TMI Blog2015 (8) TMI 557X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction claimed under section 35D - Held that:- Undisputedly the expenditure was incurred by the assessee for increasing share capital thus it is capital in nature. Thus, the same cannot be considered for computing deduction u/s 35D of the Act. See Brooke Bond India Ltd. Vs. CIT (1997 (2) TMI 11 - SUPREME Court) and Punjab State Industrial Development Corporation Ltd. Vs. CIT (1996 (12) TMI 6 - SUPREME Court ).- Decided against assessee Disallowance made out of various heads of expenditure - Held that:- The first expenditure considered by the Assessing Officer was the staff welfare expenses which included canteen expenses of ₹ 6,21,189/- and staff welfare expenses of ₹ 8,49,177/-. The said expenditures included expenses on lunch, tea, refreshments, picnic and gift coupons, etc. and out of the same, 5% was disallowed for personal/non business purpose. We find no merit in the said plea of the authorities below, where the expenditure has been incurred both on canteen and staff welfare expenses. Accordingly, we direct the Assessing Officer to delete the addition of ₹ 73,518/-. Expenditure was on account of entertainment expenditure on gifts and on general expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed depreciation on such land and where the person holds leasehold rights in the land if depreciation is allowed, then it would place the person holding freehold land to be at dis-advantage and the same is not justifiable. The Tribunal also held that the leasehold rights in the land were not intangible assets. - Decided against assessee. Expenditure incurred towards interest subsidy on housing loans to the employees of the assessee - CIT(A) allowed as business expenditure under section 37(1) - Held that:- The assessee during the year under consideration had made provision for interest on housing loans to the employees totaling ₹ 25,90,959/-. The said expenditure was incurred on account of reimbursement of interest cost on housing loans obtained by the employees. Where the said benefit forms part of employee compensation package and is provided as per the Human Resource Policy adopted by the assessee company vis- -vis of its employees, then such expenditure incurred by the assessee is wholly and exclusively incurred for the purpose of carrying on the business. The expenditure of providing benefit to the employees had been considered by the assessee as part of the salar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r since 30.03.2001 was the Friday and the funds became available to the subsidiary company only on 02.04.2001 which was Monday. The assessee was charging interest on the said advance from the next financial year onwards. The CIT(A) in view of the facts and circumstances, held that no interest was chargeable in the year, since the funds became available to the subsidiary company only on 02.04.2001. We find merit in the claim of the assessee in this regard. Admittedly, the loan was given on 30.03.2001 by the assessee to its subsidiary company which was a Friday. The loan became available to the subsidiary company on 02.04.2001 i.e. on Monday after clearance from the Bank and interest on the said loan was charged from the next financial year. In the facts and circumstances of the case, we find no merit in the order of Assessing Officer in charging notional interest on the said advances made, which became available to the subsidiary company only from the next financial year. Upholding the order of CIT(A), we dismiss the ground of appeal No.3 raised by the Revenue Disallowance of provision for expenditure in respect of benefit under Bhavishya Kalyan Yojanano (BKY) as an employee welf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e direct the Assessing Officer to include the export turnover of the EOU unit while computing the deduction under section 80HHE of the Act. - Decided in favour of assessee. - ITA No.1345/PN/2011, ITA No.64/PN/2012, ITA No.1346/PN/2011 - - - Dated:- 27-2-2015 - SHRI G.S. PANNU AND Ms SUSHMA CHOWLA, JJ. For the Appellant : Shri R.R. Vora For the Respondent : Shri Rajesh Damor ORDER PER SUSHMA CHOWLA, JM: Out of these three appeals, cross appeals filed by the assessee and Revenue are against the order of CIT(A)-V, Pune, dated 24.08.2011 relating to assessment year 2001-02 against order passed under section 143(3) of the Income Tax Act, 1961. Further, the assessee has also filed an appeal against the order of CIT(A)-V, Pune, dated 24.08.2011 relating to assessment year 2003-04 against order passed under section 143(3) of the Income Tax Act, 1961. 2. All the appeals relating to the same assessee were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. The assessee in ITA No.1345/PN/2011 has raised the following grounds of appeal:- Ground No 1 - Disallowance of software expenditure of ₹ 37,07,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t free loan to subsidiary company to be disallowed as the assessee has shown it in the books of accounts for the year under consideration and paid it in later year too. 04 For these and such other reasons as may be urged at the time of hearing, the order of the Ld. Commissioner of income-tax (Appeals) may be vacated and that of the Assessing officer be restored. 05. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of appellate proceedings before the Hon'ble Tribunal. 5. The issue raised vide ground of appeal No.1 is against the disallowance of software expenditure of ₹ 37,07,994/-. 6. The brief facts relating to the issue are that the assessee had incurred software expenses which included expenditure on Windchill software for managing product data and process, flexible pro-engineer software used in TTL s CAD business, SAP upgradation cost, excise package software, MS Office 2000, etc. The claim of the assessee was that the said expenditure was allowable as revenue expenditure. The Assessing Officer observed that the demarcation lying holding the software expenses to be revenue or capital was very th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentation services to the customers. Similar was the case of flexible Pro-Engineer Foundation software. It was also explained that the appellant has regularly incurred expenditure on the updates and objects of these two software in the subsequent F.Yrs. All these reveal that these softwares were part of the profit making apparatus of the appellant company and not for day to day trading or business activities or to increase the efficiency as such. The functionality criterion reveals that these two softwares were obtained for regular use by the appellant to provide implementation services to its customers and clients, which was one of the primary business of the appellant. Therefore, these softwares as held by the appellant were part of the profit making apparatus and not for improvement of its own trading operations. Therefore, corresponding expenditure was capital in nature relying on the test laid down by the Special Bench decision. 8. The CIT(A) further held that the other items of expenditure i.e. ₹ 96,000/- on firewall software, MS Office 2000 software at ₹ 19,800/- and Macromedia Flash Fireworks for Website design at ₹ 39,500/- were held to be capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em RPG Ltd. (supra) while considering the issue of allowability of expenditure incurred on software, has laid down the proposition that where the impugned software does not form part of fixed profit making apparatus of the assessee, then the same is to be allowed as revenue expenditure. Where the software package facilitates the assessee in trading operations or enabling the management to conduct assessee s business more efficiently or more profitably and hence, the said expenditure is revenue expenditure. The view of the Tribunal in the case was upheld by the Hon ble Bombay High Court (supra). 14. In view of the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Raychem RPG Ltd. (supra), where the expenditure has been incurred for facilitating the business and which does not form part of profit making apparatus, then the software expenditure is to be allowed as revenue expenditure. The expenditure incurred by the assessee totaling ₹ 2,33,725/- has been incurred in the ordinary course of carrying on the business and does not form part of its profit making apparatus, hence, the said expenditure is duly allowable as revenue expenditure in the hands of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sales, distribution and production planning. Since the expenditure had been incurred to facilitate efficiency in the business resulting in more profitability, the said expenditure is to be allowed as revenue expenditure. The ground of appeal No.1 raised by the assessee is thus, allowed. 18. The issue vide ground of appeal No.2 raised by the assessee was against the disallowance of deduction claimed under section 35D of the Act. 19. The learned Authorized Representative for the assessee fairly pointed out that the issue stands covered against the assessee by the ratio laid down by the Hon ble Supreme Court in Brooke Bond India Ltd. Vs. CIT 225 ITR 798 (SC) as also Punjab State Industrial Development Corporation Ltd. Vs. CIT 225 ITR 792 (SC). The assessee had claimed the expenditure in connection with issue of shares with a view to increase the share capital. The assessee had incurred expenditure of ₹ 15,40,000/- out of which 1/10th was debited to Profit Loss Account. However, the assessee added back the same and deduction under section 35D of the Act amounting to ₹ 3,08,000/- was claimed. The Assessing Officer had disallowed the same relying on the ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have heard the rival contentions and perused the record. The first expenditure considered by the Assessing Officer was the staff welfare expenses which included canteen expenses of ₹ 6,21,189/- and staff welfare expenses of ₹ 8,49,177/-. The said expenditures included expenses on lunch, tea, refreshments, picnic and gift coupons, etc. and out of the same, 5% was disallowed for personal/non business purpose. We find no merit in the said plea of the authorities below, where the expenditure has been incurred both on canteen and staff welfare expenses. Accordingly, we direct the Assessing Officer to delete the addition of ₹ 73,518/-. 29. The next head of expenditure was on account of entertainment expenditure of ₹ 7,09,298/- on gifts of ₹ 40,220/- and on general expenses of ₹ 10,86,350/-. The Assessing Officer had disallowed 5% of the said expenditure for non-business purpose and entertainment of personal guests. The assessee is a limited company and there is no merit in the said disallowance having been made without coming to the conclusion as to a particular expenditure being incurred for non-business purpose. We find no merit in the adh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g made in the return of income or in revised return of income. 35. The assessee is in appeal against the order of CIT(A). 36. The learned Authorized Representative for the assessee pointed out that the assessee had claimed the deduction on account of premium paid for acquisition of leasehold rights and the same is in the nature of revenue expenditure. It was admitted by the Assessing Officer that no deduction was claimed in the return of income and both the Assessing Officer and CIT(A) had rejected the said deduction to the assessee as no claim was made in the return of income. Reliance in this regard was placed upon the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Pruthvi Brokers Shareholders (2012) 349 ITR 336 (Bombay). The next submissions made by the learned Authorized Representative for assessee was that the issue may be set-aside to the file of Assessing Officer to look into the matter. Alternate plea was raised by the learned Authorized Representative for the assessee that amortization of the said expenses may be allowed or depreciation on leasehold rights in land being intangible asset should be allowed to the assessee. Reliance in this regard was pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee can make a claim of deduction in respect of an item which was not claimed in the return of income. Following the said ratio laid down by the Hon ble Bombay High Court in CIT Vs. Pruthvi Brokers Shareholders P. Ltd. (supra), we reverse the order of CIT(A) in this regard and hold that the said claim of deduction could be considered by the CIT(A) during the course of appellate proceedings. However, we do not think it fit to restore the issue back to the CIT(A) and proceed to decide the issue since the said issue has been raised before us by the assessee. 39. The next aspect of the issue is the merit in the claim of deduction on account of premium paid towards lease of land to be allowed as revenue expenditure. The assessee claimed the lump sum of premia of ₹ 3.91 crores paid towards land taken on lease from Maharashtra Industrial Development Corporation (MIDC) for a term of 95 years be allowed as revenue expenditure. The said lump sum payment was paid to MIDC in the first year i.e. the year under appeal. Against the payment of lease premia, the assessee got the benefit of lower annual rent of Re.1/- over a period of 95 years. The claim of the assessee in this reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal High Court in CIT Vs. Khimline Pumps Ltd. (supra). 42. The issue arising before us is identical to the issue before the Special Bench of Mumbai Tribunal in JCIT Vs. Mukund Ltd. (supra). In the facts of the case before us also, the assessee had made lump sum payment to MIDC for the acquisition of leasehold rights in land and such payment made by the assessee was for holding the land for a period of 95 years and hence, was of enduring nature. Consequently, the said expenditure claimed by the assessee as revenue in nature is not allowable in the hands of the assessee as deduction. 43. The second issue of amortization of leasehold premium over the period of lease is not allowable as deduction in view of the expenditure being held as capital in nature. The plea of the assessee was that premium paid for acquiring leasehold right in land is nothing but in the nature of advance rent is to be rejected in view of the ratio laid down by Special Bench of Mumbai Tribunal in JCIT Vs. Mukund Ltd. (supra). 44. Another alternate plea was raised by the assessee that the depreciation on such leasehold rights in the land should be allowed in view of the same being an intangible asset. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d etc., would also qualify as intangible assets for the ITA No.1361/PN/2010 M/s.Drilbits International P. Ltd. A.Y. 2006-07 Page of 28 6 purpose of depreciation under the Act. Certainly, this would lead to a conflicting situation where land acquired on freehold basis would not be eligible for depreciation but similar land acquired on leasehold basis would be eligible for depreciation that too at a higher rate. Under these circumstance, we are not inclined to interfere with the action of the A.O in disallowing the claimed depreciation in question on leasehold rights over the land treating the same as intangible asset u/s. 32(1)(ii) of the Act. The ground Nos. 2 2.1 are thus rejected. 46. In view thereof, we find no merit in the plea of the assessee. Accordingly, the alternate plea raised by the assessee also fails and the ground of appeal No.4 raised by the assessee is thus, dismissed. 47. Now, coming to appeal of the Revenue in ITA No.64/PN/2012. 48. The issue in ground of appeal No.1 raised by the Revenue is against the order of CIT(A) in allowing the expenditure incurred towards interest subsidy on housing loans to the employees of the assessee as business expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly allowable. The next observation of the Assessing Officer that the benefit did not form part of contract of employment of the assessee with its employees was also claimed to be factually incorrect as the said benefit was part of assessee s Human Resource Policy and the quantum of benefit available was determined on the basis of grade of the employees. Where the expenditure was incurred for commercial exigency and the reasonableness of the expenditure had to be judged from the point of view of businessman, the assessee claimed that the issue was covered by series of decisions. The CIT(A) referred to the ratio laid down by the Hon ble Supreme Court in CIT Vs. Walchand and Co. Pvt. Ltd. (1967) 65 ITR 381 (SC), Sasoon J David and Co. (P) Ltd. Vs. CIT (1979) 118 ITR 261 (SC). In view of the said ratios laid down by the Hon ble Supreme Court, the CIT(A) held that the expenditure incurred on account of interest subsidy provided on housing loans to the employees was an allowable deduction under section 37(1) of the Act. 51. The Revenue is in appeal against the order of CIT(A). 52. The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The brief facts relating to the issue are that the assessee had incurred certain expenditure in connection with set up of SAP centre at Pune, which included SAP License cost of ₹ 44,00,465/- and salary cost of SAP consultants of ₹ 2,89,395/-, totaling ₹ 46,89,760/-. In the books of account, the assessee had deferred the expenditure over a period of thirty six months and accordingly ₹ 1,30,271/- was charged to the Profit Loss Account for the year under consideration. However, in the computation of income filed along with return of income, the said amount was added back and the entire cost of ₹ 46,89,760/- was claimed as allowable expenditure under section 37(1) of the Act. The Assessing Officer show caused the assessee to give the nature of expenses and why the expenditure be not spread over as per the treatment in the books of account. The Assessing Officer was of the view that where the assessee itself had deferred the expenditure over a period of three years in its books of account and since SAP license cost was to give enduring benefit to the assessee and where the assessee itself had estimated the enduring benefit for three years, the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the appellant's claim of the same as deferred revenue expenditure. On a careful perusal of the explanation submitted by the appellant, as discussed above, I am of the considered opinion that since there was no such case of deferred revenue expenditure concept under I.T. law, and the judgements of the Apex Court and the Bombay High Court relied upon by the Assessing Officer were in a different context and related to financial instruments where there was a continuing liability, the appellant's contention in this regard is legally tenable. This ground of appeal is accordingly allowed. 58. The Revenue is in appeal against the order of CIT(A). The learned Departmental Representative for the Revenue placed reliance on the order of Assessing Officer. 59. The learned Authorized Representative for the assessee placed reliance on the order of CIT(A). 60. We have heard the rival contentions and perused the record. The assessee was engaged in software development and provision of software services. As pointed out by us in the paras hereinabove, the assessee was engaged in range of services which also included SAP implementation and maintenance. For carrying out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the plea of the assessee in this regard, wherein as various courts have held that irrespective of the method of accounting followed by the assessee, the allowability of the expenditure is to be as per the provisions of Income Tax Act and not in accordance with the accounting standards. Reference in this regard is being made to the ratios laid down by the Hon ble Supreme Court in Kedarnath Jute Mfg. Co. Ltd. Vs. CIT (1971) 82 ITR 363 (SC) and Hon ble Bombay High Court in CIT Vs. Bhor Industries (2003) 264 ITR 180 (Bombay). Accordingly, we hold that the assessee can claim the entire expenditure as deductible in the computation of income irrespective of its treatment in the books of account. 62. The second aspect of the issue was the allowability of expenditure in the hands of the assessee. As referred to by us in the paras hereinabove, the assessee had utilized 40 licenses for its in-house SAP implementation for increasing its productivity and also for increasing the efficiency of its business system. The assessee was also engaged in the SAP implementation for other customers and in total had purchased 300 licenses during the year, out of which 40 licenses were utilized by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the subsidiary companies. 65. The facts relating to the issue are that during the year under consideration the assessee had given advance of ₹ 3,32,21,920/- to M/s. Tata Technologies, USA, subsidiary company of the assessee company. The Assessing Officer noted that the assessee had advanced the money without charging any interest. Since the assessee was paying interest on the various loans received from banks and other companies, the advance given to the subsidiary company was treated as nonbusiness advance and notional interest @ 13.5% was applied to work out the disallowance at ₹ 24,575/-. 66. The CIT(A) noted the explanation of the assessee that assessee had advanced the said loan of ₹ 3.32 crores on 30.03.2001 and no interest was received for two days during current financial year since 30.03.2001 was the Friday and the funds became available to the subsidiary company only on 02.04.2001 which was Monday. The assessee was charging interest on the said advance from the next financial year onwards. The CIT(A) in view of the facts and circumstances, held that no interest was chargeable in the year, since the funds became available to the subsidiary comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1 raised by the assessee is against the deduction claimed under section 35D of the Act. The said issue is similar to the issue raised vide ground of appeal No.2 by the assessee in ITA No.1345/PN/2011 and following the same line of reasoning, we hold that the assessee is not entitled to the claim of deduction on account of expenditure incurred for increase in authorized capital of the assessee company. The ground of appeal No.1 raised by the assessee is thus, dismissed. 69. The issue in ground of appeal No.2 raised by the assessee is against the disallowance of deduction claimed for amortized lease premium expenditure. We find similar issue was raised by the assessee vide ground of appeal No.4 in the appeal relating to assessment year 2001-02 and we have decided the issue and rejected the claim of the assessee. Following the same parity of reasoning, we dismiss the ground of appeal No.2 raised by the assessee. 70. The issue in ground of appeal No.3 raised by the assessee is against the disallowance of provision for expenditure in respect of benefit under Bhavishya Kalyan Yojanano (BKY) as an employee welfare scheme amounting to ₹ 54,16,204/-. The issue in ground of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s own case for assessment years 1998-99 and 2000-01, in ITA Nos.86 1394/PN/2003 vide order dated 29.12.2006 had held that such provision for expenses were not allowable as a deduction. Further, the Tribunal directed the Assessing Officer to allow deduction only of such amounts as represented by the benefits actually payable to the eligible employees during the year i.e. where the liability had become ascertainable and crystallized. In view the ratio laid down by Pune Bench of the Tribunal, the CIT(A) dismissed the grounds raised by the assessee as untenable under law. Similar claim in respect of the provision for Mediclaim Insurance Benefits in which an incremental provision of ₹ 19,53,311/- was debited to the Profit Loss Account was also dismissed by the CIT(A). 73. The assessee is in appeal against the order of CIT(A). 74. The learned Authorized Representative for the assessee fairly conceded that the Tribunal in assessee s own case in the earlier year has disallowed the said provision made in the books of account on account of BKY Scheme, against which the assessee has not filed any appeal. However, subsequent to the order of Tribunal dated 29.12.2006, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on 01.04.2002 was ₹ 70,07,796/-. 77. The assessee also made a provision of benefit of Mediclaim Insurance Coverage and debited the same to its Profit Loss Account. As per the scheme, the employees were entitled for Mediclaim Insurance coverage for hospitalization (up to prescribed limit) after retirement and for reimbursement of medical expenses up to ₹ 600/- annually. The claim was extended for the benefit of retired employees and their spouses till the retired employee attains the age of 70 years. Similar provision was made in the earlier year and as on 31.03.2002, a provision of ₹ 14,26,689/-, however, for the period ending 31.03.2003, the provision was determined at ₹ 33,80,000/- and the differential of ₹ 19,53,311/- was debited to the Profit Loss Account for the financial year 2002-03. The claim of the assessee was that the valuation of the liability had been done on a scientific actuarial valuation basis, yet both the provisions made by the assessee i.e. on account of BKY scheme and Mediclaim scheme benefit were disallowed by the authorities below being contingent in nature. 78. The Tribunal in ITA Nos.86 1394/PN/2003, relating to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se more than one Spouse is eligible, the Kalyan Payment will be distributed among them in equal share. The eligibility for Kalyan Payment commences from and inclusive of the month of separation of the Ex-Employee and, subject to the provisions of Clause 5, will end with and inclusive of the month in which the Ex-Employee would have attained the superannuating age of 60 years as per the Company's records. It is also provided in Clause 5 that the eligibility for Kalyan Payment will cease from and inclusive of the month in which any Ward of the Ex-Employee is employed in any unit of the company. From these provisions, it is, thus, clear that the liability of ' the assessee Company to pay the beneficial amount, i.e. Kalyan Payment, under the Scheme would arise only in case where the Permanent employee of the assessee company, who does not already have a Ward employed in any unit of the company, and who has not taken any voluntary retirement, is separated from the services of the company on or after the 1st April, 1989, at an age below their normal superannuating age of 60 years, by reason of death-or permanent and total disablement, either as a result of injury on works or othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, 1989, at an age below their normal superannuating age of 60 years, by reason of death or permanent and total disablement, either as a result of injury on works or otherwise, the Company's liability to pay benefits under the Scheme to any employee would not arise. In fact, there may be certain situations in the case of a number of pemtement employees of the assessee Company, where such liability may never arise, as for example, a permanent employee of the assessee company may not separate from the services of the company on or after the 1st April, 1989, at an age below their normal superannuating age of 60 years, by reason of death or permanent and total disablement, either as a result of injury on works or otherwise, or he may retire in the normal course at the age to superannuation. To say, in the face of the above Rules that the liability to make Kalyan Payment under the Scheme by the employer accrues and arises annually in respect of all the permanent employees employed by the assessee company would be against the facts. The liability of the assessee company to make Kalyan Payment under the Scheme would arise or allowability in respect of those permanent employees, who do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Warranty Schemes and Liability of incurring certain expenses against sales as were considered by the Hon'ble Supreme Court in the case of Calcutta Co. Ltd v CIT (1959) 37 ITR 1 (SC), Metal Box Co of India Ltd v Their Workmen (1969) 73 ITR 53 (SC) and Bharat Earth Movers v CIT (2000) 245 ITR 431 (SC), and as were considered by the Privy Council in the case of IRC v Mitsubishi Motors New Zealand Ltd (1996) 222 ITR 697 (PC), which was followed by the Delhi High Court in the case of CIT v Vinitec Corporation P Ltd (2005) 278 ITR 337 and also by the Kerala High Court in the case of CIT v Indian Transformers Ltd (2004) 270 ITR 259 (Ker). 80. The Tribunal then referred to the ratio laid down by the Hon ble Supreme Court in Bharat Earth Movers Vs. CIT (2000) 245 ITR 431 (SC), wherein it was held that the provision made for meeting the liability incurred by the employer under the leave encashment scheme was proportionate with the entitlement earned by the employee subject to the ceiling on accumulation on the relevant date and thus, it was held to be not on account of contingent liability. The relevant para 37 reads as under:- 37. In the case of Bharath Earth Movers v CIT (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... succeeding year B , the provisions in the leave reserve account is made in the year A for payment of an amount equivalent to 30 days' salary so as to meet the clam for encashment. If he chooses to encash the leave and renders service for full 365 years in the year B , then the amount transferred lo reserve is paid to him and in view of his having earned again the next entitlement for 30 days leave, the provisions is made therefor by transferring the appropriate amount in the reserve account. If he avails of the leave then he is paid the leave salary. The leave salary is paid from the reserve. Whether the amount is paid as salary by drawing upon the current year's profit and loss account or from the reserve, it would not make any difference in practice as there would be no double payment and hence no double claim for deduction. In either case, the liability is certain through the period in which the liability would be incurred is not certain though the period in which the liability would be incurred is not certain inasmuch as the leave encashment can be sought for by the employee either during the years of service or at the end of the service. Subject to the ceiling ever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de that the undertaking given by the assessee Company in the 'said Scheme of Bhavishya Kalyan Yojana, to give the benefit in the nature of Kalyan Payment, would import a liability on the assessee company only on the dates of the separation of its any permanent employees from the company's services at an age below their normal superannuating age of 60 years by reason of death or permanent and total disablement, either as a result of injury on works or otherwise, provided the said employee does not already have a Ward employed in any unit of the Company and who has not taken any voluntary retirement, and the liability in each year would be quantified for the month/s for which he is entitled to receive Kalyan Payment as per rules of the Scheme, in any accounting year. This provision would also be subject to other contingencies provided in Rule 5, the happening thereof would result in stoppage of the Kalyan Payment 84. Another aspect noted by the Tribunal was the payments made by the assessee to the permanent employees who had been separated from the services of the company on or after 01.04.1989, who fulfilled the conditions laid down in the scheme and it was held by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AS-15 issued by the Institute of Chartered Accountants of India. The Tribunal vide para 52 observed as under:- 52. Before parting with the issue relating to the assessee's claim on account of the provision for Bhavishya Kalyan Yojana as well as for Mediclaim Scheme , we would like to consider one more contention of the assessee, whereby the assessee has tried to support its claim by making a reference lathe Accounting Standard 15 issued by the Council of the Institute of Chartered Accountants of India. This AS-15 deals with the accounting for retirement benefits in the Financial Statements of Employers. The retirement benefit, which has been referred to in this AS-15 are (a) Provident fund, (b) Superannuation/pension, (c) Gratuity, (d) Leave encashment benefit on retirement, (e) Post-retirement health and welfare schemes, and (f) Other - retirement benefits. This case is not in respect of the retirements benefits on account of (a) Provident fund, (b) Superannuation/pension, (c) Gratuity, (d) Leave encashment benefit on retirement. The retirement benefit schemes in the Accounting Standards are defined as arrangements to provide provident fund, superannuation or pension, g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the hands of the assessee as held by the Hon ble Supreme Court in Rotork Controls India (P) Ltd. Vs. CIT (supra). Further reliance on was placed on the ratio laid down by the Chandigarh Bench of the Tribunal in M/s. Glaxo Smithkline Consumer Healthcare Ltd. Vs. ACIT (supra). On the perusal of the order of Tribunal in assessee s own case for the earlier years, it is apparent that the Tribunal has come to a finding that the liability of the assessee has not crystallized in the year under consideration, since the said liability would only arise on the happening of certain events which would happen in the future, hence the liability is a contingent liability. The issue of the liability having been worked out on the basis of AS-15 or scientific method is different aspect of the issue, but the first point to be considered is the nature of liability i.e. whether it had arisen in the year under consideration or it would arise on the happening of certain event in future. The finding of the Tribunal in the case of assessee was that the liability to pay under BKY Scheme or Mediclaim Insurance Scheme would only arise on the happening of certain events in future and consequently, the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver cannot again be considered for the purpose of deduction under section 80HHE of the Act. Therefore, the export turnover of the STP unit was reduced from overall export turnover and the deduction under section 10A of the Act and 80HHE of the Act were re-computed. 90. The CIT(A) dismissed the claim of the assessee observing as under:- 15. I have considered the submissions and material available on record. The appellant's explanation is that the profits on which deduction has been claimed has been excluded while claiming deduction u/s.80HHE. However, by including the export turnover of the STP unit on which deduction u/s.10A has been separately claimed, the assessee is in effect claiming deduction for profit pertaining to STP unit also. U/s.10A, deduction is allowable to the extent of 100% and therefore, the entire corresponding export turnover has already been considered for this purpose. In this connection, it is relevant to refer to a recent decision of ITAT Mumbai in the case of Tata BP Solar India Ltd. Vs. Addl.CIT (2011) 130 ITD 386 (Mum); in which the same point, in the context of 80HHC, was decided in favour of revenue. There is no case of ambiguity or two differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wable deduction u/s 80HHC is the main contention of the revenue. Revenue has taken the argument against such inclusion, while it pleads for inclusion relevant turnover of the EOU unit in the total turnover , the denominator in the said formula. Per contra, relying on various decisions, the assessee takes the stand that the inclusions of Export turnover and the total turnover of the EOU unit has to be done in export turnover and total turnover in the formula. For this, we undertake to examine the relevant provisions to adjudicate if such inclusions are prevented or otherwise. We shall first take up the export turnover as defined in the Act. The expression export turnover is defined in the Explanation (b) to Section 80HHC of the Act and the same is reproduced as under (b) export turnover means the sale proceeds received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under:- There is one more aspect of the matter section 80HHC does not make any distinction between the export turnover from the Free Trade Zone and from other areas. The revenue may feel that once the entire income of the industrial undertaking is exempt under sec. 10A a further deduction under sec. 80HHC in respect of the same turnover may give an unintended advantage to the assessee. In actual practice however it may not be so. If the undertaking incurs a loss, then the advantage or benefit under sec. 10A may be illusory. Why should the assessee be denied deduction allowable under section 80HHC ? This is particularly so when the gross total income, in any case, has to be a positive figure before any deduction under Chapter VIA can be allowed. 30. We are of the considered view that deduction under sec. 80HHC cannot be denied simply because the income of the industrial undertaking is exempt under sec. 10A. But even if two reasonable constructions of the relevant provisions are possible, that construction which favours the assessee, must be adopted - CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) 98. In the above said facts and circumstances, we direct the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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