JB, EXPLANATION 1 (C) ASCERTAINED LIABILITIES CA NNOT BE ADDED BACK. SINCE THE APPELLANT HAD MADE THESE PROVISIONS ON TH E BASIS OF ACTUARIAL VALUATION THEY ARE ASCERTAINED LIABILITIE S AND THE APPELLANT HAD CORRECTLY NOT INCLUDED THE SAME FOR COMPUTING T HE BOOK PROFIT U/S 115JB OF THE I. T. ACT, 1961. 3. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4. AT THE OUTSET, LD. D.R. SUBMITTED THAT LD. CIT(A ) HAS WRONGLY ALLOWED RELIEF AS THE PROVISIONS WERE UNASCERTAINED AND, THEREFORE, WERE LIABLE TO BE INCLUDED FOR CALCULATION OF PROFITS U/ S 115JB. HE SUBMITTED THAT ASSESSEE HAD ARRIVED AT THE AMOUNT OF PROVISIONS ON THE BASIS OF CERTAIN ASSUMPTIONS AND, THEREFORE, THE SAME WERE NOT ASCER TAINED LIABILITY. IT WAS SUBMITTED THAT IN ASSESSMENT YEAR 2000-01, THE ISSU E OF GRATUITY WAS NOT ACCEPTED BY HONBLE TRIBUNAL AND IN ASSESSMENT YEAR 2001-02 ALSO THE ISSUE OF GRATUITY HAS BEEN REMANDED BACK TO A.O. 4. LD. A.R. ON THE OTHER HAND SUBMITTED THAT FOR ES TIMATING THE PROVISIONS SOME ASSUMPTIONS HAS TO BE MADE AND ACTU ARIAL CERTIFICATE AS REFERRED TO BY LD. CIT(A) WAS OBTAINED TO ARRIVE AT THE ESTIMATED PROVISIONS. LD. A.R. FURTHER SUBMITTED THAT IN ASSESSMENT YEAR 2000-01, HONBLE ITAT HAD NOT CONSIDERED THE ISSUE OF GRATUITY IN FAVOUR OF THE ASSESSEE, HOWEVER, LEAVE ENCASHMENT WAS ALLOWED AND THEREFORE, THE ASS ESSEE HAD PREFERRED M.A. WHICH HAS ALREADY BEEN HEARD BUT HAS NOT YET B EEN DISPOSED OFF. THE LD. A.R. FURTHER SUBMITTED THAT ASSESSEE HAS FILED APPEAL BEFORE HON'BLE HIGH COURT ALSO AND ITS QUESTION HAS BEEN ADMITTED. IT WAS SUBMITTED THAT IN ITA NO.822/DEL/2013 4 ASSESSMENT YEAR 2001-02, THE HONBLE TRIBUNAL HAD R EMITTED THE ISSUE OF GRATUITY BACK TO THE OFFICE OF A.O. FOR READJUDICAT ION. HOWEVER, HE SUBMITTED THAT THE ISSUE WAS FULLY COVERED IN FAVOU R OF ASSESSEE BY THE ORDER OF HON'BLE SUPREME COURT IN THE CASE OF BHARAT EART H MOVERS VS CIT 11 TAXMAN 61. THE LD. A.R. FURTHER PLACED HIS RELIANC E ON THE FOLLOWING CASE LAWS: I) CIT VS INSILCO LTD. 179 TAXMAN 55 (H.C.) DEL. II) CITVS KELVINATOR OF INDIA LTD. 76 TAXMAN 309 ( H.C.) DEL. 4.1 CONTINUING HIS ARGUMENTS, LD. A.R. SUBMITTED TH AT IN SUBSEQUENT ASSESSMENT YEARS 2006-07 AND ASSESSMENT YEAR 2007-0 8 VIDE APPELLATE ORDERS DATED 28.03.2013 AND 22.07.2014. LD. CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE ON SIMILAR ADDITIONS AND REVENUE HAS NOT F ILED APPEALS AGAINST THOSE ORDERS. 5. IN VIEW OF ABOVE, IT WAS SUBMITTED THAT THE ORDE R OF LD. CIT(A) MAY BE UPHELD. 6. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. WE FIND THAT IN ASSESSMENT YEAR 2000-01 , THE HONBLE TRIBUNAL VIDE ITS ORDER DATED 16.07.2009 VIDE PARA 17 HAD HE LD THAT PROVISIONS FOR LEAVE ENCASHMENT WAS ASCERTAINED LIABILITY AND, THE REFORE, IT HAD ALLOWED THE SAME FOR NOT INCLUDING THE SAME FOR CALCULATION OF BOOK PROFITS. HOWEVER IT UPHELD THE INCLUSION OF GRATUITY PROVISIONS FOR PUR POSE OF CALCULATION OF MINIMUM PROFITS. THE RELEVANT FINDINGS OF THE TRIB UNAL ARE REPRODUCED AS UNDER: 17. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. IT HAS BEEN THE CONTE NTION OF THE ASSESSEE RIGHT FROM THE BEGINNING THAT A CUMULATIVE SUM OF R S. 97,84;1781- (RS. 68,23,350/- ON ACCOUNT OF GRATUITY AND RS. 29, 60,828/- ON ACCOUNT OF LEAVE ENCASHMENT) WAS DEBITED TO THE PRO FIT & LOSS ITA NO.822/DEL/2013 5 ACCOUNT. OUT OF THE SAID SUM ASSESSEE ITSELF HAS AD DED BACK THE GRATUITY OF RS. 68,23,350/- WHILE COMPUTING THE INC OME UNDER THE NORMAL PROVISIONS AND THUS, EFFECTIVELY THE ONLY AM OUNT REMAINED TO BE DEBITED TO THE P&L ACCOUNT WAS A SUM OF RS. 29,6 0,828/-. IF THE AMOUNT WAS NOT DEBITED TO P&L ACCOUNT DURING THE YE AR UNDER CONSIDERATION, THEN THE SAME IS NOT SUBJECT TO ADJU STMENT MADE WHILE COMPUTING BOOK PROFIT U/S 115JA. TO THAT EXTENT THE RE COULD WHICH WAS NET DEBITED DURING- THE YEAR UNDER CONSIDERATIO N TO THE PROFIT AND LOSS ACCOUNT RELATING TO SCHEDULE 10 IN THE BALANCE SHEET OF THE, ASSESSEE, THE ADDITION CANNOT BE MADE FOR COMPUTING BOOK PROFIT U/S 115JA. IT IS THE CASE OF THE ASSESSEE THAT PROVIS ION OF GRATUITY OF RS. 68,23,350/- WAS THOUGH DEBITED TO THE P&L ACCOUNT B UT IT WAS AGAIN ADDED WHILE COMPUTING THE INCOME UNDER THE NORMAL P ROVISIONS. COPY OF COMPUTATION OF INCOME HAS BEEN FILED BY THE' ASS ESSEE AT PAGES 107 TO 110 OF THE PAPER BOOK. IT IS OBSERVED THERE FROM THAT WHILE COMPUTING THE INCOME UNDER THE NORMAL PROVISIONS TH E AMOUNT OF RS. 68,23.350/- BEING PROVISION MADE FOR GRATUITY U/S 4 0A(7) IS ADDED WHEREAS NO SUCH ADDITION HAS BEEN MADE WHILE COMPUT ING THE BOOK PROFIT U/S 115JA IT HAS NOT BEEN SHOWN THAT PROVISI ON FOR PAYMENT OF GRATUITY IS CALCULATED ON THE BASIS OF ACTUARIAL V ALUATION. IT HAS ALSO NOT BEEN SHOWN THAT PROVISION ON ACCOUNT OF GRATUIT Y IS AN ASCERTAIN LIABILITY. THEREFORE, TILE ADDITION TO THAT EXTENT WHILE COMPUTING BOOK' PROFIT U/S 1.15JA WAS REQUIRED TO BE MADE. HOWEVER SO AS IT RELATES' TO ANOTHER COMPONENT I.E. A SUM OF RS. 29,60,828/- THE CLAIM IS MADE BY THE ASSESSEE ON THE BASIS OF ACTUARIAL VALUATION. I T HAS NOT BEEN' SHOWN BY THE DEPARTMENT THAT THERE WAS ANY DEFECT I N SUCH VALUATION MADE BY THE ASSESSEE. IF IT IS SO THEN THIS CLAIM O F THE ASSESSEE HAS TO' BE ACCEPTED IN THE LIGHT OF DECISION OF HON'BLE SUP REME COURT IN THE CASE OF BHARAT EARTHMOVERS VS. CIT (SUPRA), WHEREIN IT HAS BEEN HELD THAT LIABILITY INCURRED BY THE ASSESSEE UNDER THE L EAVE ENCASHMENT SCHEME APPLICABLE TO ITS EMPLOYEES PROPORTIONATE TO THE ENTITLEMENT EARNED THE EMPLOYEES SUBJECT TO CEILING ON DEDUCTIB LE. THEREFORE, THIS CLAIM OF HT ASSESSEE HAS TO BE ACCEPTED. THE A.O. IS DIRECTED TO DELETE THE ADDITION MADE ON ACCOUNT OF PROVISION FOR LEAVE ENCASHMENT AMOUNTING TO RS. 29.60.888/-. TO CONCLUDE OUR FINDI NG ON THIS GROUND ARE THAT (I) OPENING BALANCE STANDING TO PROVISION FOR STA FF BENEFITS IF NOT DEBITED TO THE P&L ACCOUNT OF THE YEAR UNDER CONSIDERATION ITA NO.822/DEL/2013 6 COULD NOT BE CONSIDERED FOR ADDITION WHILE COMPUTIN G PROFIT U/S 115JA, (II) PROVISION FOR GRATUITY BEING NOT ASCERTAINED LIABILITY WAS TO BE ADDED WHILE COMPUTING BOOK PROFIT U/S 115JA. III) LIABILITY OF RS. 29.60.828/- ON ACCOUNT OF PRO VISION FOR LEAVE ENCASHMENT BEING A LIABILITY BASED ON ACTUARIAL VAL UATION IS TO BE CONSIDERED ASCERTAINED LIABILITY HENCE DEDUCTIBLE W HILE COMPUTING BOOK PROFIT U/S 115JA. THIS GROUND IS PARTLY ALLOWED. 7. IN ASSESSMENT YEAR 2001-02, THE TRIBUNAL HAD THO UGH FOLLOWED ASSESSMENT YEAR 2000-01, BUT IT DID NOT REJECT THE CLAIM OUTRIGHTLY BUT IT REMANDED BACK THE ISSUE TO THE OFFICE OF A.O. FOR R EADJUDICATION. THE FINDINGS OF TRIBUNAL ARE CONTAINED IN PARA 34: THERE IS NO DISPARITY ON FACTS. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT ACTUARIAL REPORT IS ON THE RECORD, THEREFORE, THE PROVISIONS SHOULD NOT BE TREATED AS UNASCERTAINED L IABILITY. THIS REPORT HAS NOT BEEN RELIED UPON BY THE REVENUE AUTHORITIES BELOW. THERE ARE SPECIFIC DEFECTS IN THE REPORT TAKING INTO CONSIDER ATION THE FINDINGS OF THE IT AT IN ASSESSMENT YEAR 2000-01, DEFECTS IN TH E REPORT AND THE CLAIM OF ASSESSEE THAT IN ASSESSMENT YEAR 2000-01, A MISCELLANEOUS APPLICATION HAS ALREADY BEEN FILED. WE DEEM IT AP PROPRIATE TO SET ASIDE THE ISSUE TO THE FILE OF THE A.O. FOR READJUD ICATION. ASSESSEE WILL SUBMIT THE ACTUARIAL REPORT AFRESH TO THE A.O. A.O . SHALL CONSIDER THE ORDERS OF ITAT IN ASSESSMENT YEAR 2000-01ALSO. THI S GROUND OF APPEAL IS PARTLY ALLOWED. 8. THE CASE OF THE ASSESSEE WAS EARLIER HEARD ON 17 .07.2014 BUT AT THE TIME OF DICTATION, IT WAS FELT NECESSARY THAT THE R ESULT OF M.A. FILED BY ASSESSEE IN ASSESSMENT YEAR 2000-01 MUST BE CONSIDE RED FOR ARRIVING AT THE CONCLUSION. THEREFORE THE CASE WAS REFIXED AND WAS FINALLY HEARD ON 28.01.2015 ON WHICH DATE THE LD. A.R. FILED A COPY OF THE ORDER IN MISCELLANEOUS APPLICATION 95/DEL/2013 PRONOUNCED BY ITAT ON 06.06.2014. ITA NO.822/DEL/2013 7 THOUGH THE DECISION IN M.A. IS DATED 06.06.2014 WHI CH IS BEFORE THE DATE OF ORIGINAL HEARING BUT LD. A.R. HAD NOT FILED THE SAM E AND INSTEAD HAD STATED THAT ORDER IS AWAITED. FROM THE ORDER IN ABOVE MIS CELLANEOUS APPLICATION, WE FIND THAT THE CONTENTION OF THE ASSESSEE HAS NOT BE EN ACCEPTED AND THE M.A. HAS BEEN DISMISSED. WE FURTHER FIND THAT THE ASSES SEE HAD FILED AN APPEAL BEFORE HON'BLE HIGH COURT WHEREIN THE QUESTION RAIS ED BY ASSESSEE HAS BEEN ADMITTED. THEREFORE IN VIEW OF ABOVE FACTS AND CIR CUMSTANCES, WE FOLLOWING THE ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2000-01 AN D 2001-02, PARTLY ALLOW THE APPEAL OF REVENUE BY HOLDING THAT THE PROVISION S FOR LEAVE ENCASHMENT IS ASCERTAINED LIABILITY. AS REGARDS PROVISIONS FOR GR ATUITY, THE ARGUMENT OF LD. A.R. THAT IN SUBSEQUENT YEARS LD. CIT(A) HAS ALLOWE D THE RELIEF AND REVENUE HAS NOT FILED APPEALS, THEREFORE, ORDER OF LD. CIT( A) SHOULD BE UPHELD, DO NOT HOLD MUCH FORCE AS WE DO NOT KNOW AS TO WHETHER THERE WERE DEFECTS IN ACTUARIAL REPORT IN THOSE YEARS OR NOT. THEREFORE, FOLLOWING ASSESSMENT YEAR 2001-02, WE REMIT BACK THE ISSUE OF GRATUITY TO THE OFFICE OF A.O. FOR READJUDICATION WHO WILL READJUDICATE ON THE BASIS O F FRESH ACTUARIAL REPORT IF ANY TO BE FILED BY ASSESSEE. 9. IN VIEW OF ABOVE, APPEAL FILED BY REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. 10. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH FEB., 2015 SD./- SD./- ( I. C. SUDHIR) (T.S. KAPO OR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 20 TH FEB., 2015. SP ITA NO.822/DEL/2013 8 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 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). S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 3/1 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 4,5, SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS 20/2 SR. PS/PS 6 KEPT FOR PRONOUNCEMENT 20/2 SR. PS/PS 7 FILE SENT TO BENCH CLERK 20/2 SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER