TMI Blog2010 (7) TMI 969X X X X Extracts X X X X X X X X Extracts X X X X ..... year and it is only the quantification and discharge of which is to take place at a future date - ITAT allowed deduction HELD THAT:- Section 115 JB was inserted by the Finance Act, 2000 with effect from Ist April, 2001. Under the provisions of this Section, where an assessee is a company, it is required to pay at least 7 % of its book profits as income tax. However, where the tax liability of the company under regular provisions is more than this amount, the company shall pay income tax according to the regular scheme. Book profits has been defined by the Explanation added to this Section whereunder it provides that net profit as shown in the profit and loss account for the relevant previous year prepared in accordance with the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 21.11.2008 passed by the Income Tax Appellate Tribunal, Delhi Bench 'G', Delhi (hereinafter referred to as the Tribunal ) in ITA No. 1105 (Del) of 2006 for the assessment year 2002-03 has claimed the following substantial question of law:- Whether, on the facts and in the circumstances of the case, the Ld. ITAT was right in law in setting aside the order of the Ld. CIT (A) and directing the Assessing Officer to allow the claim of the assessee in respect of provision for gratuity of ₹ 15,49,59,191/-, provision for leave encashment of ₹ 6,32,25,125/- and provision for post retirement medical benefit of ₹ 86,41,476/- while computing the book profit u/s 115 JB of the Income Tax Act, 1961 even though these we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tirement medical benefit while computing book profit under Section 115 JB of the Act by placing reliance upon the judgments of the Hon'ble Supreme Court in Bharat Earth Movers v. Commissioner of Income Tax, [2000] 245 ITR 428; Delhi High Court in Commissioner of Income Tax v. Vinitec Corp. P. Ltd. 278 ITR 337 (Del) and Bombay High Court in Commissioner of Income Tax v. Echjay Forgings P. Ltd. 116 Taxman 322. 3. We have heard the learned counsel for the revenue. 4. The issue in the present case is whether in the facts and circumstances, addition on account of the provisions for gratuity, leave encashment and post retirement medical benefit could be made while computing the book profit under Section 115JB of the Act? 5. Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or gratuity, leave encashment and post retirement medical benefit on actuarial valuation. It is not disputed that the assessee-respondent is following mercantile system of accounting. The claim of the assessee is that these provisions have been made on actuarial valuation and cannot be added for determining book profits under Section 115 JB of the Act as it is business liability in praesenti which has arisen during the accounting year and it is only the quantification and discharge of which is to take place at a future date. 10. The Apex Court in Bharat Earth Mover's case (supra) while pronouncing principles regarding difference between accrued and contingent liabilities, enunciated as under:- If a business liability has definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is maintaining his accounts on the mercantile system, a liability accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. 12. The Tribunal while considering the issue in hand had specifically recorded that the provision for gratuity, leave encashment and post retirement medical benefit had been estimated on actuarial basis and was a liability which was created in praesenti though it was to be discharged at a future date. It was further recorded that the provisions which were created in respect of gratuity, leave encashment and post retirement medical benefit on actuar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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