M/s Scooter India Ltd, Lucknow V. DCIT, Lucknow

ITA 86/LKW/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83272 (ITAT-LUCKNOW)
• Duration Of Justice: 3 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-06-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 15-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: V B BHARGAVA F
• Keywords: Depreciation; Business expenditure; Retrospective amendment; Bad and doubtful debts; Commercial expediency
• Section: 43B; 143(3); 37(1); 32; 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NOS.86 & 87/LKW/2011 ASSESSMENT YEARS:2002 - 03 & 2003 - 04 & I.T.A. NO.91/LKW/2012 ASSESSMENT YEAR:2004 - 05 & I.T.A. NO.36/LKW/2013 ASSESSMENT YEAR:2003 - 04 M/S SCOOTERS INDIA LIMITED, SAROJINI NAGAR, LUCKNOW. PAN:AADCS7796R VS. DY.C.I.T., RANGE - IV, LUCKNOW. (APPELLANT) (RESPONDENT) ITA NOS.58 TO 62/LKW/2011 ASSESSMENT YEARS:2002 - 03 TO 2006 - 07 & I.T.A. NO.118/LKW/2013 ASSESSMENT YEAR:2009 - 10 DY.C.I.T., RANGE - IV, LUCKNOW. VS. M/S SCOOTERS INDIA LIMITED, SAROJINI NAGAR, LUCKNOW. PAN:AADCS7796R (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI V. B. BHARGAVA , F.C.A. REVENUE BY SHRI AJAY KUMAR, D.R. DATE OF HEARING 01 /07/2014 DATE OF PRONOUNCEMENT 2 1 = /08/2014 O R D E R PER BENCH: FIRST WE TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2002 - 03 I.E. I.T.A. NO.86/LKW/2011. 2. FIRST GROUND OF APPEAL IS AS UNDER: 2 1. BECAUSE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AS WELL AS ON FACTS IN ALLOWING 1/5 TH OF VRS PAYMENT OF RS.135,47,324/ - I.E. RS.27,09,465/ - IN VIEW OF PROVISION OF SECTION 35 DDA OF THE INCOME TAX ACT, 1961 AS AGAINST THE AMOUNT OF R S.411657/ - AS DETERMINED BY THE APPELLANT ON THE OTHER HAND THE VRS EXPENSES DEBITED BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT AT RS.1,14,89,040/ - WERE ADDED BACK TO THE INCOME OF THE APPELLANT. 3. LEARNED A.R. OF THE ASSESSEE REITERATED THE SAME CONTENTIONS WHICH WERE MADE BEFORE CIT(A). HE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: ( I ) COMMISSIONER OF INCOME - TAX VS BHOR INDUSTRIES LTD. [2003] 264 ITR 180 (BOM) ( II ) COMMISSIONER OF INCOME - TAX VS DINESH KUMAR GOEL [2011] 331 ITR 10 (DEL) 4 . ON THE OTHER HAND, LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDER OF LEARNED CIT(A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE CIT(A) HAS DECIDED THIS ISSUE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 35DDA, WHICH HAS BEEN INSERTED WITH EFFECT FROM 01/04/2001 I.E. ASSESSMENT YEAR 2001 - 2002. AS PER THE PROVISIONS OF THIS SECTION , WHERE AN ASSESSEE INCURS ANY EXPENDITURE IN ANY PREVIOUS YEAR BY WAY OF PAYMENT OF ANY SUM TO AN EMPLOYEE AT THE TIME HIS VOLUNTARY RETIREMENT, 1/5 TH OF THE AMOUNT SO PAID SHALL BE DEDUCTED IN COMPUTING THE PROFITS AND GAINS OF THE BUSINESS FOR THAT PREVIOUS YEAR AND THE BALANCE SHALL BE DEDUCTED IN EQUAL INSTALLMENTS FOR EACH OF THE FOUR IMMEDIATELY SUCCEEDING PREVIOUS YEARS. IN THE PRESENT CASE, T HE ASSESSEE HAS MADE PAYMENT OF RS.1,35,47,324/ - ON ACCOUNT OF V R S AND THE ASSESSING OFFICER HAS ALLOWED DEDUCTION TO THE EXTENT OF 1/5 TH I.E. RS.27,09,465/ - AND MADE THE DISALLOWANCE OF RS.1,14,89,040/ - BECAUSE THE ASSESSEE HAS CLAIMED DEDUCTION FOR THE ENTIRE AMOUNT ON SUCH VRS AMOUNT OF RS.1,35,47,324/ - . SINCE THE DISALLOWANCE MADE BY THE ASSESSING 3 OFFICER AND CONFIRMED BY THE CIT(A) I S IN ACCORDANCE WITH THE PROVISIONS OF SECTION 35DDA, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE. 5.1 NOW WE DISCUSS THE APPLICABILITY OF JUDGMENTS CITED BY LEARNED A.R. OF THE ASSESSEE. 5.2 THE FIRST JUDGMENT CITED BY LEARNED A.R. O F THE ASSESSEE IS THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX VS BHOR INDUSTRIES LTD. [2003] 264 ITR 180 (BOM) . IN THIS CASE , THE ASSESSMENT YEAR INVOLVED WAS 1986 - 87 WHEN THE PROVISIONS OF SECTION 35DDA W ERE NOT ON STATUTE BOOK. IN THE PRESENT CASE, THE ASSESSMENT YEAR INVOLVED IS 2002 - 03 AFTER INSERTION OF THE PROVISIONS OF SECTION 35DDA INSERTED WITH EFFECT FROM 01/04/2001. HENCE, THIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT IS NOT APPLICABLE IN THE PRES ENT CASE. 5.3 THE SECOND JUDGMENT CITED BY LEARNED A.R. OF THE ASSESSEE IS THE JUDGMENT OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME - TAX VS DINESH KUMAR GOEL [2011] 331 ITR 10 (DEL) . IN THIS CASE, THE ISSUE IN DISPUTE BEFORE THE HON'BLE DELHI HIGH COURT WAS THAT AS TO WHETHER THE TUITION FEES RECEIVED IN ADVANCE IS ACCRUED INCOME IN THE YEAR OF RECEIPT ALTHOUGH THE SERVICES ARE TO BE RENDERED IN THE SUBSEQUENT YEAR. UNDER THESE FACTS, IT WAS HELD BY HON'BLE DELHI HIGH COURT THAT THE FEES RELATING TO NEXT YEAR CANNOT BE SAID TO HAVE ACCRUED TO THE ASSESSEE. THIS JUDGMENT IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE IN THE PRESENT CASE, THERE IS NO DISPUTE REGARDING ACCRUAL OF INCOME AND WE HAVE SEEN THAT THE DECISION OF THE AUTHORITIES BELOW IS IN LINE WITH THE PROVISION OF SECTION 35DDA OF THE ACT. HENCE, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF CIT(A) ON THIS ISSUE. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS REJECTED. 4 6. GROUND NO. 2 IS AS UNDER: 2. BECAUSE, THE LEARNED LOWER AUTHORITIES FAILED TO APPRECIATE THAT THE APPELLANT WAS ENTITLED FOR 100% OF DEPRECIATION ON ELECTRIC VEHICLES WHICH FALLS UNDER THE HEAD 'RENEWED ENERGY SAVING DEVICES' IRRESPECTIVE OF THE PERIOD TO WHICH IT IS PUT TO USE SINCE APPELLANT MADE THE CLAIM IN ACCORDANCE WITH APPENDIX 1 OF RULE 5 OF THE I.T. RULES 1962 BEING THE TABLE OF RATES. 7. LEARNED A.R. OF THE ASSESSEE REITERATED THE SAME ARGUMENTS WHICH WERE RAISED BEFORE THE CIT(A). 8. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LEARNED CIT(A) AS PER PARA 4.2.1 AND 4.2.2 OF HIS ORDER, WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 4.2.1 I HAVE CONSIDERED THE REPLY AND THE REASONING OF THE ASSESSING OFFICER. SINCE THE DEPRECIATION UNDER SECTION 32(1)(II) IS BLOCK OF ASSET ON THE BASIS OF SUCH PERCENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED, THE ASSESSEE WAS ENTITLED TO THE CLA IM OF 100% ON THE WDV. HOWEVER, THIS CLAIM IS SUBJECT TO THE SECOND PROVISO TO CLAUSE (II) OF SUB SECTION (1) OF SECTION 32 WHICH STATES THAT WHERE AN ASSET REFERRED TO IN CLAUSE (II) ETC. IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFESSION FOR A PERIOD OF LESS THAN 180 DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THE SUB - SECTION IN RESPECT OF SUCH ASSET SHALL BE RESTRICTED TO 50% OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR AN A SSET, UNDER CLAUSE (II) ETC. ACCORDINGLY, THE ASSESSING OFFICER WAS JUSTIFIED IN RESTRICTING THE DEPRECIATION TO 50% OF THE CLAIM FOR THE ASSETS PUT TO USE FOR LESS THAN 180 DAYS. 4.2.2 FURTHER, PAGE 125 OF THE WRITTEN SUBMISSIONS FILED IN THE COURSE OF THE APPEAL MENTIONS THE AMOUNT OF VEHICLES 5 PUT TO USE FOR MORE THAN 180 DAYS AT RS.9,05,138/ - . THE ASSESSING OFFICER HAS NOT GIVEN THE DETAILS OF THE VEHICLES FOR THE PERIOD OF USE WORKED OUT BY HIM. THEREFORE, HE IS DIRECTED TO VERIFY THE CLAIM AND DISALL OW ONLY 50% OF THE DEPRECIATION AT RS.15,44,981/ - IN PLACE OF RS.23,12,803/ - WORKED OUT BY HIM. THE ASSESSEE HAS CLAIMED A FURTHER AMOUNT OF RS.10,50,147/ - (INCORRECTLY MENTIONED AS RS.1,05,014/ - IN THE STATEMENT SHOWING CALCULATION OF DEPRECIATION ON ELEC TRIC VEHICLES ON PAGE 125 OF THE WRITTEN SUBMISSIONS) ON THE OPENING WDV OF RS.10,50,147/ - AS DEPRECIATION IS ALLOWABLE @ 100% ON THE OPENING VALUE OF RS.10,50,147/ - . SINCE AS PER THE CLAIM THE AMOUNT WAS ALLOWABLE @ 100% IN THE PREVIOUS ASSESSMENT YEAR I. E. A.Y. 2001 - 02, AND EXPLANATION 5 STATES THAT THE PROVISIONS OF SUB - SECTION (1) OF SECTION 32 SHALL APPLY WHETHER OR NOT THE ASSESSEE HAS CLAIMED THE DEDUCTION IN RESPECT OF DEPRECIATION IN COMPUTING HIS TOTAL INCOME AND AS THE EXPLANATION IS CLARIFICATOR Y IN NATURE AND, THEREFORE, HAS RETROSPECTIVE EFFECT, THE ASSESSING OFFICER SHALL EXAMINE THE RECORD OF A.Y. 2001 - 02 AND RECOMPUTE THE DEPRECIATION ALLOWANCE BY ALLOWING 100% DEPRECIATION ON OPENING WDV ARRIVED AT AS ON 01.04.2001. THE ASSESSING OFFICER SH ALL FURTHER VERIFY THE AMOUNT PERTAINING TO THE PERIOD OF USE EQUAL TO 180 DAYS OR MORE AND ALLOW THE DEPRECIATION OF RS.9,05,138/ - INSTEAD OF RS.4,19,641/ - ALLOWED BY HIM IF AFTER VERIFICATION THE PERIOD OF USE IS FOUND TO BE 180 DAYS OR MORE. THIS GROUND OF APPEAL IS ACCORDINGLY PARTLY ALLOWED. 9.1 FROM THE ABOVE PARAS FROM THE ORDER OF CIT(A), WE FIND THAT CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO EXAMINE AND VERIFY THE CLAIM OF THE ASSESSEE AND TO DISALLOW 50% CLAIM OF THE ASSESSEE FOR DEPRECIATION IN RESPECT OF THOSE ITEMS WHICH WERE USED FOR L ESS THAN 180 DAYS IN THE PRESENT YEAR. REGARDING THE OPENING BALANCE ALSO, HE HAS DIRECTED THE ASSESSING OFFICER TO VERIFY THE RECORD OF THE ASSESSMENT YEAR 2001 - 02 AND RECOMPUTE THE DEPRECIATION ALLOWABLE BY ALLOWING 100% DEPRECIATION ON OPENING WDV ARRI VED AT AS ON 01.04.2001 . THESE DIRECTIONS OF THE CIT(A) ARE IN LINE WITH THE PROVISIONS OF 2 ND PROVISO TO CLAUSE (II) OF SUB SECTION (1) OF SECTION 32 OF THE ACT AND HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE ALSO . ACCORDINGLY, G ROUND NO. 2 IS REJECTED. 6 10. GROUND NO. 3 IS AS UNDER: 3. BECAUSE, THE LEARNED CIT(APPEALS) HAS ERRED IN OVERLOOKING THE PROVISIONS OF SEC.43B RELATING TO DISALLOWANCE OF RS.1,40,57,860/ - ON ACCOUNT OF PAYMENT OF GRATUITY PAID UNDER THE SCHEME OF LIC BUT DISALLOWED THE SAID AMOUNT BY INVOKING THE PROVISIONS OF SEC.40A(7) OF THE I.T. ACT. 11. ON THIS ISSUE ALSO, LEARNED A.R. OF THE ASSESSEE REITERATED THE SAME ARGUMENTS, WHICH WERE MADE BEFORE THE CIT(A). 12. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE ASSESSEE HAS MADE PAYMENT OF RS.1,40,57,860/ - ON ACCOUNT OF PREMIUM PAID TO LIC FOR GRATUITY SCHEME PROMOTED BY LIC. WE FIND THAT IN THE PRESENT ISSUE, THE PROVISIONS OF SECTION 40A(7) ARE RELEVANT AND THE SAME ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: (7) (A) SUBJECT TO THE PROVISIONS OF CLAUSE (B), NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY PROVISION (WHETHER CALLED AS SUCH OR BY ANY OTHE R NAME) MADE BY THE ASSESSEE FOR THE PAYMENT OF GRATUITY TO HIS EMPLOYEES ON THEIR RETIREMENT OR ON TERMINATION OF THEIR EMPLOYMENT FOR ANY REASON ; (B) NOTHING IN CLAUSE (A) SHALL APPLY IN RELATION TO ANY PROVISION MADE BY THE ASSESSEE FOR THE PURPOSE OF PAYMENT OF A SUM BY WAY OF ANY CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND, OR FOR THE PURPOSE OF PAYMENT OF ANY GRATUITY, THAT HAS BECOME PAYABLE DURING THE PREVIOUS YEAR. 13.1 FROM THE ABOVE PROVISIONS, IT IS SEEN THAT DEDUCTION IS ALLOWABLE IF THE PROVISION IS FOR THE PURPOSE OF PAYMENT OF A SUM BY WAY OF ANY CONTRIBUTION TOWARDS APPROVED GRATUITY FUND. HENCE, IT HAS TO BE SEEN AS TO WHETHER IN THE PRESENT CASE , THE PAYMENT IS FOR AN APPROVED GRATUITY 7 FUND OR NOT. AS PER THE JUDGMENT OF HON'BLE A PEX COURT RENDERED IN THE CASE OF SHREE SAJJAN MILLS LTD. VS COMMISSIONER OF INCOME - TAX [1985] 156 ITR 585 (SC) , IT WAS HELD THAT THE AMOUNT PAID WAS NOTHING ELSE BUT GRATUITY AND MERELY BECAUSE THE SCHEME HA D BEEN MENTIONED AS GRATUITY I NSURANCE ASSURANCE S CHEME , IT DOES NOT MAKE ANY DIFFERENCE AND THE PROVISIONS OF SECTION 40A(7) WOULD BE ATTRACTED AS THE FUND HAD NOT BEEN RECOGNIZED BY THE DEPARTMENT. IT WAS HELD THAT THE TRIBUNAL WAS NOT JUSTIFIED IN UPHOLDING THE DELETION OF THE ADDITION. I T IS ALSO NOTED BY CIT(A) THAT THE DEDUCTION IS NOT ALLOWABLE U/S 36(1)(V) EITHER AND THE SAME IS NOT ALLOWABLE U/S 36(1)(V) ALSO BECAUSE DEDUCTION IS ALLOWABLE U/S 43B OF THE ACT. HE HAS HELD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS JUSTIFI ED AND ON THIS BASIS , HE HAS CONFIRMED THE DISALLOWANCE. 14. LEARNED A.R. OF THE ASSESSEE COULD NOT SHOW BEFORE US THAT PAYMENT OF PREMIUM TO LIC IS PAYMENT TO APPROVED GRATUITY FUND. HENCE, ON THIS ISSUE ALSO , WE DO NOT FIND ANY REASON TO INTERFERE IN T HE ORDER OF CIT(A). GROUND NO. 3 IS REJECTED. 15. GROUND NO. 4 IS AS UNDER: 4. BECAUSE, THE LEARNED LOWER AUTHORITIES FAILED TO APPRECIATE THAT THOUGH THE GRANT FOR ELECTRIC VEHICLE OF RS.50,00,000/ - WAS SANCTIONED ON 30.3.2002, DISBURSED AND RELEASED VIDE LETTER DATED 10.4.2002 BY THE MINISTRY WAS TO BE UTILIZED TILL 30.6.2002. 16. ON THIS ISSUE ALSO, LEARNED A.R. OF THE ASSESSEE REITERATED THE SAME ARGUMENTS WHICH WERE MADE BEFORE CIT(A). 17. LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY CIT(A) AS PER PARA 4.10 AND 4.10.1 OF HIS ORDER, WHICH ARE REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 4.10 GROUND NO. 10 RELATES TO THE ADDITION OF GRANTS FOR ELECTRIC VEHICLE. THE ASSESSEE RELIES ON GO. NO. 6/4/12/2001 - NT DATED 21/8/01 ISSUED BY GOVT. OF INDIA, MINISTRY OF NON - CONVENTIONAL ENERGY SOURCES FOR THE IMPLEMENTATION OF PROJECT ENTITLED DEMONSTRATION OF BATTERY OPERATED THREE WH EELERS (BOTWS) WHEREBY GRANT OF RS.100 LAKHS WAS SANCTIONED AND AGAINST THE SAID SANCTION THE APPELLANT HAD RECEIVED RS.50,00,000/ - DURING THE YEAR. CONSEQUENTLY THE APPELLANT HAD UTILIZED THE AMOUNT DURING THE YEAR. IN THE GRANT LETTER THERE WAS A STIPULA TION THAT UTILIZATION CERTIFICATE DULY AUDITED SHOULD BE SUBMITTED TO THE MINISTRY. ACCORDINGLY, THE UTILIZATION CERTIFICATE DATED 28/1/02 ISSUED BY M/S. SANJAY RAJEEV & CO. CHARTERED ACCOUNTANTS WAS OBTAINED. FROM THE SAID UTILIZATION CERTIFICATE IT IS EV IDENT THAT THE GRANT OF RS.50,00,000/ - WAS FULLY UTILIZED DURING THE YEAR AND SO IS CONTENDED BY THE APPELLANT. ON RECEIPT OF UTILIZATION CERTIFICATE, DISBURSEMENT LETTER DATED 10/4/02 ON ACCOUNT OF RELEASE OF SECOND INSTALLMENT OF RS.50,00,000/ - WAS ISSUE D BY THE MINISTRY TOGETHER WITH BANK DRAFT AND THE AMOUNT OF RS.50,00,000/ - WAS RECEIVED BY APPELLANT ON 15/4/02. IT IS CONTENDED THAT SINCE THE GRANT SANCTION LETTER WAS DATED 30.3.02, THE SAME WAS CONSIDERED UNDER CURRENT LIABILITIES BECAUSE UTILIZATION OF SAID GRANT WAS TO BE CARRIED OUT TILL 30.6.02. IT IS FURTHER STATED THAT IT WILL NOT BE OUT OF PLACE TO MENTION THAT THE GRANT OF RS.50,00,000/ - DISBURSED ON 30.3.02 CANNOT BE TREATED AS INCOME IN VIEW OF PRUDENT ACCOUNTING PRINCIPLES HENCE IT WAS NOT L OGICAL FOR THE APPELLANT TO TREAT IT AS INCOME. APART FROM THIS THE EXPENSES AGAINST THIS GRANT HAD BEEN INCURRED DURING F.Y. 2002 - 03. 4.10.1 I HAVE CONSIDERED THE SUBMISSIONS MADE. THE APPELLANT FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING AND AS THE GR ANT OF RS. 100 LAKHS HAD BEEN SANCTIONED, IT HAD ACCRUED TO THE ASSESSEE AS IT WAS ENTITLED TO RECEIVE THE SAME. THEREFORE, THE SAME SHOULD HAVE BEEN INCLUDED IN ITS INCOME INSTEAD OF TREATING ONLY A PART OF IT AS INCOME. THE EXPENSES ARE ALLOWABLE AS AND WHEN THEY ARE INCURRED. HENCE, THIS 9 GROUND OF APPEAL IS HEREBY REJECTED AND THE ADDITION OF RS. 50,00,000/ - IS CONFIRMED. 18.1 FROM THE ABOVE PARAS FROM THE ORDER OF CIT(A), IT IS SEEN THAT GRANT OF RS.100 LAC WAS SANCTIONED ON 21/08/2001 BUT ONLY RS.50 LAC WAS DISBURSED INITIALLY AND BALANCE WAS TO BE DISBURSED ON UTILIZATION OF THE FIRST RS.50 LAC AND ON FURNISHING OF UTILIZATION CERTIFICATE DULY AUDITED. IT IS NOTED BY CIT(A) THAT ON RECEIPT OF UTILIZATION CERTIFICATE , THE BALANCE AMOUNT WAS DISBURSED AS PER LETTER DATED 10/04/2002 AND THE DRAFT WAS RECEIVED BY THE ASSESSEE ON 15/04/2002. A GRANT WHICH WAS RECEIVED IN THE NEXT ASSESSMENT YEAR CANNOT BE UTILIZED IN THE PRESENT YEAR AND AS PER THE MATCHING PRINCIPLE, THI S GRANT SHOULD BE CONSIDERED AS INCOME IN THE NEXT YEAR. HENCE, ON THIS ISSUE, WE REVERSE THE ORDER OF CIT(A) AND DELETE THIS ADDITION. ACCORDINGLY, GROUND NO. 4 IS ALLOWED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. 20. NOW WE TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2002 - 03 I.E. I.T.A. NO.58/LKW/2011. IN THIS APPEAL , THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. LD. CIT (A) HAS ERRED IN LAW AND FACTS IN DELETING ADDITION OF RS.40,59,237/ - ON ACCOUNT OF 'SA LARY & WAGES & BONUS' AND RS.32,74,781/ - ON ACCOUNT OF 'POWER & FUEL' BEING PRIOR YEAR EXPENSES WHEREAS AS PER ACCOUNTING STANDARDS ONLY THOSE EXPENSES ARE ALLOWABLE AS DEDUCTION WHICH ARE INCURRED & RECORDED IN FINANCIAL STATEMENTS OF THE PERIODS TO WHICH THEY RELATE. 21. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 10 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY CIT(A) AS PER PARA 4.6.3 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REFERENCE: 4.6.3 I HAVE CONSIDERED THE REPLY. IT HAS BEEN HELD IN CIT VS. CENTRAL PROVINCES MANGANESE ORE CO. LTD. [1978] 112 ITR 734 (BOM.) THAT A STATUTORY LIABILITY OF AN ASSESSEE, FOLLOWING THE MERCANTILE SYSTEM, IS ALLOWABLE IN THE YEAR IN WHICH IT ARISES NOTWITHSTANDING THE FACT THAT IT IS DISPUTED BY THE ASSESSEE AND NO ENTRIES ARE MADE IN THE BOOKS OF ACCOUNT. THE MERE FACT THAT SUCH A DEDUCTION WAS NOT CLAIMED BEFORE THE ITO IS NOT OF MUCH IMPORTANCE. IF THE LIABILITY ARISES, THEN A CLAIM CAN BE MADE BONAFIDE AT ANY STAGE BEFORE ANY HIGHER AUTHORITY, WHO IS COMPETENT TO GRANT RELIEF. AS THE LIABILITY HAD CRYSTALLIZED DURING THE YEAR, THE SAME WAS AN ALLOWABLE EXP ENDITURE IN VIEW OF THE SETTLED PRINCIPLE OF LAW. HENCE THE ADDITIONS OF RS.40,59,237/ - ON ACCOUNT OF PAY REVISION IN THE COMPANY W.E.F. 1.1.97 AND RS.32,74,781/ - ON ACCOUNT OF REVISION IN POWER TARIFF ARE HEREBY DELETED. THIS GROUND OF APPEAL IS ALLOWED . 23. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY LEARNED CIT(A) ON THE BASIS THAT THE LIABILITY HAS CRYSTALLIZED IN THE PRESENT YEAR AND THEREFORE, ALLOW ABLE IN THE PRESENT YEAR. LEARNED D.R. OF THE REVENUE COULD NOT CONTROVERT THIS FINDING OF CIT(A) AND IT IS SETTLED POSITION THAT IF LIABILITY RELATING TO EARLIER YEAR HAS CRYSTALLIZED IN THE PRESENT YEAR THEN THE SAME IS ALLOWABLE IN THE PRESENT YEAR. LEARN ED D.R. OF THE REVENUE COULD NOT CONTROVERT THIS FIND ING OF CIT(A) AND THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). 24. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. 25. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2003 - 04 I.E. I.T.A. NO.36/LKW/2013 ARISING OUT OF ASSESSMENT ORDER PASSED BY ASSESSING OFFICER U/S 143(3) READ WITH SECTION 263 OF THE ACT. 11 26. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. BECAUSE THE LEARNED CI T(APPEALS) HAS ERRED IN OVERLOOKING THE POLICY FOLLOWED BY THE APPELLANT COMPANY RELATING TO PRIOR PERIOD ADJUSTMENT A/C AND IN MAKING ADDITION OF RS.79 , 92 , 018/ - . 2. THAT THE ASSESSING OFFICER ERRED IN NOT UNDERSTANDING THE ACCOUNTING POLICY ADOPTED BY THE APPELLANT, AS - 5 AS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND NOT ACCEPTING THE JUDICIAL PRONOUNCEMENT AS HELD IN CASE OF BHARAT EARTH MOVERS LTD. V/S CIT (2000) 112 TAXMAN 61 (SC) AND CIT DELHI - II V/S KHAITAN FERTILIZERS & CHEMICALS LTD. (2008) 175 TAXMAN 195 (DELHI). 27. IT WAS SUBMITTED BY LEARNED A.R. OF THE ASSESSEE THAT THESE EXPENSES ALTHOUGH PERTAIN TO EARLIER YEAR HAVE CRYSTALLIZED IN THE PRESENT YEAR AND THEREFORE, THE SAME ARE ALLOWABLE IN THE PRESENT YEAR. 28. AS AGAINS T THIS, LEARNED D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 29. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY CIT(A) AS PER PARA 4.4 & 4.5 OF HIS ORDER, WHICH ARE REPRODUCED BELOW FOR THE SAK E OF READY REFERENCE: 4(4) THE EXPENSES CLAIMED ON ACCOUNT OF PRIOR PERIOD EXPENSES ARE TABULATED AS UNDER - HEAD A. YR 2003 - 2004 A. YR 2004 - 2005 RAW MATERIALS 1,52,336 16,84,198 SALARIES WAGES AND BONUS 63,78,008 28,748 REPAIRS 25,656 1,146 TRAVELLING AND CONVEYANCE 92,297 60,255 12 FREIGHT OCTROI - 1,12,768 R&D EXPENSES 1,28,795 42,945 SALES RETURN'S - 15,56,865 POSTAGE AND TELEGRAM 83 ; 245 1,38,096 LEGAL EXPENSE - 52,450 POWER AND FUEL - 2,48,706 RATES AND TAXES 30,467 73,525 STORES SPARES AND TOOLS 49,030 STAFF WELFARE EXPENSES 1,04,983 PRODUCT SALES 7,13,119 RENT 36,775 OTHER EXPENSES 1,97,307 TOTAL 79,92,01S/ - 39,99,702/ - 4(5) ON EXAMINATION OF DETAILS SUBMITTED I FIND THAT THE EXPENSES CLAIMED AS PRIOR PERIOD EXPENSES RELATE TO EXPENSES ON ACCOUNT OF SALARY, WAGES, TAXES, R&D, SALES RETURNS, RENT AND OTHERS, WHICH ARE IN NATURE OF DAY TO DAY EXPENSES. IT IS BEYOND COMPREHENSIO N HOW IT COULD BE SAID THAT THE LIABILITY AROSE IN THE CURRENT YEAR UNDER CONSIDERATION WHEN THE WORK CONCERNED WAS DONE/COMPLETED IN THE EARLIER YEARS. THE EXAMINATION ABOVE REVEALS THAT THE APPELLANT IS CLAIMING THE EXPENSES IN THE YEAR UNDER CONSIDERATI ON SOLELY ON THE GROUND THAT THE VOUCHERS CONCERNED WERE PASSED IN THE CURRENT YEAR AS IN NONE OF THE CASES ABOVE IT CAN BE SAID T HAT THE LIABILITY AROSE IN THE YEAR UNDER CONSIDERATION. THE AO HAS ALSO EXAMINED THE ISSUE IN DETAIL AND HAS COME TO A CORREC T CONCLUSION THAT THE LIABILITY OF THE EXPENSES CANNOT BE SAID TO HAVE ARISEN IN THE YEAR UNDER CONSIDERATION. THE EXPENSES CLAIMED RELATE TO EARLIER YEARS AND ARE THEREFORE NOT ALLOWABLE IN THE YEAR UNDER CONSIDERATION SOLELY ON THE GROUND THAT THE VOUCHE R FOR THE CONCERNED EXPENSES WAS CLEARED BY THE AUTHORITIES CONCERNED IN THE YEAR UNDER CONSIDERATION. IN VIEW 13 OF ABOVE, I DO NOT FIND THE EXPENSES ALLOWABLE. THE DISALLOWANCE OF RS.79,92,018 / - (RS.39,99,702/ - FOR THE ASSESSMENT YEAR 2004 - 2005) IS CONFIRME D. THE GROUND OF APPEAL IS REJECTED. 29.1 FROM THE ABOVE PARAS FROM THE ORDER OF CIT(A), IT IS SEEN THAT A CLEAR FINDING IS GIVEN BY CIT(A) THAT THE ASSESSEE IS CLAIMING EXPENSES FOR THE YEAR UNDER CONSIDERATION SOLELY ON THE GROUNDS THE VOUCHERS CONCER NED WERE PASSED IN THE CURRENT YEAR AND HE HAS ALSO GIVEN A FINDING THAT IN NONE OF THE CASES , IT CAN BE SAID THAT THE LIABILITY AROSE IN THE YEAR UNDER CONSIDERATION. BEFORE US ALSO, IT COULD NOT BE SHOWN BY LEARNED A.R. OF THE ASSESSEE THAT THESE LIABILITIES HAVE CRYSTALLIZED DURING THE PRESENT YEAR. HENCE, ON THIS ISSUE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). 30. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. 31. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2003 - 04 I.E. I.T.A. NO.87/LKW/2011, WHICH IS ARISING OUT OF THE ORIGINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE ACT ON 28/03/2006. 32. IN THIS APPEAL , THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. BECAUSE, THE LEARNED LOWER AUTHORITIES FAILED TO APPRECIATE THAT THE APPELLANT WAS ENTITLED FOR 100% OF DEPRECIATION ON ELECTRIC VEHICLES IRRESPECTIVE OF THE PERIOD TO WHICH IT IS PUT TO USE. 2. BECAUSE, THE LEARNED CIT(APPEALS) HAS ERRED IN OVERLOOKING T HE PROVISIONS OF SEC.43B RELATING TO DISALLOWANCE OF RS.1,63,05,942/ - ON ACCOUNT OF PAYMENT OF GRATUITY PAID UNDER THE SCHEME OF LIC BUT DISALLOWED THE SAID AMOUNT BY INVOKING THE PROVISIONS OF SEC.40A(7) OF THE I.T. ACT. 14 3. BECAUSE, THE LEARNED LOWER AUT HORITIES FAILED TO APPRECIATE THAT THE GRANT FOR ELECTRIC VEHICLE OF RS.1,00,00,000/ - WAS TREATED AS ITS INCOME WHILE THE BALANCE AMOUNT WAS TREATED AS CURRENT LIABILITY AND SHOWN UNDER OTHER LIABILITIES AS IN SCHEDULE 9. 4. BECAUSE, THE LEARNED LOWER AUT HORITIES TREATED THE GRANT FOR ELECTRIC VEHICLE OF RS.50,00,000/ - AS ITS INCOME IN ASSESSMENT YEAR 2002 - 03 WHEREAS THE APPELLANT HAD CONSIDERED THE SAID AMOUNT IN THE BOOKS OF ACCOUNT AS ITS INCOME IN ASSESSMENT YEAR 2003 - 04, ACCORDINGLY THE SAID INCOME OF RS.50,00,000/ - WAS TREATED AS INCOME TWICE IN ASSESSMENT YEARS 2002 - 03 & 2003 - 04 HENCE THE LOWER AUTHORITIES ERRED IN TREATING THE AMOUNT OF RS.50,00,000/ - AS INCOME IN ASSESSMENT YEAR 2002 - 03. 5. THE APPELLANT CRAVES LEAVE TO ADD/ALTER ANY OF THE GROUND S OF APPEAL BEFORE OR AT THE TIME OF HEARING. 33. IT WAS AGREED BY BOTH THE SIDES THAT ALL THE ISSUE RAISED BY THE ASSESSEE IN THE PRESENT APPEAL ARE THE SAME WHICH WERE RAISED BY THE ASSESSEE IN ASSESSMENT YEAR 2002 - 03 AND HENCE, THESE ISSUE MAY BE DEC IDED ON SIMILAR LINE. AS PER GROUND NO. 1, THE ASSESSEE IS DISPUTING THE DISALLOWANCE OF DEPRECIATION OF ELECTRIC VEHICLES TO THE EXTENT OF 50% ON THE BASIS THAT THESE VEHICLES WERE USED FOR LESS THAN 180 DAYS. ON THIS ISSUE, WE HAVE CONFIRMED THE ORDER OF CI T(A) IN ASSESSMENT YEAR 2 002 - 03 AND ON THE SAME LINE, IN THE PRESENT YEAR ALSO , THIS GROUND OF THE ASSESSEE IS REJECTED. 34. AS PER GROUND NO. 2, THE ASSESSEE IS DISPUTING DISALLOWANCE OF RS.1,63,05,942/ - ON ACCOUNT OF PAYMENT OF GRATUITY UNDER THE SCHEME OF LIC WHICH WAS DISALLOWED BY THE ASSESSING OFFICER. IN ASSESSMENT YEAR 2002 - 03, THIS ISSUE WAS DECIDED BY US AGAINST THE ASSESSEE. ACCORDINGLY, IN THIS APPEAL ALSO, THIS GROUND IS DECIDED AGAINST THE ASSESSEE. GROUND NO. 2 IS REJECTED. 15 35. REG ARDING GROUND NO. 3 OF THE APPEAL, WHILE DECIDING THIS ISSUE IN ASSESSMENT YEAR 2002 - 03, WE HAVE HELD THAT THE GRANT SHOULD BE CONSIDERED AS INCOME IN NEXT YEAR ON THE BASIS OF MATCHING PRINCIPLE. IN THAT YEAR, OUT OF TOTAL GRANT SPONSORED OF RS. ONE CROR E, RS.50 LAC WAS RECEIVED IN ASSESSMENT YEAR 2002 - 03 AND BALANCE WAS RECEIVED IN ASSESSMENT YEAR 2003 - 04 AND SINCE GRANT RECEIVED IN ASSESSMENT YEAR 2003 - 04 COULD NOT BE UTILIZED IN ASSESSMENT YEAR 2002 - 03, IT WAS HELD BY US THAT THIS AMOUNT OF RS.50 LAC S HOULD BE CONSIDERED INCOME FOR ASSESSMENT YEAR 2003 - 04. IN ASSESSMENT YEAR 2003 - 04, IT IS NOTED BY CIT(A) IN PARA 4.7 AND 4.7.1 OF HIS ORDER THAT OUT OF SPONSORED GRANT OF RS.200 LAC, RS.100 LAC WAS RECEIVED BY THE ASSESSEE IN THE PRESENT YEAR AND THE SAM E WAS OFFERED TO TAX AND BALANCE RS.100 LAC WAS SHOWN BY THE ASSESSEE AS CURRENT LIABILITY IN THE BALANCE SHEET. HENCE, IT IS SEEN THAT THIS RS.100 LAC WAS NOT RECEIVED IN THE PRESENT YEAR AND WHEN THE GRANT IS NOT RECEIVED, THE SAME CANNOT BE UTILIZED IN THE PRESENT YEAR AND THEREFORE, ON THE BASIS OF MATCHING PRINCIPLE, THIS GRANT SHOULD BE TAKEN AS INCOME IN THE YEAR OF RECEIPT BECAUSE ONLY AFTER RECEIPT OF THE GRANT, IT CAN BE UTILIZED AND IF THE ASSESSEE DOES NOT UTILIZE EVEN AFTER RECEIPT, THEN THE S AME SHOULD BE TAXED IN THE YEAR OF RECEIPT IRRESPECTIVE OF THE FACT THAT THE EXPENSE WAS NOT INCURRED BUT WHEN THE GRANT ITSELF HAS NOT BEEN RECEIVED, IT SHOULD NOT BE TAXED AS INCOME. ACCORDINGLY, IN THE PRESENT YEAR, WE HOLD THAT THIS BALANCE AMOUNT OF RS.100 LAC SHOULD NOT BE TAXED IN THE PRESENT YEAR BECAUSE THE SAME WAS NOT RECEIVED IN THE PRESENT YEAR. THIS ADDITION IS DELETED. GROUND NO. 3 IS ALLOWED. 36. REGARDING GROUND NO. 4, WE FIND THAT WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR ASSESSMEN T YEAR 200 2 - 0 3 , WE HAVE DE LET ED THE ADDITION IN THAT YEAR OF RS.50 LAC AND THEREFORE, THE SAME HAS TO BE RIGHTLY TAXED IN 16 THE PRESENT YEAR AS HAS BEEN DECLARED BY THE ASSESSEE AND THEREFORE, THIS GROUND IS REJECTED. 37. IN THE RESULT, THE APPEAL OF THE A SSESSEE STANDS PARTLY ALLOWED. 38. NOW WE TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2003 - 04 I.E. I.T.A. NO.59/LKW/2011. IN THIS APPEAL , THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. LD. CIT (A) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.10,87,679/ - ON ACCOUNT OF INTEREST SUBSIDY ON HOUSE BUILDING LOANS' RELYING ON THE DECISION IN THE CASE OF CIT VS. E.I.D. PARRY INDIA LIMITED (1999) 105 TAXMAN 153/240 ITR 253 (MAD.). HE FAILED TO APPRECIATE THAT THE SAID EXPENSES ARE NOT W HOLLY FOR THE PURPOSE OF BUSINESS AND ARE NOT ALLOWABLE. RELIANCE IS BEING PLACED IN THE CASE OF GOODLAS NEROLAC PAINTS LTD. VS. CIT (BOM.) 137 ITR AND IN THE CASE OF TAMIL NADU MINERALS LTD. VS. JCIT (ITAT, CHENNAI) 05 ITD 294. 2. LD. CIT (A) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.8,33,550/ - ON ACCOUNT OF BENEVOLENT EXPENSES RELYING ON THE DECISION IN THE CASE OF CIT VS. E.I.D. PARRY INDIA LIMITED (1999) 105 TAXMAN 153/240 ITR 253 (MAD.) THEY HAVE FAILED TO APPRECIATE THAT THE ASSESSEE FAILED TO PROVE THAT THE EXPENSES ARE WHOLLY FOR THE PURPOSE OF BUSINESS. THE DECISIONS IN THE CASE OF GOODLAS NEROLAC PAINTS LTD. VS. CIT (BOM.) 137 ITR AND IN THE CASE OF TAMIL NADU MINERALS LTD. VS. JCIT (I.T.A.T.), CHENNAI 05 ITD 294 ARE THEREFORE APPLICABLE TO THE FACTS OF THE CASE. 39. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). 40. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE F IND THAT THIS ISSUE HAS BEEN DECIDED BY CIT(A) AS PER PARA 4.5 & 4.5.1 OF HIS ORDER WHICH ARE REPRODUCED BELOW FOR THE SAKE OF REFERENCE: 17 4.5 GROUND NO. 5 PERTAINS TO THE DISALLOWANCE OF RS.1087639/ - ON ACCOUNT OF INTEREST SUBSIDY TO THE EMPLOYEES FOR MAINTAINING HARMONIOUS RELATIONSHIP AND EMPLOYEES' WELFARE. IT IS CONTENDED THAT THE APPELLANT HAD INCURRED AN EXPENSE OF RS.1087639/ - ON ACCOUNT OF INTEREST SUBSIDY PAID TO THE EMPLOYEES ON HOUSE BUILDING LOAN TAKEN BY THEM FROM VARIOUS FINANCIAL INST ITUTIONS AND THE SAME WERE DEBITED IN PROFIT AND LOSS ACCOUNT IN SCHEDULE 15. THE SAID INTEREST SUBSIDY WAS GIVEN ON ACCOUNT OF THE FACT THAT AS PER POLICY OF THE COMPANY, THE COMPANY WAS REQUIRED TO GIVE HOUSE BUILDING LOAN TO ITS EMPLOYEES AT AN INTEREST RATE OF 6.5%, BUT DUE TO PAUCITY OF FUNDS THE COMPANY COULD NOT HONOUR ITS COMMITMENTS HENCE, THE COMPANY ALLOWED ITS EMPLOYEES TO BORROW HOUSE BUILDING LOAN AND THE INTEREST EXCEEDING 6.5% AS PAID TO THE FINANCIAL INSTITUTIONS WAS REIMBURSED TO THE EMPLOYEES. ACCORDINGLY, THE SAME WAS TREATED AS EXPENSE OF THE COMPANY. 4.5.1 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE GROUNDS OF APPEAL. THE ASSESSING OFFICER HAS EXAMINED THE ISSUE IN THE CONTEXT OF COMMERCIAL EXPEDIENCY AND HAS HELD THAT THE INTEREST SUBSIDY CANNOT BE ALLOWED AS A BUSINESS EXPENDITURE. IT HAS BEEN HELD IN THE CASE OF AMARJOTHI PICTURES V. CIT [1968] 69 ITR 755 (MAD.)/CIT VS. GOBALD MOTOR SERVICE (P.) LTD. [1975] 100 ITR 240 (MAD.) THAT THE EXPEDIENCY OF THE EXPENDITURE IS NOT FOR THE REVENUE TO CONSIDER. THAT IS A MATTER ENTIRELY LEFT TO THE JUDGMENT OF THE ASSESSEE CONCERNED. IN ALLOWING OR DISALLOWING A DEDUCTION THE REVENUE HAS, OF COURSE, TO HAVE REGARD TO THE REQUISITES OF SECTION 10(2)(XV) OF THE 1922 ACT [CORRES PONDING TO SECTION 37(1) OF 1961 ACT]. THE JURISDICTION OF THE REVENUE UNDER THAT SECTION IS, HOWEVER, CONFINED TO DECIDING THE REALITY OF THE EXPENDITURE, NAMELY, WHETHER THE AMOUNT CLAIMED AS DEDUCTION WAS FACTUALLY EXPENDED OR LAID OUT AND WHETHER IT WA S WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS. HON'BLE SUPREME COURT IN SHAHZADA NAND & SONS V. CIT [1977] 108 ITR 358 (SC) HAS HELD THAT COMMERCIAL EXPEDIENCY MUST BE JUDGED NOT IN THE LIGHT OF THE 19TH CENTURY LAISSEZ FAIRE DOCTRINE WHICH REGA RDED MAN AS AN ECONOMIC BEING CONCERNED ONLY TO PROTECT AND ADVANCE HIS SELF - INTEREST BUT IN THE CONTEXT OF CURRENT SOCIO - ECONOMIC THINKING WHICH PLACES THE GENERAL INTEREST OF THE COMMUNITY ABOVE THE PERSONAL INTEREST OF THE 18 INDIVIDUAL AND BELIEVES THAT A BUSINESS OR UNDERTAKING IS THE PRODUCT OF THE COMBINED EFFORTS OF THE EMPLOYER 'AND THE EMPLOYEES AND WHERE THERE IS SUFFICIENTLY LARGE PROFIT, AFTER PROVIDING FOR THE SALARY OR REMUNERATION OF THE EMPLOYER AND THE EMPLOYEES AND OTHER PRIOR CHARGES SUCH A N INTEREST ON CAPITAL, DEPRECIATION, RESERVES, ETC. A PART OF IT SHOULD IN ALL FAIRNESS GO TO THE EMPLOYEES. FURTHER, IT IS HELD IN CIT V. E.I.D. PARRY INDIA LTD. [1999] 105 TAXMAN 153/240 ITR 253 (MAD.) THAT PROVISION OF ASSISTANCE TO EMPLOYEES FOR ACQUIR ING HOUSES ARE ALLOWABLE DEDUCTIONS UNDER SECTION 37(1) OF THE INCOME - TAX ACT, 1961. HENCE IN VIEW OF THESE JUDICIAL PRONOUNCEMENTS, THE GROUND OF APPEAL IS ALLOWED AND THE DISALLOWANCE OF RS. 1087639/ - IS HEREBY DELETED. 40.1 FROM THE ABOVE PARAS FROM THE ORDER OF CIT(A), WE FIND THAT THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER ON THE BASIS THAT THE INTEREST SUBSIDY CANNOT BE ALLOWED AS BUSINESS EXPENDITURE. IN THE FACTS OF THE PRESENT CASE, WE ARE OF THE CONSIDERED OPINION THAT THE INTERE ST SUBSIDY TO THE EMPLOYEES IS FOR MAINTAINING HARMONIOUS RELATIONSHIP AND WELFARE OF THE EMPLOYEES , WHICH IS NOTHING BUT BUSINESS EXPENDITURE AND HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE. 41. IN THE RESULT, THE APPEAL OF THE RE VENUE STANDS DISMISSED. 42. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2004 - 05 I.E. I.T.A. NO.91/LKW/2012. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. BECAUSE, THE LEARNED CIT(APPEALS) HAS ERRED IN OVERLOOKING THE PROVISIONS OF SEC.43B RELATING TO DISALLOWANCE OF RS.2,11,99,639/ - ON ACCOUNT OF PAYMENT OF GRATUITY PAID UNDER THE SCHEME OF LIC BUT DISALLOWED THE SAID AMOUNT BY INVOKING THE PROVISIONS OF SEC.40A(7) OF THE I.T. ACT. 2. BECAUSE, THE LEARNED LOWER AU THORITIES TREATED THE GRANT FOR ELECTRIC VEHICLE OF RS.1,00,00,000/ - AS ITS INCOME IN ASSESSMENT YEAR 2003 - 04 WHEREAS THE APPELLANT HAD 19 CONSIDERED THE SAID AMOUNT IN THE BOOKS OF ACCOUNT AS ITS INCOME IN ASSESSMENT YEAR 2004 - 05, ACCORDINGLY THE SAID INCOME OF RS.1,00,00,000/ - WAS TREATED AS INCOME TWICE IN ASSESSMENT YEARS 2003 - 04 & 2004 - 05 HENCE THE LOWER AUTHORITIES ERRED IN TREATING THE AMOUNT OF RS.1,00,00,000/ - AS INCOME IN ASSESSMENT YEAR 2003 - 04. 3. BECAUSE, THE LEARNED CIT(A) HAS ERRED IN OVERLOOKI NG THE PROVISIONS OF SEC. 36(L)(VII) OF THE INCOME TAX ACT, 1961 BY DISALLOWING RS.623660/ - ON ACCOUNT OF BAD AND DOUBTFUL DEBTS, ADVANCES AND OTHERS WRITTEN OFF. 43. REGARDING GROUND NO. 1, IT WAS AGREED BY BOTH THE SIDES THAT THIS ISSUE IS IDENTICAL IN BOTH THE EARLIER ASSESSMENT YEARS I.E. ASSESSMENT YEAR 2002 - 03 AND 2003 - 04 AND THIS ISSUE CAN BE DECIDED ON SIMILAR LINES. WHILE DECIDING THIS ISSUE IN EARLIER YEARS, WE HAVE DECIDED THE ISSUE AGAINST THE ASSESSEE AND ACCORDINGLY IN THE PRESENT YEAR ALSO , THIS ISSUE IS DECIDED AGAINST THE ASSESSEE. GROUND NO. 1 IS REJECTED. 44. REGARDING GROUND NO. 2, WE FIND THAT WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 2003 - 04, THE ADDITION MADE BY THE ASSESSING OFFICER HAS BEEN DELETED BY US AND THEREFORE, THE SAME HAS TO BE TAXED IN THE PRESENT YEAR AS HAS BEEN DECLARED BY THE ASSESSEE. THEREFORE, GROUND NO. 2 IS REJECTED. 45. REGARDING GROUND NO. 3 , LEARNED A.R. OF THE ASSESSEE REITERATED THE SAME CONTENTIONS WHICH WERE MADE BEFORE THE CIT(A) WHEREAS LEARNE D D.R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 46. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THIS ISSUE WAS DECIDED BY CIT(A) AGAINST THE ASSESSEE ON THE BASIS THAT IN ADDITION TO WRITING OFF THE DEBT IN QUESTION, THE A SSESSEE HAS TO ESTABLISH THAT THE AMOUNT OF DEBT IN QUESTION WAS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH IT IS WRITTEN OFF OR OF 20 AN EARLIER YEAR. IT IS NOTED BY CIT(A) THAT THE ASSESSEE HAS FAILED TO ESTABL ISH THIS ASPECT. BEFORE US ALSO, LEARNED A.R. OF THE ASSESSEE COULD NOT ESTABLISH THAT THE AMOUNT IN QUESTION WAS CONSIDERED AS INCOME BY THE ASSESSEE IN THE PREVIOUS YEAR OR IN ANY EARLIER YEAR. HENCE, AS PER SUB SECTION (2) OF SECTION 36, DEDUCTION IS NOT ALLOWABLE TO THE ASSESSEE U/S 36(1)(VII) OF THE ACT. HENCE, ON THIS ISSUE , WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A). 47. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. 48. NOW WE TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT Y EAR 2004 - 05 I.E. I.T.A. NO.60/LKW/2011. IN THIS APPEAL , THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. LD. CIT (A) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS. 7,33,087 / - ON ACCOUNT OF INTEREST SUBSIDY ON HOUSE BUILDING LOANS RELYING ON THE DECISION IN THE CASE OF CIT VS. E.I.D. PARRY INDIA LIMITED (1999) 105 TAXMAN 153/240 ITR 253 (MAD.). HE FAILED TO APPRECIATE THAT THE SAID EXPENSES ARE NOT WHOLLY FOR THE PURPOSE OF BUSINESS AND ARE NOT ALLOWABLE. RELIANCE IS BEING PLACED IN THE CASE O F GOODLAS NEROLAC PAINTS LTD. VS. CIT (BOM.) 137 ITR AND IN THE CASE OF TAMIL NADU MINERALS LTD. VS. JCIT (ITAT, CHENNAI) 05 ITD 294. 2. LD. CIT (A) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS. 7 ,33, 446 / - ON ACCOUNT OF BENEVOLENT EXPENSES RELYING ON THE DECISION IN THE CASE OF CIT VS. E.I.D. PARRY INDIA LIMITED (1999) 105 TAXMAN 153/240 ITR 253 (MAD.) THEY HAVE FAILED TO APPRECIATE THAT THE ASSESSEE FAILED TO PROVE THAT THE EXPENSES ARE WHOLLY FOR THE PURPOSE OF BUSINESS. THE DECISIONS IN T HE CASE OF GOODLAS NEROLAC PAINTS LTD. VS. CIT (BOM.) 137 ITR AND IN THE CASE OF TAMIL NADU MINERALS LTD. VS. JCIT (I.T.A.T.), CHENNAI 05 ITD 294 ARE THEREFORE APPLICABLE TO THE FACTS OF THE CASE. 49. BOTH THE SIDES AGREED THAT THIS ISSUE IS IDENTICAL T O THE ISSUE RAISED BY THE REVENUE IN ASSESSMENT YEAR 2003 - 04. IN ASSESSMENT YEAR 2003 - 04, 21 THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY ON SIMILAR LINE, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE IN THE PRESENT YEAR ALSO . 50. IN T HE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. 51. NOW WE TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 200 5 - 0 6 I.E. I.T.A. NO.6 1 /LKW/2011. IN THIS APPEAL , THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. LD. CIT (A) HAS ERRED IN LAW AND FACTS IN DELETING THE ADDITION OF RS.8, 01 , 20 0/ - ON ACCOUNT OF BENEVOLENT EXPENSES RELYING ON THE DECISION IN THE CASE OF CIT VS. E.I.D. PARRY INDIA LIMITED (1999) 105 TAXMAN 153/240 ITR 253 (MAD.) THEY HAVE FAILED TO APPRECIATE THAT THE ASSESSEE FAILED TO PROVE THAT THE EXPENSES ARE WHOLLY FOR THE PURPOSE OF BUSINESS. THE DECISIONS IN THE CASE OF GOODLAS NEROLAC PAINTS LTD. VS. CIT (BOM.) 137 ITR AND IN THE CASE OF TAMIL NADU MINERALS LTD. VS. JCIT (I.T.A.T.), CHENNAI 05 ITD 294 ARE THEREFORE APPLICABL E TO THE FACTS OF THE CASE. 52. IT WAS AGREED BY BOTH THE SIDES THAT THIS ISSUE IS IDENTICAL TO GROUND NO. 2 OF THE REVENUES APPEAL FOR ASSESSMENT YEAR 2004 - 05 AND 2003 - 04. IN THOSE TWO YEARS, THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE ON THE BASIS THAT THE EXPENSES INCURRED FOR EMPLOYEES WELFARE IS VERY MUCH BUSINESS EXPENDITURE. ACCORDINGLY IN THE PRESENT YEAR ALSO , THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A). 53. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. 54. NOW WE TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2006 - 07 I.E. I.T.A. NO.62/LKW/2011. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. LD. CIT (A) HAS ERRED IN LA W AND FACTS IN DELETING THE ADDITION OF RS. 6 , 84 , 150 / - ON ACCOUNT OF BENEVOLENT EXPENSES 22 RELYING ON THE DECISION IN THE CASE OF CIT VS. E.I.D. PARRY INDIA LIMITED (1999) 105 TAXMAN 153/240 ITR 253 (MAD.) THEY HAVE FAILED TO APPRECIATE THAT THE ASSESSEE FAILED TO PROVE THAT THE EXPENSES ARE WHOLLY FOR THE PURPOSE OF BUSINESS. THE DECISIONS IN T HE CASE OF GOODLAS NEROLAC PAINTS LTD. VS. CIT (BOM.) 137 ITR AND IN THE CASE OF TAMIL NADU MINERALS LTD. VS. JCIT (I.T.A.T.), CHENNAI 05 ITD 294 ARE THEREFORE APPLICABLE TO THE FACTS OF THE CASE. 55. IT WAS AGREED BY BOTH THE SIDES THAT THIS ISSUE IS I DENTICAL TO THE ONLY ISSUE RAISED BY THE REVENUE IN ASSESSMENT YEAR 2005 - 06. IN ASSESSMENT YEAR 2005 - 06, THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND ACCORDINGLY, IN THE PRESENT YEAR ALSO , THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 56. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. 57. NOW WE TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2009 - 10 I.E. I.T.A. NO.118/LKW/2013. IN THIS APPEAL , THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.3,75,236/ - ON ACCOUNT OF 'INTEREST SUBSIDY ON HOUSE BUILDING LOANS' RELYING ON THE DECISION IN THE CASE OF CIT VS. E.L . D. PARRY INDIA LIMITED (1999) 105 TAXMAN 153/240 ITR 253 (MAD). HE FA ILED TO APPRECIATE THAT THE SAID EXPENSES ARE NOT WHOLLY FOR THE PURPOSE OF BUSINESS AND ARE N OT ALLOWABLE. IN DOING SO HE FAILED TO FOLLOW THE DECISION IN FOLLOWING CASES: ( A ) GOODLAS NEROLAC PAINTS LTD. VS. CIT (BOM) 137 ITR ( B ) T AMIL NAD U MINERALS LTD . VS. JCIT (I.T.A.T. CHENNAI) 05 ITD 194 2. THE CIT(A) HAS ERRED IN LAW ARID ON FACTS IN DELETING THE ADDITION OF RS . 2,73 , 82 , 796/ - MADE BY A.O. OUT OF GRATUITY PAID UNDER LIC SCHEME. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE PAYMENT RELATED TO AN EARLIER YEAR AND SINCE NO PROVISION HAD BEEN MADE BY THE ASSESSEE 23 IN THAT YEAR , THE PAYMENT W AS N OT ALLOWABLE AS DEDUCTION AS PER THE PROVISION OF SECTION 40A(7)(B) OF THE I.T. ACT. RELIANCE IN THIS REGARD IS PLACED ON FOLLOWING JUDGMENTS : ( A ) CIT VS . LAXMI SUGAR & OIL MILLS LTD (1993) 70 TAXMAN 378 (ALLAHABAD). ( B ) SAJJAN MILLS LTD. VS CIT (1985) 23 TAXMAN 37 (SC). 3. THAT THE APPELLANT CRAVES LEAVES TO ADD OR AMEND ANY ONE OR MORE OF THE GROUNDS OF APPEALS, AS STATED ABOVE, AS AND WHEN NEED TO DOING SO ARISES WITH THE PRIOR PERMISSION OF THE COURT. 58. REGARDING GROUND NO. 1, BOTH THE SIDES AGREED THAT THIS ISSUE IS IDENTICAL TO THE ISSUE RAISED IN ASSESSMENT YEAR 2005 - 06 AND 2006 - 07. IN BOTH THESE YEARS, THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. GROUND NO. 1 IS REJECTED. 59. REGARDING GROUND NO. 2, I T WAS SUBMITTED BY LEARNED D.R. OF THE REVENUE THAT THE ASSESSING OFFICER HAS MADE THE ADDITION BY INVOKING THE PROVISIONS OF SECTION 40A(7) OF THE ACT AND THE ASSESSING OFFICER HAS ALSO FOLLOWED THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF S HREE SAJJAN MILLS LTD. VS COMMISSIONER OF INCOME - TAX [1985] 156 ITR 585 BUT CIT(A) HAS DELETED THE DISALLOWANCE ON THE BASIS OF ACTUAL PAYMENT WITHOUT GIVING A FINDING THAT SECTION 40A(7) IS APPLICABLE OR NOT. LEARNED D.R. OF THE REVENUE SUBMITTED THAT TH E ORDER OF CIT(A) SHOULD BE REVERSED. 60. ON THE OTHER HAND, LEARNED A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF CIT(A). 24 61. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE DISALLOWANCE WAS DELETED BY CIT(A) WITHOUT GOING INTO THIS ASPECT THA T WHETHER THE PAYMENT IS TO AN APPROVED GRATUITY FUND OR NOT AS REQUIRED U/S 40A(7) OF THE ACT. WHILE DECIDING THIS ISSUE IN EARLIER YEARS, WE HAVE UPHELD THE DISALLOWANCE BECAUSE THE LEARNED A.R. OF THE ASSESSEE COULD NOT SHOW THAT THIS PAYMENT WAS TO AN APPROVED GRATUITY FUND AS REQUIRED U/S 40A(7) OF THE ACT. HENCE, THE ORDER OF CIT(A) ON THIS ISSUE IS REVERSED AND THAT OF THE ASSESSING OFFICER IS RESTORED. GROUND NO. 2 IS ALLOWED. 62. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS PARTLY ALLOWED. 63. IN THE COMBINED RESULT THE APPEAL IN I.T.A. NO.86/LKW/2011 IS PARTLY ALLOWED, I.T.A. NO.58/LKW/2011 IS DISMISSED, I.T.A. NO.36/LKW/2013 IS DISMISSED, I.T.A. NO.87/LKW/2011 IS PARTLY ALLOWED, I.T.A. NO.59/LKW/2011, 91/LKW/2012 AND 60 TO 62/LKW/2011 ARE DISMISSED AND I.T.A. NO. 118/LKW/2013 IS PARTLY ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 1 /08/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR