TaxTMI 
TaxTMI 
2016 (5) TMI 1635
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....laring total income at Rs. 47,91,88,024/-. The assessment was completed at a total income of Rs. 49,05,45,523/-, inter alia, making additions on following counts: (i) Provision for productivity linked reward (PLR) Rs. 55,00,000/- (ii) Prior period expenses Rs. 49,53,168/- 3. The assessee preferred appeal before ld. CIT(A), who, while partly allowing the asessee's appeal, confirmed the aforementioned two disallowances. Being aggrieved, the assessee is in appeal before us and has taken following grounds of appeal: 1) That the order of the learned Commissioner of Income Tax (Appeals)-XVII, New Delhi (hereinafter referred to as CIT (A)) dated 27-06-2010 is bad in law and wrong on facts. 2) That on the facts and in the circumstances of the case, the learned CIT (A) has erred in not allowing the deduction of Rs. 55 lakhs on account of provision made for the liability relating to Productivity Linked Reward for the employees. 3) Without prejudice to the contention of the appellant in ground No.2 above, the learned CIT(A) has further erred in not giving directions to the Assessing Officer to allow the provision for Productivity Linked R....
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....ly within 50% of the basic pay. The amount of Rs. 55 lskhs was provided as per existing scheme because the study by NPC was in progress. As per revised PLR scheme, PLR amount due to employees worked out to Rs. 123.90 lakhs which is 5% of the distributable profit of Rs. 24.79 crores.". 7. The AO treated this as an unascertained liability by observing as under: From the above submission, the following points emerges: b. the amount of PLR has been worked out on the basis of old scheme which was approved upto F.Y. 2005-06. Thus, the provision created for this year was not under the approved scheme. c. The amount has been created by way of provisions on estimation basis. The actual amount worked out to be Rs.123.0 1akhs which has got no correlation with the provisions ofRs.55lakhs As these where the provisions on estimation basis, the issue was further examined and the assessee was asked to provide the actual payment of such amount during the year. The assessee provided the details and it was found that the payment was made next year during the period from June 2007 to January 2008. From the above discussion, it can very well be seen that ....
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....obable revision or rates of revision would be within the fair estimation of the employer. Thus, the liability could not be characterized as contingent but was in fact ascertained and was deductible. 13. The assessee clearly stated that the amount had been charged on the basis of existing scheme which was under review. That merely because this scheme was under review did not make the liability per se as unascertained and, therefore, the conclusion drawn by lower authorities that the conclusion was based on estimation basis was not justified, particularly in view of the guidelines of Government of India available at that time. We are of the considered opinion that the provision had been made for ascertained liability. Ground is allowed. 14. Ground nos. 4 & 5: Brief facts apropos ground nos. 4 & 5 are that from schedule 19 to the annual account the AO noticed that there were details of prior period adjustments, which included legal expenses to the tune of Rs. 49,53,158/-. On being asked the assessee filed reply dated 26.10.2009 and stated as under: "With regard to legal expenses of Rs. 49,53,168/- there were two payments - Rs. 10,72,024/- and Rs. 38,79, 013/-. ....
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....riod expenses. 16. Ld. CIT(A) confirmed the AO's action mainly on the ground that liability did not pertain to the year under consideration, inter alia, observing as under: "Thus, it can be seen that in both the cases the judgments of the Court were available during the assessment year 2006-07. It is not the case of the appellant that they were not aware of the liability on account of judgment of the Court. On the contrary . the appellant admitted that they were very well aware of the judgments. However, the Board of Directors accepted the liability in the assessment year 2007-08. It is a settled law that the liability can be allowed only in that year to which it pertains or in the year in which the same has been crystallized. In the instant case, the liability has neither arisen in the year under consideration nor it pertains to this year. In view of the above facts, I am of the view that the AO was fully justified in disallowing the same. Therefore, the order of the AO is confirmed on this issue. This ground of appeal is rejected." 17. As regards the sum of Rs. 10,72,024/-, ld. counsel for the assessee pointed out that the judgment was delivered on 27.10.2005 a....
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....ons supplied were defective and the Community invoked the performance bank guarantee. The matters were settled only after invoking arbitration agreement which were lodged with International Chamber of Commerce, Paris. The appellant faulted the suppliers and invoked performance bank guarantee of Texmaco and received Rs. 19,79,7251 -. Texmaco went for arbitration wherein it was held that only two wagons were defective and the total compensation would have been Rs. 10,47,701/- and, therefore, excess compensation was claimed for Rs. 9,32,024/-. Texmaco initiated legal proceedings and was awarded the sum of Rs. 38,79,013/- vide order dated 05-05-2006. 22. Ld. counsel pointed out that since the judgment was delivered on 5.5.2006 and the management decided to make the payment during this year only, therefore, the liability crystalized during the year. 23. Ld. DR relied on the order of ld. CIT(A). 24. We have considered the rival submissions and have perused the record of the case. As far as the expenditure of Rs. 10,72,024/- is concerned, it is not disputed that assessee was procuring goods from outside and supplying it within the country. In the process it was earning a commissi....
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....ar under consideration the assessee had debited an amount of Rs. 1,51,45,341/- in its P&L a/c under the head Post Retirement Medical Benefits. The AO required the assessee to explain as to how this liability was paid. In response, the assessee, vide reply dated 24.12.2010, submitted as under: "A copy of actuarial valuation report for valuation of liability for post retirement medical benefit scheme as on 31.03.2008 is enclosed as proof of the fact that the said liability was an ascertained liability. The same liability is allowed to us in previous year also." 29. The AO rejected the assessee's claim, inter alia, observing that assessee had not given any reason in respect of allowability of its claim except that it was based on actuarial valuation. The provision made in the books of a/c was an unascertained liability, not allowable under the Income- tax Act. 30. In appeal, the ld. CIT(A) allowed the assessee's claim by observing as under: "The main issue to be decided in this appeal is whether the provision of Rs. 1,15,45,360/- is an ascertained liability or contingent liability. "Since the appellant had already filed a copy of actuarial valuation as ....
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....d the order of ld. CIT(A), deleting the addition made by the AO on account of post retirement benefit for the employees. There being no change in facts for the assessment year in question, for the same reasons as in AY 2008-09 the order of ld. CIT(A) on the issue in question is upheld. Ground is dismissed. 34. Ground no. 2: Brief facts apropos ground no. 2 are that during the assessment proceedings it was noticed that assessee had claimed expenses of Rs. 14 lacs in respect of fee paid to Registrar of Companies for increase in authorized capital and Rs. 4,20,000/- as stamp duty. The assessee explained as under: "Authorized share capital was increased to issue bonus shares to the Government of India and its expenses were debited to profit and loss account as revenue expenditure. There is no increase in the funds of the business since the amount was capitalized out of the reserves of the company. Therefore, the same is revenue expenditure and not capital expenditure." 35. The AO disallowed this amount treating the same as capital in nature. Ld. CIT(A) following the decision of Hon'ble Supreme Court in the case of M/s Dalmia Investments 52 ITR 567, allowed the ass....