TMI Blog2013 (7) TMI 764X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 37(1) of the IT Act – Decided against the Revenue. Uncertain or Contingent liability – Held that:- The liability was necessarily ascertained for having come in a package, given to the assessee while disbursing the amount/grant as also by way of both Government Resolutions, therefore, by no stretch of imagination it can be said that there was uncertain or undetermined liability - Government Resolutions as mentioned hereinabove specify that the unspent amount of the grant shall bear the interest at the rate of 6% per annum and when appropriate provision had been made by the assessee making a request thereafter to treat the said amount as expenditure under Section 37(1) of the Income Tax Act – Decided against the Revenue. - Tax Appeal No. 502 of 2013 With Tax Appeal No. 503 of 2013 - - - Dated:- 27-6-2013 - M. R. Shah And Sonia Gokani,JJ. For the Appellant : Mr. Sudhir M. Mehta, Advocate JUDGMENT (Per : Honourable Ms. Justice Sonia Gokani) 1. As substantial question of law raised in both the Tax Appeals is common in respect of different assessment years, both the appeals are decided by a common judgment. 2. The appellant has preferred the present T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was not under obligation to repay the amount granted and, therefore, it was not borrowed capital nor would the same fall under the definition of expenditure as defined under Section 37(1) of the Act. 4. When the matter was challenged before the CIT(A) it considered elaborately the Government Resolutions and considering the very issue held in favour of the assessee so far as Section 37 is concerned. The CIT(A) of course was of the belief that Section 36(1)(iii) was not applicable as there was no borrowing. It was further noted that the funds in question are part of the business, which has been utilized by the assessee, including parking by the M/s. Gujarat State Financial Services Ltd. with huge amount of interest. 5. Both the sides challenged this order before the Income Tax Appellate Tribunal (hereinafter referred to as the tribunal ) and the tribunal held that the amount cannot be considered under Section 36(1)(iii) of the Act for not being loan. However, on having found the assessee eligible to avail the benefit under Section 37(1), it held in favour of the assessee in the following manner; 7. We have heard both the sides. We have perused the orders of the auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes and thereupon interest was earned by the assessee. On the other hand, the assessee has to pay interest that too as per the directions of the Government. Hence, the provisions made by the assessee is, therefore, meant for the purpose of the business, hence qualify for claim under Section 37(1) of the IT Act. In the result the view taken by the ld. CIT(A) is hereby confirmed and this ground of the Revenue is dismissed. 6. We have heard Shri Sudhir Mehta, learned advocate appearing on behalf of the appellant, who has vehemently argued before us that neither Section 36(1)(iii) of the Act nor Section 37(1) of the Act would be applicable to the case of the assessee. He has relied upon the decision rendered in the case of Commissioner of Income-Tax and Anr Vs. Micro Land Ltd. reported in (2012) 347 ITR 613 (Karn.). He emphasized that the amount of interest, which has been specified to be deductible is not actually expended by the assessee and Section 37 gives the benefit of the amount only under the circumstances when the amount is actually expended. He reiterated that the tribunal has erroneously granted the benefit to the respondent under Section 37 of the Act as what the respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961, expenditure must be actually incurred or laid out in the year under consideration and it should not be contingent expenditure. The Court also held that in the matter before it, the liability had not been determined on scientific basis and in such eventuality when there was an impossibility of inference to be drawn, such amount cannot be permitted to be deducted as business expenditure. Thus, essentially as the amount of expenditure was not determined scientifically, the Court did not permit such deduction under Section 37(1) of the Act. 10. We also note that the Supreme Court while dealing with the similar question in the case of Rotork Controls India Pvt. Ltd. Vs. Commissioner of Income-Tax reported in (2009) 314 ITR 62(SC) has observed that the principle of estimation of the contingent liability is not the normal rule. However, the same would depend on the nature of the business, sales, product manufactured and old and the scientific method of accounting adopted by the assessee. It also depends upon the historical trend and upon the number of articles produced. In the said matter, the Court permitted deduction under Section 37 by holding that the principle is that if ..... X X X X Extracts X X X X X X X X Extracts X X X X
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