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2017 (3) TMI 264 - ITAT KOLKATA

2017 (3) TMI 264 - ITAT KOLKATA - TMI - MAT computation - provisions for gratuity not added to book profit - Held that:- Here the liability had been calculated on the basis of actuarial valuation towards future payment to the employees. The assessee had submitted a copy of the actuarial valuation certificate issued by the Advocate and registered valuer which is on record. We further observe that when the provisions for gratuity is made on the basis of actuarial valuation for future payments to e .....

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ing principles. On that basis of this finding, we do not find any infirmity in the order of Ld. CIT(A) on this issue, and, therefore, the relief granted to the assessee by the Ld. CIT(A) is sustained . - Decided against revenue. - Liability of interest on turnover tax - whether an allowable expenditure for computing book profit? - Held that:- CIT(A) in his detailed order provided the reasons carefully as to why the claim of assessee is justified herein. At the same time we also observe the d .....

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e expenditure for computing book profit? - Held that:- Issue is decided in favour of the assessee company by the jurisdictional High Court of Kolkata in the case of ICI (India) Ltd. Vs. CIT (2011 (9) TMI 136 - CALCUTTA HIGH COURT ) in which the decision in the case of CIT Vs. Comnet Systems & Services Ltd.(2008 (9) TMI 18 - SUPREME COURT ) was followed by the Hon’ble Calcutta High Court. The Ld. CIT(A) held on the basis of the judicial principles and decisions that the AO is directed to delete t .....

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; 13,85,66,473/- is to be set off in terms of clause (iv) of the Explanation to section 115J of the Act. Thus, it was a duty of the AO to set off the said amount as the said duty falls within the purview of the limited power of making increases and deductions provided for in the explanation to the said section. See M/s. Pieco Electronics & Electricals Ltd. (now known as Philips India Ltd.) Vs. CIT, WB-4 & Anr. [2011 (8) TMI 352 - CALCUTTA HIGH COURT]- Decided against revenue. - I.T.A No.2815/Kol .....

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we dispose of both these appeals by this consolidated order for the sake of convenience. 2. First we take up Revenue s appeal i.e. ITA No.2816/Kol/2013. The revenue has raised following grounds of appeal: 1. That on the facts and circumstances of the case, the Ld. CIT(A) erred in law that provisions for gratuity is not to be added to Book Profit, ignoring the fact that the provision for gratuity is unascertained liability not allowed to be deducted while computing Book Profit. 2. That on the fac .....

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t allowed to be deducted while computing book profit. 3. The facts of the case are that the assessee company filed its return of income for AY 1990-91 on 31.12.1990 declaring NIL income. The book profit u/s. 115J of the Income-tax Act, 1961 (hereinafter referred to as the Act ) was also shown at NIL. The revised return of income was filed on 27.05.1991. However, in this return also the income under the normal provisions as well as book profit u/s. 115J of the Act was shown at NIL. The AO process .....

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330/- on account of provision for interest on turnover tax. The AO did not allow deduction of business loss or depreciation whichever is lower as provided u/s. 115J of the Act. On receipt of intimation u/s. 143(1)(a) the assessee company filed a rectification petition u/s. 154 of the Act before the AO on 20.03.1991 objecting prima facie additions made while computing book profit u/s. 115J of the Act and not allowing deduction on account of business loss or depreciation whichever is lower. The AO .....

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pplication and give finding on them stating reasons therefor. The assessee company filed its submission and explanation with respect to each issue before the AO. The AO passed an order u/s. 251/154 of the Act on 25.05.1992 but did not accept the submission made by the assessee against the adjustment made by the assessee to compute book profit u/s. 115J of the Act and allowed deduction on account of loss or depreciation. 4. Aggrieved, the assessee company filed an appeal against the order u/s. 25 .....

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e any reason as to why he was adopting the computation of income u/s. 115J of the Act as per the order u/s. 251/154 of the Act. The instant appeal is filed against the said computation of book profit u/s. 115J of the Act. 5. The first ground of appeal relates to the position of law that provisions for gratuity is not to be added to book profit. The AO made an addition of ₹ 36,93,429/- on account of provision made by the assessee on account of gratuity. It was contended before the AO that t .....

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f accounting from cash basis to lower the book profits for the year under consideration. On careful consideration of facts and law, the Ld. CIT(A) in his order on record, has stated that the AO was not justified in rejecting the claim of the assessee company for the reason that there was change in the method of accounting in respect of gratuity liability because the change made by the assessee was not proved to be malafide. The change was made on the basis of accepted principles of accounting an .....

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e Bombay High Court in the case of CIT Vs. Echjay Forging Pvt. Ltd. 251 ITR 15 (Bom) and also by the Hon ble Gujarat High Court in the case of DCIT Vs. Inox Leisure Ltd. 351 ITR 314 (Guj.). the Ld. CIT(A) held that in view of the above factual position, accounting principles and judicial decisions, the AO was not justified in making addition of ₹ 36,93,429/- on account of provisions for gratuity while computing the book profit u/s. 115J of the Act and, therefore, the Ld. CIT(A) directed th .....

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e payment to the employees. The assessee had submitted a copy of the actuarial valuation certificate issued by the Advocate and registered valuer which is on record. We further observe that when the provisions for gratuity is made on the basis of actuarial valuation for future payments to employees such a liability cannot be held as contingent liability as held by the Hon ble Apex Court in the case of Bharat Earth Movers Ltd., supra. We also observe that the ground of the AO for rejecting the cl .....

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is dismissed. 8. The next ground of appeal relates to the liability of interest on turnover tax whether an allowable expenditure for computing book profit. 9. The AO had made an addition of ₹ 37,56,330/- on account of provision for interest on turnover tax in the computation made u/s. 115J of the Act. It was submitted before the AO that the provision for interest on turnover tax is an ascertained liability and, therefore, same cannot be added to the book profit. It was submitted that the .....

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xt following the prescribed date up to the month preceding the month of full payment of such tax or up to the month prior to the month of assessment u/s. 11 in respect of such period, whichever is earlier. In terms of such provisions of sec. 10A, the liability of ₹ 37,56,330/- was ascertain. It was further submitted before the AO that the liability on account of interest on turnover tax was accrued in the year under consideration after the case regarding payment of interest on turnover tax .....

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e the appeals were disposed of, cannot therefore be accepted. To accept such a position would only encourage dilatory tactic on the part of those who are likely to benefit from the delay in the disposal of cases and lifting of prohibitory orders. Such an interpretation would not only be against law but against public policy as well. We have already indicated that a party obtaining a stay order at his own choice does so at his own risk. The liability to pay interest accrued from 01.10.1983 (i.e. .....

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d. Thus, provision of interest on turnover tax of ₹ 37,56,330/- was in respect of ascertained statutory liability and the same cannot be added to the book profit pursuant to explanation © to sec. 115J(1) and (1A). However, the contention of the assessee was not accepted by the AO for the reason that the liability was not accrued in the year under consideration but in earlier years. The Ld. CIT(A) in his order held that the AO was not justified in holding that the liability on account .....

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to delete the said addition. 11. We have perused the case records and arrived at our considered view that the Ld. CIT(A) in his detailed order provided the reasons carefully as to why the claim of assessee is justified herein. At the same time we also observe the decision of the West Bengal Tribunal in the case of Kingsway & Co., supra wherein the provisions for interest on turnover tax is determined as an ascertained liability and once it is so, the same cannot be added to the book profit u .....

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manufacturing companies became irrecoverable because they had gone into liquidation. It was also contended before the AO that the aforesaid provision was not on account of liability but for diminution in the value of assets and, therefore, the same cannot be added to the book profit u/s. 115J of the Act. However, the contention of the assessee was not accepted by the AO for the reason that the provisions for bad debts is not an ascertained liability and the moment the debt becomes bad, it becom .....

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was followed by the Hon ble Calcutta High Court. The Ld. CIT(A) held on the basis of the judicial principles and decisions that the AO is directed to delete the addition of ₹ 8,70,932/- from the computation u/s. 115J of the Act on account of provision for doubtful debts. 14. We have perused the case records and heard the rival contentions and arrived at our considered view that there is no infirmity in the order of the Ld. CIT(A) and his findings are based on the decision of the jurisdict .....

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Ld. CIT(A) erred in confirming the disallowance of ₹ 20,479,843/- in computing adjusted book profit for the purpose of section 115J of the Act claimed by the appellant on account of unabsorbed loss being lower than brought forward business loss. 2. On the facts and circumstances of the case, the Ld. CIT(A) erred in proceeding on a wrong interpretation of the express provisions of the Act and therefore, not taking into consideration the details of business loss suffered and depreciation inc .....

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ook profit u/s. 115J of the Act. On the other hand, the assessee has claimed that there was business loss of ₹ 2,32,03,893/- whereas the unabsorbed depreciation was ₹ 2,04,79,543/-, therefore, the AO should have allowed the deduction of lower of two i.e. 2,04,79,543/- to compute book profit u/s. 115J of the Act. In support of the claim that there was a business loss and unabsorbed depreciation the assessee submitted copies of director s report for the year ended 31.12.1984, 31.12.198 .....

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upon the provisions of the Act and not on the accounting entries passed in the books of account. Further, the Ld. CIT(A) went on to analyse the provisions of section 205 of the Companies Act, 1956 and observed in his order that there is no dispute that the assessee company has claimed to have prepared its account and financial statement as per provisions of Companies Act. The Ld. CIT(A) held that there is also no dispute on the point that in the order under appeal the assessee had declared and p .....

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was required to be set off for the purpose of computation of book profit u/s. 115J of the Act. The Ld. CIT(A) goes on to say in his order that his decision is supported by the Director s report for the year ended 31.03.1990 as well as the Balance Sheet as at 31.03.1990. In view of these findings the Ld. CIT(A) held that the AO was justified in not allowing deduction of lower of business loss or depreciation to compute the book profit u/s. 115J of the Act as claimed by the assessee. That being fu .....

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,153 3/31/1989 4,928,272 3,301,526 4,787,501 3,301,526 Total 23,203,893 16,940,136 20,479,543 15,785,791 That as per the said chart assessee has claimed set off of loss of ₹ 1,57,85,791/- and not ₹ 2,04,79,843/- as appearing in the grounds of appeal. That in support of the set off of loss of ₹ 1,57,85,791/- the AR referred to the decision of Hon ble jurisdictional High Court in the case of M/s. Pieco Electronics & Electricals Ltd. (now known as Philips India Ltd.) Vs. CIT, .....

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or depreciation what is required to be set off against the profit for the relevant previous year is the amount which according to the provisions of clause (b) of the first proviso to subsection (1) of section 205 of the Companies Act, 1956 is applicable in accordance with the alternative modes for such determination provided under the Companies Act, (ii) whether in view of the admitted position that for the previous year of the fifteen months period ending on 31.03.1989 loss of the assessee is .....

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and Surana Steel (P) Ltd. Vs. DCIT (1999) 237 ITR 777 (SC) held that the admitted position is for the previous year ending on 31.03.1989 the loss of the assessee was shown as ₹ 16,48,74,073/- for the self same period the amount of depreciation claimed was ₹ 138,56,66,473/-. The question before the Bench was whether the amount of depreciation being less than the amount of loss should be required to be set off in terms of clause (iv) of the Explanation to sec. 115J of the Act. The Hon .....

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s the said duty falls within the purview of the limited power of making increases and deductions provided for in the explanation to the said section. 18. The Ld. DR, on the other hand, referred to the case of Hon ble Madras High Court in the case of CIT Vs. Madras Fertilizers Ltd. (2013) 33 Taxman.com 623 (Mad) wherein the issue was decided in favour of the revenue. The Madras High Court had held that a perusal of P&L Account for the year 1988-89 showed that the entire loss including the dep .....

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