TaxTMI 
TaxTMI 
2005 (7) TMI 303
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....ears. Common issues involved in ITA Nos. 12/Hyd./2002 and ITA No. 705/Hyd./2002 are: (i) Allowability of Ad hoc Provision made towards Wages Revision in respect of employees covered under IDA pattern of pay scale: (ii) Computation of deduction under section 80HHC. In ITA No. 1035/Hyd./2003 for assessment year 2000-2001 ground No. 1 is on allowability of ad hoc provision made towards wages revision and second ground is charging of Rs. 3.90 crores to the Profit and Loss Account on account of expenditure incurred on Arki Lime Stone deposits. Third ground in this year is writing-off of miscellaneous losses of Rs. 2,27,46,000. 3. As regards the issue of deduction under section 80HHC, the same has been decided by us in the case of assessee for earlier years in ITA Nos. 688/Hyd./2000, 355/Hyd./2000 and 216/Hyd./2000. However, the ld. Counsel for the assessee wanted to put on record the proposition that according to him, job charges do not fall within the scope of Explanation (baa) to section 80HHC. For this proposition, he has relied on the decision of the Hon'ble Bombay High Court in the case of CIT v. Bangalore Clothing Co. [2003] 260 ITR 371. He has also rel....
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....9 lakhs 3. Other Losses Rs. 12.25 lakhs Total Rs. 227.46 lakhs Before the Assessing Officer, the assessee contended that as per accounting policy of the company, stores and spare items which have not moved for more than 5 years are identified individually and declared as non-moving stores and spares and due to depletion in its value, these are valued at 15 per cent of their original value in the books. The remaining 85 percent of the value is written of as these are not found to be useful. This practice is being followed since inception and such writing off had been allowed by Department in earlier year also. However, the Assessing Officer did not allow the above claim, as the inventories which were written off had always been outside the P&L Account. As details of items that have been purchased, the amount of such purchase and mode of the valuation were not furnished by the assessee, the Assessing Officer held that the onus that was on the assessee to prove the allowability of the expenditure has not been discharged. Accordingly, he disallowed the same. Ld. CIT(A) in para-6.1 of his order noted that the Assessing Officer held that the purchases relevant....
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....mployees covered by IDA Pattern of scales. Such amounts claimed by the assessee during the three assessment years are as under: 1998-99 Rs. 10,13,39,487 1999-2000 Rs. 11,50,64,000 2000-2001 Rs. 12,13,19,000 There are two categories of employees in the Company. The first category of employees are eligible for DA as per Central Government Pattern. The second category of employees are eligible for the DA according to the Industrial Pattern. For the latter category, the agreement between the appellant and its employees expired on 31-12-1996 and, therefore, Pay Revision was due w.e.f. 1-1-1997. The employees/workers submitted a charter of demands as early as 29-12-1997 and continued to demand actual higher payment of wages. After prolonged negotiations between the Management and the Workers' Unions, a new Memorandum of Settlement was arrived at between the Management and the workers on 17-8-2001 covering the period 1-1-1997 to 31-12-2006. As regards the executives, Government of India, Ministry of Industries, Department of Public Enterprises appointed a Pay Commission under the Chairmanship of Justice Mohan vide its Resolution dated 10-12-1996. The Committee was....
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....TR 134 (SC) 2. Laxmi Devi Sugar Mills v. CIT [1993] 200 ITR 603 (SC) 3. Johnson & Johnson Ltd. v. First, ITO [1989] 33 TTJ (Bom.) 387 4. Dy. CIT v. Agarwal & Modi Enterprises (Cinema Project) Co. (P.) Ltd. [2003] 86 ITD 214 (Delhi) 5. Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC) 6. CIT v. Mahindra Ugine & Steel Co. Ltd. [2001] 250 ITR 843 (Bom.) 7. Thermax Babcock and Wilcox Ltd. v. Dy. CIT [2002] 255 ITR 27 (AT) (Pune). 12. It was also argued by the ld. DR that in the books of account, these amounts have been shown as ad hoc provision only, and thus the same could not have been claimed as an expenditure during the relevant previous years. According to him, this would lead to change in method of accounting which is not permissible. In support of the above proposition, he relied on the following case laws: 1. CIT v. British Paints India Ltd. [1991] 188 ITR 444 (SC) 2. Decision of ITAT, Hyderabad A Bench in the case of Aurobindo Pharma Ltd. v. Dy. CIT [ITA No. 103/Hyd./95 dated 3-12-1997] 3. Decision of the ITAT, Hyderabad B Bench in the case of Vasant Organics Ltd. v. Dy. CIT (Asst.) [IT Appeal....
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....y when an agreement was reached. (iii) Johnson & Johnson Ltd.'s case This is a case where it was held by the Tribunal that liability arose only on account of agreement made by the assessee-company with its employees and as the books of account of the assessee were not open till the date of agreement, the same was not an allowable liability as per mercantile method of accounting. (iv) Agarwal & Modi Enterprises (Cinema Project) Co. (P.) Ltd's case This is a case where liability on account of disputed licence fee was the issue. After the expiry of the original lease a fresh agreement was signed, by which the annual lease amount was increased substantially. Validity of the agreement was disputed by the assessee by filing suit. Under these circumstances, it was held by the Hon'ble Tribunal that the liability accrued only on settlement of the dispute by the court. The same was upheld by the High Court. (v) Bharat Earth Mover's case This is a case on which reliance has been placed by both the Revenue as well as the assessee. The Apex Court in the above case decided the issue of accrual of liability on account of entitl....
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....ourt upheld the above finding of the Tribunal. (vii) Thermax Babcock & Wilcox Ltd.'s case In this case, the question that arose for decision was as to whether provision for warranty liability made in terms of warranty obligation even when no boilers were delivered or commissioned by the assessee during the relevant accounting year was allowable as per mercantile method of accounting. Both the Ld. Judicial and Accountant Member agreed that the liability was a contingent liability and that it was not allowable under section 37(1) of the Act. The difference was as to whether the above provision was allowable under section 28 itself on commercial or accounting principle. It was held by the Hon'ble Third Member that the issue is not as to whether a claim prohibited by sections 30 to 43C of the Act can be allowed under section 28 or not. It is to be seen whether the claim is allowable as per the scheme of the Act or not irrespective of the other relevant provisions or considerations. As there was no delivery or commissioning of the boilers during the relevant previous year, it was held that no liability towards the same was allowable in the year under considerat....
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....hich if there was no specific provision for it under section 10(2) of the Act was certainly allowable deduction, in arriving at the profits and gains of the business of the appellant under section 10(1) of the Act, there being no prohibition against it, express or implied, in the Act. Having accepted the receipts of Rs. 43,692-11-9 in their totality even though a sum of Rs. 29392-11-9 only was actually received by the appellant in cash, thus making the appellant liable for income-tax on a sum of Rs. 14,300 which had not been received by it during the accounting year, it was hardly open to the Revenue to urge that the sum of Rs. 24,809 should not have been allowed as a permissible deduction before arriving at the profits or gains of the appellant which were liable to tax." It was concluded by the Apex Court "where the assessee was following mercantile system of accounting is entitled to deduct expenditure which is incidental to the business is deductible on accrual basis though it was not actually incurred during the relevant accounting year." (x) VST Co. Ltd.'s case In this case, the Apex Court explained the meaning of provision and reserve. (xi) Mits....
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.... has been incurred in praesenti, even though the same cannot be quantified accurately and is to be discharged at a different point of time, the same has to be allowed as an expenditure. 17. The Hon'ble Bombay High Court's decision in the case reported in 250 ITR 84 supra, appears to support the case of the revenue. But in that case the payment was a lump sum payment for a period of two years only. It was akin to liability to profit bonus as discussed in the case of Swadeshi Cotton & Flour Mills (P.) Ltd. The liability in that case did not arise out of contract of employment. The cases on warranty liability lay down the principle that the contract of warranty conies into effect as soon as the sale has been made. The true profit from such sale can be arrived at after the estimated expenditure on account of warranty liability is reduced from the same. Same is the ratio in the case of Calcutta Co. Ltd. For determination of true profits, the liability fastened to the receipts accounted for has to be allowed, hi this view of the matter, we are unable to agree with the view expressed by the Tribunal in the case reported in Johnson & Johnson Ltd. It may be pointed out that the f....