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2017 (5) TMI 485 - HC - Income TaxDisallowance of demurrage and wharfage charges - deduction under Section 37(1) - Held that - The said question already stands answered in favour of the Assessee and against the Revenue by the judgment of this Court in Mahalaxmi Sugar Mills Company v. Commissioner Of Income Tax 1984 (5) TMI 6 - DELHI High Court Applicability of provision of section 43B - superannuation/post-retirement benefits of the employees of the Assessee - Held that - The making of a provision to meet a contingent liability need not be in order to meet such liability entirely in the year of its creation. The provision having been made on the basis of an actuarial report, which is not shown by the Revenue to be unacceptable on the ground that it is not based on known accounting or financial principles, the mere fact that the actual pay out in a particular AY may be far less than the provision cannot provide a justification to deny the deduction. The Court concurs with the view of the CIT (A) and ITAT that the provision does not attract Section 43 B of the Act Accrual of income - Addition of notional accrued interest - Held that - No part of the advance given by the Assessee to M/s. Karsan has been able to be recovered by it. As pointed out by learned counsel for the Assessee, there was a case registered with the Central Bureau of Investigation (CBI) in that regard and any prospect of the money being recovered has all but vanished. Since no part of the principal amount could actually be recovered by the Assessee, there was no real income and the question of adding any notional accrued interest to its income on such amount does not arise.
Issues:
1. Disallowance of demurrage and wharfage charges under Section 37(1) of the Income Tax Act, 1961. 2. Provision for superannuation/post-retirement benefits and its treatment under Section 43B of the Act. 3. Disclosure of interest accrued on an advance made to M/s. Karsan as part of income. Analysis: Issue 1: Disallowance of Demurrage and Wharfage Charges The appeals by the Revenue questioned the deletion of disallowance of demurrage and wharfage charges by the ITAT. The Court referred to past judgments favoring the Assessee and held that the Revenue's reliance on a Rajasthan High Court judgment was not persuasive. The Court maintained that the charges were deductible under Section 37(1) of the Act. Issue 2: Provision for Superannuation/Post-Retirement Benefits The Revenue contested the provision made for post-retirement benefits by the Assessee, arguing that the actuarial report basis was not scientific due to lower actual payouts. However, the Court upheld the provision, citing the decision in CIT v Ranbaxy Laboratories Ltd. The Court agreed that the provision did not attract Section 43B of the Act, supporting the CIT(A) and ITAT's findings. Issue 3: Disclosure of Interest Accrued on Advance to M/s. Karsan The Revenue raised concerns about the ITAT not disclosing interest accrued on an advance to M/s. Karsan. The Assessee argued that no 'real income' accrued due to the unrecovered advance. The ITAT's decision highlighted that the notional interest was hypothetical income and not taxable. The Court agreed that since no part of the advance was recovered, no 'real income' existed, supporting the CIT(A) and ITAT's conclusions. In conclusion, the Court dismissed the appeals, affirming the decisions of the CIT(A) and ITAT on all three issues. The judgment clarified the treatment of demurrage and wharfage charges, provisions for post-retirement benefits, and the disclosure of interest accrued on advances, emphasizing adherence to legal principles and past precedents.
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