TMI Blog2013 (1) TMI 782X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has claimed the interest paid as the revenue expenditure - the issue to the file of the AO - Remanded back for statistical purposes - ITA No.4921/Del./2010 & ITA No.149/Del./2012 - - - Dated:- 24-1-2013 - SHRI U.B.S. BEDI, JUDICIAL MEMBER And SHRI B.C. MEENA, ACCOUNTANT MEMBER For the Petitioner : Shri M.P. Rastogi, Advocate with Shri P.N. Shastri, CA For the Respondent : Shri Bhim Singh, Senior DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : In both the appeals, one issue is common, therefore, both the appeals are being disposed off by this common order. 2. ITA No.4921/Del/2010 for the Assessment Year 2007-08 emanates from the order of CIT (Appeals)-VI, New Delhi dated 05.08.2010. The return of income was filed on 30.10.2007 declaring income at ₹ 86,81,98,000/-. The company is engaged in generation of power by the operation of thermal power plant at Bokaro. The whole of the power generated is sold to the steel plant of Steel Authority of India Limited located at Bokaro. The shares of the company are owned by Damodar Valley Corporation and Steel Authority of India Limited. The Assessing Officer made an addition of ₹ 74,03,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Standards, AS-15, regarding the accounting of post-retirement benefits an actual valuation was obtained and necessary provision made in this year. Since the liability for postretirement medical benefits is a known and determined liability, and has been provided on a scientific basis, it is an allowable provision in terms of the decision of the Hon'ble Supreme Court in the cases of Metal Box - 73 ITR 53 Bharat Earth Movers Ltd. 235 ITR 428. The Income tax Act has by Section 40A(7) and 43B(f) made the allowance of these on payment basis. No such restriction is there in the Act for not allowing the known and determined liability for Post Retirement Medical Benefits . 5.3 I have carefully considered the submissions of ld. AR and have gone the assessment order. While making the disallowance, the Assessing Officer has specifically pointed out that the assessee has not filed any details for the amount or ₹ 74,03,000/-. During the proceedings before me also no details and documents have been filed to show as to how this liability of ₹ 74.03 lakhs has been worked out. In the absence of the same, it is not possible to ascertain the true nature of the expenditure and its all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit and gain of the business of the year. Computation of taxable profit for a particular year can be worked out only by deducting the actual payments made to the employees and present value of any payment in respect of the services in that particular year to be made in subsequent year. In view of this, we find the order of CIT (A) in ITA No.149/Del/2012 in order. We set aside the order of CIT (A) in ITA No.4921/Del/2010. For doing so, we also get support from the following decisions of Hon'ble Supreme Court and Hon'ble Delhi High Court. 5.1 Hon'ble Supreme Court in the case of Metal Box Company of India Ltd. vs. Their Workmen 73 ITR 53 has held as under :- Contingent liabilities discounted and valued as necessary, can be taken into account as trading expenses if they are sufficiently certain to be capable of valuation and if profits cannot be properly estimated without taking them into consideration. An estimated liability under a scheme of gratuity, if property ascertainable and its present value is discounted, is deductible from the gross receipts while preparing the profit and loss account. This is recognised in trade circles and there is nothing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uarial calculations, the deduction claimed by the assessee has to be allowed. The relevant extracts of the decision is reproduced below for ready reference:- 6. In the case of Shree Sajjan Mills Ltd (supra), the Supreme Court was examining the provision-made by the assessee towards gratuity under the Income Tax Act, 1961. The Supreme Court, after noticing the judgment in Metal Box Company (supra), crystallized its analysis at page 599 and made the following observations:- It would thus be apparent from the analysis aforesaid that the position till the provisions of section 40A(7) were inserted in the Act in 1973 was as follows :- 1 xxxx 2 xxxx 3 xxxx 4 xxxx 5. Provision made in the profit and loss account for the estimated present value of the contingent liability properly ascertained and discounted on an accrued basis as falling on the assessee in the year of account could be deductible either under Section 28 or section 37 of the Act. ITA 873/2008 1156/2008 Page 6 of 25 7. The Division Bench of this Court, while considering deductibility of a provision for warranties made by an assessee, which dealt in computers in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 256 ITR 395 (Bom.). The ld. AR also submitted that interest expenses of ₹ 9,47,91,000/- had been capitalized by way of transfer of incidental expenses during construction. On account of matching principle, the interest earned on deposits kept in relation to its expansion were credited to / reduced from the IEDC. 8. On the other hand, the ld. DR submitted that all the case laws relied upon by the ld. AR were related to the period prior to the insertion of proviso to section 36(1)(iii) of the Income-tax Act, 1961 w.e.f. 1.4.2004. By inserting this proviso, the legislature clearly shows their intention. This proviso does not provide that the interest accrued on the margin money invested for borrowing of capital for acquisition of an asset for extension of existing business or profession is adjustable against the interest to be paid on such borrowings. There is no provision in the law to allow such deduction. The assessee cannot be allowed to interpret the law in his own way for netting of the interest earned on the margin money. The interest income so earned on the margin money has to be taxed u/s 56 of the Income-tax Act, 1961. Interest paid on the borrowed funds cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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