TMI Blog2017 (2) TMI 742X X X X Extracts X X X X X X X X Extracts X X X X ..... of above, we feel it appropriate to restore the matter to the file of the Assessing Officer with the direction to examine the actuarial valuations made by the assessee in respect of provision for leave encashment and gratuity and then decide, whether these are ascertained liability or not, keeping in view of the ratio of the Hon’ble Supreme Court in the case of Bharat Earth Movers (2000 (8) TMI 4 - SUPREME Court ). - ITA No. 6165/Del/2013 - - - Dated:- 18-11-2016 - SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Appellant : Sh. R.K. Kapoor, CA For The Respondent : Sh. F.R. Meena, Sr.DR ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 23/09/2013 passed by the learned Commissioner of Income Tax (Appeals)-XVII, Laxmi Nagar, Delhi for assessment year 2009-10 raising following grounds: 1.0 That the learned CIT(A) has grossly erred in law and on facts and in the circumstances of the appellant s case in confirming the disallowance of ₹ 4.45.076/- u/s.40A(3Ijof the Income-tax Act, on wholly untenable grounds. 1.1 That the learned CIT(A) has failed to appreciate the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued and complied with. In the scrutiny assessment completed under section 143(3) of the Act on 28/12/2011, the Assessing Officer assessed the income under normal provisions of the Act at ₹ 2,76,12,698/- which was allowed to be adjusted against the brought forward losses and book profit under section 115 JB of the Act was computed at ₹ 4,42,50, 717/-after making additions to the book profit of ₹ 3,31,27,516/-shown by the assessee. 3. On further appeal by the assessee, the learned Commissioner of Income-tax (Appeals), partly allowed the appeal. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 4. The grounds No. 1.0 to 1.2 are in respect of the amount of ₹ 4,45,076/- disallowed by the Assessing Officer under section 40A(3) of the Act and sustained by the learned Commissioner of Income-tax (Appeals). 4.1 The facts in respect of issue in dispute are that the Assessing Officer observed that a sum of ₹ 4,80,677/- was shown as disallowable under section 40A(3) of the Act in the Tax Audit Report, however, the assessee disallowed only a sum of ₹ 35,601/- in the return of income filed and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the refund would have to be deposited in the bank and in absence of bank account, how the truckers would deposit the refunds and thus the learned Commissioner of Income-tax (Appeals) did not find any rational in the argument of the assessee that since the truckers did not have bank account, the payments to them was made in cash and accordingly, the disallowance was upheld. 4.2 Before us, the learned Authorized Representative of the assessee submitted that Rule 6DD(k) of Income Tax Rules, 1962 (for short the Rules ) covers the transaction carried out in the nature by the assessee as the payments were made for the bona fide services obtained from the truckers for the business operation of the assessee. In support of the contention the learned Authorized Representative relied on the decision of the Hon ble Delhi High Court in the case of RC Goel versus CIT (supra). 4.3 On the other hand, the learned Senior Departmental Representative relied on the findings of the lower authorities. 4.4 We have heard the rival submissions and perused the relevant material on record. The sub-section (3) and (3A) of section 40A of the Act and proviso under sub-section (3A) deal with disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account payee bank draft. 6DD. No disallowance under sub-section (3) of section 40A shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3A) of section 40A where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees in the cases and circumstances specified hereunder, namely: - (a) where the payment is made to - (i) the Reserve Bank of India or any banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949); (ii) the State Bank of India or any subsidiary bank as defined in section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959); (iii) any co-operative bank or land mortgage bank; (iv) any primary agricultural credit society or any primary credit society as defined under section 56 of the Banking Regulation Act, 1949 (10 of 1949); (v) the Life Insurance Corporation of India established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956); (b) where the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see by way of salary to his employee after deducting the income-tax from salary in accordance with the provisions of section 192 of the Act, and when such employee - (i) is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and (ii) does not maintain any account in any bank at such place or ship; (j) where the payment was required to be made on a day on which the banks were closed either on account of holiday or strike; (k) where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person; (l) where the payment is made by an authorised dealer or a money changer against purchase of foreign currency or travellers cheques in the normal course of his business. Explanation. - For the purposes of this clause, the expressions authorized dealer or money changer means a person authorised as an authorized dealer or a money changer to deal in foreign currency or foreign exchange under any law for the time being in force.] 4.6 The learned Authorized Representative of the assessee su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in such cases that Rule 6DD - which was formulated as a proviso to Section 40A (3) - steps in to aid such assessees and concerns. In this context, the statutory mandate in Section 6DD (k), at least in the circumstances of the case, has to be so construed as to mean that but for the cash payment, the assessee would have been deprived the benefit of supplies itself. This Court clarifies that the interpretation of the expression who is required to make payment in cash having regard to the circumstances of the case is fact dependent, at least in the present case. The consequence of instances of payment through account payee cheques in small business which are dependent on such supplies would be to completely stifle, if not stop, the business activities. It is in that sense that the expression required would have to be construed. 4.8 It is evident that the Rule 6DD(k) is having two limbs, first, i.e., the payment is made by assessee to his agent, and second limb, i.e., agent is required to make payment in cash for goods or services on behalf of the assessee. The Hon ble High Court has interpreted the second limb of the rule. 4.9 Since in the instant case, the truck unio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Cheminvestment (supra) has been overruled by the Hon ble Delhi High Court, reported in 378 ITR 33 . He further submitted that Hon ble Delhi High Court in the case of Joint Investment Private Limited Vs. Commissioner of Income Tax, reported in 372 ITR 694, held that disallowance under section 14A of the Act should be restricted to the amount of dividend income only, which is ₹ 2000/- in the case of the assessee and, therefore, the balance amount of disallowance might be deleted in the case of the assessee. 5.3 The learned Senior Departmental Representative, on the other hand, relied on the finding of the lower authorities. 5.4 We have heard the rival submissions and perused the relevant material on record. We find that Hon ble Delhi High Court in the case of Joint Investments (supra) held as under: 9. In the present case, the AO has not firstly disclosed why the appellant/assessee s claim for attributing ₹ 2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee s claim or explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification and actual release of payment to the employees, there might be a possibility of dismissal of the employee. 3. that the report of the actuary valuer was based on many assumptions and presumptions, which might or might not happen and, therefore, the claim was not based on true and scientific principles. 4. that the expenditure claimed has not reflected as income in the hand of the employees, which was against the general principle of tax provisions. 6.2 The learned Commissioner of Income Tax (Appeals) upheld the finding of the Assessing Officer by observing that the assessee had not shown how the provisions were applicable for estimation with reasonable certainty and the amounts were added back in normal computation being in the nature of provisions. 6.3 Before us, the learned Authorized Representative of the assessee submitted that liabilities pertaining to the leave encashment and gratuity were ascertained liabilities as on the date of balance sheet and it was only because of the specific provision of section 43B or 40A(7) of the Act such liabilities are allowed under the normal provisions of Income Tax Act only on payment basis. In this connection, the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns for leave encashment and gratuity are ascertained liability and, therefore, cannot be added to the net profit as shown in the profit and loss account for computing the book profit under section 115JB of the Act, whereas the authorities below has held that provisions for leave encashment and gratuity are not ascertained liability. 6.6 In the case of Bharat Earth Movers (supra), the Hon ble Supreme Court in respect of the issue, whether the liabilities are contingent or certain , held as under: 4. The law is settled; if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. 5. In Metal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case. 6. Applying the abovesaid settled principles to the facts of the case at hand we are satisfied that provision made by the appellant company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary. 7. The appeal is allowed. The judgment under appeal is set aside. The question referred by the Tribunal to the High Court is answered in the affirmative, i.e., in favour of the assessee and against the Revenue. 6.7 Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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