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Issues Involved:
1. Deletion of addition of Rs. 20,00,000 for payment to the State Government for Centralized Effluent Treatment Plant (CETP). 2. Deletion of addition of Rs. 135,00,000 on account of loan guarantee amount. 3. Disallowance of Rs. 23,16,136 for accrued liability on account of encashable leave of employees. Detailed Analysis: Issue 1: Deletion of Addition of Rs. 20,00,000 for CETP The Assessing Officer (AO) disallowed the claim of Rs. 20,00,000 as payment for the Centralized Effluent Treatment Plant (CETP) for several reasons: - The payment was not wholly and exclusively for the business of the assessee and was considered a capital expenditure. - The CETP provided an enduring benefit, making the expense of a capital nature. - The recurring cess for pollution control was allowed as revenue expenses, but the one-time payment was not of revenue nature. - The liability was a voluntary obligation and did not pertain to the assessment year under consideration. The CIT(A) accepted the assessee's contention and allowed the expenditure as revenue expenditure. The Departmental Representative (DR) argued that the payment was voluntary, not legally obligated, and not quantified during the relevant accounting period. The assessee argued that: - The liability was a result of negotiations with the Government and was not voluntary. - The expenditure was necessary for business due to government regulations on pollution control. - The payment did not result in any capital asset for the assessee. The Tribunal found that the payment of Rs. 20,00,000 was towards the capital cost of the CETP and was not of revenue nature. The liability was voluntary and not crystallized during the year under consideration. The Tribunal reversed the CIT(A)'s order and restored the AO's disallowance. Issue 2: Deletion of Addition of Rs. 135,00,000 on Account of Loan Guarantee Amount The AO disallowed Rs. 135,00,000 claimed as expenses for arrangement with Financial Institutions, which was a settlement for the guarantee obligation for loans taken by M/s. Dunbar Mills Ltd. (DML). The AO reasoned that: - The guarantee was not given in the course of the assessee's business and was not incidental to it. - The liability was for DML's business, not the assessee's. The CIT(A) deleted the addition, noting that DML was a subsidiary of the assessee until 31-3-1992, and the guarantee was part of business expediency. The DR argued that the liability was not incidental to the assessee's business and was a colourable device. The assessee contended that the expenditure was to preserve its business and was commercially expedient. The Tribunal agreed with the AO that standing guarantor for DML was not incidental to the assessee's business. The liability was not crystallized during the year under consideration, and DML was not a subsidiary at the time of settlement. The Tribunal reversed the CIT(A)'s order and restored the AO's disallowance. Issue 3: Disallowance of Rs. 23,16,136 for Accrued Liability on Account of Encashable Leave The CIT(A) confirmed the disallowance of Rs. 23,16,136 for accrued liability on account of encashable leave of employees, alleging it was not a present liability. This issue was subject to appeal in the assessment year 1993-94, where the Tribunal set aside the issue to the AO to examine in light of the Supreme Court decision in Bharat Earth Movers v. CIT. The AO, in the set-aside assessment, allowed the provision for leave encashment based on the Supreme Court decision. The Tribunal restored the issue to the AO to reconsider the claim in light of the Supreme Court decision in Bharat Earth Movers, allowing the Cross Objection for statistical purposes. Conclusion: - The appeal by the Revenue regarding the deletion of Rs. 20,00,000 for CETP and Rs. 135,00,000 for loan guarantee was allowed, restoring the AO's disallowance. - The Cross Objection by the assessee regarding the disallowance of Rs. 23,16,136 for accrued liability on account of encashable leave was allowed for statistical purposes, directing the AO to reconsider the claim.
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