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Pembril Engineering (P.) Ltd. Versus Deputy Commissioner of Income-tax, Circle-7 (1) , Mumbai

2015 (9) TMI 1165 - ITAT MUMBAI

Maintainability of the invocation of section 154 - rectification of mistake - Held that:- These are section 154 proceedings, scope of which is limited to mistakes apparent from record, so that issues that admit of debate stand excluded at the threshold. The discharge of the liability, implying payment to the beneficiaries, the employees to whom it is due/payable, and for payment to whom the sum/s is set aside, either by the assessee or on its behalf by the transferee company, has not been shown .....

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f the impugned sums u/s. 43B was thus clearly a mistake apparent from record, liable to be rectified u/s. 154. This, quite simply, is the only issue relevant and, in any case, represents the core of the matter; the various aspects discussed being only to address the various arguments/contentions raised, and which again clarify an undisputed state of affairs, both on facts and in law. The deduction, therefore, could only be claimed in the year of payment. As clarified in Mysore Spg. & Mfg. Co. Lt .....

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by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-13, Mumbai ('CIT(A)' for short) dated 22.05.2013, partly allowing the assessee's appeal contesting the rectification of its assessment u/s. 143(3) vide order u/s. 154 of the Income tax Act, 1961 ('the Act' hereinafter) dated 01.03.2011 for Assessment Year (AY) 2004-05. 2. The issue arising in the instant appeal is the maintainability or otherwise in law of the invocation of section 154 of .....

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. 154 dated 13.01.2011 requiring the assessee to show-cause as to why the liability on account of bonus (Rs. 4,91,075/-), gratuity (Rs. 33,88,608/-) and leave encashment (Rs. 11,10,293/-), pre-existing on the first date of the assessment year (being outstanding since 31.03.2003), disallowed suo motu by the assessee u/s. 43B for AY 2003-04 on account of non-payment, claimed and allowed u/s. 43B for the current year, be not disallowed in computing its business income in-as-much as the same were no .....

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ed employees, with the assessee in fact also not showing as to how the amount of the said liability stood reduced from the sale consideration for the slump sale (to GL), as contended by it, rectification order was passed disallowing the claim of the said expenditure u/s. 43B. The same found endorsement in appeal by the first appellate authority. Accepting a reduced sale price for the Undertaking from the purchaser does not amount to discharge of such liability, which would only be by way of paym .....

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;, as a going concern, would amount to an effective discharge of the relevant liability as far as the assessee is concerned. Even if another view of the matter is possible, the same lends a debatable character to the assessee's claim, taking it outside the ambit of section 154. As regards the claim qua leave salary, covered u/s. 43B(f), the hon'ble Calcutta High Court has in Exide Industries Ltd. v. Union of India [2007] 292 ITR 470 struck down section 43B(f) as unconstitutional. Though .....

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constitutional validity of section 43B(f), settling the matter. The ld. DR, on the other hand, would rely on the orders by the Revenue authorities. 5. We have heard the parties, and perused the material on record. The first question before us is that the assessee having explained the basis on which deduction qua the impugned sums stands claimed by it per its return of income for the year, could it at all be said that there had occurred a 'mistake' in accepting the said claim in assessmen .....

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ll dated 29.07.2003 between the assessee-company (PEPL) and (GL) (at PB pages 8-21), referred to during the course of hearing. All the liabilities as on the date of transfer (31.10.2003) are that of the assessee-company, which is/undertakes to settle the same. True, the liability stands taken into account in reckoning the sale consideration, but that does not alter the fact that the liability is, in law, of PEPL, which is also to bear all the litigation costs in relation thereto, i.e., where and .....

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to another, which is what the reckoning of the liability in arriving at the sale consideration recoverable from the transferee, implies, will not amount an actual discharge of the liability, so as to satisfy the mandate of section 43B, which would only be upon payment to the concerned employees. Keeping aside moneys for payment would not, after all, amount to an actual payment. The section, which a non obstante provision, provides a condition (of payment) for the deduction of the liabilities sp .....

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gain, even as emphasized by the ld. CIT(A), imply payment to the concerned employees, and there is no concept of deemed payment. This in fact is the crux of the matter, and represents the fundamental fallacy in the assessee's argument. There is nothing on record to show that the payment qua the impugned liabilities stands made to the concerned employees, much less during the year, which alone is relevant for its deduction for the current year. There is in fact no contention by the assessee t .....

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ceptance in assessment is clearly a mistake, which is apparent from record - the primary facts being in fact undisputed, validating its rectification by recourse to section 154 of the Act. This leaves us with one argument, raised with reference to the constitutional validity to section 43B(f). We have for the purpose referred to the decision by the tribunal in the case of Birla General Finance (ITA No. 7530/Mum/2010 dated 23.01.2015/copy on record), as well as earlier decision in Essar Export &a .....

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ew of clear stand by the Revenue in the present case, is misplaced. It needs to be appreciated that inasmuch as the decision by the Apex Court, to follow which the restoration has been made by the tribunal, is yet to be delivered, i.e., is pending therewith, there is no adjudication by the tribunal per the said decisions, which, being based on a concession, do not even otherwise lay down any precedent (Lakshmi Shanker Srivastava v. State (Delhi Administration) AIR 1979 SC 451). Pending its final .....

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asis of the said decision is that it was not clear if the liability/s under reference had been claimed or allowed in the hands of the transferee. It was not even clear as to in whose hands the liability/s is to be allowed. In the facts of the present case, there is, as aforesaid, no transfer of liability/s, which is abundantly clarified to be of the assessee-company, besides its transfer being impermissible in law. The liability is of the assessee-company, in whose books alone it stands debited .....

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question of the transferee claiming the same? Section 43B lays down the addition qualification for deduction, which must be 'otherwise allowable' for the section to come into play. Where no expenditure stands borne by the transferee, the question of it claiming the same just does not arise. 6. In view of the foregoing, we find no merit in the assessee's claim/s. We are conscious, when we say so, that these are section 154 proceedings, scope of which is limited to mistakes apparent f .....

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