Revenue's Appeal Partly Allowed by ITAT: Provisions for Gratuity, Leave Encashment Dismissed; Provisions for Doubtful Debts Allowed.

The appeal filed by the revenue was partly allowed. The ITAT dismissed the revenue's grounds concerning the provisions for Gratuity, Leave Encashment, Post-Retirement Medical Benefits, and amortization of land but allowed the ground related to the provisions for doubtful debts. The order was pronounced in open court on September 30, 2014.

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Issues Involved:

1. Deletion of disallowance of Rs. 24,29,89,211/- for Gratuity, Leave Encashment, and Post-Retirement Medical Benefits.
2. Application of section 43B concerning section 115JB.
3. Treatment of disallowance under section 43B in normal computation versus book profit calculation.
4. Deletion of disallowance of Rs. 8,76,59,179/- for provisions for doubtful debts.
5. Deletion of disallowance of Rs. 6,12,00,000/- for depreciation on land after amortization.

Detailed Analysis:

1. Deletion of Disallowance for Gratuity, Leave Encashment, and Post-Retirement Medical Benefits:
The revenue contested the deletion of the disallowance of Rs. 24,29,89,211/- made by the Assessing Officer (AO) in computing the book profit under section 115JB for provisions made for Gratuity, Leave Encashment, and Post-Retirement Medical Benefits. The issue was previously decided in favor of the assessee in the assessment year 2002-03, where it was held that the provisions made on an actuarial basis are not contingent liabilities but ascertained liabilities. The Hon'ble Supreme Court in Bharat Earth Movers held that if a business liability has definitely arisen in the accounting year, the deduction should be allowed even if the liability is to be discharged in the future. The ITAT followed this precedent, dismissing the revenue's appeal on this ground.

2. Application of Section 43B Concerning Section 115JB:
The revenue argued that section 43B, which pertains to certain deductions only on actual payment, does not relate to section 115JB, which deals with the computation of book profits. However, since the provisions for Gratuity, Leave Encashment, and Post-Retirement Medical Benefits were considered ascertained liabilities, section 43B was deemed inapplicable. The ITAT, following the earlier decision, dismissed the revenue's appeal on this ground.

3. Treatment of Disallowance under Section 43B in Normal Computation versus Book Profit Calculation:
The revenue contended that the disallowances made under section 43B in the normal computation should also apply to the book profit calculation under section 115JB. However, the ITAT held that since the liabilities were ascertained and the provisions were based on actuarial valuations, they should not be added back to the book profit. Therefore, the revenue's appeal on this ground was dismissed.

4. Deletion of Disallowance for Provisions for Doubtful Debts:
The revenue challenged the deletion of Rs. 8,76,59,179/- made by the AO for provisions for doubtful debts. The assessee conceded that due to the retrospective amendment by the Finance (No.2) Act, 2009, this issue was against them. Consequently, the ITAT allowed the revenue's appeal on this ground, making the addition of the provisions for doubtful debts to the book profit.

5. Deletion of Disallowance for Depreciation on Land after Amortization:
The revenue argued that no depreciation is allowable on land under the Companies Act, and thus, the amortization of Rs. 6,12,00,000/- should be disallowed in computing the book profit. The assessee countered that the land in question was taken for use from the State Government without transferring the title and was amortized over the project's useful life. The ITAT noted that the accounts were audited and approved by statutory auditors and the Comptroller and Auditor General (CAG), and the Supreme Court in Apollo Tyres Ltd. held that the AO cannot go behind the net profit shown in the profit and loss account except as provided in the Explanation to section 115J. Since the land was not owned by the assessee and the amortization policy was approved, the ITAT upheld the CIT(A)'s order deleting this addition, rejecting the revenue's appeal on this ground.

Conclusion:
The appeal filed by the revenue was partly allowed. The ITAT dismissed the revenue's grounds concerning the provisions for Gratuity, Leave Encashment, Post-Retirement Medical Benefits, and amortization of land but allowed the ground related to the provisions for doubtful debts. The order was pronounced in open court on September 30, 2014.

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