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ICI India Ltd. Versus DCIT, Circle-10, and Vica-Versa

2015 (12) TMI 301 - ITAT KOLKATA

Disallowance of liability on account of leave encashment crystallized although has not fallen due for payment as on 31st March, 1996 - Held that:- The fact in the instant case is similar to the case of Bharat Earth Movers (2000 (8) TMI 4 - SUPREME Court). Now from the above facts, it is clear that liability towards leave encashment is a definite liability which has accrued and arisen during the year ending on March of this year. However, payment of the same does not fall during the relevant prev .....

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recognized for the same and assessee prayed for the allowabilty of the VRS amount. As during the year 735 employees had opted for VRS as per the scheme of the assessee. Accordingly the expense to be made towards VRS to those staff has become definite expense. Although the payment of VRS was due in future date. Therefore the AO has disallowed the expenditure and same was confirmed by Ld. CIT(A) as it was not due for payment in the year under consideration. However, we find that this Tribunal has .....

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uced/. If cost of improvement of a particular asset cannot be ascertained than capital gain cannot be computed. While taking this view, we derive support from the decision of Hon'ble Apex Court in the case of B.C. Srinivasa Setty 1981 (2) TMI 1 - SUPREME Court ) relied upon by the Ld. Counsel for the assessee. The ITAT Hyderabad Bench in the case of Coromandel Fertilisers Ltd. (2003 (11) TMI 303 - ITAT HYDERABAD-B ) held that it is not possible to determine the cost of improvement of an undertak .....

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from the employees for the use of guest house was allowed in its own case by this Tribunal. Respectfully, following the decision of this Tribunal we decide this issue in favour of assessee

Up-gradation cost on account of millennium up-gradation cost - whether treated as revenue expenditure and allowable deduction u/s. 37(1) - Held that:- Business of assessee is located in different place of the country and most of the expenditure incurred on making the computer Y2K compliant was in th .....

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21/Kol/2007, ITA No. 2048 & 2355/Kol /2005, ITA No. 487 & 507/Kol /2006 - Dated:- 27-11-2015 - Shri Mahavir Singh, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Petitioner : Shri R.N.Bajoria, Senior Counsel For the Respondent : Shri Niraj Kumarm, CIT-DR ORDER Per Waseem Ahmed, Accountant Member:- These are cross-appeals filed by the assessee and Revenue which are directed against the order of Commissioner of Income Tax (Appeals)-X, Kolkata u/s 143(3) of the Income Tax Act, 196 .....

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is that Ld. CIT(A) erred in confirming the order of the AO for the liability on account of leave encashment which has been crystallized although has not fallen due for payment as on 31st March, 1996. 4. Briefly stated facts are that during the year assessee has debited its profit and loss account by an amount of ₹ 4.90 crores towards provision for leave salary. On question raised by Assessing Officer on the allowabilty of said provision for leave salary as deduction, the assessee submitte .....

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ated the same as contingent liability as it has not accrued during the previous year. It merely represents the provision of liability, therefore the same was disallowed. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who upheld the action of AO by observing as under:- "The appellant made a claim towards liability on account of encashment of leave. The claim represents an amount quantified on the basis of leave lying at credit of the staff member. The amount has not fallen due for .....

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on behalf of Revenue. 5. We have heard rival contentions of both the parties and perused the materials available on record. Ld. DR relied on the orders of authorities below. Ld. AR submitted a paper book running pages from 1 to 204 and submitted that the liability for the leave encashment has been accrued and crystallized. Therefore, it is not a provision at all for leave encashment and submitted that the accrual of expenditure under mercantile system of accounting is an allowable expenditure. F .....

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t the liability of the employees for leave encashment has been crystallized at the yearend but has not fallen due for payment. The liability for the payment will arise in future when the employee exercises his option for the encashment of the salary. On the other side the Ld. DR claims the provision for leave encashment as contingent liability. Contingent liability is potential obligation that may be incurred depending on the outcome of a future event. A contingent liability is one where the out .....

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u/s 37(1) of the Act. The relevant extract of the order is produced below:- "Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Year in which deductible - Assessment year 1978-79 - Whether if a business liability has definitely arisen in accounting year, deduction should be allowed although liability may have to be quantified and discharged at a future date but what should be definite is incurring of liability - Held yes - Provision was made by assessee-company for meeting .....

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is clear that liability towards leave encashment is a definite liability which has accrued and arisen during the year ending on March of this year. However, payment of the same does not fall during the relevant previous year but under the mercantile system of accounting this expenditure requires recognition in the books of accounts. In view of the above, we allow this ground of assessee's appeal. 6. Next ground raised by assessee in this appeal is that Ld. CIT(A) has erred in confirming the .....

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d of three years- April 2000, April 2001, April 2002. So it is clear that the liability has crystallized to the assessee in the assessment year 1996-97 but not falling due for payment in the year under consideration. The AO noticed from the note-10 of schedule 20 of the balance sheet that in last year the assessee was accounting the cost of VRS based on actual payments. During the previous year 1995-96 assessee has started treating the total VRS liability as deferred revenue expenditure. The pay .....

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/- Apr.2000 Rs.96195/- Apr. 2001 Rs.96195/- Apr. 2002 The aforesaid amount(s) has been calculated on the basis of your Basic Wage/Salary and Dearness Allowance as of Feb95. The above mentioned amount will accrues and become due to you on the dates shown against them and each amount will be paid to you on or after the day following the date of accrual. It is expressly agreed between the company and yourself that you will have no right, interest or claim whatsoever in respect of any of these amoun .....

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of VRS crystallized in the assessment year 1996-97 but the payment has not fallen due in the relevant year. The AO further found that during the relevant year the actual payment for VRS made of ₹ 6,90,77,772/-. Therefore, AO held that payment of VRS which has actually been paid will be allowed as an expense and the balance of ₹ 6,29,22,228/- will not be allowed in the year under consideration. Accordingly the AO has disallowed the same and added to the total income of the assessee. 7 .....

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ejected. Aggrieved, assessee preferred second appeal before us. 8. We have heard rival contentions of both the parties and perused the materials available on record. Ld. DR vehemently relied on the orders of authorities below. Ld. AR submitted that as per the scheme of the company for VRS, the employees of the company have the option either to take the lump sum consideration in one go or in terms of various installment of the various amount. Once the agreement for severance has been signed by th .....

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2 ITR 363 (SC) 4. Metal Box Co. of India Ltd. v. Their Workmen 73 ITR 53 (SC) 5. ITAT, Kolkata C Bench Rallis India Ltd. v. DCIT Ld. AR also submitted that this Tribunal's order in assessee's own case in ITA No. 851/Kol/2008, 1018/Kol/2007 & 1640/Kol/2008 for AYs 2000-01 and 2001-02, involving the exactly similar facts where the decision was in favour of assessee. From the aforesaid discussion, we find that during the year 735 employees had opted for VRS as per the scheme of the asse .....

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nd of assessee's appeal is allowed. 9. In the result, assessee's appeal is allowed. Coming to Revenue's appeal in ITA No. 1021/Kol/2007 A.Y. 1996-97 10. First issue raised by Revenue is that Ld. CIT(A) erred in allowing the excessive depreciation for an amount of ₹ 13,77,12,314/-. Before we come to the specific issue raised by Revenue it is better to understand the history of the facts of the case which goes as under:- During the FY 1993-94 relevant to AY 1994-95 assessee has s .....

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erm Capital Gain under section 50 of the Act. Now coming to the issue of relevant year under consideration, the AO has followed the same practice by reducing the sale consideration of the undertakings then sold in the assessment year 1994-95 and 1995-96 respectively from the WDV of block of assets. The facts of the relevant year are that during the FY 1993-94 relevant to AY 1994-95 assessee has sold two undertaking for an amount of ₹ 85 crores as going concern and the AO reduced the same f .....

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ng for an amount of ₹ 3,13,25,013/-. So WDV at the year end at ₹ 10,12,88,096/- on which a depreciation for an amount of ₹ 1,87,35,787/- was claimed. Hence, WDV as on 01.04.1995 comes to ₹ 8,55,62,309/-. During the FY 1995-96 which is under consideration the assessee acquired asset of ₹ 31,35,33,795/- and sold its undertaking for an amount of ₹ 30,28,05,318/- which was deducted from WDV of the relevant block. The WDV coming at the year end i.e 31.03.1996 at &# .....

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ppellant claimed depreciation of ₹ 13.77 crores which is disallowed by the AO. The AO disallowed the depreciation since the sale consideration of the fertilizer and fibre units, is reduced from block of assets and the block is reduced to nil. Hence, depreciation is disallowed. As per the decision of the ITAT in the Corromondal Fertilizer, the WDV of the unit sold, is to be reduced from block of assets. Depreciation is allowable on the balance value of the block of assets relating to the bu .....

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and allow the depreciation as per law." Aggrieved, Revenue is in appeal before us. 11. We have heard rival contentions of both the parties and perused the materials available on record. Ld. DR relied on the order of AO whereas Ld. AR relied on the order of Ld. CIT(A). Ld. AR submitted that audited statement showing claim of depreciation u/s. 32 of the Act which is placed on page 4 of the paper book and depreciation claim in audited statement was at ₹ 15,06,49,470/- only. Ld. AR furth .....

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sale. The Ld. AR has submitted the decision of ITAT in assessee's own case, which is placed in paper book on pages 87 to 101, wherein the this Tribunal has decided the issue in favour of assessee. From the above discussion, we find that AO has reduced the WDV of the respective block out of the sale proceed from the sale of undertaking as going concern. However, the same was disallowed by Ld. CIT(A). Ld. AR of assessee relied in assessee's own case, wherein relief was granted in favour of .....

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le Apex Court in the case of B.C. Srinivasa Setty (supra) relied upon by the Ld. Counsel for the assessee. The ITAT Hyderabad Bench in the case of Coromandel Fertilisers Ltd. ((supra) held that it is not possible to determine the cost of improvement of an undertaking, specially when undertaking has so many intangible asset, like trade mark, licence, goodwill etc. We entirely agree with the above conclusion of the ITAT, Hyderabad bench. In view of above, we respectfully following the decision of .....

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roceed of assessee's agro chemical undertaking is not liable to tax as Short Term Capital Gain (STCG for short) u/s 50 of the Act or as Long Term Capital Gains (LTCG for short). During the year under consideration assessee has sold its agro chemical undertaking for a value of ₹ 30 crores on which assessee earned profit and same was declared as LTCG after adjusting the brought forward loss under head 'LTCG'. The AO during the assessment proceedings found that in the earlier year .....

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d, assessee preferred appeal before Ld. CIT(A) who has dismissed the plea of assessee by observing as under:- "2) Capital Gains - The appellant derived long term capital gains of ₹ 11.73 crores on the transfer of agro-chemical undertaking. The AO held that the capital gain is required to be computed as per section 50 of the IT Act since the appellant has received a lumpsum sale consideration for the sale of the business. The AO computed short term capital gains as per section 50 for t .....

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ppellant. It is prayed that the computation be accepted. The appellant sold agro-chemical undertaking for a lumpsum price of ₹ 30 crores. The details regarding the valuation placed for various assets are not furnished. In such slump sale, the capital gains tax is not leviable as per the decision of ITAT in the case of Corromondal Fertilisers Ltd. v. DCIT (2004) 84 TTJ 370 (Hyd). Hence, in the slump sale of the agro-chemical undertaking as a going concern, the levy of capital gains is not e .....

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f acquisition of asset as well as cost of any improvement of such asset is to be reduced. If cost of improvement of a particular asset cannot be ascertained than capital gain cannot be computed. While taking this view, he derive support from the decision of Hon'ble Supreme Court in the case of B.C.Srinivasa Setty 128 ITR 294 relied upon by the him. The ITAT Hyderabad Bench in the case of Coromandel Fertilisers Ltd. 90 ITD 439 (Hyd) (supra) held that it is not possible to determine the cost o .....

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deleting the demand. 15. During the assessment proceedings AO found that assessee has incurred various expenses in relation to guest house accommodation such as maintenance, rent and repair expenses. Against the above heads of expense, assessee has shown certain deemed recovery for an amount of ₹ 16,88,335/- this deemed recovery was to be recovered from the staff of the assessee- company. AO held that deemed recovery of ₹ 16,88,335/- cannot be treated as actual recovery, therefore, .....

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R has submitted that recovery from the employees for the use of guest house was allowed in its own case by this Tribunal in ITA No. 347/Kol/1997 dated 18.02.2001. Respectfully, following the decision of this Tribunal we decide this issue in favour of assessee. This ground of Revenue's appeal is dismissed. 17. In the result, Revenue's appeal is dismissed. Coming to cross-appeals of assessee and Revenue in ITA No.2048 & 2355/Kol/2005 for A.Y. 1996-97 18. The ground of appeal raised by .....

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sion of Section 80M of IT Act in concluding that the exemption for dividend to be allowed should be net off dividend received after deducting tax at source. b) That the ld. CIT(A) failed to appreciate that the claim made by the Appellant u/s. 80I/80IA is only for the manufacturing activities and in accordance with the provision of the IT Act. c) That the ld. CIT(A) wrongly deducted the losses arising out of trading activities for the purposes of allowing claim u/s 80I/80IA thereby erred in reduc .....

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imed on account of income from commission on indenting business. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred I allowing deduction of excise and customs duty of ₹ 559.15 lacs u/s/. 43B. This liability is a part of closing stock, excise duty paid after 31.3-96 has been debited to P&L A/c. for the A.Yr. 197-98. Hence, deduction u/s/ 43B in respect of excise duty paid can be allowed only after withdrawing the amount debited on account of excise duty .....

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At the outset, Ld. AR of assessee submitted that the Assessing Officer has issued intimation u/s. 143(1)(a) of the Act dated 27.03.1997 and same intimation was rectified u/s. 154 of the Act on 17.12.1998 whereby certain additions and disallowances were made in the return of the income of the assessee. Thereafter the case was selected under scrutiny assessment u/s. 143(3) of the Act and accordingly the assessment was framed by passing order under section 143(3) of the Act on 18.03.1999. We find .....

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section 154 on dated 17.12.1998, ld. CIT(A) order and appeal to the ITAT. In support of his claim, the ld. AR drew our attention to the page of 168 of the paper book, wherein in assessee's own case in ITA No. 501/Kol/2002 ITAT Kolkata has quashed the proceedings of section 154 of the Act in para-2 of this order, which reproduced below:- "2. To adjudicate on the controversy arising out of the appeals, it is suffice to take note of the fact that the impugned order under s. 154 read with s .....

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e of notice for rectification and passing of orders under section 154 to rectify the intimation and to make additions and disallowances to the income indicated therein has been agitated by taxpayers before Courts and Tribunals in various cases. It has been pleaded that when once regular assessment is taken up for scrutiny and notice issued under sections 142 and 143 of the Act, the Assessing Officer has no jurisdiction or authority to rectify the intimation and to enlarge the amount of income as .....

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it is the subject-matter of further proceedings in appeal, revision etc. and therefore intimation does not survive after the issue of notices under section 142(1) and 143(2) which culminate into the order of assessment passed under section 143(3) which is appealable and is also open to revision depending upon the issues involved and the power sought to be invoked for the purpose of appeal by the assessee or revision of assessment by the Commissioner under section 263 of the Income-tax Act. 20.1 .....

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mistakes after the regular assessment proceedings have commenced by issue of notice under section 143(2) and the Assessing Officer is seized of the entire facts and issues involving the assessee relating to his assessment. The notice and order for rectification under section 154 were held to be unsustainable as the Assessing Officer cannot at that stage consider any item to be prima facie inadmissible for the purpose of making adjustments to the returned income to enhance the tax liability of th .....

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CTR (Del) 340 : (2001) 249 ITR 763 (Del) has also held that during the pendency of proceedings for regular assessment and after the issue of notice under section 143(2), the Assessing Officer has no jurisdiction to invoke his powers under section 154 of the Income-tax Act as the intimation issued under section 143(1)(a) would cease to be operative. The Punjab & Haryana High Court in CIT vs. Arihant Industries Ltd. (2002) 176 CTR (P&H) 630 : (2002) 255 ITR 458 (P&H) has also expressed .....

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6 ITR 699 (P&H). 20.3 The Karnataka High Court in CIT vs. Manjit Singh Sachdeva (2009) 310 ITR 357 (Kar) has also held that no action for rectification is permissible to modify the Intimation after regular assessment is taken up under section 143(2). The Supreme Court in CIT vs. Gujarat Electricity Board (2003) 181 CTR (SC) 28 : (2003) 260 ITR 84 (SC) has also made it clear that the intimation issued under section 143(1)(a) cannot be the subject-matter of proceedings in rectification under s .....

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o relying in assessee's own case of assessee in ITA No. 501/Kol/2002 (supra) for the same relevant year. Keeping in view of this Tribunal's order in assessee's own case in ITA No. 501/Kol/2002 (supra) we also quash the order passed u/s 154 of the Act by AO. Accordingly, the ground raised by assessee is allowed. 21. Since the principal issue u/s 154 of the Act in assessee's appeal regarding the validity of the rectification order is allowed in favour of assessee, then the remainin .....

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sessee raised the following grounds in this appeal:- "1) The ld. CIT(A) has erred in not accepting the Appellant's computation of Long Term Capital Loss of ₹ 8,44,04,540 on transferred of "New Fibres Undertaking" by holding that the sale consideration in respect of "New Fibres Undertaking" is to be treated and taxed as per provisions of Section 50 of the Act. 2) The ld. CIT(A) has erred in not following the principles laid down by the Supreme Court with regard .....

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to as CIT(A) has erred in disallowing Income-tax Depreciation claim of the Appellant amounting to ₹ 15,64,30,803 on the WDV of the block of assets (excluding the Undertakings transferred) of the Appellant. 5) The ld. CIT(A) has erred in disallowing provision for royalty and technical know-how fees amounting to ₹ 18,83,500 on the ground that from such provision no tax has been deducted at source and paid to the Government. 6) The ld. CIT(A) failed to appreciate that payment of royalty .....

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t the liability towards payment of the total compensation to such optees arises and the same is allowable in accordance with the Supreme Court decision. 9) The ld. CIT(A) failed to appreciate that the act that payment of compensation would be made in future cannot negate the fact that liability towards payment of the total compensation has crystallized during the year. 10) Assuming but not admitting that the VRS compensation is not allowable on the basis of liability which has crystallized at th .....

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) The ld. CIT(A) erred in allowing only ₹ 7,62,839 u/s. 80HHC of IT Act as against the App's entitlement of ₹ 83,69,371. 13) The ld. CIT(A) has wrongly levied interest amount to ₹ 2,44,37,886 under section 234B and ₹ 2,23,617 under section 201(IA) of IT Act." 26. At the time of hearing Ld. AR of assessee submitted that he has been instructed not to press ground No.1 to 3, 5, 6 & 11 of this appeal. Ld. DR raised no objection regarding the action of Ld. AR for .....

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ital gain or loss. But the AO was not satisfied with the working of the assessee and enquires why the sale proceed of the undertaking should not be considered as per the provision of Sec. 50 of the Act. The AO held that In case any depreciable asset is sold out then the sale proceed are reduced from the WDV of asset of the respective block and depreciation is charged on the closing WDV as appearing at the yearend in assessee's books of account. The then AO has disallowed the claim of the ass .....

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llowed by Revenue in case of assessee in earlier years. So, AO has disallowed the same and added to total income of assessee. Aggrieved, assessee preferred appeal before Ld. CIT(A) who has upheld the action of AO by observing as under:- "7. I have carefully considered the submission of the appellant company in respect of the above two related material grounds. Similar issue came up I appeal No. 44/CIT(A)-X/Cir.10/05-06 for assessment year 1999-2000. In my order dated 1/9/05 the matter was e .....

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facts and circumstances of the case. Ld. DR vehemently relied on the orders of authorities below. Before us, Ld. AR submitted that in the own case of the assessee for AY 1994-95 in ITA No. 1020/Kol/2007 dated 29.12.2008, wherein it was held by this Tribunal as under:- "After reading the agreement as a whole, we find that the fertilizer business of the assessee has been transferred as a going concern to CCFC. All assets and liabilities relating to fertilizer business has been transferred, on .....

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liabilities relating to fertilizer because as been taken over by CCFC. The sale consideration of the undertaking as a whole has been fixed at a "slump price" of ₹ 70,00 crores without specifying any specific value to any asset. The assets transferred includes tangible as well as intangible asset. Moreover, the seller i.e the assessee has also agreed for not carrying on the similar business of manufacturing and marketing of urea fertilizer for a period of 10 yeas. This is evident .....

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arate consideration is charged but it is also considered in the lump sum consideration of ₹ 70.00 crores. Considering the totality of the above facts, we are of the opinion that it is a case of "slump sale" of undertaking as a going concern and not the sale of depreciable assets within the meaning of Section 50 of the Income Tax Act. We, therefore, agree with the Ld. CIT(A) that the Assessing Officer was not justified in applying the provisions of Section 50 of the Income Tax Act .....

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10 raised by assessee in this appeal which reproduced as under:- "7) The ld. CIT(A) has erred in not allowing the liability which has crystallized during the assessment year 1998/99 for VRS compensation of ₹ 18,50,00,000/- 8) The ld. CIT(A) failed to appreciate that on signing of the severance agreements by the employees opting for voluntary retirement the liability towards payment of the total compensation to such optees arises and the same is allowable in accordance with the Suprem .....

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least the payment during the assessment year amounting to ₹ 11,29,56,000 based on CBDT Circular wrongly interpreting the provision of IT Act which is bad in law and also no binding on the assessee." 31. We have already decided the similar issue in ITA No. 850/Kol/2007 in para-8 by this order and taking a consistent view and in terms of above, we allow these grounds of appeal raised by assessee. 32. Next ground raised by assessee in this appeal is reproduced below:- "12) The ld. .....

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ical purpose. 34. In the result, assessee's appeal is partly allowed. Coming to Revenue's appeal in ITA No. 507/Kol/2006 for A.Y. 98-99 35. Issue raised by Revenue in this appeal is that Ld. CIT(A) has erred in holding the up-gradation cost on account of millennium up-gradation cost amounting to ₹ 1.05 crores as revenue expenditure and allowable deduction u/s. 37(1) of the Act. 36. During the year assessee has incurred an amount of ₹ 1.05 crores in connection with Y2K complia .....

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f these changes, the life of the computer has got a new lease of life otherwise entire computer system would have become scrap. The AO also noted that there were 3 years left for the for the millennium year to come and there was no immediate requirement to incur the up-gradation cost. Accordingly the AO held that expenditure amounting to ₹ 1.05 crores has, in fact, introduced in new computer equipment capable of working in the new millennium and hence, the expense thus incurred is treated .....

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e us Ld. AR submitted that business of assessee is located in different place of the country and most of the expenditure incurred on making the computer Y2K compliant was in the nature of travelling and no enduring benefit is arising from making of existing computers of Y2K compliant only some small chips are required to upgrade the system. From the above discussion, we find that the major expenses were incurred on travelling to make the computer system of assessee Y2K compliant and no new fixed .....

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, in the case of Asahi India cleod Russell (supra) and in the case of Raychem National Stock Exchange (supra) we are not inclined to interfere in the order of Ld. CIT(A) and this ground of Revenue's appeal is dismissed. 39. Next ground raised by Revenue in this appeal is that Ld. CIT(A) has erred in allowing the deduction u/s.43B of the Act for the contribution of ₹ 19,26,537/- made towards PF/pension. 40. During the course of assessment proceedings, AO found that assessee has violated .....

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