TaxTMI 
TaxTMI 
2015 (12) TMI 301
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....d in confirming the order of the AO for the liability on account of leave encashment which has been crystallized although has not fallen due for payment as on 31st March, 1996. 4. Briefly stated facts are that during the year assessee has debited its profit and loss account by an amount of Rs. 4.90 crores towards provision for leave salary. On question raised by Assessing Officer on the allowabilty of said provision for leave salary as deduction, the assessee submitted that liability on account of leave salary has been worked out on the basis of leave lying to the credit of each member of the staff as on 31st March, 1996. Assessee further submitted that this amount has not fallen due for payment as on 31st March, 1996 but the liability for the same, has been crystallized. So under mercantile system of accounting, it should be considered as accrued liability and should be allowed as deductable expenditure. However, AO disregarded the claim of assessee and treated the same as contingent liability as it has not accrued during the previous year. It merely represents the provision of liability, therefore the same was disallowed. Aggrieved, assessee preferred an appeal before Ld. CIT(A)....
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....understand that the liability is certain for the provision of the leave encashment. It is not a contingent liability because the employees are very much entitled for getting the leave encashed as per the policy of the company. We find from the judgment of Hon'ble Supreme Court in the case of Bharat Earth Movers 245 ITR 428 (SC) has allowed this kind of expenditure u/s 37(1) of the Act. The relevant extract of the order is produced below:- "Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Year in which deductible - Assessment year 1978-79 - Whether if a business liability has definitely arisen in accounting year, deduction should be allowed although liability may have to be quantified and discharged at a future date but what should be definite is incurring of liability - Held yes - Provision was made by assessee-company for meeting liability towards leave encashment proportionate to entitlement earned y employees of company subject to ceiling on accumulation as applicable on relevant date - Whether assessee would be entitled to deduction of such provision out of gross receipts for accounting year during which provision was made for liability inasmuch as liabi....
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....e to you on the dates shown against them and each amount will be paid to you on or after the day following the date of accrual. It is expressly agreed between the company and yourself that you will have no right, interest or claim whatsoever in respect of any of these amounts until the date due to you. It should be clearly understood that consequent upon your acceptance of this offer, the tenure of your employment with us shall cease with effect from 2 Apr. 95" The AO found that on cessation of monthly payment, the staff will be paid the following payments on the dates as mentioned below:- Amount Date Rs.96195/- April, 2000 Rs.96195/- April, 2001 Rs.96195/- April, 2002 From the above, AO found that as per the severance agreement the liability for the payment of VRS crystallized in the assessment year 1996-97 but the payment has not fallen due in the relevant year. The AO further found that during the relevant year the actual payment for VRS made of Rs. 6,90,77,772/-. Therefore, AO held that payment of VRS which has actually been paid will be allowed as an expense and the balance of Rs. 6,29,22,228/- will not be allowed in the year under consideration. Accordingly....
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....e find that this Tribunal has decided in assessee's own case where the expenses for VRS was allowed and keeping a consistent view we reverse the orders of authorities below. Hence this ground of assessee's appeal is allowed. 9. In the result, assessee's appeal is allowed. Coming to Revenue's appeal in ITA No. 1021/Kol/2007 A.Y. 1996-97 10. First issue raised by Revenue is that Ld. CIT(A) erred in allowing the excessive depreciation for an amount of Rs. 13,77,12,314/-. Before we come to the specific issue raised by Revenue it is better to understand the history of the facts of the case which goes as under:- During the FY 1993-94 relevant to AY 1994-95 assessee has sold two undertaking for an amount of Rs. 85 crores as going concern. The assessee claimed in his return of income for those years Long Term Capital Loss under section 48 of the Act. However then the AO was of the view that there was sale of depreciable assets and therefore the section 50 was applicable to this transaction. Since the assessee did not provide the breakup of the sale consideration, he treated the entire sale consideration as sale of depreciable assets and worked out the Short Term Capita....
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....ock of assets relating to the business units which are not sold and used by the appellant for business. In the appellant's case, the WDV of the assess belonging to fertilizer and fibre division is to be reduced from block of assets and depreciation is required to be allowed on the assets used by the appellant for the business. The AO is directed to examine the details and to allow depreciation on the WDV of the assets other than those relating to the business sold as going concern. The AO is directed to examine the details and allow the depreciation as per law." Aggrieved, Revenue is in appeal before us. 11. We have heard rival contentions of both the parties and perused the materials available on record. Ld. DR relied on the order of AO whereas Ld. AR relied on the order of Ld. CIT(A). Ld. AR submitted that audited statement showing claim of depreciation u/s. 32 of the Act which is placed on page 4 of the paper book and depreciation claim in audited statement was at Rs. 15,06,49,470/- only. Ld. AR further submitted that undertaking which was sold during the previous year as specified by AO in his assessment order was going concern. Therefore the sale proceed of those undert....
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....t Term Capital Gain (STCG for short) u/s 50 of the Act or as Long Term Capital Gains (LTCG for short). During the year under consideration assessee has sold its agro chemical undertaking for a value of Rs. 30 crores on which assessee earned profit and same was declared as LTCG after adjusting the brought forward loss under head 'LTCG'. The AO during the assessment proceedings found that in the earlier year, the assessee claimed Long Term Capital Loss from the sale of undertakings, but then the AO disallowed the same and adjusted the sale proceed of those undertakings against the WDV of the respective block of asset and if any gain arose then it was worked out as short term capital gain within the provisions of section 50 of the Act. Therefore, the AO held the sale proceed should be adjusted from the relevant block of asset and depreciation should be allowed on WDV at the end of the year. Aggrieved, assessee preferred appeal before Ld. CIT(A) who has dismissed the plea of assessee by observing as under:- "2) Capital Gains - The appellant derived long term capital gains of Rs. 11.73 crores on the transfer of agro-chemical undertaking. The AO held that the capital gain is ....
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....abad Bench in the case of Coromandel Fertilisers Ltd. (supra) hence, we uphold the order of Ld. CIT(A) and dismiss the Revenue's appeal. 14. Next ground raised by Revenue in this appeal is that Ld. CIT(A) erred in treating the deemed recovery of Rs. 16,88,335/- as the actual recovery thereby erred in deleting the demand. 15. During the assessment proceedings AO found that assessee has incurred various expenses in relation to guest house accommodation such as maintenance, rent and repair expenses. Against the above heads of expense, assessee has shown certain deemed recovery for an amount of Rs. 16,88,335/- this deemed recovery was to be recovered from the staff of the assessee- company. AO held that deemed recovery of Rs. 16,88,335/- cannot be treated as actual recovery, therefore, cannot be allowed as deduction. Aggrieved, assessee preferred appeal before Ld. CIT(A) who has deleted the addition made by AO by observing that assessee recovers the amount of Rs. 16,88,335/- from its employees for the use of guest house. Aggrieved, Revenue is in appeal before us. 16. We have heard rival contentions of both the parties and perused the materials available on record. Before us, Ld....
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....3-96 has been debited to P&L A/c. for the A.Yr. 197-98. Hence, deduction u/s/ 43B in respect of excise duty paid can be allowed only after withdrawing the amount debited on account of excise duty payment for A.Yr. 197-98." 19. First we take up assessee's appeal in ITA No. 2048/Kol/2005. First issue raised by assessee in this appeal is that Ld. CIT(A) ought to have quashed the entire order dated 11.03.2005 u/s 154/254/251/143(1)(a) of the Act which have been issued beyond the time-limit prescribed under the provisions of the Act, namely within four years from the date of the order passed u/s 143(3) dated 18.03.1999 of the Act which is sought to be amended u/s. 154 of the Act. 20. At the outset, Ld. AR of assessee submitted that the Assessing Officer has issued intimation u/s. 143(1)(a) of the Act dated 27.03.1997 and same intimation was rectified u/s. 154 of the Act on 17.12.1998 whereby certain additions and disallowances were made in the return of the income of the assessee. Thereafter the case was selected under scrutiny assessment u/s. 143(3) of the Act and accordingly the assessment was framed by passing order under section 143(3) of the Act on 18.03.1999. We find that o....
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....sessee and thereby removing the finality to the assessment already made, whether or not it is the subject-matter of further proceedings in appeal, revision etc. and therefore intimation does not survive after the issue of notices under section 142(1) and 143(2) which culminate into the order of assessment passed under section 143(3) which is appealable and is also open to revision depending upon the issues involved and the power sought to be invoked for the purpose of appeal by the assessee or revision of assessment by the Commissioner under section 263 of the Income-tax Act. 20.1 We are also making the references to the following orders of the courts on the above stated subjects. The Calcutta High Court in Modern Fibotex India Ltd. vs. Dy. CIT (1995) 126 CTR (Cal) 69: (1995) 212 ITR 496 (Cal) has held that the Assessing Officer has no jurisdiction to make any addition or disallowance to the income of the assessee returned by him and acknowledged/accepted in the intimation issued under section 143(1) by resorting to issue of notice under section 154 for rectification of mistakes after the regular assessment proceedings have commenced by issue of notice under section 143(2) and th....
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.... assessment under section 143 is taken up against the assessee as the intimation would cease to operate on assessment being made under section 143(3). To the same effect is also the judgment of the Allahabad High Court in CIT vs. Pradeshiya Industrial & Investment Corpn. of U.P. Ltd. (2010) 191 Taxman 377 (All). 20.4 From the above, we find that rectification order made u/s 154 of the Act has been quashed and held as void ab initio in several cases. We are also relying in assessee's own case of assessee in ITA No. 501/Kol/2002 (supra) for the same relevant year. Keeping in view of this Tribunal's order in assessee's own case in ITA No. 501/Kol/2002 (supra) we also quash the order passed u/s 154 of the Act by AO. Accordingly, the ground raised by assessee is allowed. 21. Since the principal issue u/s 154 of the Act in assessee's appeal regarding the validity of the rectification order is allowed in favour of assessee, then the remaining grounds of assessee's appeal do not call for any adjudication at this stage. 22. In the result, assessee's appeal is allowed. Coming to Revenue's appeal in ITA No. 2355/Kol/2005 23. Hence, we allow the assessee's ....
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....ed to appreciate that the act that payment of compensation would be made in future cannot negate the fact that liability towards payment of the total compensation has crystallized during the year. 10) Assuming but not admitting that the VRS compensation is not allowable on the basis of liability which has crystallized at the time of signing of agreement by the employee optining for VRS, the Joint Commissioner of Income-tax (JC) has erred in not allowing at least the payment during the assessment year amounting to Rs. 11,29,56,000 based on CBDT Circular wrongly interpreting the provision of IT Act which is bad in law and also not binding on the assessee. 11) The ld. CIT(A) erred in not allowing 100% Depreciation on Electrical Motor car in accordance with the classification under Appendix 1 of IT Rules, 1962. 12) The ld. CIT(A) erred in allowing only Rs. 7,62,839 u/s. 80HHC of IT Act as against the App's entitlement of Rs. 83,69,371. 13) The ld. CIT(A) has wrongly levied interest amount to Rs. 2,44,37,886 under section 234B and Rs. 2,23,617 under section 201(IA) of IT Act." 26. At the time of hearing Ld. AR of assessee submitted that he has been instructed not to press g....
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....o. 2-5 are dismissed following the aforesaid order." 28. Being aggrieved by this order of Ld. CIT(A) assessee preferred appeal before us. 29. We have heard rival contentions and gone through the facts and circumstances of the case. Ld. DR vehemently relied on the orders of authorities below. Before us, Ld. AR submitted that in the own case of the assessee for AY 1994-95 in ITA No. 1020/Kol/2007 dated 29.12.2008, wherein it was held by this Tribunal as under:- "After reading the agreement as a whole, we find that the fertilizer business of the assessee has been transferred as a going concern to CCFC. All assets and liabilities relating to fertilizer business has been transferred, only assets excluded are bank balance and the outstanding insurance claim on the date of transfer. Merely because these two assets have been excluded from the assets transferred, it cannot be said that it is not the transfer of the undertaking as a going concern Land, building, plant & machinery, raw material, industrial because, technology, trade mark have been transferred to CCFC. The employees of the assessee working in fertilizer business have also been taken over by the CCFC. All current liabiliti....
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....arises and the same is allowable in accordance with the Supreme Court decision. 9) The ld. CIT(A) failed to appreciate that the act that payment of compensation would be made in future cannot negate the fact that liability towards payment of the total compensation as crystallized during the year. 10) Assuming but not admitting that the VRS compensation is not allowable on the basis of liability which has crystallszed at the time of signing of agreement by the employee optioning for VRs, the Joint Commissioner of Income-tax (JC) has erred in not allowing at least the payment during the assessment year amounting to Rs. 11,29,56,000 based on CBDT Circular wrongly interpreting the provision of IT Act which is bad in law and also no binding on the assessee." 31. We have already decided the similar issue in ITA No. 850/Kol/2007 in para-8 by this order and taking a consistent view and in terms of above, we allow these grounds of appeal raised by assessee. 32. Next ground raised by assessee in this appeal is reproduced below:- "12) The ld. CIT(A) erred in allowing only Rs. 7,62,839/- u/s/. 80HHC of IT Act as against the Appellant's entitlement of Rs. 83,69,371/-" 33. Since thi....
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.... different place of the country and most of the expenditure incurred on making the computer Y2K compliant was in the nature of travelling and no enduring benefit is arising from making of existing computers of Y2K compliant only some small chips are required to upgrade the system. From the above discussion, we find that the major expenses were incurred on travelling to make the computer system of assessee Y2K compliant and no new fixed asset was purchased by assessee. Therefore, we treat the expenses incurred to make computer system Y2K as revenue expenditure. We are also relying in ITAT Delhi Bench in the case of Asahi India 203 taxmann 277 (Del) and in the case of Raychem National Stock Exchange 346 ITR 138 (Bom), wherein such expenditures were held as revenue expenditure. Therefore, we find that no new fixed asset is coming into existence out of the Y2K compliance . Taking a consistent view of ITAT Delhi and Mumbai Benches, in the case of Asahi India cleod Russell (supra) and in the case of Raychem National Stock Exchange (supra) we are not inclined to interfere in the order of Ld. CIT(A) and this ground of Revenue's appeal is dismissed. 39. Next ground raised by Revenue in....