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TMI Blog2013 (1) TMI 782X X X X Extracts X X X X X X X X Extracts X X X X ..... cer made an addition of Rs. 74,03,000/- on account of provision for post retirement medical and settlement benefits treating the same as unascertained liability. The CIT (A) upheld the addition by holding as under :- "5. Briefly stated facts of the case are that the assessee has made a provision of Rs. 74,03,000/- in the name of 'post retirement medical benefit'. The Assessing Officer was of the view that it is an unascertained liability. He required the assessee to give details of post retirement medical benefit and to show cause as to why it should not be disallowed. It was explained by the assessee that employees, their spouses and dependents family members are eligible for medical treatment at empanelled hospitals. They are eligible for reimbursement of medical treatment in approved hospital. The fact of an employee having served and retired is a known and determined fact. The right to claim medical benefits for life is also known and determined fact. The liability on this count is definite and determined. However. This becomes an administratively complex uneconomical exercise of receiving the bills, processing and verifying them and then sending remittance. Therefore, the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure and its allowability. Hence, the addition made by the Assessing Officer is upheld." 3. Assessee had challenged this in ground no.1 which read as under :- "The learned CIT (A) erred in confirming the action of the learned AO disallowing Rs. 74.03 lakhs by holding the liability for post retirement medical benefits determined on an actuarial valuation and in accordance to Accounting Standards as an unascertained liability." Ground No.2 in this appeal is general in nature and does not require any adjudication, hence we dismiss the same. 4. Similar addition was also made in Assessment Year 2008-09 by Assessing Officer. The CIT (A) granted relief to the assessee. Now, revenue is in appeal and the ground no.1 in ITA No.149/Del./2012 read as under :- "The CIT (A) has erred on facts and in law in directing the A.O. to allow the deduction claimed under the head post medical retirement benefits of Rs. 29,70,000/-." Ground No.3 in this appeal is general in nature and does not require any adjudication, hence the same is dismissed. 5. We have heard both the sides on the issue. We have also perused the order of authorities below. The assessee company of was liable to pay f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus Act which prohibits such a practice. Such a provision provides for a known liability of which the amount can be determined with substantial accuracy. It cannot, therefore, be termed a "reserve". Therefore, the estimated liability for the year on account of a scheme of gratuity should be allowed to be deducted from the gross profits. The allowance is not restricted to the actual payment of gratuity during the year. Where the fixed assets are revalued and the difference between its cost and the value fixed on such revaluation is credited to the capital reserve, unless the Tribunal finds that the revaluation is mala fide, the interest on the amount of the reserve should be allowed as a deduction from the gross profits. From the provisions of section 6(c) and section 7 of the Bonus Act, it is evident that the Tribunal must first estimate the amount of direct taxes on the balance of gross profits as worked out under sections 4 and 6, but without deduction bonus, then work out the quantum of taxes thereon at rates applicable during the year to the income, profits and gains of the employer and, after deducting the amount of taxes so worked out, arrive at the available surplus. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment passed in Appeal No. ITA 486/2006 dated 31.03.2008, upheld the deductibility of the provision for warranty on the ground that it was made on the basis of actuarial valuation being covered by the principle set out in Metal Box Company (supra). In view of the aforesaid decisions and given the fact that the provision was estimated based on actuarial calculations, we are of the opinion that the deduction claimed by the assessee had to be allowed. We find no fault with the reasoning of the Tribunal. No substantial question of law arises for our consideration." 5.2 Considering the facts of the assessee's case and also the decision of Hon'ble Supreme Court and Hon'ble jurisdictional High Court, we sustain the order of CIT (A) in ITA No.149/Del/2012 on this issue. We allow ITA No.4921/Del/2010 and dismiss revenue's appeal on this ground. 6. The ground no.2 in ITA No.149/Del/2012 is against directing the Assessing Officer to allow the netting off of interest before determining the business profit of the assessee company. 7. The assessee company was in the process of expansion and setting up of new unit of 9th Boiler Project for generation of power. The company financed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nter-dependent. This interest payment was not wholly and exclusively for earning the interest income on the margin money. Ld. DR also submitted that the CIT (A) has granted the relief without considering the fact that this margin money was not out of the borrowed fund which was borrowed for the purpose of expansion. The assessee has also paid the interest of Rs. 508.83 lacs on other borrowings which have been claimed as revenue expenditure. Therefore, fund invested in the margin money are coming out of funds for which the interest has been claimed as revenue expenditure in the profit and loss account. Therefore, the interest earned on this FDRs with the bank cannot be allowed to be net of from the interest to be capitalized by way of transfer to incidental expenditure during construction. The CIT (A) has granted the relief without going into the fact that whether there was nexus between the borrowed funds for expansion and the margin money paid and interest earned thereon. Therefore, the reliance of CIT (A) on the decision of Hon'ble Delhi High Court in the case of CIT vs. Shree Ram Honda Power Equipment reported in 289 ITR 475 was not justified. He pleaded to set aside the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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