TMI Blog2010 (4) TMI 1105X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of ₹ 50 lakhs being payment of re-compensation. The AO noted that the assessee had debited this amount in the profit loss account. It was noted that expenditure was incurred by way of one time settlement for the sacrifices made by the financial institutions for waiver of the interest and late payment which the assessee company led to financial sickness. The AO held that the payment is in the nature of capital expenditure on the ground that that it was one time payment, which brought an advantage which was of enduring in nature and would benefit the company over long run. 4. The addition was challenged before the learned CIT(A) and it was submitted that the assessee company had borrowed an aggregate amount of ₹ 956.37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as submitted that had the BIFR not intervened and the banks not agreed to restrain themselves from recovering the interest, the assessee company would not have survived since the burden of interest under the adverse circumstances would have led to collapse of the assessee company. It was therefore, interest of the past, which cannot be treated as capital expenditure. No enduring benefit was derived and no asset was created in favour of the assessee. 5. The learned CIT(A) considering the explanation of the assessee and material on record agreed that the BIFR imposed conditions for keeping the payment schedule in abeyance due to poor financial health of the assessee. The share of each financial institution which had agreed for acceptance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, the payment of interest was kept in abeyance and it was provided that in case of assessee revives its financial growth, interest should be recovered by the financial institutions and the banks. The assessee and the financial institutions and the banks entered into an agreement on revival of financial growth of the assessee that ₹ 50 lakhs be paid as interest in full and final settlement of the interest payment. The interest, therefore, became ascertained liability on settlement between the parties in the year under consideration and payment is also made in the year under consideration. The settlement of part payment of the interest in full and final settlement was in the interest of the assessee and was laid out wholly and excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 115JB (2) of the IT Act. 9. It was briefly submitted before the learned CIT(A) that the AO has not appreciated the distinction between the provision for deferred taxation and the provision for current taxation. It was submitted that only variation to the profit loss account prepared in accordance with the provisions of Part II and III of Schedule VI to the Companies Act would be as per the items (a) to (f) or items (i) to (vii) under the Explanation. The AO has increased the profits by taking recourse to clause (a) of the Explanation. As per this clause, the book profit has to be increased by the amount of income tax paid or payable and the provisions thereof. The assessee has duly increased the book profit by the amount provided to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersed. 11. On consideration of the above facts and submissions of the parties, we are of the view that the order of the learned CIT(A) is liable to be set aside and reversed. Sub clause (h) to Explanation (1) to section 115JB of the IT Act has been inserted in the Act by Finance Act 2008 retrospectively with effect from 1st April, 2001 whereby it is provided that for the purpose of this section the book profit means the net profit as shown in the profit loss account for the relevant previous year prepared under sub clause (2), as increased by (h) the amount of deferred tax and the provision there for. The above provision is applicable to the assessment year under appeal i.e. 2003-04. The learned Counsel for the assessee accepted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition. 14. The learned DR relied upon the order of the AO. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted that the issue is covered by the decision of the Hon ble Bombay High Court in the case of CIT Vs Echjay Forging Pvt. Ltd. 251 ITR 15 (Bom.) in which it was held that since the provision for gratuity was made on the basis of actuarial calculation, it was an ascertained liability and the said amount cannot be added to the net profit . 15. Considering the rival submissions of the parties, we are of the view that addition has been rightly deleted by the learned CIT(A). It was an ascertained liability of the assessee based upon actuarial calculation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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