TaxTMI 
TaxTMI 
2017 (7) TMI 1191
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....e is to be computed in accordance with the system of accounting regularly employed by the assesse. 3. Whether the Ld. Commissioner of Income Tax (A) was justified in restricting the disallowance of expenses under various heads from 15% to 8% when the Assessing Officer had failed to rebut the finding of the Assessing Officer during the appellate proceedings also. 4. Whether the Ld. Commissioner of Income Tax (A) was justified in holding that the expenditure on the Development of Road and Quarry is Revenue expenditure and not Capital expenditure as held by the Assessing Officer." 3. The brief facts of the case as noted in the assessment order are as under that the assesse is running a cement manufacturing plant and during the relevant previous year 2010-11, the assesse has declared total sale to the tune of Rs. 140,10,91,197/-. After debiting various expenses the assesse declared net taxable income of Rs. (-) 1,43,92,746/-. A. The Ld. Assessing Officer determined the liability qua Leave Encashment by holding as under:Rs.18,49,982/- is on account of Leave Encashment for the year 2008-09 and Rs. 2,62,744/- for the year 2009-10. During2008-09, no provision was ma....
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....re of expenses claimed by the assessee. C. The Assessing Officer further in respect of expenditure on account of Development of Road/Quarry determined the addition by holding as under: The argument of the assessee that the extraction and transportation of limestone is germane to the carrying on the business of the company, which cannot produce without limestone and the expense incurred is simply for smooth functioning of the factory of the company, hence the same is to be considered as revenue expenditure cannot be accepted. Merely because the expenditure was incurred in connection with the business of the assessee or for the purpose of business of the assessee or was incidental to the business of the assessee, it will not make the expenditure revenue expenditure. Expenditure for the purpose of business or incidental to the business may also bee of capital nature. In the celebrated case of British Insulated and Helsby Cables Ltd. Vs. Athrton (1925) (10) TC 155 (HL), Lord Cave addressed himself first to the question whether the expenditure was for the purpose of business. Having held thatthe expenditure was incurred for the purpose of business, he examined the question whether....
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....sideration in the instant appeal by holding as under: A. "The Appellant submits that the assessing Officer made disallowance on account of Leave encashment a) Rs. 1849982/- Short Provided during the Year 2008-09 for leave salary b) Rs. 262744/- Short Provided during 2009-10 for Leave Salary a) Rs. 18,49,982/- representing leave encashment for the year 2008-09 is because of the fact that no provision was made for leave encashment during that year in view of constant strikes and hartals which resulted in loss of production to the company and management decided not to pay leave encashment and treated leaves taken during hartals and strikes as leaves officially availed by the employees. It is humbly submitted that leave encashment becomes due to employees working in the organization who do not avail leaves allowed as per law which is compensated monetarily for such unavailed leaves. The said amount of Rs. 18,49,982/- does not represent leaves due to employees on retirement. The Appellant submits that the it had to accede to the demands of employees in the year under appeal, the leave encashment was duly paid to the employees for the year 2008-09. The appellant submits th....
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....s of India states that "income or expense recognized on the outcome of a" contingency which previously could not be estimated reliably does not constitute prior period item. I am convinced with the arguments of the Appellant and relief of Rs. 262744/- is allowed. B. With regard to the unverifiable expenses, the Ld. CIT(A) considered the submissions of the assessee and finally in para no. 4.4 of the order reduced the disallowances to the tune of 8% instead of 15%, which is reproduced herein, for the sake of brevity and convenience: "4.4. Ground of appeal no. 5 relates to addition of Rs. 17,82,483/- on account Disallowance out of Travelling & Conveyance, Staff Welfare, Entertainment, Labour Welfare, Misc. Expenses @ 15%. The appellant submits that the assessing officer had taken entertainment expenses of Rs. 204714/-, twice while making calculation of total expenses. The appellant is right in pointing out the mistake, the disallowance made twice to the tune of Rs. 30,707/- (i.e. 15% Of 204714/-) on account of entertainment expenses taken twice, is deleted. The assessing officer has made adhoc disallowance without assigning any defect. The plea of the ....
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....appellant as material purchased by the appellant does not contain any such material which would have resulted in creating any asset of enduring benefit. The mines allotted to the appellant are in the hills which do not have pathways and the appellant company has to make temporary pathways to facilitate movement of men for extraction of limestone from the mines and then to carry extracted limestone to the factory site which is in the foothills of the mines. The extraction of limestone is germane to the business of the appellant company. And roads developed by the company are not of any use other than that for extracting and carrying limestone for its consumption. The appellant gets relief of Rs. 23,16,737/-". 5. Feeling aggrieved by the Order passed by the Ld. CIT(A), the department preferred the instant appeal under consideration and in support of its appeal, the Ld. DR submitted that section 43B(f) was inserted by financial Act 2001 which says notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act in respect of (a)......(b)......(c)......(d)......(e)......(f) any sum payable by the assessee as an employer in lie....
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....or the enduring benefit of the business, it is in the nature of capital expenditure, on the other hand, if it is not made for the purpose of bringing into existence any such asset or advantage, but for running the business or working it to produce profits, it is a revenue expenditure, in the instant case, the construction of roads brings into existence of an advantage because it was made during the performance of the contract of transportation. 6. On the other hand, the Ld. AR submitted that the assessee is working in the remotes area of Srinagar where many times and on various occasions hartals, strikes and bands etc. or a common and enduring assessment year 2008-09 on no provision was made as management has decided that no leave encashment shall be paid as there were constant strikes and hartals which resulted into huge loss of production and employees at times took undue benefit or random strike calls. However, during the year under assessment, employees negotiated with the management and arm-twisted the company to provide for these leave encashment, which were accounted for. Since these liabilities crystallized during the year under assessment, therefore, the same have been ....
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.... to the demands of the employees in the year under appeal and therefore the leave encashment was duly paid to the employees for the year 2008-09 and even otherwise the liability was crystallized only after deliberations and settlements made in the relevant year only and it could not have been anticipated, because the some arose out in the sudden settlement and all these facts have been duly explained in the reply filed before the Assessing Officer. According to our mind no provision was made for leave encashment during that year in view of the constant strike and hartals which resulted in loss of production to the company and even if leave encashment would have been provided for in the year of its accrual, it would not have been allowed as deduction in view of the provisions of section 43B(f), because it is to be allowed in the year of its payment and non-provision of leave encashment in the year 2008- 09 has no relevance so far as provisions of Income Tax Act are concerned, because in terms of provisions of section 43B(f) even if provision would have been made in the accounts for leave encashment payable during the financial year 2008-09, the same would not have been allowed as de....