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TMI Blog2012 (8) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, the AO further sought explanation whether the employees could demand payment of Rs. 30,39,70,700/- made on 31.3.1993. In light of the observations of Hon'ble Bombay High Court in the case of CIT Vs Associate Commercial Corporation 48 ITR 18, the AO was of the opinion that an amount of Rs. 30,39,70,700/- was not payable as on 31.3.1993 since workers could not enforce the payment of this amount as on 31.3.1993. After considering the reply and details filed by the assessee, the AO finally concluded that: (i) The benefits in this VRS are not calculated with reference to any Act of the Central or State Governments but with reference to scheme clearly set out in the VRS and are contractual in nature. (ii) AS per this scheme two options were exercised by the employees. 621 employees were opted for commutation of 1/3rd pension and monthly payment of reduced pension for 180 months from the date of voluntary retirement which is 30th December, 1992 and 380 employees opted for commutation of 1/3rd pension and monthly payment of reduced pension till 60 years of age. However, in terms of this scheme, payment of Rs. 14,62,20,169/- were made upto 31.3.1993. However, in respect of balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee company. The deduction can be allowed only if the workers actually signed the agreement during the previous year under consideration. As the assessee company has not produced such details regarding the total number of applications received and accepted during the year, therefore, the liability is not finalized and the same remains a contingent liability for which no deduction can be allowed. The Ld. CIT(A) finally concluded that it cannot be said that liability has been incurred for the previous year relevant to assessment year under consideration and the assessee has failed to prove that the liability of Rs. 30,39,70,700/- was actually crystalised during the year and confirmed the addition of Rs. 30,39,70,700/-. 6. Before us, the Ld. Senior Counsel submitted that the AO has disallowed the claim mainly on the ground that the assessee has failed to substantiate its claim by bringing any specific method of calculation of the liability. The certificate from the actuaries was submitted before the Ld. CIT(A) who has admitted that such certificate was produced before him. Thus the liability has been crystalised and is based on scientific calculation. It was further pointed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statistical purposes. 9. Ground No. 2 relates to disallowance of provisions of expenses made at the year end amounting to Rs. 40,90,453/-. 10. During the course of assessment proceedings, the AO pointed out that the assessee has claimed liability on provision basis without there being any basis for claiming such liability. The AO sought explanation from the assessee in respect of the claim of Rs. 63,13,063/- under the head Kandla Plant Employees and actually payment of liability was at Rs. 62,04,264/-. According to the AO, the assessee could not give any basis for providing excess amount of Rs. 1,08,799/-. The AO further sought clarification in relation to the provisions made under the head advertisements amounting to Rs. 69,93,566/- when the actual payment was made at Rs. 30,22,995/-. Lastly, an amount of Rs. 15,000/- was claimed under the head interest on Fixed Deposit on provision basis whereas actual payment was to the extent of Rs. 3,917/-. The AO finally added Rs. 40,90,453/- on account of unproved liability. 11. The matter was carried before the Ld. CIT(A) where the assessee explained that it is following mercantile system of accounting according to which the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred certain expenditure on production of films and as the same were treated as capital in nature in the immediately preceding assessment year 1992-93. The AO following the finding of A.Y. 1992-93 and disallowed the claim for expenditure on production of films under various heads totaling to Rs. 65,29,929/-. 17. The Ld. CIT(A) confirmed the addition accepting the AO's finding based on the previous assessment year that the expenses on production of films is of capital in nature. 18. Before us, the Ld. Senior Counsel drew our attention to the decision of the Tribunal in ITA No. 1584/M/99 for A.Y. 1992-93 in assessee's own case wherein on identical facts the Tribunal has allowed the claim of the assessee. 19. We have perused the orders of the Tribunal cited herein above. We find that the Tribunal has followed the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs Geoffrey Manners and Co. Ltd. 315 ITR 134 (Bom) allowed the claim of the assessee to treat the expenditure as revenue expenditure. Respectfully following the finding of the Tribunal , we reverse the finding of Ld. CIT(A) and direct the AO to treat the expenditure on production of films under various he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only and depreciation ought to be allowed on expenses treated as capital in nature. 27. During the course of assessment proceedings, the AO sought clarification in relation to foreign tour in the light of Rule 6G. The assessee submitted that all tours were undertaken solely for the purpose of business/contractual obligations and there is no personal element therein. The AO was of the opinion that the expenditure for this year are of the same nature as that for the assessment year 1991-92 where 20% expenditure were disallowed and added by the AO which were confirmed by the Ld. CIT(A). 28. Considering the facts and circumstances of the case, the AO disallowed 25% of total expenditure claimed at Rs. 64,01,375/- and accordingly disallowed the sum of Rs. 16,00,343/-. 29. Before the Ld. CIT(A), the assessee contended that all the tours were undertaken solely for the purpose of business /contractual obligations and therefore it is purely in the nature of revenue expenditure. After considering the submissions and the details filed by the assessee, the Ld. CIT(A) restricted the disallowance out of foreign travel expenditure to 20% instead of 25% made by the AO. The Ld. CIT(A) further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-, the assessee has retained an amount of Rs. 19,29,600/-. The assessee wrote back an amount of Rs. 70,70,400/- and made a fresh provision of Rs. 38,59,200/- and added with the retained amount of Rs. 19,29,600/-. The total liability required to be retained on account of the impending union settlement was arrived at Rs. 57,88,800/-. The AO was of the opinion that liability of Rs. 38,59,200/- which is claimed on the basis of impending union settlement has been elaborately discussed in the assessment order for assessment year 1992-93. The AO followed the finding of A.Y. 1992-93 and held that no reduction could be allowed in respect of Rs. 38,59,200/- as the entire amount of Rs. 90,00,000/- was disallowed in earlier year. The AO though disallowed the claim of Rs. 38,59,200/- but did not make any addition in the computation of income. 34. When the matter was agitated before the Ld. CIT(A), the CIT(A) was of the opinion that this liability was nothing but a contingent liability and further held that provision has been made for the liability which actually did not accrue during the year under consideration. The Ld. CIT(A) further observed that the terms of settlement with the union were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirmed the finding of AO that the entire expenditure was incurred for non-business purposes. 41. The Ld. Senior Counsel drew our attention to the order of the Tribunal in assessee's own case for assessment year 1992-93 in ITA No. 1584 & 1360/M/99 wherein on identical facts and issue, the Tribunal had decided in favour of the assessee. 42. The Ld. DR reiterated the stand taken by lower authorities that the whole expenses have been incurred for the parent assessee company and not for the business of the assessee company. 43. We have heard the rival submissions and perused the orders of lower authorities. We find that on identical facts, the Tribunal in ITA No. 1584 & 1360/M/99 cited herein above for A.Y. 1992-93 has allowed the claim of expenditure by the assessee company. After considering the details of foreign travel expenses submitted by the assessee which are exhibited at pages 180 to 183 of the Paper Book and respectfully following the decision of the Tribunal in assessee's own case for A.YT. 1992-93, we do not agree with the findings of the lower authorities and direct the AO to allow the claim of expenses of Rs. 11,80,282/- incurred by the assessee for the purpose of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir respective headquarters and which are reimbursed by the assessee. Since these expenses are incurred by the employee and thereafter reimbursed by the assessee, the same are fully allowable u/s. 37(3) of the I.T. Act. After considering the facts and submissions made by the assessee, the Ld. CIT(A) confirmed the order of AO on this issue. 50. We therefore direct the AO to allow the business meeting expenses and expenses on AGM which expenses cannot come under the category of entertainment expenses. We direct the AO to add only Rs. 2,00,000/- out of total canteen expenses which is in the line of the finding of the Tribunal in assessee's own case for assessment year 1992-93. Ground No. 10 is therefore partly allowed. 51. The Ld. Senior Counsel for the assessee has not pressed ground Nos. 11 & 12, therefore it is dismissed as not pressed. 52. Ground No. 13 relates to the grievance of the assessee against inclusion of sales tax Rs. 7,77,09,890/- and trade discount of Rs. 8,31,37,587/- from the figure of total turnover for the purpose of computing deduction u/s. 80HHC of the Act. 53. The assessee also took an additional ground by which asked to exclude excise duty element from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were made at Rs. 3,66,42,316/- whereas in the subsequent year the actual payment was to the tune of Rs. 3,70,71,012/-, Thus excess payment of Rs. 4,28,696/- was debited to the profit and loss account for the year under consideration. It was pointed out by the assessee that it was following the same method of accounting regularly which has been accepted by the department in the past. The Ld. CIT(A) after considering the submissions of the assessee came to the conclusion that as this liability was incurred for earning the profits and gains for the A.Y. 1992-93, therefore the same is allowable against the profits and gains for A.Y. 1992-93 and confirm the disallowance made by AO. 60. Before us, the Senior Counsel reiterated the submission made before the Ld. CIT(A). The Ld. DR relied upon the finding of lower authorities. 61. We have considered the rival submissions and perused the orders of lower authorities. Admittedly, the provision for expenses made in A.Y. 1992- 93 fell short by Rs, 4,28,000/- when actual payments were made in subsequent year as this expense is nothing but a prior period expense. We do not find any reason to interfere with the finding of Ld. CIT(A). Ground No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious year's loss have been actually set off against profit of other units and as there are no brought forward loss are available, there is no question of making any set off of the same. 67. The Ld. DR relied on the orders of lower authorities and argued that the Hon'ble Allahabad High Court in the case of Modi Nagar Paper Mills Ltd. DCIT 330 ITR 405 has held that gross total income means income after setting off of brought forward losses. 68. We have heard the rival submissions and perused the orders of lower authorities. We find that the submissions of Ld. Senior counsel that there are no brought forward losses available as they have been set off from the profit of other units of the assessee need to be verified. We therefore restore this matter back to the file of AO . The AO is directed to verify the claim of the assessee that there are no brought forward losses available to be set off and if on verification find that assessee company does not have any brought forward losses available, allow the claim of deduction u/s. 80HH. This ground raised by the assessee is allowed for statistical purposes. 69. In the result, the appeal filed by the assessee is partly allowed. Or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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