2010 (4) TMI 1105 - AT - Income Tax

Summary

Issues involved:
1. Deletion of addition of Rs. 50 lakhs being payment of re-compensation.
2. Recomputation of book profit u/s 115JB of the IT Act without increasing the net profit by the sum of Rs. 8,21,03,761/- on account of provision for deferred taxation.
3. Deletion of addition of Rs. 1,73,845/- made on account of provision for gratuity payment while computing income u/s 115JB of the IT Act.

Deletion of addition of Rs. 50 lakhs being payment of re-compensation:
The Revenue challenged the deletion of the addition of Rs. 50 lakhs, contending that it was in the nature of capital expenditure. The assessee argued that the payment was interest and purely revenue in nature, paid as per agreement between the parties. The CIT(A) agreed with the assessee, stating that the payment represented accumulated interest payable during the assessment year and was revenue in nature. The Tribunal upheld the CIT(A)'s decision, noting that the payment was in the interest of the assessee and laid out wholly and exclusively for the purpose of the business. The addition was deleted as it was justified that the nature of the payment was revenue in nature.

Recomputation of book profit u/s 115JB of the IT Act:
The Revenue challenged the direction of the CIT(A) to recompute the book profit without increasing the net profit by the provision for deferred taxation. The AO added back the provision for deferred taxation to the net profit, but the CIT(A held that it did not fall under the Explanation to section 115JB(2) of the IT Act. The Tribunal reversed the CIT(A)'s decision, citing a retrospective amendment that included deferred tax in the book profit calculation. Consequently, the order of the CIT(A) was set aside, and the AO was directed to recompute the book profit accordingly.

Deletion of addition of Rs. 1,73,845/- made on account of provision for gratuity payment:
The Revenue challenged the deletion of the addition made on account of provision for gratuity payment. The CIT(A) deleted the addition, considering it an ascertained liability based on actuarial valuation. The Tribunal upheld the CIT(A)'s decision, stating that the provision for gratuity was an ascertained liability and allowable expenditure, following a scientific method of valuation. Therefore, the addition was rightly deleted, and the ground of appeal of the Revenue was dismissed.