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2019 (12) TMI 1260 - AT - Income TaxAddition of provision for leave encashment for computing book profit under Sec.115JB - HELD THAT - As decided in BHARAT EARTH MOVERS VERSUS COMMISSIONER OF INCOME-TAX 2000 (8) TMI 4 - SUPREME COURT provision for meeting the liability for encashment of earned leave by the employees is not a contingent liability and is admissible as a deduction. On the basis of our aforesaid observations, we are of the considered view, that as the provision for leave encashment had been made by the assessee on actuarial basis, therefore, the same being in the nature of an ascertained liability could not have been added by the A.O for the purpose of determining the book profit under Sec. 115JB of the Act. As such, the Ground raised by the assessee is allowed. Addition of the provision for Wealth Tax for computing the Book Profit under Sec. 115JB - HELD THAT - On a perusal of Sec. 115JB of the Act, we find, that an addition to the book profit which during the period relevant to the year under consideration was computed as per Part II of Schedule VI of the companies Act, 1956 could be made only if the same was permissible as per Item No. (a) to (k) of the Explanation to Sec.115JB. As contemplated in clause (a) of the Explanation to Sec. 115JB the amount of Income tax paid or payable, and the provision therefor was liable to be added for computing the book profit under Sec.115JB of the Act. However, as there was no such provision for making the addition with regard to wealth tax, therefore, the A.O could not have added the same for computing the book profit of the assessee company under Sec.115JB of the Act. Our aforesaid view is fortified by the order in the case of JCIT Vs. Usha Martin Industries Ltd. 2006 (12) TMI 171 - ITAT CALCUTTA . As such, not being in agreement with the view taken by the lower authorities, we direct the A.O to rework the book profit under Sec. 115JB after deleting the provision for wealth tax. The Ground of appeal No. 7 is allowed. Addition of the difference between the payment of net present value as against the future liability relating to deferred Sales Tax - HELD THAT - The obligation of the assessee to remit to the government the sales tax amount already recovered and collected from the customers was in no way wiped out or diluted. In fact, the obligation of the assessee remained as such. As observed by us hereinabove, as per the scheme introduced by the sales tax department all that had happened was that the assessee was given an option to make a premature payment and obtain a discharge of its liability by paying the amount at its net present value. As such, it can safely be concluded that the assessee had not benefitted within the meaning of Sec.41(1) of the Act. In our considered view though the government may have received a higher sum after certain years, however, receipt of the said payment from the assessee prematurely can in no way be construed or characterized as a remission or cessation of the liability of the assessee towards the State Government. Our aforesaid view that the difference between the payment of net present value as against the future liability under the sales tax deferred scheme of the government cannot be brought to tax under Sec.41(1) of the Act, is supported by the judgement in the case of CIT Vs. Sulzer India Ltd. 2014 (12) TMI 267 - BOMBAY HIGH COURT . Accordingly, on the basis of our aforesaid observations, we set aside the order of the CIT(A) and vacate the addition - Decided in favour of assessee. Addition made on account of compensation for land acquisition - HELD THAT - As the A.O had overlooked the fact that the aforesaid compensation received by the assessee was duly accounted for and formed part of the sales of the assessee for the year under consideration, therefore, he had erroneously assessed the same as the undisclosed income/receipts in the hands of the assessee. Nothing has been brought to our notice by the ld. D.R, which could persuade us to conclude that the aforesaid observation of the CIT(A) suffered from any perversity. Accordingly, finding no infirmity in the view taken by the CIT(A), who in our considered view had rightly vacated the aforesaid addition Addition of the amount collected by the assessee from the flat purchasers towards maintenance of the society - CIT-A deleted the addition - HELD THAT - Assessee at the time of handing over the maintenance work of the building to the aforesaid housing society had parted with an amount of ₹ 1,96,224/-, while for the balance unutilised amount of ₹ 30,34,526/- that was still lying with it was acknowledged as an outstanding liability. In our considered view, part of the aforesaid amount which was collected by the assessee company from the flat owners was utilised for payment of taxes and maintenance of the building, while for the balance unutilised amount that was admittedly acknowledged by the assessee as an outstanding liability was ultimately to be handed over to the housing society at the time of final settlement of accounts. In fact, the assessee company had duly reflected the balance amount of ₹ 30,34,526/- i.e the amount outstanding towards the housing society as a liability in its books of accounts . In the backdrop of the aforesaid facts, we find ourselves to be in agreement with the view taken by the CIT(A) that the amount collected by the assessee company from the flat owners for the purpose of maintenance of the building and payment of taxes etc. could not have been assessed as its income for the year under consideration. Accordingly, finding no infirmity in the view taken by the CIT(A), we uphold the same. Provision written back by the assessee - CIT-A deleted the addition - HELD THAT - In sum and substance, the aforesaid provisions were not claimed as a deduction by the assessee in the preceding years. We find that the aforesaid factual position as had been canvassed by the assessee was verified by the CIT(A), and found to be correct. In fact, the said factual position has also not been disputed by the ld. D.R before us. We are in agreement with the view taken by the CIT(A) that now when the assessee had not claimed the provision made for doubtful debts and advances as a deduction in the preceding years, the same at the time of its being written back' in the subsequent year i.e the year before us, could not have been added to its total income. Accordingly, finding no infirmity in the view taken by the CIT(A), we uphold the deletion of the addition Addition of sum received by the assessee from M/s Durable Trading Company Pvt. Ltd . - HELD THAT - Payment of 80% of the fees received by the assessee company to the flat owners association/housing society had also been accounted for in its books of accounts . Further, the expenditure incurred by the assessee out of the aforesaid amount is also borne out from its accounts. In our considered view, the CIT(A) has rightly observed that the A.O had overlooked the factual position and had on the basis of misconceived facts made the aforesaid addition in the hands of the assessee. Accordingly, finding no infirmity in the view taken by the CIT(A), who had rightly vacated the additionwe uphold his order to the said extent. Deletion of the amount receivable by the assessee from Kalpataru Homes - HELD THAT - We have given a thoughtful consideration to the aforesaid issue and are in agreement with the view taken by the CIT(A) that the amount could not have been held as the income of the assessee. As is discernible from the orders of the lower authorities, the aforesaid amount outstanding was on account of realisation of debtors. Accordingly, we are persuaded to subscribe to the view taken by the CIT(A), that as the aforesaid amount which was to be realised was generated over the years by the assesee and had been offered to tax, therefore, no addition as regards the same was called for in its hands. Accordingly, finding no infirmity in the view taken by the CIT(A) we uphold the deletion of the addition. The Ground of appeal No. 5 is dismissed. Provision of doubtful debts written back (for determining book profit under Sec.115JB - HELD THAT - . As can be gathered from the orders of the lower authorities, the A.O while computing the book profit under Sec. 115JB had included the amount of provision for doubtful debts to the extent the same had been written back by the assessee. As observed by the CIT(A), since the assessee had already added back the provision in the earlier years and credited the same in the year under consideration, therefore, the same could not have been added for the purpose of computing the book profit under Sec. 115JB
Issues Involved:
1. Validity of notice issued under Section 153C. 2. Taxability of interest received as income from other sources versus business income. 3. Netting off of interest paid against interest received. 4. Disallowance of depreciation on residential building. 5. Addition of provision for leave encashment for computing book profit under Section 115JB. 6. Addition of provision for wealth tax for computing book profit under Section 115JB. 7. Addition of difference between payment of net present value and future liability related to deferred sales tax. 8. Deletion of additions made by the Assessing Officer (AO) on various grounds. Issue-wise Detailed Analysis: (A) Addition of Provision for Leave Encashment for Computing Book Profit under Section 115JB: - Facts: The AO added the provision for leave encashment to the net profit for computing book profit under Section 115JB, considering it an unascertained liability. The CIT(A) upheld this view. - Decision: The Tribunal held that the provision for leave encashment made on an actuarial basis is an ascertained liability and should not be added to the book profit under Section 115JB. This view was supported by the Supreme Court's judgment in Bharat Earth Movers Vs. CIT. (B) Addition of Provision for Wealth Tax for Computing Book Profit under Section 115JB: - Facts: The AO added the provision for wealth tax to the book profit under Section 115JB. The CIT(A) upheld this view. - Decision: The Tribunal held that the provision for wealth tax should not be added to the book profit under Section 115JB, as it is not covered under the items of the Explanation to Section 115JB. This was supported by the ITAT, Kolkata, Special Bench's decision in JCIT Vs. Usha Martin Industries Ltd. (C) Addition of Difference Between Payment of Net Present Value and Future Liability Related to Deferred Sales Tax: - Facts: The AO taxed the difference between the net present value paid and the future liability of deferred sales tax. The CIT(A) did not entertain the assessee's claim that this amount was not taxable. - Decision: The Tribunal held that the difference between the net present value and the future liability is not taxable under Section 41(1) as it does not constitute a remission or cessation of liability. This view was supported by the Bombay High Court's judgment in CIT Vs. Sulzer India Ltd. (D) Deletion of Addition Made on Account of Compensation for Land Acquisition: - Facts: The AO added compensation received for land acquisition to the assessee's income, considering it undisclosed. The CIT(A) deleted this addition. - Decision: The Tribunal upheld the CIT(A)'s decision, noting that the compensation was already included in the sales and accounted for in the assessee's books. (E) Deletion of Addition of Amount Collected from Flat Purchasers for Maintenance: - Facts: The AO added maintenance charges collected from flat purchasers to the assessee's income. The CIT(A) deleted this addition. - Decision: The Tribunal upheld the CIT(A)'s decision, noting that the unutilized amount was shown as a liability and was to be handed over to the housing society upon final settlement. (F) Deletion of Addition of Provision Written Back: - Facts: The AO added provisions written back to the assessee's income. The CIT(A) deleted this addition. - Decision: The Tribunal upheld the CIT(A)'s decision, noting that the provisions were not claimed as deductions in earlier years and thus should not be added to the income when written back. (G) Deletion of Addition of Amount Received from M/s Durable Trading Company Pvt. Ltd.: - Facts: The AO added an amount received from M/s Durable Trading Company Pvt. Ltd. to the assessee's income. The CIT(A) deleted this addition. - Decision: The Tribunal upheld the CIT(A)'s decision, noting that the amount was duly accounted for in the assessee's books. (H) Deletion of Addition of Amount Receivable from Kalpataru Homes Ltd.: - Facts: The AO added an amount receivable from Kalpataru Homes Ltd. to the assessee's income. The CIT(A) deleted this addition. - Decision: The Tribunal upheld the CIT(A)'s decision, noting that the amount was related to the realization of debtors and was already offered to tax in earlier years. Conclusion: - The appeals of the assessee for A.Y. 2005-06, A.Y. 2006-07, and A.Y. 2007-08 were allowed in terms of the Tribunal's observations. - The appeal filed by the revenue for A.Y. 2005-06 was dismissed. Order Pronounced in the Open Court on 23.12.2019.
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