Income Tax Appellate Tribunal - Ahmedabad
Ahmedabad Electricity Company Ltd.,, ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "B" AHMEDABAD
Before Shri P.K.BANSAL, ACCOUNTANT MEMBER and
Shri MAHAVIR SINGH, JUDICIAL MEMBER
IT A No.2326/ Ahd/2005 &
Cross Objection No.239/ Ahd/2005
Assessment Year:2001-02
Date of hearing:17.9.09 Drafted:9.10.09
ACIT. Circle-8, V/s. The Ahm edabad
Ahmedabad Electricit y Company
Ltd.,
Torrent Power AEC Ltd. V/s. ACIT, Circle-8,
(form erly the Ahmedabad
Ahmedabad Electricity
Company Ltd),
Electricit y House, Lal
Darwaja, Ahmedabad
PAN No. AACT5739L
(Appellant) .. (Respondent)
Assessee by :- Shri S.N.Soparkar &
Shri P.M.Mehta, AR
Revenue by:- Shri Anil Kumar, CIT,DR
ORDER
PER Mahavir Singh Judicial Member:-
This appeal by the Revenue and Cross Objection (CO) by the assessee are arising out of the order of Commissioner of Income-tax (Appeals)-V, Ahmedabad in appeal No. CIT(A)-V/ACIT Cir.1/131/2004-05 dated 02-08-2005. The assessment was framed by the ACIT, Circle-1, Ahmedabad u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 30-03-2004 for the assessment year 2001-02.
First we shall take up Revenue's appeal in ITA No.2326/Ahd/205.ITA No.2326/Ahd/005 & CO No.239/Ahd/2005 A.Y. 2001-02
ACIT, Cir-8, A'bd v. Torrent AEC Ltd. Page 2
2. The only issue in this appeal of Revenue is as regards to the order of CIT(A) in deleting the disallowance of deduction of Rs.4.11 crores in respect of unascertained liability.
3. The brief facts leading to this issue that the assessee-company is engaged in business of generation, transmission and distribution of electricity. The assessee-
company has filed its return of income on 30-10-2001. The Assessing Officer during the course of assessment proceedings noticed that the assessee has put forward one claim regarding the liability in the form of compensation to workers. The AO noted that the Industrial Court passed an award dated 15-04-2000 and on the basis of the same, the assessee has made claim and estimated the approximate liability pursuant to this ward for the relevant assessment year 2001-02 at Rs.4.11 crores. According to the Assessing Officer, this claim of the assessee is not maintainable, reason being that this is not a statutory liability and actually this is a contractual liability. According to the Assessing Officer, the assessee has disputed this liability before the higher courts and therefore this has become a disputed contractual liability and even otherwise the liability has not been actually crystallized in this year. Therefore the AO held the same as not ascertain liability rather it is unascertained liability. Accordingly he disallowed the claim of deduction of the liability of compensation to the workers. Aggrieved, the assessee preferred appeal before CIT(A) and CIT(A) allowed the claim of the assessee by treating the liability as ascertain liability in view of award passed by the Industrial Court on 15-04-2000 and accordingly he held that the liability has arisen in this year only. For this, he has given the following finding in para-5.3 of his appellate order:-
"5.3 I have carefully considered the assessment order and the above submissions. A perusal of the order itself shows that the liability had arisen upon the assessee on the passing of the order of the court on 15.04.2000. This liability has arisen in this year itself. The question would, therefore, now be whether such liability can be allowed even though it is disputed by the assessee. In view of the Supreme Court decision in the case of Bharat Carbon & Ribbon Manufacturing Co. Pvt. Ltd. reported at 239 ITR 505 (SC) liability is held to be accrued during the accounting period as the order of the court was passed. As for the Assessing Officer's argument that the liability is on estimate basis and is not ascertained, as rightly pointed by the assessee, the liability has been claimed on the basis of the directions given in the industrial court order and, therefore, it cannot be said that it is unascertained liability. Considering tall these aspects I hold that the Assessing Officer was ITA No.2326/Ahd/005 & CO No.239/Ahd/2005 A.Y. 2001-02 ACIT, Cir-8, A'bd v. Torrent AEC Ltd. Page 3 not justified in rejecting the claim for deduction of Rs.4.11 crores. He is directed to allow the deduction for the same."
Aggrieved, the Revenue came in appeal before us. Before us Ld. Departmental Representative argued that this liability is not statutory liability and it is actually a contractual liability. He further stated that the assessee has disputed this liability before the higher courts and consequently it has become disputed as contractual liability. He further sated that this liability has not crystallized during the year under consideration and the assessee had made the claim on the basis of estimates only. According to him, the contractual liability accrued only when the basis for configuration is settled by way of agreement or otherwise. He relied on various case laws in support of this contention. On the other hand, Ld. Sr. counsel, Shri S.N. Soparkar heavily relied on the orders of CIT(A) and stated that this liability has arisen on the assessee after passing of the order by the Industrial Court on 15-04-2000 and accordingly liability pertains to this year only. Ld. counsel of the assessee relied on the Supreme Court's decision in the case of CIT v. Bharat Carbon & Ribbon Manufacturing Co. Pvt. Ltd.(1999) 239 ITR 505 (SC) and recent decision of Hon'ble jurisdictional High Court in the case of Navjivan Roller Flour And Pulse Mills Ltd. v. DCIT (2009) 315 ITR 190 (Guj). In view of these, Ld. counsel urged the Bench to confirm the order of CIT(A).
4. We have heard the rival contentions and gone through the facts and circumstances of the case. We have also perused the case records including the assessment order as well as the order of CIT(A). We have also considered the arguments of both the sides. We find that the Industrial Court has said the dispute at best vide order dated 15-04-2000 and this liability is not on estimate basis rather this is a quantified and ascertained liability in view of the decree of Industrial Dispute Court, similar view has been taken exactly on similar facts by Hon'ble jurisdictional High Court in the case of Navjivan Roller Flour And Pulse Mills Ltd. (supra). The Hon'ble High Court has held as under:-
"In mercantile system of accounting it is well settled that both receipt and liability accrue at the earliest point of time and are not postponed merely on the basis of an entry made or absence of any entry. Admittedly, the assessee is following the mercantile system of accounting. On Ma 28, 1987, when the Trade Association made an award for damages for breach of contract the liability to pay such damages had already been incurred by the assessee.ITA No.2326/Ahd/005 & CO No.239/Ahd/2005 A.Y. 2001-02
ACIT, Cir-8, A'bd v. Torrent AEC Ltd. Page 4 Merely because the award was challenged in appeal by the assessee cannot be a ground for holding that the liability had not been incurred. The Tribunal has committed an error in law in placing reliance upon the decision relatable to a claim for enhancement of compensation in land acquisition case and applying the analogy thereof for coming to the conclusion that the liability arose only on March 22, 1989, when the appellate forum confirmed the award. The issue before the Tribunal was not in relation to any claim for enhancement in the award nor was the assessee claiming any amount over and above the awarded amount".
And further held as under:-
"In the result, for the reasons aforestated, it is not possible to hold that the impugned order of the Tribunal is correct in law. The liability to make payment of Rs.7,14,824 arising under the arbitration award declared in the relevant accounting period for the assessment year 1988-89 had accrued in that year. The question stands answered accordingly i.e. in favour of the assessee and against the Revenue."
5. In view of the above facts, the case law of Hon'ble jurisdictional High Court, we are of the view that the liability has been crystallized during this year only and the CIT(A) has rightly allowed the claim of the assessee, we confirm the same. This issue of the Revenue's appeal is dismissed.
Now coming to assessee's CO No.239/Ahd/2005.
6. At the outset, Ld. Counsel for the assessee has not pressed the CO. Hence, we dismiss the CO as not pressed.
7. In the result, Revenue's appeal is dismissed and that of assessee's CO is dismissed as not pressed.
Order pronounced in Open Court on 20/11/2009
Sd/- Sd/-
(P.K.Bansal) (Mahavir Singh)
Accountant Member Judicial Member
Ahmedabad,
Dated : 20/11/2009
*Dkp
Copy of the Order forwarded to :
1. The Appellant.
2. The Respondent.
3. The CIT(Appeals)-V, Ahmedabad
4. The CIT concerns.
5. The DR, ITAT, Ahmedabad
6. Guard File.
BY ORDER,
/True copy/
Deputy/Asstt.Registrar
ITAT, Ahmedabad