Tax Tribunal: Provisions for Leave Encashment, Wealth Tax, and Deferred Sales Tax Not Taxable

The Tribunal held that the provision for leave encashment made on an actuarial basis is an ascertained liability and should not be added to the book profit under Section 115JB. Similarly, the provision for wealth tax and the difference between net present value and future liability related to deferred sales tax were also not considered taxable. The additions made by the Assessing Officer on various grounds were deleted. The Tribunal allowed the appeals of the assessee for multiple assessment years, while the revenue's appeal for one year was dismissed.

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Issues Involved:
1. Validity of notice issued under Section 153C.
2. Taxability of interest received as income from other sources versus business income.
3. Netting off of interest paid against interest received.
4. Disallowance of depreciation on residential building.
5. Addition of provision for leave encashment for computing book profit under Section 115JB.
6. Addition of provision for wealth tax for computing book profit under Section 115JB.
7. Addition of difference between payment of net present value and future liability related to deferred sales tax.
8. Deletion of additions made by the Assessing Officer (AO) on various grounds.

Issue-wise Detailed Analysis:

(A) Addition of Provision for Leave Encashment for Computing Book Profit under Section 115JB:
- Facts: The AO added the provision for leave encashment to the net profit for computing book profit under Section 115JB, considering it an unascertained liability. The CIT(A) upheld this view.
- Decision: The Tribunal held that the provision for leave encashment made on an actuarial basis is an ascertained liability and should not be added to the book profit under Section 115JB. This view was supported by the Supreme Court's judgment in Bharat Earth Movers Vs. CIT.

(B) Addition of Provision for Wealth Tax for Computing Book Profit under Section 115JB:
- Facts: The AO added the provision for wealth tax to the book profit under Section 115JB. The CIT(A) upheld this view.
- Decision: The Tribunal held that the provision for wealth tax should not be added to the book profit under Section 115JB, as it is not covered under the items of the Explanation to Section 115JB. This was supported by the ITAT, Kolkata, Special Bench's decision in JCIT Vs. Usha Martin Industries Ltd.

(C) Addition of Difference Between Payment of Net Present Value and Future Liability Related to Deferred Sales Tax:
- Facts: The AO taxed the difference between the net present value paid and the future liability of deferred sales tax. The CIT(A) did not entertain the assessee's claim that this amount was not taxable.
- Decision: The Tribunal held that the difference between the net present value and the future liability is not taxable under Section 41(1) as it does not constitute a remission or cessation of liability. This view was supported by the Bombay High Court's judgment in CIT Vs. Sulzer India Ltd.

(D) Deletion of Addition Made on Account of Compensation for Land Acquisition:
- Facts: The AO added compensation received for land acquisition to the assessee's income, considering it undisclosed. The CIT(A) deleted this addition.
- Decision: The Tribunal upheld the CIT(A)'s decision, noting that the compensation was already included in the sales and accounted for in the assessee's books.

(E) Deletion of Addition of Amount Collected from Flat Purchasers for Maintenance:
- Facts: The AO added maintenance charges collected from flat purchasers to the assessee's income. The CIT(A) deleted this addition.
- Decision: The Tribunal upheld the CIT(A)'s decision, noting that the unutilized amount was shown as a liability and was to be handed over to the housing society upon final settlement.

(F) Deletion of Addition of Provision Written Back:
- Facts: The AO added provisions written back to the assessee's income. The CIT(A) deleted this addition.
- Decision: The Tribunal upheld the CIT(A)'s decision, noting that the provisions were not claimed as deductions in earlier years and thus should not be added to the income when written back.

(G) Deletion of Addition of Amount Received from M/s Durable Trading Company Pvt. Ltd.:
- Facts: The AO added an amount received from M/s Durable Trading Company Pvt. Ltd. to the assessee's income. The CIT(A) deleted this addition.
- Decision: The Tribunal upheld the CIT(A)'s decision, noting that the amount was duly accounted for in the assessee's books.

(H) Deletion of Addition of Amount Receivable from Kalpataru Homes Ltd.:
- Facts: The AO added an amount receivable from Kalpataru Homes Ltd. to the assessee's income. The CIT(A) deleted this addition.
- Decision: The Tribunal upheld the CIT(A)'s decision, noting that the amount was related to the realization of debtors and was already offered to tax in earlier years.

Conclusion:
- The appeals of the assessee for A.Y. 2005-06, A.Y. 2006-07, and A.Y. 2007-08 were allowed in terms of the Tribunal's observations.
- The appeal filed by the revenue for A.Y. 2005-06 was dismissed.

Order Pronounced in the Open Court on 23.12.2019.

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