M/s Rashtriya Ispat Nigam Ltd., Visakhapatnam V. The ACIT, Circle-3(1), Visakhapatnam, Visakhapatnam

ITA 95/VIZ/2012

• Counselvise Citation: 9525314 RSA 2012
• Duration Of Justice: 2 year(s) 9 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 25-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 30-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Reopening of assessment; Capital asset; Depreciation; Search and seizure; Question of law; Capital receipt; Commercial expediency; Revised return; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 115JB; 148; 37; 28

Judgement Text

I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 1 IN THE INCOME TAX APPELLATE TRIBUNAL, VISHAKHAPATNA M BEFORE S/SHRI D.MANMOHAN (VP) & J.SUDHAKAR REDDY (A M) I.T.A. NO.141/VIZ/2012: ASSESSMENT YEAR: 2005-06 I.T.A. NOS.94, 95 & 97/VIZ/2012 ASSESSMENT YEARS: 2006-07, 2007-08 & 2008-09 M/S. RASHTRIYA IS PAT NIGAM LIMITED, VISAKHAPATNAM STEEL PLANT, 2 ND FLOOR, ADMINISTRATIVE BUILDING, F& A DEPARTMENT, TAXATION CELL, VISAKHAPATNAM-530031 VS. ADDL. CIT, RANGE - 3, VISAKHAPATNAM. PAN/GIR NO. : AABCR 0435 L ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI G .V.N. HARI RESPONDENT BY : SHRI K.V.N. CHARYA DATE OF HEARING : 25/11/2014 DATE OF PRONOUNCEMENT : 08/1/2015 O R D E R PER J.SUDHAKAR REDDY, AM ALL THESE APPEALS ARE FILED BY THE ASSESSEE AND ARE DIRECTED AGAINST THE ORDERS OF CIT(A)- VISAKHAPATNAM DATED 19.12.2011 FOR THE A.YS.2006-07 AND 2007-08, DT.30.12.2011 FOR THE I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 2 A.Y.2008-09 AND DT.27.2.2012 FOR A.Y.2005-06, IN TH E MATTER OF ASSESSMENTS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. AS MOST OF THE ISSUES ARISING OUT OF THESE APPEALS ARE COMMON, THEY WERE CLUBBED AND HEARD TOGETHER AND TH EREFORE, WE DISPOSE OF THESE APPEALS BY WAY OF THIS COMMON ORDER, FOR THE SAKE OF CONVENIEN CE. 2. THE ASSESSEE IS A PUBLIC LIMITED COMPANY, ENGAGE D IN MANUFACTURING OF IRON AND STEEL PRODUCTS. FOR THE ASSESSMENT YEARS VIZ; 2005-06, 2 006-07, 2007-08 AND 2008-09 ASSESSEE FILED ITS RETURN OF INCOME AND THE ASSESSING OFFICER PASS ED ORDERS UNDER SECTION 143(3) OF THE ACT DETERMINING THE TOTAL INCOME, AFTER MAKING CERTAIN ADDITIONS/DISALLOWANCES. FOR A.Y.2005-06, THE ASSESSING OFFICER REOPENED THE ASSESSMENT AND M ADE A FEW DISALLOWANCES SIMILAR TO THE ONES MADE IN THE OTHER THREE ASSESSMENT YEARS. AGG RIEVED BY THE ORDERS OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER IN APPEALS BEFORE THE F IRST APPELLATE AUTHORITY. THE FIRST APPELLATE AUTHORITY GRANTED PART RELIEF TO THE ASSESSEE. STI LL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 3. FIRST WE TAKE UP THE APPEAL FOR ASSESSMENT YEAR 200 6-07 IN ITA NO.94/VIZ/2012. GROUNDS OF APPEAL TAKEN BY THE ASSE SSEE READ AS UNDER: GROUND NO.1: APPELLANT SUBMITS THAT THE COMMISSIONER OF INCOME T AX (APPEALS) IS NOT JUSTIFIED IN UPHOLDING DISALLOWANCE OF DEPRECIATION OF AN AMO UNT OF RS.30.508/- CLAIMED ON RAILWAY LINES & SIDINGS. AS THE EXPENDITURE HAS BEEN INCURRED BY THE COMPANY AS CAPITAL EXPENDITURE IN THE EARLIER YEARS AND THE ASSET IS WHOLLY AND EXCLUSIVELY UTILIZED FOR THE PURPOSE OF BUSINESS AN D THE COMPANY IS THE TRUE BENEFICIAL OWNER OF THE ASSETS, THE APPELLANT PRAYS FOR RELIEF. GROUND NO.2: APPELLANT SUBMITS THAT THE COMMISSIONER OF INCOME T AX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ACTION OF ASSESSING OF FICER, IN DISALLOWING AN AMOUNT OF RS.7,03,17,3837- ON ACCOUNT OF PRIOR PE RIOD ADJUSTMENTS. HENCE, THE APPELLANT PRAYS RELIEF. I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 3 GROUND NO.3 : APPELLANT SUBMITS THAT THE COMMISSIONER OF INCOME T AX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION TOWARDS PROVISION FOR PO ST RETIREMENT BENEFITS AMOUNTING TO RS.5,23,70,7107- MADE BY THE ASSESSING OFFICER UNDER THE PROVISIONS OF SECTION 43B R.W.S.36 (1) (IV) & (V), ON A DIFFERENT GROUND THAT THE SAME IS NOT ALLOWABLE AS A DEDUCTION UNDER THE PROV ISIONS OF SECTION 40A(9) OF THE INCOME TAX ACT, FOLLOWING HIS OWN ORDER FOR THE ASSESSMENT YEAR 2007-08, THOUGH THE PROVISIONS OF SECTION 40A(9) ARE NOT ATT RACTED TO THE FACTS IN THE APPELLANT'S CASE. HENCE, THE APPELLANT PRAYS FOR RE LIEF OF RS. 5,23,70.710/-. GROUND NO.4: APPELLANT SUBMITS THAT THE COMMISSIONER OF INCOME T AX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION TOWARDS PROVISION FOR EM PLOYEES FAMILY BENEFIT SCHEME AMOUNTING TO RS.3,95,13,087/- MADE BY THE AS SESSING OFFICER UNDER THE PROVISIONS OF SECTION 43B R.W.S.36 (1) (IV) & (V), ON A DIFFERENT GROUND THAT THE SAME IS NOT ALLOWABLE AS A DEDUCTION UNDER THE PROV ISIONS OF SECTION 40A(9) OF THE INCOME TAX ACT, FOLLOWING HIS OWN ORDER FOR THE ASSESSMENT YEAR 2007-08, THOUGH THE PROVISIONS OF SECTION 40A(9) ARE NOT ATT RACTED TO THE FACTS IN THE APPELLANT'S CASE. ACCORDINGLY, THE APPELLANT PRAYS FOR RELIEF. GROUND NO.5: APPELLANT SUBMITS THAT THE COMMISSIONER OF INCOME T AX (APPEALS) IS NOT JUSTIFIED IN PARTIALLY CONFIRMING ADDITION MADE BY A.O. TOWAR DS PROVISION FOR DOUBTFUL ADVANCES & CLAIMS I.E. TO THE TUNE OF RS. 5,72,535/ - OUT OF THE ADDITION OF RS.6,16,558/- IN SPITE OF THE FACT THAT THE SAID AM OUNT IS IRRECOVERABLE AND WAS DULY WRITTEN OFF IN THE BOOKS OF ACCOUNTS DURING TH E RELEVANT FINANCIAL YEAR 2005- 06. HENCE, THE APPELLANT PRAYS FOR RELIEF. GROUND NO.6: APPELLANT SUBMITS THAT THE COMMISSIONER OF INCOME T AX (APPEALS) IS NOT JUSTIFIED K HOLDING THAT INTEREST UNDER THE PROVISIONS OF SECTI ON 234D OF THE INCOME TAX ACT. 1961 IS ATTRACTED ON THE BASIS OF THE DATE OF REFUND ORDER BUT NOT ON THE BASIS OF DATE OF RECEIPT OF REFUND ORDER. 4. GROUND NO.1 RELATES TO DISALLOWANCE OF DEPRECIAT ION OF AN AMOUNT OF RS.30,508/- CLAIMED ON RAILWAY LINES & SIDINGS. AT THE TIME OF HEARING, LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE FIRST AP PELLATE AUTHORITY AND SUBMITTED THAT THE I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 4 ASSESSEE HAD INCURRED THE EXPENDITURE ON LAYING RAI LWAY LINES AND TREATED THE SAME AS CAPITAL EXPENDITURE DURING THE PREVIOUS YEAR. HE SUBMITTED THAT THE ASSETS ARE WHOLLY AND EXCLUSIVELY UTILIZED FOR THE PURPOSES OF ASSESSEES BUSINESS AN D RELIED ON THE PROPOSITION LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF MYSORE MINERALS LTD . V. CIT (1999) 239 ITR 775 (SC). HE ARGUED THAT THE TERM OWNER SHOULD BE GIVEN WID ER INTERPRETATION AND THAT BENEFICIAL OWNER OF THE ASSETS IS ALSO ENTITLED TO DEPRECIATION AND HENCE, THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED. ALTERNATIVELY, WITHOUT PREJUDICE TO ABOVE CONTENTION, HE SUBMITTED THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS AND SHOULD BE ALLOWED AS DEFERRED REVENUE EXPENDITURE. 5. LD D.R. ON THE OTHER HAND, SUBMITTED THAT THE AS SESSEE IS NOT THE OWNER OF THE ASSETS AND HENCE, DEPRECIATION WAS RIGHTLY DENIED BY THE A SSESSING OFFICER. HE POINTED OUT THAT IT CANNOT BE SAID THAT ASSESSEE IS BENEFICIAL OWNER OF THE ASSETS AS THE PROPERTY IN QUESTION BELONGS TO RAILWAY AND THE ASSESSEE HAS ONLY INCURR ED CERTAIN AMOUNT ON THE SAME. HE SUBMITTED THAT THE BASIC CONDITIONS TO CLAIM THE DE PRECIATION HAVE NOT BEEN MET. ON THE CLAIM OF DEFERRED REVENUE EXPENDITURE, LD D.R. SUBMITTED THAT THE CLAIM CANNOT BE ENTERTAINED AT THIS STAGE, AS THE EXPENDITURE IN QUESTION WAS INCURRED MUCH BEFORE THE IMPUGNED ASSESSMENT YEAR. 6. AFTER HEARING THE RIVAL CONTENTIONS, WE ARE INCL INED TO UPHOLD THE FINDINGS OF THE LD CIT(A) FOR THE REASON THAT THE ASSESSEE DOES NOT SA TISFY THE BASIC CONDITIONS FOR CLAIMING THE DEPRECIATION I.E. IT SHOULD BE OWNER OF THE ASSETS. THE ASSETS IN QUESTION BELONG TO THE INDIAN RAILWAY. THE ASSESSEE CANNOT ALSO BE CONSIDERED AS THE BENEFICIAL OWNER OF THE ASSETS. HENCE, THE CLAIM OF DEPRECIATION HAS RIGHTLY BEEN REJECTED BY THE LD CIT(A). I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 5 7. COMING TO THE ALTERNATE CLAIM OF THE ASSESSEE TH AT THE EXPENDITURE MAY BE ALLOWED AS DEFERRED REVENUE EXPENDITURE, WE DO NOT FIND ANY FO RCE IN THE ARGUMENTS OF LD COUNSEL FOR THE ASSESSEE, FOR THE REASON THAT, THE EXPENDITURE IN Q UESTION WAS INCURRED PRIOR TO ASSESSMENT YEAR 2006-07. THE ASSESSEE HAD CAPITALIZED THE EXP ENDITURE. IT IS TOO LATE IN THE DAY FOR THE APPELLANT TO SAY THAT IT IS DEFERRED REVENUE EXPEND ITURE AND HAS TO BE ALLOWED AS EXPENDITURE U/S 37 OF THE ACT. THIS CONTENTION AS SUCH IS DEVO ID OF MERITS. THIS GROUND IS, ACCORDINGLY, REJECTED. 8. GROUND NO.2 IS AGAINST DISALLOWANCE OF AN AMOUNT OF RS.7,03,17,383/- ON ACCOUNT OF PRIOR PERIOD ADJUSTMENT. 9. THE FACTS RELATING TO THIS ISSUE ARE AS FOLLOWS: THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HA D CLAIMED DEDUCTION OF RS.23,06,17,388/- REPRESENTING PRIOR PERIOD ADJUSTM ENT UNDER THE HEAD STORES AND SPARES. THE AO ALSO OBSERVED THAT OUT OF ABOVE AMOUNT, RS.1 6,03,00,005/- WAS OFFERED AS INCOME IN THE EARLIER ASSESSMENT YEARS, THEREFORE, HE ASKED T HE ASSESSEE TO EXPLAIN THE CLAIM OF DEDUCTION OF BALANCE AMOUNT OF RS.7,03,17,383/-. IN RESPONSE TO ASSESSING OFFICERS REQUISITION, THE ASSESSEE EXPLAINED AS UNDER: ' CLARIFICATION AND INFORMATION SOUGHT FOR DURING THE COURSE OF HEARING ON 03.01.2008 FOR ASSESSMENT FOR THE A. Y.20O6-07. RECAPITALIZATION OF INSURANCE SPARES-REVERSAL OF CO NSUMPTION OF INSURANCE SPARES CREDITED AND SHOWN IN PPA CREDIT. THIS MATTER HAS ALREADY BEEN CLARIFIED IN OUR SUBMI SSION VIDE LETTER NO. VSP/VIN/03/2007-O8 DATED 14.11.2OO7. HOWEVER, WE ON CE AGAIN REITERATE THAT AS PER ACCOUNTING POLICY NO. 2(1), MACHINERY SPARES IDENTIFIED WITH PRODUCTION/SERVICE UNITS WHOSE USE IS EXPECTED TO B E IRREGULAR, BUT NON- AVAILABILITY OF WHICH AFFECTS THE PRODUCTION/SERVIC E UNITS ARE CATEGORIZED AS 'RISK I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 6 INSURANCE SPARES'. THE COST OF SUCH ITEMS IS DEPREC IATED OVER THE USEFUL LIFE OF THE PRINCIPAL PLANT UNIT. IN THE BOOKS OF ACCOUNTS AT THE TIME OF ISSUE OF TH ESE SPARES I.E, ON CONSUMPTION OF THESE INSURANCE SPARES, THE WRITTEN DOWN VALUE W ERE CHARGED TO REVENUE. HOWEVER, UNDER THE INCOME TAX ACT, ON CAPITALIZED I NSURANCE SPARES WE ARE CLAIMING DEPRECIATION EVEN AFTER CONSUMPTION OF THE SE INSURANCE SPARES I,E CLAIM OF DEPRECIATION IS CONTINUED UNDER INCOME TAX TAKIN G INTO ACCOUNT THE BLOCK CONCEPT. AND ACCORDINGLY, TO AVOID DUPLICATE CLAIM I.E DEPRECIATION AS WELL AS THROUGH CONSUMPTION DEBITED TO P&L A/C., THE CONSUMPTION OF CAPITALIZED INSURANCE SPARES WAS DISALLOWED IN THE COMPUTATION OF INCOME IN RESPECTIVE YEARS. BUT IN THE FINANCIAL YEAR 20O5-06, THE EXPERT ADVIS ORY COMMITTEE OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA OPINED THAT THE I NSURANCE SPARES ONCE CAPITALIZED IT WILL CONTINUE TO BE A CAPITAL ITEM A ND DEPRECIATION WILL CONTINUE TO BE CLAIMED EVEN ON ITS ISSUE. ACCORDINGLY INSURANCE SPARES DECAPITALIZED AND CHARGED TO REVENUE IN EARLIER YEARS HAVE BEEN RECTI FIED BY RECAPITALIZATION AND CONSUMPTION WHICH WAS DEBITED TO P&L ACCOUNT AND DI SALLOWED IN THE COMPUTATION OF INCOME HAS BEEN CREDITED TO PRIOR PERIOD ADJUSTMENT ACCOUNT. IN VIEW OF THE ABOVE, AS THIS RELATES TO CAPITAL IT EMS AND THE AMOUNT WAS DISALLOWED IN THE EARLIER YEARS, THE SAME NEED NOT BE OFFERED TO TAX AGAIN. HENCE, THE AMOUNT HAS BEEN CLAIMED IN THE COMPUTATI ON OF INCOME. CONSIDERING THE AFORESAID SUBMISSIONS, WE REQUEST Y OUR GOOD SELF TO KINDLY ALLOW THE SAME AS IT HAS BEEN CLAIMED CORRECTLY IN THE CO MPUTATION OF INCOME. THE ABOVE EXPLANATION OF THE ASSESSEE WAS NOT ACCEP TABLE TO THE ASSESSING OFFICER. THE AO OBSERVED THAT SINCE THE ASSESSEE DID NOT OFFER THIS AMOUNT AS INCOME IN THE EARLIER YEARS AND FAILED TO ESTABLISH THE GENUINENESS OF THE DEDUCTIO N, THEREFORE, THE CLAIM OF DEDUCTION WAS DISALLOWED BY THE AO. AGGRIEVED, ASSESSEE CARRIED T HE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 10. BEFORE THE FIRST APPELLATE AUTHORITY, THE APPEL LANT REITERATED ITS CONTENTIONS AND SUBMITTED THAT THE ASSESSING OFFICER DID NOT APPREC IATE THE ISSUE PROPERLY AND DISALLOWED THE CLAIM MAINLY ON THE GROUND THAT IN THE EARLIER YEAR S THIS AMOUNT WAS NOT OFFERED AS INCOME. I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 7 THE APPELLANT CONTENDED THAT IN THE EARLIER YEARS W HEN THESE SPARES WERE ISSUED FOR CONSUMPTION EXPENDITURE WAS CLAIMED AND ALLOWED UND ER THE INCOME TAX ACT. THE ADJUSTMENT IN THE IMPUGNED ASSESSMENT YEAR IN THE FORM OF RECA PITALIZATION WAS NECESSITATED ON ACCOUNT OF OPINION GIVEN BY THE EXPERT ADVISORY COMMITTEE OF T HE ICAI AND THIS HAS NOTHING TO DO WITH THE COMPUTATION UNDER THE INCOME TAX ACT. THUS, THE AP PELLANT CONTENDED THAT THE AMOUNT CREDITED TO THE PROFIT AND LOSS ACCOUNT TOWARDS REC APITALIZATION OF THESE INSURANCE SPARES WAS RIGHTLY EXCLUDED FROM THE TOTAL INCOME FOR PURPOSES OF INCOME TAX ACT. 11. THE LD CIT(A) WAS OF THE VIEW THAT THE ASSESSEE HAS NOT FOLLOWED CONSISTENCY AS REGARDS TREATMENT UNDER INCOME TAX RETURNS AND TREATMENT AS PER BOOKS OF ACCOUNT . THE ITEMS WHICH WERE ACTUALLY BEING MADE PART OF BLOCK OF ASSETS IN THE BOOKS OF ACCOUNT ARE NOT BEING INCLUDED IN THE BLOCK FOR THE INCOME TAX PURPOSES. ONCE AN ASSET IS TREATED AS A CAPITAL ASSET IN THE BOOKS, IT IS NOT PROPER FOR THE ASSESSEE TO TREAT T HE SAME AS REVENUE EXPENDITURE FOR INCOME TAX PURPOSES. THEREFORE, THE ASSESSEE SHOULD HAVE TREA TED THESE SPARES AS CAPITAL ASSETS FOR INCOME TAX PURPOSES ALSO AND SHOULD HAVE INCLUDED T HEM IN THE BLOCK OF ASSETS FOR THE CURRENT YEAR AT THE NET DEPRECIATED VALUE, AS IS DONE BY TH E ASSESSEE IN ITS BOOKS OF ACCOUNT. ONCE THESE ASSETS HAVE BEEN CAPITALIZED IN THE BOOKS OF ACCOUNT, THE ASSESSEE IS NOT ENTITLED TO CLAIM THESE ITEMS AS REVENUE EXPENDITURE. IN VIEW OF ABO VE, THE FIRST APPELLATE AUTHORITY CONFIRMED THE ACTION OF THE ASSESSING OFFICER. HE HAS, HOWEV ER, DIRECTED THE ASSESSING OFFICER TO GRANT DEPRECIATION ON THE AMOUNT OF RECAPITALIZATION. AG GRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 12. BEFORE US, THE LEARNED AR OF THE APPELLANT SUBM ITTED THAT CERTAIN SPARES CATEGORIZED AS RISK INSURANCE SPARES WERE CLAIMED AS EXPENDITURE IN THE YEAR OF PURCHASE IN AS MUCH AS THEY WERE ISSUED IMMEDIATELY FOR CONSUMPTION. SINCE, TH E SPARES PURCHASED WERE ISSUED FOR CONSUMPTION; THE APPELLANT CLAIMED THIS AMOUNT AS E XPENDITURE BOTH IN ITS BOOKS OF ACCOUNT I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 8 AND ALSO IN THE COMPUTATION OF INCOME FOR PURPOSES OF INCOME TAX ACT. IT WAS SO DONE AS PER THE OPINION OF THE EXPERT ADVISORY COMMITTEE AVAILA BLE AT THE RELEVANT TIME. HOWEVER, DURING THE FINANCIAL YEAR RELEVANT TO THE IMPUGNED ASSESSM ENT YEAR, THE EXPERT ADVISORY COMMITTEE OPINED THAT WHERE THE OLD SPARES ARE NOT DISCARDED AND THE SAME CAN BE REUSED THEY HAVE AN ECONOMIC VALUE AND THEREFORE THE NEW SPARES PURCHAS ED IN REPLACEMENT OF THESE OLD SPARES THAT CAN BE REUSED HAVE TO BE CAPITALIZED IN THE BO OKS OF ACCOUNT IN SPITE OF THE FACT THAT THE SPARES PURCHASED ARE ISSUED FOR CONSUMPTION IMMEDIA TELY AFTER THE PURCHASE. ACCORDINGLY, THE APPELLANT CAPITALIZED IN THE BOOKS OF ACCOUNT OF TH E FINANCIAL YEAR 2005-06, THE AMOUNT OF THESE INSURANCE SPARES DIRECTLY CHARGED TO THE PROFIT AND LOSS ACCOUNT IN THE EARLIER YEARS AND THE VALUE OF SUCH INSURANCE SPARES RECAPITALIZED IS CRE DITED TO THE PROFIT AND LOSS ACCOUNT AS PRIOR PERIOD INCOME. THE CONTENTION OF THE AR OF THE APP ELLANT IS THAT ENTRIES IN THE BOOKS OF ACCOUNT CANNOT ALONE BE DETERMINATIVE OF THE INCOME TO BE C OMPUTED UNDER THE INCOME TAX ACT. THERE IS NO SPECIFIC PROVISION IN THE INCOME TAX ACT, 196 1 TO BRING TO TAX EXPENDITURE ALLOWED IN THE EARLIER YEARS EXCEPT WHEN THE APPELLANT RECEIVES AN Y BENEFIT IN RESPECT OF SUCH EXPENDITURE DURING THE IMPUGNED ASSESSMENT YEAR. 13. THE LEARNED DR CONTENDED THAT THE APPELLANT CAN NOT GIVE TWO DIFFERENT TREATMENTS TO THE SAME TRANSACTION; ONE IN THE BOOKS OF ACCOUNT A ND THE OTHER IN THE PROFIT AND LOSS ACCOUNT. AS THE APPELLANT HAS ADMITTED THIS AMOUNT IN THE PR OFIT AND LOSS ACCOUNT AS PRIOR PERIOD INCOME, IT OUGHT TO HAVE ADMITTED THE SAME AS INCO ME EVEN UNDER THE INCOME TAX ACT. HE SUBMITTED THAT THE LD CIT(A) WAS JUSTIFIED IN DISAL LOWING THE CLAIM OF THE APPELLANT AND DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON THE AMOUNT OF RECAPITALIZATION. 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE MATERIALS ON RECORD AS WELL AS ORDERS OF THE AUTHORITIES BELOW, WE ARE OF THE VIEW THAT BOTH THE ASSESSING OFFICER AND THE LD I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 9 CIT(A) WERE NOT JUSTIFIED IN REJECTING THE CLAIM OF THE APPELLANT. IT IS AN UNDISPUTED FACT THAT THE APPELLANT ISSUED FOR CONSUMPTION THE SPARES PUR CHASED BY IT AND CLAIMED EXPENDITURE IN THE EARLIER YEARS. THE EXPENDITURE WAS ALLOWED IN THE A SSESSMENTS OF THE EARLIER YEARS. THE CHANGE IN TREATMENT OF THIS EXPENDITURE WAS NOT ON ACCOUNT OF ANY AMENDMENT TO THE PROVISIONS OF THE INCOME TAX ACT BUT WAS NECESSITATED ON ACCOUNT OF O PINION OF THE EXPERT ADVISORY COMMITTEE OF THE ICAI. THE LEARNED DR COULD NOT SHOW ANY SUCH PROVISION IN THE INCOME TAX WHEREBY THIS AMOUNT CAN BE BROUGHT TO TAX DURING THE IMPUGNED AS SESSMENT YEAR. EVEN AS PER THE TREATMENT GIVEN IN THE BOOKS OF ACCOUNT, THE INCOME WAS ADMITTED UNDER THE HEAD PRIOR PERIOD ADJUSTMENTS. AT THE MOST THIS CAN BE INCOME OF TH E EARLIER YEARS AND BY ANY MEANS IT CANNOT BE CONSIDERED AS INCOME OF THE IMPUGNED ASSESSMENT YEAR. THIS GROUND OF APPEAL IS, THEREFORE, ALLOWED. 15. GROUND NO.3 RELATES TO DISALLOWANCE OF PROVISIO N FOR POST RETIREMENT BENEFITS OF RS.5,23,70,710/-. 16. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAD CREATED A PROVISION FOR POST RETIREMENT BENEFITS TO THE TUNE OF RS.9.19 CRO RES DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07. DURING THE YEAR, THE ASSE SSEE HAD SPENT RS.3,95,13,087/- LEAVING A BALANCE OF RS.5,23,70,710/-. IN RESPONSE TO ASSESS ING OFFICERS REQUISITION AS TO WHY THE UNSPENT AMOUNT OF RS.5,23,70,710/- SHOULD NOT BE DI SALLOWED, IT WAS, INTER ALIA, STATED BY THE ASSESSEE THAT THE ABOVE AMOUNTS WERE PROVIDED IN TH E BOOKS OF ACCOUNT BASED ON THE ACTURIAL VALUATION CERTIFICATE ISSUED BY THE CONSULTING AGEN CY; THAT UNDER POST RETIREMENT BENEFITS, COMPANY PROVIDES MEDICAL INSURANCE, SETTLEMENT BENE FITS, FAREWELL BENEFITS, ETC TO THE EMPLOYEES WHICH WERE INCURRED AS PER THE TERMS OF E MPLOYMENT AS WELL AS SCHEMES FRAMED BY THE ASSESSEE COMPANY IN CONSULTATION WITH THE EMPLO YEES ASSOCIATION AND THAT THE ASSESSEE HAS I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 10 BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING CONS ISTENTLY. THEREFORE, THE ASSESSEE HAS CLAIMED THIS AMOUNTS ARE NOT COVERED BY THE PROVISI ONS CONTAINED IN SECTION 43B OF THE ACT. THE ABOVE EXPLANATION OF THE ASSESSEE WAS NOT ACCEP TABLE TO THE ASSESSING OFFICER. HE WAS OF THE VIEW THAT THE PROVISIONS IS NO WAY RELATED TO D AY TO DAY RUNNING OF THE BUSINESS, THEREFORE, THE PROVISION IS PURELY CONTINGENT IN NATURE. HE O BSERVED THAT THE UNSPENT BALANCE IN THE POST RETIREMENT BENEFITS SCHEME IS UTILIZED BY THE COMPA NY AND IT IS NOT GOING TO THE BENEFIT OF ITS RETIRED EMPLOYEES TILL SUCH TIME IT IS SPENT, HENCE , IT IS IN THE NATURE OF SUPERANNUATION FUND. THE AO AFTER ANALYZING THE SECTION 36 AND PROVISION S OF SECTION 43B R.W.S. 36(1) & (V) OF THE I.T. ACT, WAS OF THE VIEW THAT THE ASSESSEE COMPANY HAS NOT CREATED ANY RECOGNIZED SUPERANNUATION FUND FOR PROVIDING THE POST RETIREME NT BENEFITS TO THE EMPLOYEES AND NOT CONTRIBUTED THE AMOUNT TO SUCH RECOGNIZED FUND. AC CORDINGLY, HE DISALLOWED THE UNSPENT AMOUNT OF RS.5,23,70,710/- CLAIMED BY THE ASSESSEE . AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FI RST APPELLATE AUTHORITY. 17. BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSES SEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER. IT WAS SUBMITTED THAT THE O BJECT OF THE SCHEME WAS TO EXTENT MEDICAL BENEFITS TO THE RETIRED EMPLOYEES AND THEIR SPOUSE. THE MEMBERS WILL BE COVERED THROUGH GROUP MEDICAL CLAIM INSURANCE POLICY WHICH WILL BE OPERATED BY UNITED INDIA INSURANCE COMPANY. THE POLICY COVERS REIMBURSEMENT OF HOSPIT ALIZATION AND OTHER MEDICAL EXPENDITURE AS PER THE TERMS OF THE SCHEME. EMPLOYEE IS REQUIRED T O PAY RS.500/- PER ANNUM AS PART OF PREMIUM TO GET COVERED UNDER THIS SCHEME. UNDER SE TTLEMENT BENEFIT SCHEME, WHICH IS PART OF POST RETIREMENT BENEFITS, EMPLOYEES AR E ENTITLED TO RAIL FARE/AIR FARE, TRANSPORTATION CHARGES, PACKING CHARGES ETC. ON SU PERANNUATION OR DEATH/TERMINATION OF EMPLOYMENT, EMPLOYEE AND HIS FAMILY MEMBERS WILL BE ENTITLED TO REIMBURSEMENT OF TRANSFER I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 11 EXPENSES, TRANSPORTATION OF PERSONAL EFFECTS, PACKI NG CHARGES ETC. UNDER THE SCHEME FOR FAREWELL OF RETIRING EMPLOYEES, WHICH ALSO PART OF RETIREMENT BENEFIT SCHEME, THE SUPERANNUATING EMPLOYEES SHALL BE GIVEN BEFITTING F AREWELL. BASED ON THESE, ASSESSEE MADE A PROVISION FOR THE EXPENDITURE. ASSESSEE CLAIMED THA T THE EXPENDITURE IS ALLOWABLE BASED ON COMMERCIAL EXPEDIENCY AND AS PER ACCOUNTING STANDAR D-15. AS PER THE ACCOUNTING STANDARD-15 IT IS ARGUED THAT EMPLOYEES' BENEFITS CAN BE CLASSI FIED INTO TWO TYPES VIZ (I) DEFINED CONTRIBUTION PLANS WHICH ARE FUND BASED AND (II) DEFINED BENEFIT PLANS WHICH ARE NON-FUND BASED. THE BENEFITS PROVIDED UNDER THE ABOVE REFERRED SCHEMES ARE CLAIMED TO BE NON-FUND BASED AND THE ASSESSEE'S OBLIGATION ARISES TO PROVIDE FOR THE AGR EED BENEFIT ON YEAR TO YEAR BASIS THOUGH THE SAME IS ACTUALLY DISCHARGED AT THE TIME OF RETIREME NT OF THE EMPLOYEE. FURTHER IT WAS ARGUED THAT THE COMPANY IS CONSISTENTLY FOLLOWING MERCANTI LE SYSTEM OF ACCOUNTING UNDER WHICH THE EXPENDITURE IS RECORDED WHEN IT BECOMES DUE, IRRESP ECTIVE OF THE FACT WHETHER THE SAME IS PAID DURING THE YEAR OR NOT. IT WAS FURTHER ARGUED THAT THE COMPANY DEBITED THESE EXPENSES BASED ON ACTUARIAL CERTIFICATES WHICH WERE ISSUED BY A CE RTIFIED ACTUARY BASED ON THE GUIDANCE NOTE ISSUED BY THE ACTUARIAL SOCIETY OF INDIA, INSTITUTE OF CHARTERED ACCOUNTANTS GUIDELINES AND UC MORTALITY TABLES. IT WAS THEREFORE ARGUED THAT TH IS WAS A LIABILITY TOWARDS ASCERTAINED EMPLOYEE COST FOR THE PRESENT SERVICES, DETERMINED BASED ON ACTUARIAL VALUATION AT A REALISTIC AND SCIENTIFIC BASIS BUT ONLY THE AMOUNT SHALL BE DISCHARGED AT A FUTURE DATE I.E AT THE TIME OF RETIREMENT. THUS IT WAS CLAIMED THAT THE SAID PROVISION IS AN A LLOWABLE EXPENDITURE. IN THIS REGARD ASSESSEE RELIED ON THE FOLLOWING CASE-LAWS. 1. BHARAT EARTH MOVERS VS. CIT 245 TTR 428 (SC); 2. METAL BOX COMPANY OF INDIA LTD VS. THEIR WORKMEN 73 FTR 53 (SC); 3. SHREE SAJJAN MILLS LTD VS, CIT 156 ITR 585 (SC); 4. CIT VS. HEWLETT PACKARD (INDIA) (P.) LTD 173 TA XMAN 162 (DELHI) 5. EXCIDE INDUSTRIES LTD AND ANR VS. UOI & ORS 292 ITR 470; I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 12 6. CIT VS. INSILCO LIMITED 230 ITR 322 7. CIT VS. GEMINI CASHEW SALES CORPORATION 65 TTR 6 43 (SC); 8. CIT VS. ASHOK IRON &. STEEL ROLLING MILLS 199 IT R 815 (ALL); 9. MYSORE LAMP WORKS LIMITED VS. CIT 185 ITR 96; 10. NEW VICTORIA MILLS COMPANY LIMITED VS. OT 61ITR 395 (ALL); 11. INDIAN MOLASSES COMPANY VS. CIT 37 TTR 66 (SC) 18. THE LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE HAD NOT CREATED ANY FUND OR TRUST FOR THES E BENEFITS AND ONLY DEBITED THE PROVISION ON THE BASIS OF ACTUARIAL VALUATIONS. THE AMOUNT WAS NEITHER KEPT IN A SEPARATE BANK ACCOUNT NOR ANY ESCROW ACCOUNT WAS USED FOR DEPOSIT OF THESE AM OUNTS. THE AMOUNT WAS UTILIZED FOR THE BUSINESS UTILIZATION OF THE ASSESSEE, AS AND WHEN R EQUIRED. HE HELD THAT AN EXPENDITURE RELATED TO THE EMPLOYEES BENEFIT IS ALLOWABLE U/S.36 OF THE INCOME TAX ACT, 1961 WHEREIN 36(1)(IV)&(V) ALLOW THE CONTRIBUTION MADE BY AN EMPLOYER TOWARDS PROVIDENT FUND, SUPERANNUATION FUND OR GRATUITY FUND. HE HELD THAT THIS ALLOWANCE IS HOWE VER SUBJECT TO NON-OBSTANTE CLAUSE OF SECTION 40A(9). LD CIT(A) ALSO CONSIDERED VARIOUS JUDICIAL PRONOUNCEMENTS IN THE IMPUGNED ORDER AS WELL AS CBDT CIRCULAR NO.47 DT.21.9.1970 AND NO.146 DATED 26.9.1974, NO.387 DT.6.7.1984 ON THIS ISSUE. HE ALSO REFERRED TO SECTION 40A(9), WH ICH READS AS UNDER: [(9) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF AN Y SUM PAID BY THE ASSESSEE AS AN EMPLOYER TOWARDS THE SETTING UP OR FORMATION OF, OR AS CONTRIBUTION TO ANY KIND, TRUST COMPANY ASSOCIATION OF PERSONS, BODY OF INDIVIDUALS, SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, I8 60 (21 OF I860), OR OTHER INSTITUTION FOR ANY PURPOSE EXCEPT WHERE SUCH SUM I S SO PAID FOR THE PURPOSES AND TO THE EXTENT PROVIDED BY OR UNDER CLAUSE (IV) OR CLAUSE (IVA) OR CLAUSE(V) OF SUB-SECTION (1) OF SECTION 36 OR AS REQUIRED BY OR UNDER ANY OTHER LAW FOR THE TIME BEING IN FORCE'. LD CIT(A) DID NOT ACCEPT THE ASSESSEES CONTENTION TO ALLOW THE CLAIM IN VIEW OF THE FOLLOWING REASONS: (A) ASSESSEE HAS FORMULATED THREE SEPARATE SCHEMES TO W HICH IT IS CONTRIBUTED THE AMOUNTS BASED ON ACTUARIAL CALCULATIONS; I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 13 (B) IT IS ACTUALLY THESE CONTRIBUTIONS IN THE FORM OF ACTUARIAL VALUATIONS WHICH IS CLAIMED AS EXPENDITURE; (C) SEPARATE PROVISIONS ARE CREATED IN THE P&L ACCO UNT FOR THESE BENEFITS AND AMOUNTS BASED ON ACTUARIAL CALCULATIONS ARE DEBITED TO THES E ACCOUNTS AND THE ACTUAL PAYMENT/UTILIZATION IS CREDITED TO THE SAME ACCOUNT S; (D) THUS ASSESSEE CAN BE SAID TO HAVE CONTRIBUTED A MOUNT TO THESE SCHEMES YEAR AFTER YEAR ON ACTUARIAL BASIS AND SUCH CONTRIBUTIONS ARE DEFINITELY COVERED U/S.40A(9); (E) THE ABOVE CONTRIBUTIONS TO THESE SCHEMES ARE KE PT UNDER THE CONTROL OF THE ASSESSEE FOR ALL PRACTICAL PURPOSES AND THE MONEY THERE FROM IS BEING USED FOR ASSESSEE'S BUSINESS PURPOSE; (F) A CONTRIBUTION AS PER LAW IS NOT A PAY OUT OF M ONEY. ANY PROVISION KEPT FOR A PURPOSE OF A SCHEME ALSO COMES UNDER THE AMBIT OF C ONTRIBUTION TOWARDS ANY SPECIFIED FUND/SCHEME. THE FIRST APPELLATE AUTHORITY SPECIFICALLY RELYING ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF BROOKBOND INDIA LIMITED VS. JCIT, 33 7 ITR 482 (CAL) AND ALSO THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RASI CEMEN T LIMITED VS. CIT, (2005) 275 ITR 579 (AP), WHEREIN, IT HAS BEEN HELD THAT THE CONTRIBUTION TO WELFARE TRUST FOR EXECUTIVES IS NOT DEDUCTIBLE AFTER INSERTION OF SECTION 40A(9), HELD THAT THE EX PENDITURE DEBITED BASED ON THE ACTUARIAL CALCULATIONS IS IN THE NATURE OF THE EXPENDITURE IN TENDED TO BE COVERED UNDER THE PROVISIONS OF SECTION 40A(9) AND HENCE, THE SAME IS NOT ALLOWABLE EXPENDITURE U/S.37(1) OF THE ACT AND, ACCORDINGLY, UPHELD THE ADDITION MADE BY THE ASSESS ING OFFICER. 19. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASS ESSEE SUBMITTED THAT THE ASSESSEE HAD CREATED A PROVISION TO MEET THE FUTURE EXPENSES ARI SING OUT OF THE SCHEME WHICH IS NOTHING BUT A CONTRACTUAL OBLIGATION OF THE EMPLOYER TOWARDS IT S EMPLOYEES. THUS, THE EXPENDITURE WAS INCURRED IN PURSUANCE OF THE CONTRACTUAL OBLIGATION BETWEEN THE ASSESSEE COMPANY AND ITS EMPLOYEES. HE SUBMITTED THAT THE ASSESSEE FOLLOWS A CCRUAL SYSTEM OF ACCOUNTING AND HENCE THE EXPENSES ARE TO BE ALLOWED AS DEDUCTION ON THE BASI S OF ACCRUAL AND NOT ON THE BASIS OF ACTUAL I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 14 PAYMENT. HE SUBMITTED THAT THE EXPENDITURE, THOUGH PAYABLE AT THE TIME OF RETIREMENT, ACCRUES FROM YEAR TO YEAR COMMENSURATE WITH THE NUMBER OF Y EARS OF SERVICE PUT IN BY THE EMPLOYEES BEFORE THEIR RETIREMENT. THE QUANTIFICATION OF THE LIABILITY ACCRUING EACH YEAR IS MADE IN A SCIENTIFIC MANNER BY ACTUARIES AND THE PROVISION IS MADE IN THE BOOKS OF ACCOUNT ON THE BASIS OF THIS ACTUARIAL VALUATION CERTIFICATE ISSUED BY THE ACTUARY APPOINTED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE EXPENDITURE IS PROVIDED IN THE B OOKS OF ACCOUNT IN TERMS OF AS-15 WHICH IS TO BE FOLLOWED MANDATORILY BY THE APPELLANT. HENCE TH E LD. COUNSEL URGED BEFORE US TO ALLOW THE PROVISION MADE BY THE ASSESSEE. FURTHER TO THE VAR IOUS DECISIONS THAT WERE CITED BEFORE THE LOWER AUTHORITIES, THE LEARNED AR OF THE APPELLANT PLACED RELIANCE IN THE FOLLOWING DECISIONS: I) GLAXO SMITHKLINE CONSUMER HEALTHCARE LIMITED VS. ADDL. CIT (2013) 25 ITR (TRIB) 100 (CHANDIGARH) II) ORDER DT.25-11-2010 OF DELHI ITAT IN THE CASE O F STEEL AUTHORITY OF INDIA LIMITED IN ITA NO.751/DEL/2011. III) ORDER DT.24-01-2013 OF DELHI ITAT IN THE CASE OF BOKARO POWER SUPPLY CO. (P) LTD., IN ITA NO.4921/DE/2010. 20. ON THE OTHER HAND, LD. D.R. SUBMITTED THAT THE ASSESSEE DID NOT CREATE ANY FUND FOR THIS PURPOSE AND THE PROVISION IS CREATED ON THE BASIS O F ACTUARIAL VALUATION. HE SUBMITTED THAT THE AMOUNT CREATED IN THIS PROVISION IS NOT KEPT IN A S EPARATE BANK ACCOUNT; RATHER THE AMOUNT IS SPENT FOR THE PURPOSE OF ASSESSEES DAY TO DAY BUSI NESS. HE SUBMITTED THAT ON PERUSAL OF THE AMOUNT INCURRED FOR THIS PURPOSE IT IS OBSERVED THA T A SMALL PORTION OF THE AMOUNT IS INCURRED OUT OF THE TOTAL PROVISION. LD. D.R. SUBMITTED THAT THE OBJECTIVE OF THE PROVISION OF THE SECTION 40(9) IS TO PREVENT THE ASSESSEE-EMPLOYER HAVING TH E BENEFIT OF DEDUCTION IN THE NAME OF STAFF I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 15 WELFARE, WHILE HAVING THE USE OF FUNDS INDIRECTLY B Y CONTROLLING THE SAME. LD. D.R. REFERRING TO VARIOUS CIRCULARS ISSUED BY THE CBDT, WHICH WERE ME NTIONED IN THE IMPUGNED ORDER, SUBMITTED THAT THE CIRCULARS ITSELF EXPLAIN THE INTENTION OF THE INCOME TAX LEGISLATION AS DISALLOWING ANY DEBITS ON ACTUARIAL BASIS AND ANY CONTRIBUTION TO A NY FUNDS WHICH ARE NOT ACTUALLY UTILIZED FOR THE PURPOSE OF THE EMPLOYEES. HE REFERRED TO THE PROVIS IONS OF SECTION 40A(9) WHICH COVERS EVEN PROVISIONS MADE ON THE BASIS OF ACTUARIAL VALUATION . SECTION 40A(9) INTENDS TO DISALLOW ALL OTHER EXPENSES EXCEPT AS PROVIDED IN SECTION 36(1)(IV), ( V) OR (VA) OF THE ACT. LD. D.R. ALSO RELIED ON THE JUDGEMENTS OF HONBLE KOLKATA HIGH COURT AND HO NBLE JURISDICTIONAL HIGH COURT, AS REFERRED BY LD. CIT(A) IN THE IMPUGNED ORDER. HE SUBMITTED T HAT THE AMOUNTS PAID UNDER THE POST RETIREMENT BENEFIT SCHEME ARE AKIN TO GRATUITY AND PLACING STRONG RELIANCE IN THE CASE OF SHREE SAJJAN MILLS LIMITED 156 ITR 585 (SC), THE LD DR CO NTENDED THAT A PROVISION MADE FOR GRATUITY CANNOT BE ALLOWED AS DEDUCTION ON ACCRUAL BASIS. H E SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE EXPENDITURE AND THE SAME WAS RIGHTLY CONFIRMED BY THE CIT(A). 21. IN THE REJOINDER, THE LEARNED AR OF THE APPELLA NT SUBMITTED THAT THE FACTS IN THE CASE OF SHREE SAJJAN MILLS LIMITED (SUPRA) ARE COMPLETELY D IFFERENT. IN THAT CASE, THE ASSESSEE SOUGHT TO CLAIM DEDUCTION FOR CERTAIN AMOUNT OF GRATUITY O N ACCRUAL BASIS ON THE GROUND THAT THIS AMOUNT WAS NOT PROVIDED IN THE BOOKS AND A DEDUCTIO N WAS CLAIMED DIRECTLY IN THE COMPUTATION OF INCOME. THE HONBLE APEX COURT DID NOT APPRECIA TE THIS CONTENTION AND HELD THAT THE DISALLOWANCE WOULD BE ATTRACTED IRRESPECTIVE OF THE FACT WHETHER PROVISION WAS MADE IN THE BOOKS OR NOT. OTHERWISE, A PERSON WHO MADE PROVIS ION AND CLAIMED THE DEDUCTION WOULD NOT GET THE BENEFIT OF DEDUCTION AND A PERSON WHO HAS N OT MADE THE PROVISION AND CLAIMED THE DEDUCTION WOULD BE ALLOWED THE BENEFIT OF DEDUCTION AND THIS CANNOT BE THE INTENTION OF THE I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 16 PROVISIONS OF S.40(A)(7) OF THE ACT. IT IS CONTEND ED BY THE LEARNED AR THAT A DECISION IS BINDING ONLY FOR THE RATIO DECIDENDI AND THE ISSUE DECIDED IN THE CASE OF SHREE SAJJAN MILLS LIMITED IS COMPLETELY DIFFERENT. ACCORDING TO THE LEARNED AR, ANY OTHER OBSERVATIONS OF THE HONBLE APEX COURT CANNOT BE TERMED AS THE BASIS TO HOLD THAT PA YMENTS UNDER POST RETIREMENT BENEFIT SCHEME ARE AKIN TO GRATUITY. FURTHER, THE LEARNED AR CONTENDED THAT THE PROVISIONS OF S.40(A)(7) ARE APPLICABLE ONLY TO GRATUITY AND NOT TO OTHER PAYMENTS. HE FURTHER SUBMITTED THAT THE PROVISIONS OF S.40(A)(9) ARE APPLICABLE ONLY WH ERE A CONTRIBUTION IS MADE TO ANY FUND, TRUST, COMPANY ETC., REFERRED TO IN THAT SECTION AND THESE PROVISIONS ARE NOT APPLICABLE TO THE CASE OF THE APPELLANT AS NO SUCH CONTRIBUTIONS WERE MADE. 22. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE MATERIALS ON RECORD AS WELL AS ORDERS OF THE AUTHORITIES BELOW, WE ARE OF THE VIEW THAT THE CLAIM OF THE APPELLANT DESERVES TO BE ALLOWED. IT IS AN UNDISPUTED FACT THAT THE PROV ISION WAS MADE ON THE BASIS OF ACTUARIAL VALUATION AND THAT THE PROVISION WAS MADE TOWARDS T HE OBLIGATION OF THE APPELLANT ARISING OUT OF ITS CONTRACT WITH THE EMPLOYEES IN THE FORM OF A SC HEME VIZ., POST RETIREMENT BENEFIT SCHEME. FURTHER, THERE IS NO DISPUTE WITH REGARD TO ALLOWAN CE OF THE EXPENDITURE UNDER THE PROVISIONS OF THE INCOME TAX ACT. THE SHORT DISPUTE IS WHETHER T HE EXPENDITURE HAS TO BE ALLOWED IN THE YEAR OF PAYMENT OR WHETHER THE EXPENDITURE CAN BE A LLOWED IN THE YEAR THE APPELLANT HAS MADE THE PROVISION ON THE BASIS OF ACTUARIAL VALUATION. THE CASE OF THE REVENUE IS THAT THE EXPENDITURE HAS TO BE ALLOWED ONLY IN THE YEAR OF P AYMENT AS AGAINST THE CASE OF THE APPELLANT THAT THE EXPENDITURE HAS TO BE ALLOWED ON ACCRUAL B ASIS. WE DO NOT FIND MUCH FORCE IN THE CONTENTION OF THE LD DR THAT THE PAYMENTS MADE UNDE R THIS SCHEME ARE OF THE KIND OF GRATUITY AND HENCE PROVISIONS OF S.40(A)(7) ARE ATTRACTED. HAD IT BEEN SO, THERE WAS NO NEED TO INCLUDE I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 17 THE PROVISIONS OF S.40(A)(9) WHICH PROVIDE FOR DISA LLOWANCE OF CONTRIBUTIONS MADE TO FUNDS CREATED FOR OTHER PURPOSES. FURTHER, WE DO NOT FIN D MUCH WEIGHT IN THE CONTENTION THAT A PROVISION MADE ON THE BASIS OF ACTUARIAL VALUATION IS ALSO TO BE TREATED AS CONTRIBUTION TO A FUND. FURTHER, AS RIGHTLY CONTENDED BY THE LEARNED AR OF THE APPELLANT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF CHANDIGARH BENCH OF THE ITAT IN THE CASE OF GLAXO SMITHKLINE CONSUMER HEALTHCARE LIMITED (SUPRA) WHEREIN THE TRIBUNAL ALL OWED THE EXPENDITURE ON ACCRUAL BASIS AND THEIR OBSERVATIONS ARE AS UNDER: 61. IN THE FACTS OF THE PRESENT CASE BEFORE US THE ASSESSEE HAD RECOGNIZED AND ACCOUNTED FOR THE POST RETIREMENT BENEFIT DUE TO ITS EMPLOYEES, IN TERMS OF THE SCHEME OF EMPLOYMENT AND ALSO IN TERMS OF THE REVISED/CHANGE IN ACCOUNTING STANDARD-15 ISSUED BY IC AI WHICH WAS TO BE FOLLOWED DURING THE YEAR, IS AN ALLOWABLE DEDUCTION IN THE HANDS OF THE ASSE SSEE. THE SAID CLAIM BEING BASED ON THE VALUATION OF THE ACTUARY IS BOTH SCIENTIFIC AND ONE OF T HE RECOGNIZED METHOD OF ACCOUNTING AND QUANTIFYING THE SAID POST RETIREMENTAL MEDICAL BENEFI TS. IN SUCH CASES THOUGH ACTUAL AND EXACT QUANTIFICATION MAY NOT BE POSSIBLE, HOWEVER, THE LIABI LITY SO RECOGNIZED BY THE ASSESSEE COULD NOT BE SAID TO BE UNASCERTAINED AND CONTINGENT. THE ASSESSEE HAVI NG FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING WAS COMPULSORILY REQUIRED TO ACCOUNT FOR THE SA ID POST RETIREMENT MEDICAL BENEFITS AS THE SAME WAS QUANTIFIED AND HAD ACCRUED DURING THE YEAR. TH E CLAIM OF THE ASSESSEE WAS THUS ALLOWABLE IRRESPECTIVE OF THE FACT THAT THE ASSESSEE HAD MADE A PR OVISION IN THE BOOKS OF ACCOUNT BUT HAD CLAIMED THE SAID DEDUCTION IN THE COMPUTATION OF INCOME . IT IS WELL SETTLED PROPOSITION THAT THE WAY IN WHICH ENTRIES ARE MADE BY THE ASSESSEE IN ITS BOOKS OF ACCOUN T IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSESSEE HAD EARNED ANY PROFIT OR SUFFERED A NY LOSS AS HELD BY THE HON'BLE APEX COURT IN SUTLEJ COTTON MILLS LTD. VS. CIT (SUPRA). IT WAS FURTH ER HELD BY THE HON'BLE APEX COURT THAT WHAT IS NECESSARY TO BE CONSIDERED IS THE TRUE NATURE OF TRANSACTIO N AND WHETHER IN FACT IT HAS RESULTED IN PROFIT OR LOSS TO THE ASSESSEE. FURTHER THE SAID DEDUCTION WAS CLAIMED DURING THE YEAR UNDER CONSIDERATION AND THE CLAIM BEING BONAFIDE IS TO BE ALL OWED IN THE YEAR IN WHICH THE SAME ACCRUES THOUGH THE SAID LIABILITY IS TO BE DISCHARGED AT A LATE R DATE. 62. IDENTICAL ISSUE AROSE IN BOKARO POWER SUPPLY CO. (P ) LTD. VS DCIT (SUPRA) OF ALLOWABILITY OF CLAIM OF DEDUCTION OF POST RETIREMENT MEDICAL BENEFITS ON THE BASIS OF ACTUARIAL VALUATION AND THE SAME WAS HELD TO BE NOT AN UNASCERTAINED LIABILITY AND WAS HELD AS ALLOWABLE, OBSERVING AS UNDER: 5. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE HAVE A LSO PERUSED THE ORDER OF AUTHORITIES BELOW. THE ASSESSEE COMPANY OF WAS LIABLE TO PAY FOR MEDI CAL EXPENSES OF ITS RETIRED EMPLOYEES IN ACCORDANCE WITH THE TERMS OF EMPLOYMENT. PRIOR TO THIS Y EAR, THE ASSESSEE WAS CLAIMING THESE EXPENSES IN THE YEAR OF EXPENDITURE. DUE TO THE CHANGE IN THE ACCOUNTING STANDARD IN RESPECT OF THE ACCOUNTING OF POST RETIREMENT BENEFITS, THE ASSESSEE GOT DONE THE ACTUARIAL VALUATION OF THESE LIABILITIES AND STARTED CLAIMING THE SAME ON THAT BASIS. IT IS CLAIMED IN VIEW OF THE ACCOUNTING STANDARD, AS-15. THIS CLAIM WAS BASED ON THE VALUATION OF LIABILITY ON ACTUARIAL AND SCIENTIFIC BASIS. IN SUCH CASES, THE ACTUAL AND EXACT QUANTIFICATION MAY NOT BE POSSIBLE, HOWEVER, LIABILITY CANNOT BE SAID TO BE A CONTINGENT ONE. SINCE THE PROVISION HAS BEEN MADE ON SCIENTIFIC BASIS AND THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THER EFORE, IN OUR CONSIDERED VIEW, THE CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION WHILE DECID ING ITA NO.149/DEL/2012. A LIABILITY WHICH HAS ALREADY ACCRUED THOUGH DISCHARGED ON A FUTURE DATE WOU LD BE ENTITLED FOR DEDUCTION. WHILE WORKING OUT THE PROFIT & GAIN OF THE BUSINESS THE ACCRUED RECEIPT S ARE BROUGHT TO THE TAX, SIMILARLY, ACCRUED I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 18 LIABILITIES DUE WOULD ALSO BE ENTITLED FOR DEDUCTION WHILE WORKING OUT THE PROFIT AND GAIN OF THE BUSINESS OF THE YEAR. COMPUTATION OF TAXABLE PROFIT FO R A PARTICULAR YEAR CAN BE WORKED OUT ONLY BY DEDUCTING THE ACTUAL PAYMENTS MADE TO THE EMPLOYEES AND PRESENT VALUE OF ANY PAYMENT IN RESPECT OF THE SERVICES IN THAT PARTICULAR YEAR TO BE M ADE IN SUBSEQUENT YEAR. IN VIEW OF THIS, WE FIND THE ORDER OF CIT (A) IN ITA NO.149/DEL/2012 IN ORDER. WE SET ASIDE THE ORDER OF CIT (A) IN ITA NO.4921/DEL/2010. FOR DOING SO, WE ALSO GET SUPPORT FR OM THE FOLLOWING DECISIONS OF HON'BLE SUPREME COURT AND HON'BLE DELHI HIGH COURT. 5.1 HON 'BLE SUPREME COURT IN THE CASE OF METAL BOX COMPANY OF INDIA LTD. VS. THEIR WORKMEN - 73 ITR 53 HAS HELD AS UNDER :- 'CONTINGENT LIABILITIES DISCOUNTED AND VALUED AS NECESSA RY, CAN BE TAKEN INTO ACCOUNT AS TRADING EXPENSES IF THEY ARE SUFFICIENTLY CERTAIN TO BE CAPABLE O F VALUATION AND IF PROFITS CANNOT BE PROPERLY ESTIMATED WITHOUT TAKING THEM INTO CONSIDERATION. AN ESTIMATED LIABILITY UNDER A SCHEME OF GRATUITY, IF PROPERTY ASCERTAINABLE AND ITS PRESENT VA LUE IS DISCOUNTED, IS DEDUCTIBLE FROM THE GROSS RECEIPTS WHILE PREPARING THE PROFIT AND LOSS ACCOUNT. THI S IS RECOGNISED IN TRADE CIRCLES AND THERE IS NOTHING IN THE BONUS ACT WHICH PROHIBITS SUCH A PRACTICE. SUCH A PROVISION PROVIDES FOR A KNOWN LIABILITY OF WHICH THE AMOUNT CAN BE DETERMINED WITH SUBSTANTIAL ACCURACY. IT CANNOT, THEREFORE, BE TERMED A 'RESERVE'. THEREFORE, THE ESTIMATED LIABILIT Y FOR THE YEAR ON ACCOUNT OF A SCHEME OF GRATUITY SHOULD BE ALLOWED TO BE DEDUCTED FROM THE GR OSS PROFITS. THE ALLOWANCE IS NOT RESTRICTED TO THE ACTUAL PAYMENT OF GRATUITY DURING THE YEAR. WHER E THE FIXED ASSETS ARE REVALUED AND THE DIFFERENCE BETWEEN ITS COST AND THE VALUE FIXED ON SUCH REVALUATION IS CREDITED TO THE CAPITAL RESERVE, UNLESS THE TRIBUNAL FINDS THAT THE REVALUATION IS MALA FIDE, THE INTEREST ON THE AMOUNT OF THE RESERVE SHOULD BE ALLOWED AS A DEDUCTION FROM THE G ROSS PROFITS. FROM THE PROVISIONS OF SECTION 6(C) AND SECTION 7 OF TH E BONUS ACT, IT IS EVIDENT THAT THE TRIBUNAL MUST FIRST ESTIMATE THE AMOUNT OF DIRECT TAXES ON THE B ALANCE OF GROSS PROFITS AS WORKED OUT UNDER SECTIONS 4 AND 6, BUT WITHOUT DEDUCTION BONUS, THEN WOR K OUT THE QUANTUM OF TAXES THEREON AT RATES APPLICABLE DURING THE YEAR TO THE INCOME, PROFIT S AND GAINS OF THE EMPLOYER AND, AFTER DEDUCTING THE AMOUNT OF TAXES SO WORKED OUT, ARRIVE A T THE AVAILABLE SURPLUS. THIS WILL BE CONSISTENT WITH THE RULE LAID DOWN BY COURTS AND TRIBUNA LS BEFORE THE ACT WAS ENACTED, THAT THE BONUS AMOUNT SHOULD BE CALCULATED AFTER PROVISION FORTAX WAS MADE AND NOT BEFORE, FROM WHICH PARLIAMENT DOES NOT APPEAR TO HAVE MADE A DEPARTURE. ' HON'BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOV ERS LIMITED VS. CIT - 245 ITR 428 = (2002- TIOL-123-SCRM HAS HELD AS UNDER :- 'HELD, REVERSING THE DECISION OF THE HIGH COURT, THAT THE PROVISIONS MADE BY THE ASSESSEE- COMPANY FOR MEETING THE LIABILITY INCURRED BY IT UNDE R THE LEAVE ENCASHMENT SCHEME PROPORTIONATE WITH THE ENTITLEMENT EARNED BY THE EMPLOYEES OF THE COMPANY, INCLUSIVE OF THE OFFICERS AND THE STAFF, SUBJECT TO THE CEILING ON ACCUMULATION AS APPLICABL E ON THE RELEVANT DATE, WAS ENTITLED TO DEDUCTION OUT OF THE GROSS RECEIPTS FOR THE ACCOUNTING Y EAR DURING WHICH THE PROVISION IS MADE FOR THE LIABILITY. THE LIABILITY IS NOT A CONTINGENT LIAB ILITY.' HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. INSILCO LIMITED -197 TAXMAN 55 HAS HELD AS UNDER :- 'SIMILARLY IT WAS HELD BY THE HON'BLE DELHI HIGH COU RT IN THE CASE OF CIT VS. INSILCO LTD. THAT WHERE THE PROVISIONS WERE ESTIMATED ON THE BASIS OF ACTUARIAL CALCULATIONS, THE DEDUCTION CLAIMED BY THE ASSESSEE HAS TO BE ALLOWED. THE RELEVANT EXTRACTS OF THE DECISION IS REPRODUCED BELOW FOR READY REFERENCE:- '6. IN THE CASE OF SHREE SAJJAN MILLS LTD ( SUPRA), THE SUPREME COURT WAS EXAMINING THE PROVISION-MADE BY THE ASSESSEE TOWARDS GRATUITY UNDER THE INCOME TAX ACT, 1961. THE SUPREME COURT, AFTER NOTICING THE JUDGMENT IN METAL BOX COMPANY (SUPRA), CRYSTALLIZED ITS ANALYSIS AT PAGE 599 AND MADE THE FOLLOWING OBSERVATI ONS:- 'IT WOULD THUS BE APPARENT FROM THE ANALYSIS AFORESAID THAT THE POSITION TILL THE PROVISIONS OF SECTION 40A(7) WERE INSERTED IN THE ACT IN 1973 WAS AS FOLLOWS:- 1 XXXX 2 XXXX 3 XXXX 4 XXXX 5. P ROVISION MADE IN THE PROFIT AND LOSS I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 19 ACCOUNT FOR THE ESTIMATED PRESENT VALUE OF THE CONTINGEN T LIABILITY PROPERLY ASCERTAINED AND DISCOUNTED ON AN ACCRUED BASIS AS FALLING ON THE ASSESSEE IN T HE YEAR OF ACCOUNT COULD BE DEDUCTIBLE EITHER UNDER SECTION 28 OR SECTION 37 OF TH E ACT. ' ITA 873/2008 & 1156/2008 PAGE 6 OF 25 7. THE DIVISION BENCH OF THIS COURT, WHILE CONSIDERING DEDUCTIBILITY OF A PROVISION FOR WARRANTIES MADE BY AN ASSESSEE, WHICH DEALT IN COMPUTERS IN THE CASE O F CIT VS HEWLETT PACKARD INDIA (P) LTD, BY ITS JUDGMENT PASSED IN APPEAL NO. ITA 486/2006 DATED 31.03.2008, UPHELD THE DEDUCTIBILITY OF THE PROVISION FOR WARRANTY ON THE GR OUND THAT IT WAS MADE ON THE BASIS OF ACTUARIAL VALUATION BEING COVERED BY THE PRINCIPLE SET OUT IN ME TAL BOX COMPANY (SUPRA). IN VIEW OF THE AFORESAID DECISIONS AND GIVEN THE FACT THAT THE PROVISIO N WAS ESTIMATED BASED ON ACTUARIAL CALCULATIONS, WE ARE OF THE OPINION THAT THE DEDUCTION CLAIMED BY THE ASSESSEE HAD TO BE ALLOWED. WE FIND NO FAULT WITH THE REASONING OF THE TRIBUNAL. NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION.' 5.2 CONSIDERING THE FACTS OF THE ASSESSEE'S CASE AND ALSO THE DECISION OF HON'BLE SUPREME COURT AND HON'BLE JURISDICTIONAL HIGH COURT, WE SUSTAIN THE ORDER OF CIT (A) IN ITA NO.149/DEL/2012 ON THIS ISSUE. WE ALLOW ITA NO. 4921'/ DEL/2010 AND DISMISS REVENUE'S APPEAL ON THIS GROUND. 63. IN VIEW THEREOF, WE DIRECT THE ASSESSING OFFICER TO A LLOW THE DEDUCTION OF RS.11.09 CRORES ON ACCOUNT OF POST RETIREMENT MEDICAL BENEFITS. THE GROUND NOS.5 AND 6 RAISED BY THE ASSESSEE ARE THUS ALLOWED. WE ARE IN COMPLETE AGREEMENT WITH THE VIEW TAKEN BY THE CHANDIGARH AND DELHI BENCHES OF THE TRIBUNAL. WE SET ASIDE THE ORDERS OF BOTH THE LOWE R AUTHORITIES IN DISALLOWING THE CLAIM OF THE APPELLANT TOWARDS PROVISION FOR POST RETIREMENT BEN EFIT SCHEME AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE APPELLANT. IN THE RESULT , THIS GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. 23. GROUND 4 RELATES TO CONFIRMATION OF ADDITION T OWARDS PROVISION FOR EMPLOYEES FAMILY BENEFITS SCHEME AMOUNTING TO RS. 3,95,13,087/- UNDE R THE PROVISIONS OF SECTION 43B R.W.S. 36(1)(IV)(V). 24. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY CREATED A PROVISION OF RS.4,07,43, 197/- TOWARDS EMPLOYEES FAMILY BENEFIT SCHEMES. HE OBSERVED THAT OUT OF THE ABOVE AMOUNT, AN AMOUNT OF RS.12,30,110/- HAS BEEN UTILIZED, LEAVING A BALANCE OF RS.3,95,13,087/-. IN RESPONSE TO ASSESSING OFFICERS REQUISITION, AS I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 20 TO WHY THE BALANCE AMOUNT SHOULD NOT BE DISALLOWED, THE ASSESSEE EXPLAINED THAT PROVISION WAS MADE TOWARDS MONETARY BENEFITS TO BE PAID TO EMPLOY EES ON CESSATION OF THEIR EMPLOYMENT EITHER ON ACCOUNT OF PERMANENT TOTAL DISABLEMENT OR PERMANENT MEDICAL UNFITNESS AND THE BENEFIT PAID TO NOMINEE OF AN EMPLOYEE IN CASE OF D EATH OF EMPLOYEE WHILE IN SERVICE. THE ASSESSEE HAS SUBMITTED THAT THE PROVISION IS CREATE D ON AN ACTUARIAL VALUATION BASIS AND IT WAS ASCERTAINED LIABILITY. THE ABOVE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTABLE TO THE A.O., HE OBSERVED THAT BY CREATING THE ABOVE PROVISION THE A SSESSEE IS ACCUMULATING THE PROFIT WITHOUT PAYING THE TAX, WHICH IS NOT PERMITTED UNDER THE IN COME TAX LAW. ACCORDINGLY, THE A.O. DISALLOWED THE UNSPENT BALANCE OF RS.3,95,13,087/- AND ADDED BACK THE SAME TO THE TOTAL INCOME THE ASSESSEE. 25. ON APPEAL, THE FIRST APPELLATE AUTHORITY UPHEL D THE ADDITION ON THE BASIS OF HIS DECISION IN RESPECT OF ADDITION MADE IN POST RETIREMENT BENE FITS. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US. 26. LD. COUNSEL FOR THE ASSESSEE REITERATED TO SUB MISSIONS MADE BEFORE THE AUTHORITY BELOW AS SIMILAR TO THE ISSUE OF DISALLOWANCE OF PROVISIO N TOWARDS POST RETIREMENT BENEFIT SCHEME. 27. LD. D.R. ON THE OTHER HAND, REITERATED HIS SUB MISSIONS SIMILAR TO THE ISSUE OF DISALLOWANCE OF PROVISION TOWARDS POST RETIREMENT B ENEFIT SCHEME. 28. WE HAVE CAREFULLY PERUSED THE RECORD AND FIND T HAT THE ISSUE IS IDENTICAL TO THE ONE RELATING TO POST RETIREMENT BENEFIT SCHEME CONSIDER ED HEREINABOVE IN PARA NO.22. CONSISTENT WITH THE VIEW TAKEN BY US, WE CANCEL THE ORDERS OF THE LOWER AUTHORITIES AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE APPELLA NT. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED. I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 21 29. GROUND NO.5 IS AGAINST CONFIRMATION OF DISALLOW ANCE OF RS.5,72,535/- BEING PROVISION FOR DOUBTFUL ADVANCES. 30. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY DEBITED AN AMOUNT OF RS.5.88 CRORES UNDER THE HEAD PROVISION FOR DOUBTFUL ADVAN CES AND CLAIM. OUT OF THIS, THE ASSESSEE ADDED BACK AN AMOUNT OF RS.5.82 CRORES IN THE COMPU TATION OF INCOME. BEFORE THE AO, IT WAS SUBMITTED THAT THE BALANCE AMOUNTS OF RS.6.16 LAKHS WERE WRITTEN OFF DURING THE YEAR AS SAME BECAME IRRECOVERABLE. SIMILARLY, THE ASSESSEE COMP ANY CLAIMED EXPENDITURE OF RS.13,18,09,928 TOWARDS NON-RECOVERABLE CLAIMS. THE ASSESSING OFFI CER DID NOT ACCEPT THE ASSESSEES CONTENTION AND DISALLOWED THE ABOVE AMOUNTS ON THE GROUND THAT THE ASSESSEE FAILED TO SUBSTANTIATE THE CLAIM AS TO WHY THE ABOVE AMOUNTS WERE NOT RECOVERA BLE. ON APPEAL, THE FIRST APPELLATE AUTHORITY CALLED FOR A REMAND REPORT FROM THE ASSES SING OFFICER AND AFTER CONSIDERING THE SAME PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY RESTRI CTING THE DISALLOWANCE AT RS.5,72,535/- OUT OF RS.6,16,000. 31. AT THE TIME OF HEARING, LD COUNSEL FOR THE ASSE SSEE SUBMITTED THAT AN AMOUNT OF RS.5,72,535/- PERTAINS TO OLD CLAIMS ON CONSIGNMENT AGENT BSO-AHMEDABAD AND AS THE SAME WAS NOT RECOVERABLE, THE AMOUNT WAS WRITTEN OFF. H E ALSO SUBMITTED THAT THIS FACT HAS BEEN ADMITTED BY THE ASSESSING OFFICER IN THE REMAND REP ORT. HE DREW OUR ATTENTION TO PAGE NO.127 AND 129 OF THE PAPER BOOK AND SUBMITTED THAT THE TO TAL AMOUNT NOT RECOVERABLE WAS RS.55,03,116 AND OUT OF THIS RS.50,10,581 WAS CLAIM ED AS ONE PART (INCLUDED IN NON-RECOVERBLE CLAIMS OF RS.13.18 CRORES) AND THE BALANCE AMOUNT O F RS.5,72,535 WAS CLAIMED AS ANOTHER PART (INCLUDED IN PROVISION FOR DOUBTFUL ADVANCES WRITTE N OFF). THE ASSESSING OFFICER IN HIS REMAND I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 22 REPORT VERIFIED THE CLAIM OF THE APPELLANT AND SUBM ITTED THAT THE ENTIRE AMOUNT OF RS.55,83,116 IS NOT RECOVERABLE AND HENCE MAY BE ALLOWED AS DEDU CTION U/S 36(1)(VII). 32. ON THE OTHER HAND, LD D.R. SUPPORTED THE ORDER S OF AUTHORITIES BELOW. HE COULD NOT CONTRADICT THE CLAIM OF THE APPELLANT THAT THE ASSE SSING OFFICER CONSIDERED THE ENTIRE AMOUNT IN THE REMAND REPORT AND ADMITTED THAT IT CAN BE ALLOW ED AS EXPENDITURE. 33. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE MATERIALS ON RECORD AS WELL AS ORDERS OF THE AUTHORITIES BELOW, WE ARE OF THE VIEW THAT THE CLAIM OF THE APPELLANT DESERVES TO BE ALLOWED. WE FIND THAT IN THE REMAND REPORT THE ASSESSING OFFICER VERIFIED THE CLAIM OF THE APPELLANT AND ENDORSED THE CLAIM OF THE APPELLANT W ITH REGARD TO THE ENTIRE AMOUNT OF RS.55,03,116 NOT RECOVERABLE FROM BSO-AHMEDABAD. S INCE, THE APPELLANT CLAIMED THE EXPENDITURE IN TWO DIFFERENT PARTS OF RS.50,10,581 AND RS.5,72,535 THE ASSESSING OFFICER DEALT WITH THE CLAIM IN TWO PARTS IN THE REMAND REPORT. THE LD CIT(A) WITHOUT PROPERLY APPRECIATING THIS FACTUAL POSITION ALLOWED THE CLAIM ONLY TO THE EXTENT OF RS.50,10,581. AS THE CLAIM OF THE APPELLANT FOR THE BALANCE AMOUNT OF RS.5,72,535 ALS O STOOD VERIFIED BY THE ASSESSING OFFICER IN THE REMAND PROCEEDINGS AND CONSIDERED TO BE ALLOWAB LE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD AND DIRECT THE ASSESSING OFFI CER TO ALLOW THE CLAIM OF THE APPELLANT EVEN FOR THE AMOUNT OF RS.5,72,535. IN THE RESULT, THIS GRO UND OF APPEAL OF THE APPEAL IS ALLOWED. 34. GROUND NO.6 RELATES TO LEVY OF INTEREST U/S.23 4D OF THE ACT. I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 23 35. FACTS ARE THAT AT THE TIME OF PROCESSING THE R ETURN OF INCOME, REFUND OF RS.29,67,58,310/- WAS GRANTED BY ISSUE OF REFUND CH EQUE IN THE MONTH OF MAY, 2007. HOWEVER, THIS REFUND WAS RECEIVED BY THE ASSESSEE O N 7 TH JUNE, 2007. AT THE TIME OF COMPLETION OF ASSESSMENT U/S.143(3) OF THE ACT, THE ASSESSING OFFICER CHARGED INTEREST U/S.234D OF THE ACT TO THE DATE OF COMPLETING THE A SSESSMENT U/S.143(3) OF THE ACT. HENCE, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FI RST APPELLATE AUTHORITY. 36. LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT SIN CE THE REFUND WAS RECEIVED BY THE ASSESSEE IN JUNE, 2007, THE AO IS NOT JUSTIFIED IN CHARGING INTEREST U/S.234D FOR THE MONTH OF MAY, 2007. ON THE OTHER HAND, LD D.R. SUPPORTED TH E ORDERS OF AUTHORITIES BELOW. 37. WE ARE UNABLE TO APPRECIATE THE ARGUMENTS OF TH E LD. AR OF THE APPELLANT. THE REFUND WAS ISSUED ON 31 ST MAY, 2007 AND WAS RECEIVED BY THE APPELLANT ON 7 TH JUNE, 2007. THE TIME LAG WAS VERY MARGINAL. FURTHER, THE EXPRESSION USE D IN S.234D OF THE ACT IS FROM THE DATE OF GRANT OF REFUND. MERELY FOR THE REASON THAT THE A PPELLANT RECEIVED THE REFUND ON 7 TH JUNE, 2007 IT CANNOT BE SAID THAT THE REFUND WAS GRANTED ON TH AT DATE. SUCH A MARGINAL TIME LAG IS BOUND TO BE THERE BETWEEN THE DATE OF GRANT OF REFUND AND DATE OF RECEIPT OF REFUND. THEREFORE, WE UPHOLD THE ORDERS OF BOTH THE LOWER AUTHORITIES IN CHARGING INTEREST U/S 234D FROM MAY, 2007. IN THE RESULT, THIS GROUND OF APPEAL OF THE APPELLA NT IS DISMISSED. 38. NOW WE TAKE UP THE APPEAL FOR THE ASSESSMENT YE AR 2007-08 IN ITA NO.95/VIZ/2012. GROUNDS TAKEN BY THE ASSESSEE ARE AS UNDER: I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 24 1. THE LD CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE AMOUNT OF RS.2,79,01,555/- RECEIVED ON SALE OF TREES IS A REVENUE RECEIPT AND NOT A CAPITAL RECEIPT IN SPITE OF THE FACT THAT THE TREES HAVE BEEN REMOVED FROM THE LAND ALONG WITH THEIR ROOTS, LEAVING BEHIND NO PROSPECT OF RE-GENERATION . 2. THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUS TIFIED IN UPHOLDING DISALLOWANCE OF DEPRECIATION OF AN AMOUNT OF RS.25, 932/ CLAIMED ON RAILWAY LINES & SIDINGS. AS THE EXPENDITURE HAS BEEN INCURR ED BY THE COMPANY AS CAPITAL EXPENDITURE IN THE EARLIER YEARS AND THE ASSET IS W HOLLY AND EXCLUSIVELY UTILIZED FOR THE PURPOSE OF BUSINESS AND THE COMPANY IS THE TRUE BENEFICIAL OWNER OF THE ASSETS, THE APPELLANT PRAYS FOR RELIEF. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION TOWARDS PROVISION FOR POST RETIREMENT BENE FITS AMOUNTING TO RS.53,69,85,190/- MADE BY THE ASSESSING OFFICER UND ER THE PROVISIONS OF SECTION 43B R.W.S.36 (1) (IV) & (V), ON A DIFFERENT GROUND THAT THE SAME IS NOT ALLOWABLE AS A DEDUCTION UNDER THE PROVISIONS OF SECTION 40A( 9) OF THE INCOME TAX ACT. FOLLOWING HIS OWN ORDER FOR THE ASSESSMENT YEAR 200 7-08, THOUGH THE PROVISIONS OF SECTION 40A(9) ARE NOT ATTRACTED TO THE FACTS IN THE APPELLANT'S CASE. HENCE, THE APPELLANT PRAYS FOR RELIEF OF RS. 53,69,85,190/ -. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ADDITION TOWARDS PROVISION FOR EMPLOYEES FAMILY BEN EFIT SCHEME AMOUNTING TO RS.3,82,69,515/- MADE BY THE ASSESSING OFFICER UNDE R THE PROVISIONS OF SECTION 43B R.W.S.36 (1) (IV) & (V), ON A DIFFERENT GROUND THAT THE SAME IS NOT ALLOWABLE AS A DEDUCTION UNDER THE PROVISIONS OF SECTION 40A( 9) OF THE INCOME TAX ACT, FOLLOWING HIS OWN ORDER FOR THE ASSESSMENT YEAR 200 7-08, THOUGH THE PROVISIONS OF SECTION 40A(9) ARE NOT ATTRACTED TO THE FACTS IN THE APPELLANT'S CASE. ACCORDINGLY, THE APPELLANT PRAYS FOR RELIEF. 5. THE LD CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE AD DITION IN RESPECT OF PROVISION FOR FUTURE LEAVE ENCASHMENT AMOUNTING TO RS.24,14,4 5,700/- ALTHOUGH, THE SAME IS PROVIDED IN THE BOOKS BASED ON ACTUARIAL VALUATI ON AND ALSO SUPPORTED BY THE DECISION OF HONBLE SUPREME COURT AND OTHER HIGH CO URTS. 6. THE LD CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE AD DITION IN RESPECT OF LONG SERVICE AWARD AMOUNTING TO RS.4,75,44,740/- MADE BY THE AO. 39. APROPOS GROUND NO.1, FACTS ARE THAT THE ASSESS EE-COMPANY RAISED PLANTATIONS AS A PART OF ITS CORPORATE ENVIRONMENTAL STRATEGY IN THE FACT ORY PREMISES. THE AGED TREES WERE CUT AND REMOVED ON A REGULAR BASIS. THE INCOME OF RS.2,79 ,01,555/- FROM THE SALE OF TREES WAS I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 25 TREATED AS REVENUE RECEIPT IN THE ORIGINAL RETURN. SUBSEQUENTLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS, REVISED RETURN WAS FILED ST ATING THAT THE RECEIPT ON ACCOUNT OF SALE OF TREES WAS A CAPITAL RECEIPT. IN ITS EXPLANATION FIL ED ALONG WITH REVISED RETURN, IT WAS STATED THAT THE TREES HAD BEEN PLANTED LONG AGO FOR POLLUTION C ONTROL MEASURES AND THE TREES WHICH GREW SPONTANEOUSLY IN THE COURSE OF TIME WERE ALSO REMOV ED ALONG WITH THEIR ROOTS LEAVING BEHIND NO PROSPECT OF REGENERATION. THE PROCEEDS THUS WERE TR EATED AS CAPITAL RECEIPT AND, ACCORDINGLY, THE ASSESSEE COMPANY FILED ITS REVISED RETURN. THE AO AFTER CONSIDERING THE EXPLANATION HELD THAT THE PLANTATIONS WERE RAISED AS POLLUTION CONTR OL MEASURE BY THE ASSESSEE AND THE EXPENDITURE ON PLANTATION AND MAINTENANCE OF PLANTS WAS INCURRED BY THE ASSESSEE-COMPANY. THE SAID EXPENDITURE WAS CLAIMED AS REVENUE EXPENDI TURE IN THE EARLIER ASSESSMENT YEARS BY THE ASSESSEE. IN THE BALANCE-SHEET ALSO, ASSESSEE -COMPANY NEVER CLAIMED TREES AS CAPITAL ASSET. IT WAS FURTHER OBSERVED BY THE AO THAT THE AR OF THE ASSESSEE ACCEPTED THAT YEARS TOGETHER EXPENDITURE WAS INCURRED DIRECTLY OR INDIR ECTLY FOR MAINTENANCE OF LAND, SECURITY AND FOR MAINTAINING THE PLANTATION AND THE SAID EXPENDI TURE WAS DEBITED TO THE P&L ACCOUNT AS REVENUE EXPENDITURE. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER REJECTED THE ASSESSEES CLAIM THAT SALE PROCEEDS OF TREES WAS CAPITAL RECEI PTS AND, ACCORDINGLY, BROUGHT THE ENTIRE AMOUNT TO TAX. AGGRIEVED, ASSESSEE CARRIED THE MAT TER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 40. BEFORE THE FIRST APPELLATE AUTHORITY, THE ASSE SSEE REITERATED THE SUBMISSIONS RAISED BEFORE THE ASSESSING OFFICER. IT WAS STATED THAT A S THE TREES WERE PLANTED NEITHER WITH AN INTENTION TO SUPPORT THE PRODUCTION NOR TO EARN REV ENUES FROM SUCH TREES, RECEIPT FROM THE SALE OF THE SAME COULD NOT BE TREATED AS INCOME. THE LD CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER, INTER ALIA, OBSERVING AS UNDER: I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 26 I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE . ASSESSEE IS HAVING VAST AREA IN THE VISAKHAPATNAM STEEL CITY PREMISES. TO MAINTAIN THE ENVIRONMENT, AND AS POLLUTION CONTROL MEASURE, ASSESSEE IS DUTY BOUND TO DEVELOP PLANTATIONS AND CARRY OUT AFFORESTATION PROGRAMMES WITHIN THE P REMISES. OLD PLANTATIONS THUS GROWN HAVE TO BE REGULARLY REMOVED FOR PROPER MAINTENANCE OF THE AREA. ASSESSEE-COMPANY CALLED TENDERS FOR REMOVAL OF THES E PLANTS OUT OF WHICH THIS INCOME OF SALE OF TREES IS RECEIVED. IT IS UNDISP UTED THAT THE ASSESSEE-COMPANY CLAIMS EXPENDITURE ON AFFORESTATION AS PART OF ITS MISCELLANEOUS EXPENDITURE. THESE PLANTS WHICH ARE PLANTED AS PART OF AFFORESTA TION PROGRAMMES NEED REGULAR UPKEEP, AT LEAST DURING THE INITIAL STAGES. ALL T HESE EXPENSES ARE DEBITED TO P&.L ACCOUNT YEAR AFTER YEAR. THIS SHOWS THAT THESE OLD PLANTATIONS HAVE COME UP AFTER LONG EFFORT AND BY SPENDING MONEY. ALL THIS EXPENDITURE IS CLAIMED AS EXPENDITURE BY THE ASSESSEE IN THE REGULAR ACCOUNTS AND IS DULY ALLOWED BY THE DEPARTMENT. ASSESSEE-COMPANY CANNOT CLAIM THE EXPENDITURE INCURRED ON AFFORESTATION U/S.37(1) AND ON THE SAME HAND CAN NOT CLAIM THE RECEIPT OUT OF SALE OF SUCH PLANTATION TREES AS CAPITAL RECEI PT. ASSESSEE CLAIMED THAT PART OF THE TREES HAVE GROWN SPONTANEOUSLY IN THE COURSE OF TIME. AT THE SAME TIME IT STATES THAT THE COMPANY HAS PLANTED TR EES LONG AGO FOR POLLUTION CONTROL MEASURE. ASSESSEE IS NOT ABLE TO SPECIFICAL LY STATE WHAT AMOUNT IS RECEIVED OUT OF SALE OF SELF GROWN TREES. IT IS A N UNDISPUTED FACT THAT THE ASSESSEE IS IMPLEMENTING AFFORESTATION PROGRAMMES W ITHIN ITS PREMISES RIGHT 1980S. ALL THE EXPENDITURE CLAIMED IS TILL NOW A LLOWED BY THE DEPARTMENT AS REVENUE EXPENDITURE. NEVER WAS SUCH EXPENDITUR E CLAIMED IS TREATED AS CAPITAL EXPENDITURE. AS RIGHTLY POINTED OUT BY TH E AO THESE TREES ARE NOT CLASSIFIED AS CAPITAL ASSETS. THUS ANY INCOME FROM THE SALE OF SUCH TREES, WHETHER CUT WITHOUT DISTURBING THE ROOTS OR REMOVED BY UPRO OTING, WOULD AMOUNT TO REVENUE RECEIPTS. ASSESSEE SHOULD HAVE TREATED T HIS AS REVENUE RECEIPT OR ALTERNATIVELY SHOULD HAVE REDUCED THIS INCOME FROM THE AFFORESTATION EXPENDITURE INCURRED DURING THE YEAR. INSTEAD THE ASSESSEE IS TREATING THE SAME AS CAPITAL RECEIPT WHICH IS NOT CORRECT. I HAVE CONSIDERED T HE VARIOUS CASE-LAWS QUOTED BY THE ASSESSEE BUT ALL OF THEM ARE APPLICABLE TO THE CASES WHETHER THERE IS UNCONTROLLED SELF GROWTH WHICH IS REMOVED AS ONE TI ME MEASURE. FROM THE PERUSAL OF ALL RECORDS, IT IS SEEN THAT THE ASSESSE E IS GETTING INCOME FROM SALE OF TREES YEAR AFTER YEAR ON A CONTINUOUS BASIS. HENCE THE CASE-LAWS CITED ARE DISTINGUISHABLE ON FACTS AND ARE NOT APPLICABLE. T HOUGH IT IS AGREED THAT THE ASSESSEE IS NOT RAISING THE PLANTATION WITH AN INTE NTION TO SUPPORT THE PRODUCTION OR WITH AN INTENTION TO EARN REVENUES FROM THE SAME , THE INCOME FROM SALE BECOMES AN INCIDENTAL INCOME AND IT THUS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US. 41. THE LEARNED AR OF THE APPELLANT VEHEMENTLY CONT ENDED THAT THE INCOME RECEIVED ON SALE OF TREES IS A CAPITAL RECEIPT AS THE TREES WERE REM OVED WITH THEIR ROOTS. HOWEVER, WE FIND THAT I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 27 THE APPELLANT COULD NOT FURNISH THE DETAILS OF BIFU RCATING THE SELF GROWN TREES AND TREES PLANTED AND GROWN BY THE APPELLANT. FURTHER, THE APPELLANT COULD NOT SUBSTANTIATE THE CONTENTION THAT THE EXPENDITURE INCURRED ON MAINTENANCE OF TREES AN D ALLOWED IN THE EARLIER YEARS WAS NOT IN RESPECT OF THESE VERY SAME TREES THAT ARE SOLD DURI NG THE IMPUGNED ASSESSMENT YEARS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE I NCOME RECEIVED ON SALE OF TREES IS A REVENUE RECEIPT IN THE HANDS OF THE APPELLANT. THIS GROUND OF APPEAL IS DISMISSED. 42. GROUND NO.2 RELATES TO CONFIRMATION OF ADDITION OF RS.25,932/- ON ACCOUNT OF DEPRECIATION ON RAILWAY LININGS. 43. SIMILAR ISSUE HAD COME UP FOR OUR CONSIDERATIO N IN THE ASSESSMENT YEAR 2006-07, VIDE GROUND NO.1, WHEREIN, WE HAVE UPHELD THE ACTION OF THE REVENUE AUTHORITIES. CONSISTENT WITH OUR DECISION, WE REJECT THIS GROUND FOR THIS ASSESS MENT YEAR ALSO. 44. GROUND NO.3 RELATES TO CONFIRMATION OF ADDITIO N TOWARDS PROVISION FOR POST RETIREMENT BENEFITS AMOUNTING TO RS.53,69,85,190/-. 45. THE FACTS AND THE REASONING GIVEN BY AUTHORITI ES BELOW FOR MAKING THE AFORESAID ADDITION OF RS.53,69,85,190 ARE SIMILAR TO GROUND NO.3 OF AP PEAL FOR ASSESSMENT YEAR 2006-07, WHICH WE HAVE DISCUSSED HEREINABOVE IN PARA NOS.16 TO 21. CO NSIDERING THE REASONING GIVEN BY US IN PARA 22 HEREINABOVE, WE ALLOW THIS GROUND OF APPEAL OF T HE APPELLANT. 46. APROPOS GROUND NO.4, WE FIND THAT THE FACTS AN D THE REASONING GIVEN BY AUTHORITIES BELOW FOR MAKING THE AFORESAID ADDITION OF RS.3,82, 69,515 ARE SIMILAR TO GROUND NO.4 OF APPEAL I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 28 FOR ASSESSMENT YEAR 2006-07, WHICH WE HAVE DISCUSSE D HEREINABOVE IN PARA NOS.24 TO 27. CONSIDERING THE REASONING GIVEN BY US IN PARA NO.28 HEREINABOVE, WE ALLOW THIS GROUND OF APPEAL OF THE APPELLANT. 47. GROUND NO.5 RELATES TO CONFIRMATION OF ADDITIO N IN RESPECT OF PROVISION FOR FUTURE LEAVE ENCASHMENT AMOUNTING TO RS.24,14,45,700/-. 48. THE ASSESSING OFFICER NOTICED THAT THE ASSESS EE COMPANY CREATED A PROVISION UNDER THE HEAD FUTURE LEAVE ENCASHMENT OF RS.24,14,45,700/- DURING THE RELEVANT ASSESSMENT YEAR. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROVISION CREATED UNDER THE ABOVE HEAD SHOULD NOT BE DISALLOWED, TO WHICH, ASSE SSEE, INTER ALIA, SUBMITTED THAT THE FINANCE ACT 2001 AMENDED SECTION 43B BY PROVIDING THAT TAXP AYERS COULD CLAIM DEDUCTION ONLY ON ACTUAL PAYMENT ON ACCOUNT OF LEAVE ENCASHMENT AND NOT FOR THE PROVISIONS MADE. HOWEVER, THIS WAS NULLIFIED BY THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS CIT, 245 ITR 428 (SC), WHEREIN, IT WAS HELD THAT THE LIABILITY FOR L EAVE ENCASHMENT WAS NOT A CONTINGENT LIABILITY. THE PROVISION FOR LEAVE ENCASHMENT MADE BY THE TAXP AYER WAS ENTITLED TO DEDUCTION IN THE ACCOUNTING YEAR IN WHICH THE PROVISION WAS MADE. T HE ABOVE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTABLE TO THE AO. THE AO OBSERVED THAT THE ASSESSEE FAILED TO EXPLAIN AS TO HOW THE FUTURE LEAVE ENCASHMENT IS AN ASCERTAINED LIABILITY AND THE ASSESSEE HAS NOT FURNISHED ANY FACTUAL DETAILS REGARDING THE OUTSTANDING LEAVE OF EACH STAFF MEMBER, ELIGIBILITY OF ENCASHMENT OF LEAVE AND THE LIABILITY RELATABLE TO ENCASHMENT OF LEAVE. IT WAS IN THIS BACKDROP THAT THE AO DISALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED, T HE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 29 49. THE LD CIT(A) OBSERVED THAT THE HON'BLE SUPREM E COURT IN THE CASE OF BHARAT EARTH BHARAT EARTH MOVERS VS. OT 245 ITR 428 (SC) HELD TH AT LEAVE ENCASHMENT IS AN ASCERTAINED LIABILITY AND NOT A CONTINGENT LIABILITY HENCE THE SAME IS DEDUCTIBLE ON ACCRUAL BASIS. THIS DECISION OF SUPREME COURT IS SUBSEQUENTLY NULLIFIED BY A SPECIFIC AMENDMENT BY INSERTION OF 43B(F) INTO THE ACT W.E.F. 01.04.2002 WHICH STATES THAT ANY SUM PAYABLE BY ASSESSEE IN LIEU OF ANY LEAVE TO THE EMPLOYEE SHALL BE ALLOWED ON ACTUA L PAYMENT. AFTER THE INTRODUCTION OF THIS SUB-SECTION ANY LEAVE ENCASHMENT IS ALLOWABLE ONLY ON PAYMENT BASIS AND CANNOT BE ALLOWED ON THE BASIS OF ACTUARIAL VALUATION. THE CONSTITUTIONA LITY OF THIS AMENDMENT WAS CONTESTED BEFORE THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF EXCI DE INDUSTRIES LTD AND ANR VS. UOI & ORS 292 ITR 470 (CAL). THE HON'BLE CALCUTTA HIGH COURT HEL D THAT CLAUSE (F) OF SECTION 43B IS ARBITRARY AS UNCONSCIONABLE. THE AMENDMENT WAS THUS STRUCK DOWN BY THE CALCUTTA HIGH COURT. HOWEVER THE OPERATION OF THE JUDGEMENT WAS STAYED BY THE AP EX COURT TO ENABLE THE REVENUE TO TAKE UP THE MATTER BEFORE THE HON'BLE SUPREME COURT. DEPART MENT CONTESTED THE JUDGEMENT BEFORE THE HON'BLE SUPREME COURT AND THE DECISION OF THE SUPRE ME COURT IN THIS REGARD IS AWAITED. IN VIEW OF THIS, THE FIRST APPELLATE AUTHORITY HELD THAT AS PER THE AMENDED PROVISIONS LEAVE ENCASHMENT IS ALLOWABLE ONLY ON ACTUAL PAYMENT. HE OBSERVED TH AT SINCE THERE WAS NO ACTUAL PAYMENT IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE DISALLOWAN CE MADE BY THE AO FOR PROVISION FOR LEAVE ENCASHMENT OF R.24,14,45,700/- WAS UPHELD. AGGRIEV ED, THE ASSESSEE IS IN APPEAL BEFORE US. 50. LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT STA Y GRANTED BY THE HONBLE APEX COURT WAS APPLICABLE ONLY IN THE CASE OF EXIDE INDUSTRIES (SU PRA) AND THERE ARE OTHER HIGH COURT DECISIONS WHEREIN ALSO THE CONSTITUTIONAL VALIDITY OF S.43B(F ) WAS CONSIDERED AND THE PROVISION WAS STRUCK DOWN. THE LD COUNSEL PLACED RELIANCE IN THE DECISI ONS OF CIT VS. RAJ. STATE BRIDGE AND I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 30 CONSTRUCTION CORPORATION LIMITED (2012) 346 ITR 53 (RAJ) AND CIT VS. HINDUSTAN LATEX LIMITED (2012) 74 DTR (KER) 212. 51. ON CAREFUL CONSIDERATION OF THE FACTS OF THE CASE A ND ON PERUSAL OF THE RECORD AND THE ORDERS OF THE REVENUE AUTHORITIES, W E FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS (SUPRA) HA S HELD THAT THAT LEAVE ENCASHMENT IS AN ASCERTAINED LIABILITY AND NOT A CONTINGENT LI ABILITY HENCE THE SAME IS DEDUCTIBLE ON ACCRUAL BASIS. THIS DECISION OF SUPREME COURT IS SUBSEQUENT LY NULLIFIED BY A SPECIFIC AMENDMENT BY INSERTION OF 43B(F) INTO THE ACT W.E.F. 01.04.2002 WHICH STATES THAT ANY SUM PAYABLE BY ASSESSEE IN LIEU OF ANY LEAVE TO THE EMPLOYEE SHALL BE ALLOWED ON ACTUAL PAYMENT. WHEN THE CONSTITUTIONAL VALIDITY OF S.43B(F) CAME UP FOR CON SIDERATION BEFORE THE HONBLE CALCUTTA HIGH COURT, IT WAS HELD THAT CLAUSE (F) OF SECTION 43B I S ARBITRARY AS UNCONSCIONABLE AND THE AMENDMENT WAS THUS STRUCK DOWN BY THE CALCUTTA HIGH COURT. CLAUSE (F) TO SECTION 43B WAS INSERTED BY THE FINANCE ACT, 2001 W.E.F. 1.4.2002. THE HONBLE APEX COURT ADMITTED THE APPEAL FILED AGAINST THE ABOVE ORDER OF THE CALCUTTA HIGH COURT AND GRANTED STAY. ON A CAREFUL PERUSAL OF THIS STAY ORDER PLACED BEFORE BY THE LD CIT(DR) WE FOUND THAT THE HONBLE APEX COURT OBSERVED THAT THE REVENUE WOULD PROCEED IN THAT CAS E AS IF THE PROVISIONS OF S.43B(F) REMAIN IN THE STATUTE. ONCE, THE HONBLE APEX COURT OBSERVED IN THAT MANNER WE ARE AFRAID OUR HANDS ARE TIED DOWN IN TAKING A VIEW DE HORS THE PROVISIONS O F S.43B(F) OF THE ACT. FURTHER, THE LD CIT(DR) HAS DRAWN OUR ATTENTION TO THE DECISION OF COCHIN BENCH OF ITAT IN THE CASE OF POPULAR VEHICLES & SERVICES LIMITED VS. DCIT (2014) 33 ITR (TRIB) 347 WHEREIN THE OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. SECTION 43B(F) WAS INTRODUCED BY THE FI NANCE ACT, 2001 WITH EFFECT FROM 1-4-2002. IN I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 31 VIEW OF SECTION 43B ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER IN LIEU OF ANY LEAVE AT THE CREDIT OF HIS EMPLOYEE SHALL BE ALLOWED ONLY ON ACT UAL PAYMENT IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE. AS RIGHTLY SUBMITTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE PROVISIONS OF SECT ION 43B(F) WAS STRUCK DOWN BY THE CALCUTTA HIGH COURT AS ARBITRARY AND DE HORS OF THE APEX COURT JU DGEMENT IN BHARAT EARTH MOVERS (2000) 245 ITR 428 (SC). IT IS ALSO AN ADMITTED FACT THAT THE APEX COURT HAS STAYED THE JUDGEMENT OF THE CALCUTTA HIGH COURT IN EXICE INDUSTRIES LTD. (2007) 292 ITR 470 (CALCUTTA). THEREFORE, THIS TRIBUNAL BEING A QUASI JUDICIAL AUTHORITY HAS TO DECIDE THE APPEAL O NLY ON THE BASIS OF THE PROVISIONS OF SECTION 43B(F ) OF THE ACT. IN OTHER WORDS, THE PROVISIONS OF SECT ION 43B(F) CANNOT BE IGNORED SINCE THE JUDGEMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUST RIES LTD., WAS STAYED BY THE APEX COURT. THEREFORE, THE CLAIM OF THE ASSESSEE COULD BE ALLOW ED ONLY IF IT IS ACTUALLY PAID ON THE DUE DATE FOR FILING THE RETURN OF INCOME. IT IS NOT THE CASE OF THE ASSESSEE THAT THE AMOUNT CLAIMED AS LEAVE ENCASHMENT WAS PAID BEFORE THE DUE DATE FOR FILING OF THE RETURN OF INCOME. SINCE IT REMAINS TO BE PAID, THIS TRIBUNAL IS OF THE CONSIDERED OPINION TH AT THE COMMISSIONER (APPEALS) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. TH EREFORE, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAME IS C ONFIRMED. CONSISTENT WITH THE ABOVE VIEW TAKEN BY THE COCHIN BENCH, WE ARE OF THE CONSIDERED VIEW THAT THE PROVISION FOR LEAVE ENCASHMENT MADE BY THE APPE LLANT BASED ON ACTUARIAL VALUATION CANNOT BE ALLOWED AS DEDUCTION AS THE PROVISIONS OF S.43B( F) RESTRICT THE ALLOWANCE OF DEDUCTION TO THE EXTENT OF AMOUNT PAID. WE ARE UNABLE TO AGREE WITH THE CONTENTION OF THE LD COUNSEL FOR THE APPELLANT, THAT HONBLE HIGH COURTS OF RAJASTHAN AN D KERALA HAVE ALSO TAKEN THE VIEW THAT PROVISION FOR LEAVE ENCASHMENT IS TO BE ALLOWED ON ACCRUAL BASIS AND THEREFORE PROVISIONS OF S.43B(F) CANNOT BE APPLIED TO THE CASE OF THE APPEL LANT. IN THE RESULT, THIS GROUND OF APPEAL OF THE APPELLANT IS DISMISSED. I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 32 52. GROUND NO.6 RELATES TO CONFIRMATION OF DISALLOW ANCE OF RS.4,75,44,740/- ON ACCOUNT OF PROVISION FOR LONG SERVICE AWARD. 53. FACTS ARE THAT THE ASSESSEE-COMPANY CREATED A PROVISION FOR LONG SERVICE AWARD AMOUNTING TO RS.4,75,44,740/- AND THE SAME WAS DEBI TED TO THE P&L ACCOUNT. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAID PR OVISION SHOULD NOT BE DISALLOWED, IT WAS STATED THAT UNDER LONG SERVICE AWARD SCHEME THE EMP LOYEE WHO COMPLETES 25 YEARS OF CONTINUOUS SERVICE WILL BE ELIGIBLE FOR AWARD IN TH E FORM OF A SILVER MEDALLION WEIGHING 150 GRMS. AS THE COMPANY FOLLOWS MERCANTILE SYSTEM OF A CCOUNTING THE AMOUNT ON ACCOUNT OF LONG SERVICE AWARD SCHEME WAS PROVIDED IN THE ACCOUNTS B ASED ON THE ACTUARIAL VALUATION CERTIFICATE AND HENCE THE SAME WAS AN ALLOWABLE EXPENDITURE. T HE AO DID NOT ACCEPT THE ASSESSEES CONTENTION AND DISALLOWED THE SAME CONSIDERING THE SAME IS NOT IN THE NATURE OF ASCERTAINED LIABILITY. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 54. THE FIRST APPELLATE AUTHORITY HELD THAT THIS S CHEME OF LONG SERVICE AWARD IS ALSO OF SIMILAR NATURE AS THAT OF POST RETIREMENT BENEFIT SCHEME AN D FAMILY BENEFIT SCHEME, IN WHICH, HE HAS HELD THAT THAT THESE SCHEMES ARE HIT BY SECTION 40 A(9) AND HENCE THE DEBITS BASED ON ACTUARIAL VALUATION ARE NOT ALLOWABLE EXPENSES. ACCORDINGLY, HE CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 55. BEFORE US, THE ARGUMENTS OF THE BOTH THE LEARNE D AR FOR THE APPELLANT AND THE LD CIT(DR) ARE IDENTICAL TO THEIR ARGUMENTS WITH REGAR D TO POST RETIREMENT BENEFIT SCHEME. FURTHER, THE LEARNED COUNSEL FOR THE APPELLANT PLAC ED RELIANCE IN THE CASE OF HONBLE DELHI HIGH I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 33 COURT IN CIT VS. INSILCO LIMITED (2010) 320 ITR 322 WHEREIN PAYMENTS UNDER IDENTICAL DESCRIPTION WERE HELD TO BE ALLOWABLE ON ACCRUAL BA SIS. 56. ON A CAREFUL PERUSAL OF THE INFORMATION ON RECO RD, WE FIND THAT THIS ISSUE IS IDENTICAL WITH THE ISSUE OF POST RETIREMENT BENEFIT SCHEME. VIDE PARA NO.22 OF THIS ORDER, WE HELD THAT EXPENSES OF THIS NATURE ARE TO BE ALLOWED ON ACCRUA L BASIS. CONSISTENT WITH OUR VIEW, IT IS HELD THAT PROVISION MADE BY THE APPELLANT TOWARDS LONG S ERVICE AWARD BASED ON ACTUARIAL VALUATION IS TO BE ALLOWED AS EXPENDITURE. THIS GROUND OF APPEA L IS ALLOWED. 57. NOW WE TAKE UP THE APPEAL FOR ASSESSMENT YEAR 2 008-09 IN ITA NO.97/VIZ/2012 58. GROUND NO.1 RELATES TO CONFIRMATION OF ADDITION OF RS.1,04,47,607/- RECEIVED ON SALE OF TREES. 59. THE FACTS AND THE REASONING GIVEN BY AUTHORITIE S BELOW FOR MAKING THE AFORESAID ADDITION OF RS.1,04,47,607/- ARE SIMILAR TO GROUND NO.1 OF APPEAL FOR ASSESSMENT YEAR 2007-08, WHICH WE HAVE DISCUSSED HEREINABOVE IN PARA NOS.39 AND 40 . CONSIDERING THE REASONING GIVEN BY US IN PARA NO.41 HEREINABOVE, WE HOLD THAT AMOUNT RECE IVED ON SALE OF TREES IS A REVENUE RECEIPT. THIS GROUND OF APPEAL IS DISMISSED. 60. GROUND NO.2 RELATES TO CONFIRMATION OF DISALLOW ANCE OF DEPRECIATION OF AN AMOUNT OF RS.22,042/- CLAIMED ON RAILWAY LINES & SIDINGS. 61. THE FACTS AND THE REASONING GIVEN BY AUTHORITI ES BELOW FOR MAKING THE AFORESAID ADDITION OF RS.22,042/- ARE SIMILAR TO GROUND NO.1 OF APPE AL FOR ASSESSMENT YEAR 2006-07, WHICH WE I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 34 HAVE DISCUSSED HEREINABOVE IN PARA NOS. 4 AND 5. C ONSIDERING THE REASONING GIVEN BY US IN PARA NOS.6 AND 7 HEREINABOVE, WE HOLD THAT APPELLAN T IS NOT ENTITLED TO CLAIM THIS AMOUNT EITHER AS DEPRECIATION OR AS DEFERRED REVENUE EXPENDITURE. THIS GROUND OF APPEAL IS THEREFORE REJECTED. 62. GROUND NO.3 RELATE TO CONFIRMATION OF ADDITION OF RS.36,44,59,214/- TOWARDS PROVISION FOR POST RETIREMENT BENEFITS MADE UNDER SECTION 43B R.W.S. 36(1)(IV)& (V) OF THE ACT. 63. THE FACTS AND THE REASONING GIVEN BY AUTHORITI ES BELOW FOR MAKING THE AFORESAID ADDITION OF RS.36,44,59,214 ARE SIMILAR TO GROUND NO.3 OF AP PEAL FOR ASSESSMENT YEAR 2006-07, WHICH WE HAVE DISCUSSED HEREINABOVE IN PARA NOS.16 TO 21. CO NSIDERING THE REASONING GIVEN BY US IN PARA 22 HEREINABOVE, WE ALLOW THIS GROUND OF APPEAL OF T HE APPELLANT. 64. GROUND NO.4 RELATES CONFIRMATION OF ADDITION T OWARDS PROVISION FOR EMPLOYEES FAMILY BENEFIT SCHEME AMOUNTING TO RS.15,69,84,138/-. 65. THE FACTS AND THE REASONING GIVEN BY AUTHORITI ES BELOW FOR MAKING THE AFORESAID ADDITION OF RS.15,69,84,138 ARE SIMILAR TO GROUND NO.4 OF AP PEAL FOR ASSESSMENT YEAR 2006-07, WHICH WE HAVE DISCUSSED HEREINABOVE IN PARA NOS.24 TO 27. CONSIDERING THE REASONING GIVEN BY US IN PARA NO.28 HEREINABOVE, WE ALLOW THIS GROUND OF APP EAL OF THE APPELLANT. 66. GROUND NO.5 RELATES TO CONFIRMATION OF ADDITIO N IN RESPECT OF PROVISION FOR FUTURE LEAVE ENCASHMENT AMOUNTING TO RS.83,02,57,321/-. I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 35 67. THE FACTS AND THE REASONING GIVEN BY AUTHORITI ES BELOW FOR MAKING THE AFORESAID ADDITION OF RS.83,02,57,321/- ARE SIMILAR TO GROUN D NO.5 OF APPEAL FOR ASSESSMENT YEAR 2007- 08, WHICH WE HAVE DISCUSSED HEREINABOVE IN PARA NOS .48 TO 50. CONSIDERING THE REASONING GIVEN BY US IN PARA NO.51 HEREINABOVE, WE HOLD THAT THE EXPENDITURE CLAIMED BY THE APPELLANT TOWARDS PROVISION FOR LEAVE ENCASHMENT IS TO BE DIS ALLOWED. THIS GROUND OF APPEAL IS DISMISSED. 68. GROUND NO.6 RELATES TO CONFIRMATION OF ADDITION OF AN AMOUNT OF RS.13,56,00,000/- ON ACCOUNT OF CHANGE IN ACCOUNTING POLICY IN RESPECT O F VALUATION OF INVENTORIES. 69. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION , THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE CHANGED THE ACCOUNTING POLICY WITH REGARDS TO VALUATION OF FINISHED/SEMI-FINISHED GOOD. DUE TO ABOVE CHANGES, THERE WAS A DECREASE I N THE PROFIT AMOUNTING TO RS.13,56,00,000/-. WHEN, THE ASSESSEE WAS CONFRONT ED WITH THE ABOVE CHANGE, IT WAS EXPLAINED THAT IN THE INVENTORY OF FINISHED AND SEM I-FINISHED GOODS, THE AVERAGE COST OF PRODUCTION OF LAST SIX MONTHS WAS CONSIDERED AS COS T OF PRODUCTION IN THE PREVIOUS YEAR UPTO 2006-07. HOWEVER, THIS PRACTICE WAS REPLACED BY AD OPTING WEIGHTED AVERAGE COST OF PRODUCTION FOR THE ENTIRE YEAR AND CONSEQUENTLY THE AVERAGE CO ST OF FINISHED AND SEMI-FINISHED GOODS WAS REDUCED BY RS.13.56 CRORES. IT WAS STATED THAT THE CHANGE WAS NECESSITATED DUE TO THE OBJECTION RAISED BY THE COMPTROLLER AND AUDITED GEN ERAL AND THAT THIS CHANGE WAS IN LINE WITH ACCOUNTING STANDARD AS-5. THE AO DID NOT ACCEPT TH E ASSESSEES CONTENTION ON THE GROUND THAT THE ASSESSEE HAS NOT BEEN ABLE TO EXPLAIN AS TO HOW THE CHANGE IN THE POLICY PROVIDED MORE APPROPRIATE PRESENTATION OF FINANCIAL STATEMENTS OT HER THAN A DECREASE IN THE PROFITS. IT WAS ALSO OBSERVED THAT THE PRODUCTION CAPACITY OF THE A SSESSEE REMAINED THE SAME AS WAS IN THE I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 36 PRECEDING YEAR. IT WAS IN THIS BACKDROP THAT THE A O REJECTED THE RESULTS OF SUCH CHANGE AND RESULTANT LOSS OF RS.13.56 CRORES WAS ADDED BACK TO THE RETURNED INCOME OF THE ASSESSEE. 70. ON APPEAL, THE FIRST APPELLATE AUTHORITY UPHEL D THE ACTION OF THE ASSESSING OFFICER. HENCE, THIS APPEAL BY THE ASSESSEE. 71. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE CHANGE IN METHOD OF VALUATION OF SEMI-FINISHED GOODS IS PART OF TOTAL REVAMPING OF T HE ACCOUNTING POLICIES OF THE ASSESSEE COMPANY AND THUS, THE BONA FIDES ARE PROVED. THE A BOVE CHANGE IN ACCOUNTING POLICY WAS APPROVED BY THE STATUTORY AUDITORS OF THE ASSESSEE COMPANY AND ALSO THE COMPTROLLER AND AUDITOR GENERAL. HE SUBMITTED THAT ALTHOUGH INITIA LLY THE COMPTROLLER AND AUDITOR GENERAL RAISED AN OBJECTION TO THE ABOVE CHANGE, BUT LATER DROPPED THE OBJECTION. HE SUBMITTED THAT AS PER AS-2 ISSUED BY THE ICAI, COST FORMULAS ARE TO B E DETERMINED CONSIDERING THE ACCOUNTING PERIOD AS A WHOLE. THEREFORE, IN ORDER TO COMPLY W ITH THE STATUTORY REQUIREMENT, THE ACCOUNTING POLICY OF THE ASSESSEE COMPANY NEEDED TO BE CHANGED. HE ALSO SUBMITTED THAT CONSIDERING THE TOTAL PROFIT OF THE ASSESSEE COMPAN Y WHICH WORKS OUT TO RS.2995.36 CRORES, THE DECREASE OF PROFIT OF RS.13.56 IS VERY MARGINAL. 72. ON THE OTHER HAND, LD D.R. SUBMITTED THAT THE AVERAGE TIME OF RETENTION OF FINISHED GOODS IS LESS THAN THREE MONTHS AND, THEREFORE, THE EXISTING POLICY OF AVERAGE COST OF SIX MONTHS WOULD GIVE FAIREST APPROXIMATION OF VALUE OF SEMI-FINISHED GOODS. IN THE ALTERNATE, THE LD DR CONTENDED THAT THE ASSESSEE OUGHT TO HAVE REV ALUED THE OPENING STOCK AS WELL AS IN LINE WITH THE CHANGED ACCOUNTING POLICY. HE SUBMITTED T HAT AS-2 DOES NOT MANDATE THAT THE ASSESSEE SHOULD ADOPT YEARLY WEIGHTED AVERAGE COST. I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 37 73. AFTER HEARING BOTH THE PARTIES AND PERUSING TH E MATERIAL AVAILABLE ON RECORD AS WELL AS ORDERS OF AUTHORITIES BELOW, WE ARE OF THE CONSIDER ED VIEW THAT THE CHANGE IN ACCOUNTING POLICY RELATING TO METHOD OF VALUATION OF SEMI-FINISHED GO ODS AND WORK-IN-PROGRESS IS A BONA-FIDE CHANGE. MERELY, BECAUSE THERE IS SOME REDUCTION IN PROFITS ON ACCOUNT OF SUCH BONA-FIDE CHANGE ADDITION CANNOT BE MADE IN THIS REGARD. HOW EVER, WE ARE OF THE VIEW THAT THE APPELLANT OUGHT TO HAVE VALUED THE OPENING STOCK ALSO AS PER THE SAME METHOD. FROM THE INFORMATION AVAILABLE ON RECORD, WE ARE UNABLE TO FIND OUT WHET HER SUCH ADJUSTMENT WAS MADE IN VALUATION OF OPENING STOCK AS WELL OR NOT. THEREFORE, WE SET ASIDE THIS MATTER TO THE ASSESSING OFFICER TO RE-EXAMINE THE ISSUE AND DECIDE AFRESH IN ACCORDANC E WITH LAW APPLICABLE. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE S. 74. NOW WE TAKE UP THE APPEAL FOR ASSESSMENT YEAR 2 005-06 IN ITA NO.141/VIZ/2012. 75. BRIEFLY STATED THE FACTS ARE THAT THE APPELLANT FILED ITS RETURN OF INCOME ON 28.10.2005 AND THE ASSESSMENT WAS COMPLETED U/S 143(3) VIDE OR DER DT.26-3-2007. LATER, THE ASSESSING OFFICER REOPENED THE ASSESSMENT BY ISSUE OF NOTICE U/S 148 ON 24.10.2009. THE REASON FOR REOPENING WAS STATED TO BE THAT THE APPELLANT CLAIM ED EXPENDITURE TOWARDS POST RETIREMENT BENEFIT SCHEME AND EMPLOYEES FAMILY BENEFIT SCHEME AND THESE EXPENSES BEING CONTINGENT IN NATURE REQUIRE TO BE DISALLOWED. IN THE ASSESSMENT COMPLETED U/S 143(3) R.W.S. 147 VIDE ORDER DT.19.03.2010 THE ASSESSING OFFICER ADDED THE AMOUN TS PROVIDED UNDER THE ABOVE SCHEMES AND ALSO THE AMOUNT OF WEALTH TAX TO THE BOOK-PROFIT CO MPUTED U/S 115JB OF THE ACT. THE INCOME DETERMINED UNDER THE REGULAR PROVISIONS OF THE ACT REMAINED UNCHANGED. I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 38 76. IN THE APPEAL FILED BEFORE THE LD CIT(A), THE A PPELLANT CONTENDED THAT THE ASSESSING OFFICER SOUGHT TO REOPEN THE ASSESSMENT TO MAKE ADD ITIONS UNDER THE REGULAR PROVISIONS OF THE ACT BUT MADE ADDITIONS TO THE BOOK-PROFIT. THE APP ELLANT CONTENDED THAT THE REOPENING WAS INVALID AND THAT THE ADDITIONS MADE TO THE BOOK-PRO FIT WERE NOT ONLY UNWARRANTED BUT WERE OUTSIDE THE SCOPE OF REASSESSMENT. 77. THE LD CIT(A) UPHELD THE REASSESSMENT. ON MERI TS, HE HELD THAT THE ADDITIONS MADE TO BOOK-PROFIT DESERVE TO BE DELETED. HOWEVER, BY GIV ING A NOTICE OF ENHANCEMENT TO THE APPELLANT, HE HELD THAT THE AMOUNTS PROVIDED UNDER THE POST RETIREMENT BENEFIT SCHEME AND THE EMPLOYEE FAMILY BENEFIT SCHEME ARE TO BE ADDED TO THE INCOME DETERMINED UNDER THE REGULAR PROVISIONS OF THE ACT. 78. IN GROUND NO.1, THE ASSESSEE HAS OBJECTED TO THE RE ASSESSMENT PROCEEDINGS INITIATED UNDER THE PROVISIONS OF SECTIONS 147 & 148 OF THE A CT. 79. IN GROUND NO.2, THE ASSESSEE IS AGGRIEVED WITH THE DECISION OF LD CIT(A) IN ISSUING DIRECTION FOR ENHANCEMENT OF INCOME DETERMINED IN R EASSESSMENT PROCEEDINGS UNDER SECTION 143(3) R.W.S. 147 OF THE ACT ON THE ISSUE OF POST R ETIREMENT BENEFITS AND EMPLOYEE FAMILY BENEFITS. 80. GROUND NO.3 RELATES TO CONFIRMATION OF DISALLOW ANCE OF RS.469.14 LAKHS ON ACCOUNT OF PROVISIONS FOR POST RETIREMENT BENEFITS TO THE EMPL OYEES OF THE ASSESSEE. I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 39 81. THE FACTS AND THE REASONING GIVEN BY AUTHORITIE S BELOW FOR MAKING THE AFORESAID ADDITION OF RS.469.14 LAKHS ARE SIMILAR TO GROUND NO.3 OF A PPEAL FOR ASSESSMENT YEAR 2006-07, WHICH WE HAVE DISCUSSED HEREINABOVE IN PARA NOS.16 TO 21. CONSIDERING THE REASONING GIVEN BY US IN PARA NO.22 HEREINABOVE, WE HOLD THAT THE EXPENDITUR E CLAIMED BY THE APPELLANT TOWARDS POST RETIREMENT BENEFIT SCHEME IS TO BE ALLOWED ON ACCRU AL BASIS ON THE BASIS OF ACTUARIAL VALUATION. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED. 82. GROUND NO.4 RELATES TO CONFIRMATION OF ADDITION OF RS.254.46 LAKHS TOWARDS PROVISION FOR EMPLOYEE FAMILY BENEFITS. 83. THE FACTS AND THE REASONING GIVEN BY AUTHORITIE S BELOW FOR MAKING THE AFORESAID ADDITION OF RS.254.46 LAKHS ARE SIMILAR TO GROUND NO.4 OF A PPEAL FOR ASSESSMENT YEAR 2006-07, WHICH WE HAVE DISCUSSED HEREINABOVE IN PARA NOS.24 TO 27. CONSIDERING THE REASONING GIVEN BY US IN PARA NO.28 HEREINABOVE WE HOLD THAT THE EXPENDITURE CLAIMED BY THE APPELLANT TOWARDS PROVISION FOR EMPLOYEE FAMILY BENEFITS IS TO BE ALL OWED ON ACCRUAL BASIS ON THE BASIS OF ACTUARIAL VALUATION. THIS GROUND OF APPEAL IS ALLOWED. 84. AS WE HAVE HELD THAT BOTH THE AMOUNTS DIRECTED BY THE LEARNED CIT(A) TO BE ADDED IN THE COMPUTATION OF INCOME UNDER THE REGULAR PROVISI ONS OF THE ACT DESERVE TO BE DELETED, WE DO NOT FIND IT NECESSARY TO ADJUDICATE THE GROUNDS REL ATING TO REOPENING OF ASSESSMENT AND ALSO THE SCOPE OF ENHANCEMENT MADE BY THE LD CIT(A). 85. GROUND NO.5 RELATES TO LEVY OF INTEREST U/S. 23 4B AND 234C OF THE ACT. THIS GROUND OF APPEAL IS ONLY CONSEQUENTIAL AND HENCE NO SEPARATE ADJUDICATION IS REQUIRED. I.T.A. NOS.94, 95,96,97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 40 86. IN THE RESULT APPEAL OF THE ASSESSEE IN ITA NO.141 /V/2012 IS TREATED AS ALLOWED AND THE APPEALS IN ITA NOS. 94, 95 AND 97/V/ 2012 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8/1/2 015 SD/- SD/- (D.MANMOHAN ) (J.SUDHAKAR REDDY) VICE PRESIDENT ACCOUNTANT MEMBER VISHAKHAPATNAM DATED 8/ 1/2015 PARIDA , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE : 2. THE RESPONDENT. : 3. THE CIT(A) - VISAKHAPATNAM 4. CIT , VISAKHAPATNAM 5. DR, ITAT, VISHAKHAPATNAM 6. GUARD FILE. BY ORDER SR.PS, ITAT, VISHAKHAPATNAM //TRUE COPY//