TMI Blog2008 (4) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the said provision is made in respect of redemption of unsecured subordinated bonds in the nature of mezzanine capital (Tier-II) is provided over the tenure of the bond. It was submitted that the amount of provision is ascertained at the time of issue of bonds and, therefore, the liability is an ascertained liability. Under section 115JA, the liability which could be added is an uncertain liability and not an ascertained liability. However, the Assessing Officer did not accept such submission on the ground that the liability in respect of which provision has been made by the assessee is not an ascertained liability. He referred that the assessee itself has calculated liability at a sum of Rs. 87,76,791 whereas the provision is made for Rs. 88 lakhs. Thus, the Assessing Officer arrived at a conclusion that the liability was unascertained and thus, the Assessing Officer added the said liability while computing the normal income of the assessee. The addition was agitated in appeal filed before the Commissioner of Income-tax (Appeals) and vide para 4.2, the learned Commissioner of Income-tax (Appeals) has held that the provision made in respect of premium on mezzanine capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis is given on which liability of Rs. 88 lakhs was computed. He contended that there was a scientific method to calculate such liability. He also referred to the letter of offer, a copy of which is placed at pages 61 to 64 of the paper book to show that liability in respect of each of the year is ascertained liability. Thus, it was pleaded that the learned Commissioner of Income-tax (Appeals) has rightly held that the liability of the assessee in respect of premium on mezzanine capital was an ascertained liability, therefore, the order of the learned Commissioner of Income-tax (Appeals) in this regard is as per provisions of law and should be upheld. We have carefully considered the rival submissions in the light of material placed before us. The calculation of the assessee with regard to the provision for premium on mezzanine capital as described at page 60 of the paper book is reproduced below for the sake of convenience: Details of provision for premium on mezzanine capital (unsecured subordinated bonds) 1. The company has issued 52,66,075 unsecured subordinated bonds in the nature of mezzanine capital (Tier-II) of Rs. 100 aggregating to Rs. 52,66,07,500 were allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act as well as for computing book profit under section 115JB of the Act. Submissions made by the assessee were also forwarded to the Assessing Officer for his comments the Assessing Officer did not comment on such submission and however, he reiterated his stand for making the disallowance. There is no material on record to come to a conclusion that the computation submitted by the assessee for computing liability of Rs. 88 lakhs in respect of the provision for premium on mezzanine capital is an incorrect calculation. While computing the liability, the assessee has taken the entire premium which is 20 per cent. of the face value of the bonds and premium so calculated is Rs. 10,53,21,500. The tenure of the bond is a period of 12 years. If the said sum of Rs. 10,53,21,500 is divided by 12, then the liability will come for a sum of Rs. 87,76,791 which has been rounded off by the assessee to the near sum of Rs. 1 lakh. Thus, there is a scientific method for calculation of the liability on account of premium on mezzanine capital. It has already been pointed out that no defect has been pointed out by the Revenue in the computation of such liability. Therefore, it cannot be said that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought in the existing system of software as the interest rates may vary and tenure of the loan is to be quoted for the different periods as per requirements of the clients, the software was required to be changed. The addition occurring from such change in software was short term and subsisted only till the next change in software was occasioned due to variation in the rate and other economic factors. Thus, it could not be said that any enduring benefit was derived by assessee for incurring such expenditure. The software was modified by way of maintenance activity and did not bring into exist in new asset but only reflected the assessee's response to changing business scenario. The expenditure though appears to be large but it is a very small fraction of lease financed earned by the assessee which is a sum of Rs. 435.15 crores. Reference was made to various decisions that such expenditure was revenue in nature and could not be treated as capital expenditure. Learned CIT(A) after considering the submissions and also considering the decision of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 has held that the modification to software carried out b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the book profit." 5.1 While going through computation of income under section 115JB, the Assessing Officer noticed that assessee has debited a sum of Rs. 35,19,14,328 on account of depreciation/lease equalization charges. Out of that, a sum of Rs. 18,74,70,855 was on account of lease equalization charges. It was further noticed that while arriving at profit computed in the normal course of business entire sum was added back and depreciation was claimed at a sum of Rs. 45,51,10,269 as per Income-tax Rules. However, while working out book profit for the purpose of section 115JB, the amount of lease equalization charges was not added back by the assessee, which according to Assessing Officer was not correctly done. Therefore, Assessing Officer while computing book profit under section 115JB has added the said amount. 5.2 At the time of hearing, it was brought to our notice that this issue is covered in favour of assessee by the aforesaid order of Tribunal for assessment year 2000-01. For assessment year 2000-01 following ground was raised by revenue reproduced below:- "On the facts and in the circumstances of this case, the learned CIT(A) has erred in directing the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24 ITR 67 that amendment to section 43B introduced by Finance Act, 2003 would operate retrospectively in order to cure the 'unintended consequences' of the unamended section and hence it is not holding so is uncalled - for and bad in law." 6.1 The relevant dates of payment have been mentioned in the assessment order. None of the date of payment falls beyond the due date of filing the return which in the present case is stated to be 31-10-2001. The return in the present case was filed on 222001. Thus, all the payments as reported in the assessment order have been made before the date of filing of the return. Thus, the payments have been made by the assessee before the filing of the return in respect of assessment year under consideration. It is in view of this factual aspect, after hearing both the parties we found that this issue is covered in favour of assessee by the order of co-ordinate Bench in the case of Kuber Hinges v. ITO [IT Appeal No. 1654 (Delhi) of 2007, dated 27-3-2008] wherein it has been held that employers as well as employees contribution both are allowable as a deduction if the relevant payment is made before the last date of filing the return under section 139 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee to the employee's account in the relevant fund or funds on or before the due date. Explanation.-For the purposes of this clause, "due date" means the date by which the assessee is required as an employer to credit an employee's contribution to the employee's account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order, award, contract of service or otherwise'. This clause is inserted by Finance Act with effect from 1-4-1988. Explanation to this clause is read very carefully "due date" has been explained stating that "means the date by which the assessee is required as an employer to credit contribution to the employees' account in the relevant fund under any Act, rule or order or notification issued thereunder or under any standing order, award, contract of service or otherwise". Prior to the above clause was inserted to section 36 giving statutory deductions of payment of tax under the provisions of the Act, section 43B( b) was inserted by Finance Act, 1983 which came into force with effect from 1-4-1984. Therefore, again the provision of section 43B(b) clearly provides that notwithstanding anything contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l question of law No. 1 framed by this court in these appeals at the instance of the revenue against them viz. in the negative. Accordingly, we answer the substantial question No. 1 framed in these appeals in the negative." "5. It is crystal clear from the detailed discussion made by the Hon'ble Karnataka High Court that both the employer and employees contribution was considered for allowing as a deduction if paid before last date of filing the return under section 139(1). Undisputedly, in the instant case also, both the employer and employee contribution was not paid before statutory dates defined under PF Act, but the actual payment was before the last date of filing the return under section 139(1) of Income-tax Act. The vet-diet of Hon'ble Karnataka High Court is squarely applicable to the facts and circumstances of the instant case. Recently Hon'ble Delhi High Court in case of Dharmendra Sharma 213 CTR 609: vide order dated 28-1-2008 held that Tribunal was right in deleting the disallowance of payments towards PF and ESI as the same was paid before the due date of filing of return. While so holding Hon'ble Delhi High Court relied on the verdict of Hon'ble Supreme Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. Respectfully following the said decision of jurisdictional High Court, we hold that the said sum of Rs. 88 lakhs could not be added for computing book profit under section 115JB. 7.3 So as it relates to a sum of Rs. 1,03,03,318, provision of this amount was made by the assessee in order to comply with the directions and guidelines laid down by RBI and the foreign financial institution with regard to non performing assets (NPA). The assessee filed a copy of norms laid down by RBI considering those norms, it has been found by CIT(A) that the liability was ascertained liability which will not be hit by the provisions of clause (c) of Explanation below section 115JB. Thus, considering the liability being ascertain liability, learned CIT(A) has directed the Assessing Officer that the sum should not be added back while computing book profit under section 115JB. 7.4 We have heard both the parties and their contentions have been considered. It has not been shown that the provision made by the assessee is not as per guidelines laid down by RBI. Thus, the liability which is made as per guidelines of RBI, cannot be said to be unascertained liabilities. Applying the ratio of aforemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income by applying the provisions of section 14A of Income-tax Act, 1961 relying on the order of CIT(A) for earlier assessment year. Learned CIT(A) has upheld the disallowance. We found that for assessment year 2000-01, this issue has been dealt with by Tribunal in the aforementioned order in. paras 18 to 22 wherein the Tribunal has remanded back the matter back to the file of Assessing Officer as per observations in para 22 which is reproduced below for the sake of convenience:- "We have considered the rival submissions. In the light of the clear provisions of section 14A of the Act, even in case it is not possible to identify the expenses incurred in earning the income which does not form part of the total income, disallowance has to be made on some basis. In the present case, the Assessing Officer has made the impugned disallowance without giving any basis and has adopted 5 per cent of the dividend income as the likely expenses for earning the dividend income. This was not proper. We are, however, of the view that the matter should be remanded to the Assessing Officer for making appropriate disallowance on an appropriate basis. This ground of appeal of the assessee is treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------- 46,72,356 ------------- It was stated that for deciding this issue, the matter may be restored back to the file of Assessing Officer as the findings of learned CIT(A) that the same pertains to capital expenditure is against the facts of the case. It was pointed out that this loss pertains to the assets given by assessee on hire purchase basis of which no depreciation could be claimed by assessee as the relevant assets did not form part of capital asset of the assessee and the reference was made to the balance sheet filed by the assessee to show that the relevant asset did not form part of the capital asset of the assessee. 10.3 Learned DR did not raise any objection of sending this matter back to the file of Assessing Officer for reconsideration of the claim of the assessee as per provisions of law. In this view of the situation, after hearing both the parties, considering the request of the learned AR, we restore this issue back to the file of Assessing Officer for determination of correct facts. After giving ..... X X X X Extracts X X X X X X X X Extracts X X X X
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