The ACIT, Circle-6(1), Visakhapatnam, Visakhapatnam v. M/s Rashrtiya Ispat Nigam Ltd., Visakhapatnam

ITA 664/VIZ/2013 | 2008-2009
Pronouncement Date: 22-11-2017 | Result: Dismissed

Appeal Details

RSA Number 66425314 RSA 2013
Assessee PAN AABCR0435L
Bench Visakhapatnam
Appeal Number ITA 664/VIZ/2013
Duration Of Justice 4 year(s) 8 day(s)
Appellant The ACIT, Circle-6(1), Visakhapatnam, Visakhapatnam
Respondent M/s Rashrtiya Ispat Nigam Ltd., Visakhapatnam
Appeal Type Income Tax Appeal
Pronouncement Date 22-11-2017
Appeal Filed By Department
Tags No record found
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 22-11-2017
Date Of Final Hearing 03-12-2015
Next Hearing Date 03-12-2015
First Hearing Date 03-12-2015
Assessment Year 2008-2009
Appeal Filed On 13-11-2013
Judgment Text
ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM . . . BEFORE SHRI V. DURGA RAO JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH ACCOUNTANT MEMBER ./I.T.A.NO.13/VIZAG/2013 ( / ASSESSMENT YEAR: 2004-05) M/S. RASHTRIYA ISPAT NIGAM LTD. VISAKHAPATNAM JCIT(OSD) CIRCLE - 3(1) VISAKHAPATNAM [PAN NO. AABCR0435L ] ( / APPELLANT) ( / RESPONDENT) ./I.T.A.NO.664/VIZAG/2013 ( / ASSESSMENT YEAR: 2008-09) ACIT CIRCLE - 6(1) VISAKHAPATNAM M/S. RASHTRIYA ISPAT NIGAM LTD. VISAKHAPATNAM [PAN NO.AABCR0435L] ( / APPELLANT) ( / RESPONDENT) ./I.T.A.NO.57/VIZAG/2014 ( / ASSESSMENT YEAR: 2011-12) M/S. RASHTRIYA ISPAT NIGAM LTD. VISAKHAPATNAM THE JCIT RANGE - 3 VISAKHAPATNAM ( / APPELLANT) ( / RESPONDENT) ./I.T.A.NO.64/VIZAG/2014 ( / ASSESSMENT YEAR: 2011-12) DCIT CIRCLE - 3(1) VISAKHAPATNAM M/S. RASHTRIYA ISPAT NIGAM LTD. VISAKHAPATNAM ( / APPELLANT) ( / RESPONDENT) ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 2 / APPELLANT BY : SHRI G.V.N. HARI AR / RESPONDENT BY : SHRI T.S.N. MURTHY DR / DATE OF HEARING : 14.11.2017 / DATE OF PRONOUNCEMENT : 22 .11.2017 / O R D E R PER D.S. SUNDER SINGH ACCOUNTANT MEMBER: THESE APPEALS FILED BY THE REVENUE AS WELL AS THE ASSESSEE ARE DIRECTED AGAINST ORDER OF THE COMMISSIONER OF I NCOME TAX (APPEALS) {CIT(A)} VISAKHAPATNAM VIDE ITA NO.413/04-05/JCIT( OSD) C- 3(1)/VSP/11-12 DATED 31.10.2012 ITA NO.34/11-12/DC IT/C- 6(1)/VSP/2013-14 DATED 29.8.2013 & ITA NO.0397/12-1 3/JCIT R- 3/VSP/2013-14 DATED 23.12.2013 FOR THE ASSESSMENT Y EARS 2004-05 2008-09 & 2011-12. SINCE THE FACTS ARE IDENTICAL A ND THE ISSUES ARE COMMON THEY ARE CLUBBED HEARD TOGETHER AND DISPOS ED-OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.13/VIZAG/2013 (A.Y.2004-05) AND ITA NO.57/VIZAG/2014 (A.Y.2011-12)(ASSESSEES APPEA LS): 2. GROUND NO.1 IS RELATED TO THE DEPRECIATION OF RA ILWAY LINES & SIDINGS. THE ASSESSEE CONSTRUCTED THE RAILWAY LIN ES AND SIDINGS AND CLAIMED THE DEPRECIATION OF ` 13 428/- @ 15%. THE A.O. DISALLOWED THE ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 3 SAME AND ADDED BACK TO THE RETURN OF INCOME SINCE T HE ASSET IS OWNED BY THE INDIAN RAILWAYS BUT NOT BY THE ASSESSEE RELY ING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MYSORE MINE RALS LIMITED 239 ITR 775. ON APPEAL THE LD. CIT(A) CONFIRMED THE A DDITION MADE BY THE A.O. AGGRIEVED BY THE ORDER OF THE LD CIT(A) THE REVENUE FILED THE APPEAL BEFORE THIS TRIBUNAL. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIALS PLACED ON RECORD. THIS ISSUE IS SQUARELY COVERED BY THE D ECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.9 & 16/VIZAG/2013 DATED 29.4.2015 AGAINST THE ASSESSEE. THE HONBLE ITAT VISAKHAPAT NAM BENCH FOLLOWING ITS OWN ORDER FOR THE EARLIER YEAR IN THE ASSESSEES OWN CASE DISMISSED THE APPEAL OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE LD. CIT(A). RESPECTFULLY FOLLOWING THE VIEW TAKEN BY T HE TRIBUNAL WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE ASSESSE ON THIS GROUND. 4. GROUND NO.2 IS RELATED TO THE DISALLOWANCE OF PR OVISION TOWARDS THE POST RETIREMENT BENEFIT SCHEME. THIS ISSUE IS INVOLVED IN ITA NO.13/VIZAG/2013 FOR THE ASSESSMENT YEARS 2011-12 & 2004-05. DURING THE ASSESSMENT PROCEEDINGS THE A.O. FOUND THAT THE ASSESSEE HAS CREATED A PROVISION FOR POST RETIREMENT BENEFITS TO THE TUNE OF ` 22 12 50 151/- FOR THE ASSESSMENT YEAR 2011-12 AND ` 4 16 30 119/- FOR ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 4 THE ASSESSMENT 2004-05. THE ASSESSEE COMPANY EXPL AINED THE AO THAT THE COMPANY PROVIDES FOR MEDICAL INSURANCE BENEFIT IN THE SCHEME AND TAKES COMMON INSURANCE POLICY FOR RETIRED EMPLOYEES AND PAYS THE PREMIUM AND THE EMPLOYEE HAS TO PAY PART PREMIUM OF MEAGER AMOUNT AND THE RETIRED EMPLOYEES CAN DIRECTLY CLAIM INSURA NCE BENEFIT SETTLEMENT BENEFITS INCLUDE RAIL FARE AIR FARE TRA NSPORTATION CHARGES AND PACKING CHARGES ETC.. AND THE FARE WELL BENEFIT SCH EME ETC. ARE INCLUDED IN THE SCHEME. THE ABOVE BENEFITS ARE PROVIDED TO THE RETIRED EMPLOYEES IN ACCORDANCE WITH THE TERMS OF THE EMPLO YMENT AS WELL AS THE SCHEME FRAMED BY THE COMPANY. AN EMPLOYEE SHAL L RECEIVE WAGES ANNUITY OR PENSION GRATUITY FEES PERQUISITES AND THE FAMILY BENEFIT SCHEME POST RETIREMENT BENEFITS LEAVE SALARY ETC . FOR THE SERVICES THE EMPLOYEE AGREED TO RENDER TO THE ORGANISATION. THER EFORE THE ASSESSEE WAS OBLIGED TO RECOGNIZE THE ABOVE EXPENDITURE AS P ER THE ACCOUNTING STANDARD-15 OF ICAI WHICH IS MANDATORY FROM THE FI NANCIAL YEAR 2006-07. THE ASSESSEE HAS VALUED THE LIABILITY ON ACTUARIAL VALUATION CERTIFICATE ISSUED BY CONSULTING ACTUARY AFTER DU E CONSIDERATION OF PROVISIONS/RULES OF THE COMPANY FOR RETIREMENT BENE FIT SCHEME GUIDANCE NOTE ISSUED BY THE ACTUARIAL SOCIETY OF INDIA AND A CCOUNTING STANDARD-15 OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. TH E ASSESSEE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F BHARAT EARTH ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 5 MOVERS LTD. VS. CIT 245 ITR 428. THE A.O. NOT CON VINCED WITH THE EXPLANATION OF THE ASSESSEE HELD THAT THE ASSESSEE COMPANY HAS NEITHER CREATED ANY RECOGNISED SUPERANNUATION FUND FOR PROV IDING THE POST RETIREMENT BENEFITS TO THE EMPLOYEES NOR CONTRIBUTE D THE AMOUNT TO ANY SUCH RECOGNISED FUND HENCE HE HELD THAT THE PROVI SION IN THE FIRST PLACE IS CONTINGENT IN NATURE. FURTHER LD. A.O. OBSERVED THAT THE ASSESSEE IS ACCUMULATING THE FUNDS UNDER THE PROVISIONS AND SPE NT LESSER AMOUNTS WHICH CLEARLY INDICATE THE FACTUAL POSITION THAT TH E PROVISIONS ARE CREATED OVER AND ABOVE THE REQUIREMENT. SINCE THE EXPENDIT URE IS CONTINGENT IN NATURE AND NOT CONTRIBUTED FOR ANY RECOGNISED SUPER ANNUATION FUND THE A.O. DISALLOWED THE SUMS PROVIDED UNDER THE POST RE TIREMENT BENEFITS AND BROUGHT TO TAX. ON APPEAL THE LD. CIT(A) CONF IRMED THE ADDITION MADE BY THE A.O. 5. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL IN ITA NO.9 & 16/VIZAG/2013 DATED 29.4.201 5. FOR READY REFERENCE WE EXTRACT THE RELEVANT PARAGRAPH OF THE ORDER OF THIS TRIBUNAL CITED (SUPRA). 16. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES O RDERS OF THE REVENUE AUTHORITIES AND PERUSED THE MATERIALS A VAILABLE ON RECORD. WE FIND THAT THE COORDINATE BENCH OF VISAKH APATNAM TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 TO 2008-09 BY ORDER DATED 08.01.2015 (SUPRA) HAS EXTEN SIVELY ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 6 DISCUSSED THE ISSUE AND ALLOWED THE CLAIM OF THE AS SESSEE (WHEREIN ONE OF US IS THE AUTHOR OF THE ORDER). THE REFORE RESPECTFULLY FOLLOWING THE VIEW TAKEN BY US IN OUR ORDER DATED 08.01.2015 (SUPRA) IN ASSESSEES OWN CASE WE SET A SIDE THE ORDERS OF BOTH THE LOWER AUTHORITIES IN DISALLOWING THE CLAIM OF THE ASSESSEE COMPANY TOWARDS PROVISION FOR POST RETIREM ENT BENEFIT SCHEME AND DIRECT THE ASSESSING OFFICER TO ALLOW TH E CLAIM OF THE ASSESSEE COMPANY. GROUND NO.3 OF THE ASSESSEE IS AL LOWED. THE TRIBUNAL HAS FOLLOWED ITS OWN ORDER IN ASSESSE ES CASE FOR THE A.Y.2006-07 2007-08 AND 2008-09 IN ITA NO.94 9 5 &97/VIZ/2012 DATED 08/01/201. FOR READY REFERENCE WE ALSO EXTRAC T THE RELEVANT PARTS OF THE ITATS ORDER CITED (SUPRA) WHICH READS AS UN DER: 22. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PE RUSING THE MATERIALS ON RECORD AS WELL AS ORDERS OF THE AUTHOR ITIES BELOW WE ARE OF THE VIEW THAT THE CLAIM OF THE APPELLANT DESERVES T O BE ALLOWED. IT IS AN UNDISPUTED FACT THAT THE PROVISION WAS MADE ON THE BASIS OF ACTUARIAL VALUATION AND THAT THE PROVISION WAS MADE TOWARDS T HE OBLIGATION OF THE APPELLANT ARISING OUT OF ITS CONTRACT WITH THE EMPL OYEES IN THE FORM OF A SCHEME VIZ. POST RETIREMENT BENEFIT SCHEME. FURTHE R THERE IS NO DISPUTE WITH REGARD TO ALLOWANCE OF THE EXPENDITURE UNDER T HE PROVISIONS OF THE INCOME TAX ACT. THE SHORT DISPUTE IS WHETHER THE EX PENDITURE HAS TO BE ALLOWED IN THE YEAR OF PAYMENT OR WHETHER THE EXPEN DITURE CAN BE ALLOWED IN THE YEAR THE APPELLANT HAS MADE THE PROVISION ON THE BASIS OF ACTUARIAL VALUATION. THE CASE OF THE REVENUE IS THAT THE EXPE NDITURE HAS TO BE ALLOWED ONLY IN THE YEAR OF PAYMENT AS AGAINST THE CASE OF THE APPELLANT THAT THE EXPENDITURE HAS TO BE ALLOWED ON ACCRUAL B ASIS. WE DO NOT FIND MUCH FORCE IN THE CONTENTION OF THE LD DR THAT THE PAYMENTS MADE UNDER THIS SCHEME ARE OF THE KIND OF GRATUITY AND HENCE P ROVISIONS OF S.40(A)(7) ARE ATTRACTED. HAD IT BEEN SO THERE WAS NO NEED TO INCLUDE I.T.A. NOS.94 95 96 97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO 2007-08 & 2005- 06 RINL 17 THE PROVISIONS OF S.40(A)(9) WHICH PROVI DE FOR DISALLOWANCE OF CONTRIBUTIONS MADE TO FUNDS CREATED FOR OTHER PURPO SES. FURTHER WE DO NOT FIND MUCH WEIGHT IN THE CONTENTION THAT A PROVISION MADE ON THE BASIS OF ACTUARIAL VALUATION IS ALSO TO BE TREATED AS CONTRI BUTION TO A FUND. FURTHER AS RIGHTLY CONTENDED BY THE LEARNED AR OF THE APPEL LANT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF CHANDIGARH BENC H OF THE ITAT IN THE CASE OF GLAXO SMITHKLINE CONSUMER HEALTHCARE LIMITE D (SUPRA) WHEREIN THE TRIBUNAL ALLOWED THE EXPENDITURE ON ACCRUAL BAS IS AND THEIR OBSERVATIONS ARE AS UNDER: 61. IN THE FACTS OF THE PRESENT CASE BEFORE US THE ASSESSEE HAD RECOGNIZED AND ACCOUNTED FOR THE POST RETIREMENT BE NEFIT DUE TO ITS EMPLOYEES IN TERMS OF THE SCHEME OF EMPLOYMENT AND ALSO IN TERMS OF THE REVISED/CHANGE IN ACCOUNTING STANDARD-15 ISSUED BY ICAI WHICH WAS TO BE FOLLOWED DURING THE YEAR IS AN ALLOWABLE DED UCTION IN THE HANDS OF ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 7 THE ASSESSEE. THE SAID CLAIM BEING BASED ON THE VAL UATION OF THE ACTUARY IS BOTH SCIENTIFIC AND ONE OF THE RECOGNIZED METHOD OF ACCOUNTING AND QUANTIFYING THE SAID POST RETIREMENTAL MEDICAL BENE FITS. IN SUCH CASES THOUGH ACTUAL AND EXACT QUANTIFICATION MAY NOT BE P OSSIBLE HOWEVER THE LIABILITY SO RECOGNIZED BY THE ASSESSEE COULD NOT B E SAID TO BE UNASCERTAINED AND CONTINGENT. THE ASSESSEE HAVING F OLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING WAS COMPULSORILY RE QUIRED TO ACCOUNT FOR THE SAID POST RETIREMENT MEDICAL BENEFITS AS THE SA ME WAS QUANTIFIED AND HAD ACCRUED DURING THE YEAR. THE CLAIM OF THE ASSES SEE WAS THUS ALLOWABLE IRRESPECTIVE OF THE FACT THAT THE ASSESSE E HAD MADE A PROVISION IN THE BOOKS OF ACCOUNT BUT HAD CLAIMED THE SAID DE DUCTION IN THE COMPUTATION OF INCOME. IT IS WELL SETTLED PROPOSITI ON THAT THE WAY IN WHICH ENTRIES ARE MADE BY THE ASSESSEE IN ITS BOOKS OF AC COUNT IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSESSEE HAD EARNED ANY PROFIT OR SUFFERED ANY LOSS AS HELD BY THE HON'BLE APEX CO URT IN SUTLEJ COTTON MILLS LTD. VS. CIT (SUPRA). IT WAS FURTHER HELD BY THE HON'BLE APEX COURT THAT WHAT IS NECESSARY TO BE CONSIDERED IS THE TRUE NATURE OF TRANSACTION AND WHETHER IN FACT IT HAS RESULTED IN PROFIT OR LO SS TO THE ASSESSEE. FURTHER THE SAID DEDUCTION WAS CLAIMED DURING THE YEAR UNDE R CONSIDERATION AND THE CLAIM BEING BONAFIDE IS TO BE ALLOWED IN THE YE AR IN WHICH THE SAME ACCRUES THOUGH THE SAID LIABILITY IS TO BE DISCHARG ED AT A LATER DATE. 62. IDENTICAL ISSUE AROSE IN BOKARO POWER SUPPLY CO. (P) LTD. VS DCIT (SUPRA) OF ALLOWABILITY OF CLAIM OF DE DUCTION OF POST RETIREMENT MEDICAL BENEFITS ON THE BASIS OF ACTUARIAL VALUATIO N AND THE SAME WAS HELD TO BE NOT AN UNASCERTAINED LIABILITY AND WAS HELD A S ALLOWABLE OBSERVING AS UNDER: 5. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE HAVE ALSO PERUSED THE ORDER OF AUTHORITIES BELOW. THE ASSESSE E COMPANY OF WAS LIABLE TO PAY FOR MEDICAL EXPENSES OF ITS RETIRED E MPLOYEES IN ACCORDANCE WITH THE TERMS OF EMPLOYMENT. PRIOR TO THIS YEAR T HE ASSESSEE WAS CLAIMING THESE EXPENSES IN THE YEAR OF EXPENDITURE. DUE TO THE CHANGE IN THE ACCOUNTING STANDARD IN RESPECT OF THE ACCOUNTIN G OF POST RETIREMENT BENEFITS THE ASSESSEE GOT DONE THE ACTUARIAL VALUA TION OF THESE LIABILITIES AND STARTED CLAIMING THE SAME ON THAT BASIS. IT IS CLAIMED IN VIEW OF THE ACCOUNTING STANDARD AS-15. THIS CLAIM WAS BASED ON THE VALUATION OF LIABILITY ON ACTUARIAL AND SCIENTIFIC BASIS. IN SUC H CASES THE ACTUAL AND EXACT QUANTIFICATION MAY NOT BE POSSIBLE HOWEVER LIABILITY CANNOT BE SAID TO BE A CONTINGENT ONE. SINCE THE PROVISION HAS BEE N MADE ON SCIENTIFIC BASIS AND THE ASSESSEE IS FOLLOWING MERCANTILE SYST EM OF ACCOUNTING THEREFORE IN OUR CONSIDERED VIEW THE CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION WHILE DECIDING ITA NO.149/DEL/2012. A LIAB ILITY WHICH HAS ALREADY ACCRUED THOUGH DISCHARGED ON A FUTURE DATE WOULD BE ENTITLED FOR DEDUCTION. WHILE WORKING OUT THE PROFIT & GAIN OF T HE BUSINESS THE ACCRUED RECEIPTS ARE BROUGHT TO THE TAX SIMILARLY ACCRUED I.T.A. NOS.94 95 96 97 & 141/VIZ/2012 ASSESSMENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 18 LIABILITIES DUE WOULD ALSO BE ENTITLED FOR DEDUCTIO N WHILE WORKING OUT THE PROFIT AND GAIN OF THE BUSINESS OF THE YEAR. COMPUT ATION OF TAXABLE PROFIT FOR A PARTICULAR YEAR CAN BE WORKED OUT ONLY BY DED UCTING THE ACTUAL PAYMENTS MADE TO THE EMPLOYEES AND PRESENT VALUE OF ANY PAYMENT IN ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 8 RESPECT OF THE SERVICES IN THAT PARTICULAR YEAR TO BE MADE IN SUBSEQUENT YEAR. IN VIEW OF THIS WE FIND THE ORDER OF CIT (A) IN ITA NO.149/DEL/2012 IN ORDER. WE SET ASIDE THE ORDER OF CIT (A) IN ITA NO. 4921/DEL/2010. FOR DOING SO WE ALSO GET SUPPORT FROM THE FOLLOWING DE CISIONS OF HON'BLE SUPREME COURT AND HON'BLE DELHI HIGH COURT. 5.1 HON 'BLE SUPREME COURT IN THE CASE OF METAL BOX COMPANY OF INDIA LTD. VS. THEIR WORKMEN - 73 ITR 53 HAS HELD AS UNDER :- 'CONTINGENT LIABILITIES DISCOUNTED AND VALUED AS NECESSARY CAN BE TAKEN INTO ACCOUNT AS TRADING EXPENSES IF TH EY ARE SUFFICIENTLY CERTAIN TO BE CAPABLE OF VALUATION AND IF PROFITS C ANNOT BE PROPERLY ESTIMATED WITHOUT TAKING THEM INTO CONSIDERATION. A N ESTIMATED LIABILITY UNDER A SCHEME OF GRATUITY IF PROPERTY ASCERTAINAB LE AND ITS PRESENT VALUE IS DISCOUNTED IS DEDUCTIBLE FROM THE GROSS RECEIPT S WHILE PREPARING THE PROFIT AND LOSS ACCOUNT. THIS IS RECOGNISED IN TRAD E CIRCLES AND THERE IS NOTHING IN THE BONUS ACT WHICH PROHIBITS SUCH A PRA CTICE. SUCH A PROVISION PROVIDES FOR A KNOWN LIABILITY OF WHICH THE AMOUNT CAN BE DETERMINED WITH SUBSTANTIAL ACCURACY. IT CANNOT THEREFORE BE TERM ED 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 O F GRATUITY DURING THE YEAR. WHERE THE FIXED ASSETS ARE REVALUED AND THE D IFFERENCE BETWEEN ITS COST AND THE VALUE FIXED ON SUCH REVALUATION IS CRE DITED TO THE CAPITAL RESERVE UNLESS THE TRIBUNAL FINDS THAT THE REVALUA TION IS MALA FIDE THE INTEREST ON THE AMOUNT OF THE RESERVE SHOULD BE ALL OWED 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 FIR ST ESTIMATE THE AMOUNT OF DIRECT TAXES ON THE BALANCE OF GROSS PROFITS AS WOR KED OUT UNDER SECTIONS 4 AND 6 BUT WITHOUT DEDUCTION BONUS THEN WORK OUT T HE 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. THIS WILL BE CONSI STENT WITH THE RULE LAID DOWN BY COURTS AND TRIBUNALS BEFORE THE ACT WAS ENA CTED THAT THE BONUS AMOUNT SHOULD BE CALCULATED AFTER PROVISION FORTAX WAS MADE AND NO HON'BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS LIMITED VS. CIT - 245 ITR 428 = (2002- TIOL-123-SCR M HAS HELD AS UNDER :- 'HELD REVERSING THE DECISION OF THE HIGH COURT THAT THE PROVISIONS MADE BY THE ASSESSEECOMPANY FOR MEETING THE LIABILITY INCURRED BY IT UNDER THE LEAVE ENCASHMENT SCHEME PROPORTIONA TE WITH THE ENTITLEMENT EARNED BY THE EMPLOYEES OF THE COMPANY INCLUSIVE OF THE OFFICERS AND THE STAFF SUBJECT TO THE CEILING ON A CCUMULATION AS APPLICABLE ON THE RELEVANT DATE WAS ENTITLED TO DEDUCTION OUT OF THE GROSS RECEIPTS FOR THE ACCOUNTING YEAR DURING WHICH THE PROVISION IS M ADE FOR THE LIABILITY. THE LIABILITY IS NOT A CONTINGENT LIABILITY.' ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 9 HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. INSILCO LIMITED -197 TAXMAN 55 HAS HELD AS UNDER :- 'SIMILARLY IT WAS HELD BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. INSILCO LTD. THAT WHERE THE PROVISI ONS WERE ESTIMATED ON THE BASIS OF ACTUARIAL CALCULATIONS THE DEDUCTION CLAIMED BY THE ASSESSEE HAS TO BE ALLOWED. THE RELEVANT EXTRACTS OF THE DEC ISION IS REPRODUCED BELOW FOR READY REFERENCE:- '6. IN THE CASE OF SHRE E SAJJAN MILLS LTD (SUPRA) THE SUPREME COURT WAS EXAMINING THE PROVIS ION-MADE BY THE ASSESSEE TOWARDS GRATUITY UNDER THE INCOME TAX ACT 1961. THE SUPREME COURT AFTER NOTICING THE JUDGMENT IN METAL BOX COM PANY (SUPRA) CRYSTALLIZED ITS ANALYSIS AT PAGE 599 AND MADE THE FOLLOWING OBSERVATIONS:- 'IT WOULD THUS BE APPARENT FROM THE ANALYSIS AFORES AID THAT THE POSITION TILL THE PROVISIONS OF SECTION 40A(7) WERE INSERTED IN T HE ACT IN 1973 WAS AS FOLLOWS:- 1 XXXX 2 XXXX 3 XXXX 4 XXXX 5. PROVISION MADE IN THE PROFIT AND LOSS I.T.A. NOS.94 95 96 97 & 141/VIZ/2012 ASSESSM ENT YEARS:2006-07 TO2007-08 & 2005-06 RINL 19 ACCOUNT FOR THE ESTIMAT ED PRESENT VALUE OF THE CONTINGENT LIABILITY PROPERLY ASCERTAINED AND D ISCOUNTED ON AN ACCRUED BASIS AS FALLING ON THE ASSESSEE IN THE YEAR OF ACC OUNT COULD BE DEDUCTIBLE EITHER UNDER SECTION 28 OR SECTION 37 OF THE ACT. ' ITA 873/2008 & 1156/2008 PAGE 6 OF 25 7. THE DIVISION BENCH OF THIS COURT WHILE CONSID ERING DEDUCTIBILITY OF A PROVISION FOR WARRANTIES MADE BY AN ASSESSEE WHICH DEALT IN COMPUTERS IN THE CASE OF CIT VS HEWLETT PA CKARD INDIA (P) LTD BY ITS JUDGMENT PASSED IN APPEAL NO. ITA 486/2006 DATE D 31.03.2008 UPHELD THE DEDUCTIBILITY OF THE PROVISION FOR WARRA NTY 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 WI TH 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 AL SO THE DECISION OF HON'BLE SUPREME COURT AND HON'BLE JURISDICTIONAL HI GH 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. 63. IN VIEW THEREOF WE DIRECT THE ASSESSING OFF ICER TO ALLOW THE DEDUCTION OF RS.11.09 CRORES ON ACCOUNT OF POST RETIREMENT MEDICAL BENEFITS. THE GROUND NOS.5 AND 6 RAISED BY THE ASSE SSEE ARE THUS ALLOWED. WE ARE IN COMPLETE AGREEMENT WITH THE VIEW TAKEN BY THE CHANDIGARH AND DELHI BENCHES OF THE TRIBUNAL. WE SE T ASIDE THE ORDERS OF BOTH THE LOWER AUTHORITIES IN DISALLOWING THE CLAIM OF THE APPELLANT TOWARDS PROVISION FOR POST RETIREMENT BENEFIT SCHEME AND DI RECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE APPELLANT. IN THE RESULT THIS GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 10 RESPECTFULLY FOLLOWING THE ORDERS OF THIS TRIBU NAL CITED (SUPRA) WE ALLOW THE APPEAL OF THE ASSESSEE ON THIS GROUND AND SET ASIDE THE ORDER OF THE LOWER AUTHORITIES. 6. GROUND NO.3 IS RELATED TO THE PROVISION FOR EMPL OYEE FAMILY BENEFITS. THIS ISSUE IS INVOLVED FOR THE ASSESSMEN T YEAR 2011-12 & 2004-05. FOR THE ASSESSMENT YEAR 2011-12 THE ASSE SSEE DEBITED EXPENDITURE OF ` 13 70 20 576/- AND FOR THE ASSESSMENT YEAR 2004-05 THE AMOUNT DEBITED WAS ` 19 62 83 066/-. THE A.O. DURING THE ASSESSMENT PROCEEDINGS FOUND THAT THE ASSESSEE CREA TED THE PROVISION TOWARDS EMPLOYEES FAMILY BENEFIT SCHEME AND CHARGED TO THE PROFIT & LOSS ACCOUNT. THE ASSESSEE EXPLAINED THAT THE PROV ISION WAS TOWARDS SETTLEMENT/RE-SETTLEMENT OF EXPENSES SUCH AS TRANSP ORTATION AND ALLOWANCES TO THE RETIRED EMPLOYEES OF THE COMPANY. THE PROVISION IS SIMILAR TO THE POST RETIREMENT BENEFITS OF THE RETI RED EMPLOYEES. THE A.O. OPINED THAT THE PROVISION IS CONTINGENT IN NAT URE AND DOES NOT ARISE ANY DEFINITE OBLIGATION FOR THE ASSESSEE WHICH CAN BE SPECIFICALLY ASCERTAINED AND ASSIGNED AND THERE WAS NO BASIS FOR CREATING THE PROVISION WHICH CAN BE EXPLAINED BY THE COMPANY. TH E ASSESSEE ARGUED THAT IT IS OBLIGATORY ON THE PART OF THE COMPANY TO PROVIDE THE BENEFITS UNDER THE EMPLOYEES FAMILY BENEFIT SCHEME AND MANDA TORY REQUIREMENT OF AS-15 OF ICAI AND THE COMPANY HAS PROVIDED THE L IABILITY ON THE BASIS ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 11 OF ACTUARIAL VALUATION CERTIFICATE ISSUED BY THE CO MPETENT CONSULTANT FOR THIS PURPOSE. THE A.O. WAS NOT IMPRESSED WITH THE EXPLANATION OF THE ASSESSEE AND HELD THAT THE PROVISION IS NOT AN ASCE RTAINED LIABILITY AND THE ASSESSEE HAS CREATED THE PROVISIONS OVER AND AB OVE THE REQUIREMENT AND HAS NOT BEEN ADOPTED ANY BASIS AND THE ASSESSEE HAS SPENT MEAGER AMOUNTS AND ACCUMULATED THE FUNDS UNDER THE EMPLOYE ES BENEFIT SCHEME WHICH IS BEING UTILIZED BY THE COMPANY. TH E EXPENDITURE WAS NOT ALLOWABLE U/S 30 TO 38 OF THE ACT HENCE DISAL LOWED AND ADDED BACK TO THE INCOME. 7. AGGRIEVED BY THE ORDER OF THE A.O. THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) CONFIRMED THE ORDER OF THE A.O. HENCE THIS APPEAL. 8. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE SAME ISSUE HAS COME UP FOR ADJUDICATION IN THE ASSE SSEES OWN CASE FOR EARLIER YEARS AND FOR THE ASSESSMENT YEAR 2009-10 & 2010-11 THE HONBLE ITAT VIZAG BENCH IN THE ASSESSEES OWN CAS E IN THE ORDER CITED (SUPRA) ALLOWED THE APPEAL OF THE ASSESSEE FOLLOWIN G ITS ORDER IN ASSESSES OWN CASE FOR THE A.Y.2006-07 TO 2008-09 IN ITA NO.94 95 &97/VIZ/2012 AND DELETED THE ADDITIONS MAD E BY THE A.O. FOR ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 12 READY REFERENCE WE REPRODUCE THE RELEVANT PARAGRAP H OF THE ITATS ORDER PAGE NO.12 PARA-18 AS FOLLOWS: 18. THE CONTENTIONS OF THE LEARNED COUNSEL FOR TH E ASSESSEE AND THE LEARNED D.R. ARE SIMILAR TO THE ISSUE OF DI SALLOWANCE OF PROVISION TOWARDS POST RETIREMENT BENEFIT SCHEME. THIS ISSUE IS IDENTICAL TO THE ONE RELATING TO POST RETIREMENT BENEFIT SCHEME CONSIDER ED HEREINABOVE IN PARA 16. FURTHER SIMILAR ISSUE HAS BEEN DECIDED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 TO 2008-09 BY ORDER DATED 08.01.2015 IN ITA.NO.94 95 96 97 & 141/VIZ/2012 WHEREIN THIS ISSUE HAS BEEN EXTENSIVEL Y DISCUSSED AND THE CLAIM OF THE ASSESSEE WAS ALLOWED. THEREFORE RESPE CTFULLY FOLLOWING THE VIEW TAKEN BY THIS TRIBUNAL IN ITS ORDER DATED 08.0 1.2015 (SUPRA) IN ASSESSEES OWN CASE WE SET ASIDE THE ORDERS OF BOT H THE LOWER AUTHORITIES IN DISALLOWING THE CLAIM OF THE ASSESSEE COMPANY TO WARDS PROVISION FOR EMPLOYEES FAMILY BENEFIT SCHEME AND DIRECT THE LOWE R AUTHORITIES TO ALLOW THE CLAIM OF THE ASSESSEE COMPANY. GROUND NO.4 OF T HE ASSESSEE IS ALLOWED. 9. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS TR IBUNAL IN ITS ORDER DATED 29.4.2015 WE SET ASIDE THE ORDERS OF THE LOW ER AUTHORITIES AND ALLOW THE APPEAL OF THE ASSESSEE. 10. GROUND NO.4 IS RELATED TO THE PROVISION FOR FUT URE LEAVE ENCASHMENT. DURING THE ASSESSMENT PROCEEDINGS THE A.O. FOUND THAT THE ASSESSEE COMPANY HAS CREATED A PROVISION UNDER THE HEAD LEAVE ENCASHMENT FOR AN AMOUNT OF ` 34 64 82 796/-. THE ASSESSEE HAS EXPLAINED THAT THE LIABILITY WAS CREATED ON ACTUARI AL BASIS AS PER THE CERTIFICATE ISSUED BY THE COMPETENT CONSULTANT AND DEBITED THE EXPENDITURE AS PER ACCOUNTING STANDARD-15 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. NOT BEING IMPRESSE D WITH THE EXPLANATION OF THE ASSESSEE THE ASSESSING OFFICER MADE THE ADDITION ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 13 HOLDING THAT THE EXPENDITURE WAS PURELY PROVISIONAL AND NOT AN ASCERTAINED LIABILITY AND THE ASSESSEE HAS FAILED T O FURNISH ANY FACTUAL DETAILS REGARDING OUTSTANDING LEAVE OF EACH STAFF M EMBER THE ELIGIBILITY OF ENCASHMENT OF LEAVE AND THE LIABILITY RELATED TO ENCASHMENT OF LEAVE. FURTHER THE LD. A.O. OBSERVED THAT THE LIABILITY I S NEITHER ACCRUED NOR INCURRED UNLESS THE EMPLOYEES OF THE COMPANY ENCASH THE LEAVE ACCRUED TO THEM AND THE EMPLOYEES HAD OPTION EITHER TO AVA IL THE LEAVE OR TO ENCASH THE SAME HENCE THERE IS A HIGH ELEMENT OF UNCERTAINTY AND THEREFORE THE EXPENDITURE WAS PURELY CONTINGENT IN NATURE ACCORDINGLY DISALLOWED. 11. AGGRIEVED BY THE ORDER OF THE A.O. THE ASSESSE E WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) CONFIRMED ORDE R OF THE A.O. 12. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSES SEE IS IN APPEAL BEFORE THIS TRIBUNAL. 13. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF THIS TRIB UNAL IN ITA NOS.9 & 16/VIZAG/2015 DATED 29.4.2015 AGAINST THE ASSESSEE. THE RELEVANT PART OF THE ORDER IS EXTRACTED BELOW WHICH READS AS UNDE R: 20. THE ASSESSEE COMPANY HAS CREATED A PROVISION U NDER THE HEAD FUTURE LEAVE ENCASHMENT OF RS.66 31 68 389 D URING THE F.Y. 2008- 09 RELEVANT TO THE A.Y. 2009-10 AS FOUND IN SCHEDUL E NO.16 OF THE BALANCE SHEET. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 14 COMPANY WAS ASKED TO EXPLAIN HOW THE AMOUNT DEBITED TOWARDS THE PROVISION FOR FUTURE LEAVE ENCASHMENT CAN BE ALLOWE D AS DEDUCTION. IN RESPONSE TO WHICH THE ASSESSEE COMPANY FILED ITS E XPLANATION VIDE LETTER DATED 25.10.2010 CONTENDING INTER ALIA THAT THE AS SESSEE COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE A MOUNT ON ACCOUNT OF LEAVE ENCASHMENT WAS PROVIDED IN THE ACCOUNTS ARE B ASED ON THE ACTUARIAL VALUATION CERTIFICATE ISSUED BY CONSULTING ACTUARY. THEREFORE THE FACT IS IT IS THE LIABILITY TOWARDS ASCERTAINED EMPLOYEE COST FOR THE PRESENT SERVICES DETERMINED BASED ON ACTUARIAL VALUATION I.E. ON A REALISTIC AND SCIENTIFIC BASIS. HOWEVER ASSESSING OFFICER WAS NOT CONVINCED WITH THE EXPLANATION FURNISHED BY THE ASSESSEE COMPANY. THE ASSESSING OF FICER HELD THAT THE PROVISION IS IN THE NATURE OF CONTINGENT LIABILITY BUT NOT AN ASCERTAINED LIABILITY. THE LIABILITY IS NEITHER ACCRUED NOR INC URRED UNLESS THE EMPLOYEES OF THE COMPANY ENCASHED THE LEAVE ACCRUED TO THEM. FURTHER THE EMPLOYEES HAVE AN OPTION EITHER TO AVAIL THE LEAVE OR TO ENCASH THE SAME AND THEREFORE THERE IS HIGH ELEMENT OF UNCERTAINTY WHETHER THE SAID LEAVE WOULD BE ENCASHED OR AVAILED BY THE EMPLOYEES WHOSE EXACT NUMBER UNDER EITHER HEAD IS NOT ASCERTAINABLE. THE PROVISI ON THEREFORE IS CLEARLY IN THE NATURE OF CONTINGENT LIABILITY AND THE SAME IS NOT AN ALLOWABLE EXPENDITURE. IN THIS CONTEXT ASSESSING OFFICER RELI ED ON THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF MYSORE LAMP WOR KS LTD. VS. CIT 185 ITR 96 AND ADDED THE AMOUNT RS.66 31 68 389 TO THE INCOME OF THE ASSESSEE. ON APPEAL THE LD. CIT(A) CONFIRMED THE A DDITION MADE BY THE ASSESSING OFFICER. AGGRIEVED ASSESSEE FILED APPEA L FILED BEFORE THE TRIBUNAL. 21. DURING THE COURSE OF HEARING THE LEARNED COUN SEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. WE FIND THAT AN IDENTICAL ISSUE WAS DECIDED BY THE COORDINATE BENCH VIDE ORDER DT.8 TH JANUARY 2015 (SUPRA) WHEREIN IT WAS HELD THAT THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED IN VIEW OF THE SPECI FIC PROVISIONS OF S.43B(F) OF THE INCOME TAX ACT 1961 WHICH PROVIDES FOR ALLOWANCE OF SUCH CLAIM ONLY IN THE YEAR OF PAYMENT. THE FINDIN GS OF THE COORDINATE BENCH IN THIS REGARD ARE CONTAINED IN PARA 51 OF TH E ORDER. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THE COORDINATE BENCH W E UPHOLD THE ORDERS OF THE LOWER AUTHORITIES AND CONFIRM THE SAME. GROUND NO.5 OF THE ASSESSEE IS DISMISSED. 14. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS T RIBUNAL IN THE ORDER CITED (SUPRA) WE UPHOLD THE ORDERS OF THE LOWER AU THORITIES AND DISMISS THE APPEAL OF THE ASSESSEE ON THIS GROUND. ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 15 15. GROUND NO.5 IS RELATED TO THE PROVISION FOR LON G SERVICE AWARD. DURING THE ASSESSMENT PROCEEDINGS THE A.O. FOUND T HAT THE ASSESSEE COMPANY HAS CREATED PROVISION UNDER THE HEAD LONG SERVICE AWARD TO THE TUNE OF ` 3 03 18 326/-. THE ASSESSEE EXPLAINED THAT THE CO MPANY GIVES THE AWARD TO THE EMPLOYEE WHO COMPLETES THE 25 YEARS CONTINUOUS SERVICE UNDER SCHEME. THE AWARD WOULD B E SILVER MEDALLION WEIGHING 150 GMS. WITH THE EMBLEM OF RINL VISAKHAP ATNAM STEEL PLANT EMBOSSED ON THE SIDE LONG SERVICE AWARD ON THE OT HER SIDE. THE ASSESSEE HAS CREATED THE PROVISION ON ACTUARIAL BAS IS AS PER CERTIFICATE OF ACTUARIAL VALUATION ISSUED BY THE COMPETENT CONSULT ANT FOR THIS PURPOSE AND THE AMOUNT WAS DEBITED FOLLOWING THE ACCOUNTING STANDARD-15 OF THE GUIDELINES ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE A.O. HELD THE EXPENDITURE WAS CONTINGENT IN NAT URE. AFTER GOING THROUGH THE EXPLANATION OFFERED BY THE ASSESSEE COM PANY THE A.O. OBSERVED THAT THE PROVISION CREATED TOWARDS 'LONG S ERVICE AWARD' IS NOT WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS. THE PROVISION IS IN NO WAY RELATED TO THE DAY TO DAY RU NNING OF THE BUSINESS. ENTIRE PROVISION MADE DURING THE YEAR WAS REMAINED UNPAID AT THE END OF THE YEAR. AS PER THE DETAILS AVAILAB LE FROM THE RECORDS OF THE EARLIER YEARS THE A.O. OBSERVED THAT IT WAS THE PROVISION WHICH HAS NO BASIS AND RELIED ON THE HON'BLE SUPREME COU RT JUDGEMENT IN ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 16 THE CASE OF CIT VS. GEMINI CASHEW SALES CORPORATION (1967) 65 ITR 643 WHERE IN IT WAS HELD THAT WHERE THE LIABILITY IS WH OLLY CONTINGENT AND DOES NOT RAISE ANY DEFINITE OBLIGATION DURING T HE TIME THAT THE BUSINESS IS CARRIED ON IT CANNOT FALL WITHIN THE EX PRESSION 'EXPENDITURE LAID OUT OR EXPENDED WHOLLY FOR BUSINESS PURPOSES'. THE MERCANTILE SYSTEM CAN NEVER BE STRETCHED TO EMBRACE ALL SORTS OF PROVISIONAL NOTIONAL OR CONTINGENT PAYMENTS WHICH THE ASSESSEE CONSIDERS THAT HE MIGHT ULTIMATELY BE CALLED UPON TO PAY. IN SUCH CAS ES LIABILITY ACCRUES ONLY WHEN THE LIABILITY CRYSTALISES OR BECOMES ASCE RTAINED. THE AO ALSO RELIED ON THE ORDER IN CASE OF CIT VS. ASHOK I RON & STEEL ROLLING MILLS REPORTED IN 199 ITR 815 AND DISALLOWED THE SA ME. 18. AGGRIEVED BY THE ORDER OF THE A.O. THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) CONFIRMED THE ORDER OF THE A.O. 19. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSES SEE IS IN APPEAL BEFORE THIS TRIBUNAL. THIS ISSUE IS COVERED BY THI S TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR THE EARLIER YEARS IN APPELL ATE ORDER DATED 29.4.2015 BY THIS TRIBUNAL IN FAVOUR OF THE ASSESS EE. FOR READY REFERENCE WE EXTRACT RELEVANT PARA NO.22 OF THE CI TED ORDER. 22. GROUND NO.6 IS ON THE DISALLOWANCE OF RS.69 92 138 IN RESPECT OF PROVISION TOWARDS LONG SERVICE AWARD. THIS ISSUE HAS BEEN DECIDED BY THE COORDINATE BENCH OF THE VISAKHAPATNAM TRIBUN AL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006-07 2007-08 AND 2 008-09 IN ITA.NOS.94 95 & 97/VIZ/2012 DATED 08.01.2015 WHEREI N IT HAS BEEN OBSERVED THAT THIS ISSUE IS IDENTICAL WITH THE ISSU E OF POST RETIREMENT BENEFIT SCHEME AND THE EXPENSES OF THIS NATURE ARE TO BE ALLOWED ON ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 17 ACCRUAL BASIS. CONSISTENT WITH OUR VIEW TAKEN IN AS SESSEES OWN CASE IN EARLIER YEARS WE HOLD THAT PROVISION MADE BY THE A SSESSEE COMPANY TOWARDS LONG SERVICE AWARD BASED ON ACTUARIAL VALUA TION IS TO BE ALLOWED AS EXPENDITURE. ACCORDINGLY WE ALLOW GROUN D NO.6 OF THE ASSESSEE. 20. RESPECTFULLY FOLLOWING THE ORDER OF THIS TRIBUN AL WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE APPEA L OF THE ASSESSEE. 21. GROUND NO.6 IS RELATED TO THE PROVISION FOR MIN ES CLOSURE. DURING THE ASSESSMENT PROCEEDINGS THE A.O. FOUND THAT THE ASSESSEE DEBITED A SUM OF ` 18 46 000/- TOWARDS MINES CLOSURE. THE ASSESSEE E XPLAINED THAT AS PER THE GOVERNMENT OF INDIA THE MINERAL SE RVICES AND DEVELOPMENT RULES 1998 GOVERNMENT HAS INTRODUCED STATUTORY PROVISIONS FOR PREPARATION AND IMPLEMENTATION OF PR OGRESSIVE MINES CLOSURE PLAN FOR OPERATING MINES CLOSURE PLAN FOR FINAL CLOSURE OF MINES. THE COMPANY IS SUPPOSED TO CLOSE THE MINED AREAS AN D AT THE TIME OF CLOSURE OF MINES THE EXPENDITURE WOULD BE HUGE AND WOULD JEOPARDIZE THE FINANCIAL RESULTS OF THE COMPANY HENCE THE AS SESSEE IS PROVIDING FOR MINES CLOSURE EXPENDITURE EVERY YEAR AS AT THE END OF EACH FINANCIAL YEAR BASED ON AREA MINED DURING THE YEAR. ACCORDIN GLY THE AMOUNT WAS PROVIDED FOR FINANCIAL YEAR 2011-12. THE A.O. HELD THAT THE EXPENDITURE WAS PURELY CONTINGENT IN NATURE AND HAS NO BASIS FOR CREATION OF SUCH PROVISION THUS MADE THE ADDITION OF ` 18 46 000/- RELATING TO PROVISION FOR MINES CLOSURE EXPENDITURE . ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 18 22. AGGRIEVED BY THE ORDER OF THE A.O. THE ASSESSE E WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) CONFIRMED THE ORDER OF THE A.O. HENCE THE ASSESSEE FILED THIS APPEAL BEFORE THIS T RIBUNAL. THIS ISSUE HAS COME UP FOR ADJUDICATION BEFORE THIS TRIBUNAL I N THE EARLIER YEARS IN THE ASSESSEES OWN CASE AND THIS TRIBUNAL IN ITA NO S.9 & 16/VIZAG/2015 CITED (SUPRA) DECIDED AGAINST THE ASSESSEE AND DISM ISSED THE APPEAL OF THE ASSESSEE AS UNDER: 24. BRIEFLY STATED THE FACTS ARE THAT THE APPELLA NT IS OPERATING SOME MINES. AS PER THE PROVISIONS OF THE STATUTE G OVERNING THE OPERATION OF THESE MINES THE APPELLANT IS REQUIRED TO SET APART CERTAIN AMOUNT CALCULATED IN ACCORDANCE WITH THE RULES PRE SCRIBED IN THIS REGARD FOR PURPOSES OF MEETING THE EXPENDITURE FOR CLOSURE OF THE MINES. THE APPELLANT CLAIMED EXPENDITURE OF RS.48 14 204 TOWARDS THE PROVISION MADE IN ACCORDANCE WITH THE ABOVE RUL ES. THE ASSESSING OFFICER DISALLOWED THE AMOUNT HOLDING THAT THE EXPE NDITURE IS OF CONTINGENT NATURE. THE LEARNED CIT(A) SUSTAINED TH E DISALLOWANCE AND AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 25.1. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE APPELLANT IS STATUTORILY OBLIGED TO CLOSE THE MINES AFTER THE COMPLETION OF THE MINING OPERATIONS AND FOR THIS PURPOSE THE A PPELLANT HAS TO IMPLEMENT THE PROGRESSIVE MINE CLOSURE PLAN. AS T HE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING PROVISIO N MADE IN THE AFORESAID MANNER IS REQUIRED TO BE ALLOWED WHILE DE TERMINING THE TOTAL INCOME FOR PURPOSES OF THE INCOME TAX ACT 1961. 25.2. PLACING RELIANCE IN THE ORDERS OF THE LOWER AUTHORITIES THE LEARNED DR ARGUED THE EXPENDITURE DID NOT EVEN ACCR UE DURING THE YEAR AND HENCE THE SAME CANNOT BE ALLOWED. 26. WE HAVE CAREFULLY PERUSED THE MATERIALS ON REC ORD AND CONSIDERED THE RIVAL ARGUMENTS. WE ARE OF THE CONS IDERED VIEW THAT THE CLAIM OF THE EXPENDITURE IS QUITE PREMATURE. D URING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE DID NOT INCUR ANY EXPENDITURE IN THIS REGARD. THE PROVISIO N WAS MADE MERELY IN TERMS OF THE STATUTORY PROVISIONS RELATING TO TH E OPERATION OF MINES. IT IS NOT A CASE WHERE THE EXPENDITURE ACCRUES IN PR OPORTION TO THE PERIOD FOR WHICH THE MINES ARE OPERATED. THEREFORE WE ARE IN COMPLETE AGREEMENT WITH THE VIEW TAKEN BY THE ASSES SING OFFICER AND ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 19 THE LD. CIT(A) AND CONFIRM THE VIEW TAKEN BY THEM. GROUND NO.7 IS DISMISSED. 23. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS T RIBUNAL WE UPHOLD THE ORDER OF THE LOWER AUTHORITIES AND DISMISS THE APPEAL OF THE ASSESSEE. 24. GROUND NO.7 IS RELATED TO THE ADDITION IN RESPE CT OF PROVISION FOR LEAVE TRAVEL CONCESSION AMOUNTING TO ` 1 01 74 000/-. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD MADE A PROVISION TOWARDS LTC AND DEBITED TO THE PROFIT & LOSS ACCOUNT. THE ASSESSEE EXPLAINED TO THE A.O. THAT T HE COMPANY IS PROVIDING LTC FACILITIES TO THE EMPLOYEES AND ACCOR DING TO THE BENEFITS EXTENDED TO THE EMPLOYEES THE ASSESSEE COMPANY HAS CREATED THE LIABILITY TOWARDS THE LTC EXPENDITURE. THE ASSESSE E FURTHER ARGUED THAT THE ASSESSEE HAS FOLLOWED SCIENTIFIC METHOD OF ASCE RTAINING LIABILITIES TOWARDS THE EXPENDITURE THROUGH ACTUARIAL VALUATION DONE BY THE CONCERNED ACTUARY AFTER DUE CONSIDERATION OF THE PR OVISIONS/RULES OF THE COMPANY FOR LTC SCHEME AND THE EXPENDITURE IS DEBIT ED AS PER THE ACCOUNTING STANDARD-15 OF THE INSTITUTE OF CHARTERE D ACCOUNTANTS OF INDIA. THE ASSESSING OFFICER DISALLOWED THE EXPEND ITURE HOLDING THAT THE ASCERTAINMENT OF THE LIABILITY IS NOT ESTABLISHED N OR ANY DETAILS WERE MADE AVAILABLE IN SUPPORT OF THE CLAIM SUCH AS LTC RULES THE OPERATION ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 20 OF LTC ACCOUNT THE AMOUNTS ACTUALLY INCURRED OUT O F THE ACCOUNT AND THE TREATMENT GIVEN TO LTC AMOUNTS FOR UNUTILIZED A MOUNTS ETC. SINCE THE ASSESSEE FAILED TO FURNISH THE SPECIFIC DETAILS THE A.O. HELD THAT THE EXPENDITURE IS UNASCERTAINED AND ACCORDINGLY DISAL LOWED AND ADDED BACK TO THE INCOME. THE ASSESSEE WENT ON APPEAL BE FORE THE CIT(A) AND THE LD. CIT(A) HELD THAT THE PROVISION IS CREAT ED BASED ON ACTUARIAL REPORT AND CANNOT BE SAID TO BE AN ASCERTAINED LIAB ILITY. FURTHER THE LIABILITY ARISES TO THE EMPLOYER ONLY WHEN THE TOUR IS COMMENCED OR WHEN THE CLAIM IS MADE AND TILL THEN IT IS MERELY A CONTINGENT LIABILITY. ACCORDINGLY THE CIT(A) HELD THAT THE PROVISION CRE ATED FOR CONTINGENT LIABILITY ON NOTIONAL AMOUNT WOULD NOT BE ELIGIBLE FOR DEDUCTION U/S 37 OF THE ACT. 25. AGGRIEVED BY THE ORDER OF THE A.O. THE ASSESSE E FILED APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING T HE LD. A.R. ARGUED THAT THE ASSESSEE HAS CREATED THE LIABILITY ON ACTU ARIAL BASIS AS PER THE VALUATION CERTIFICATE ISSUED BY THE APPROVED CONSUL TANT. HENCE THE EXPENDITURE SHOULD BE TREATED AS ASCERTAINED LIABIL ITY AND THE ISSUE IS AKIN TO THE EMPLOYEES FAMILY BENEFIT SCHEME AND POS T RETIREMENT BENEFIT SCHEMES WHICH WERE ALLOWED BY THE HONBLE ITAT ON THE BASIS OF ACTUARIAL VALUATION. THEREFORE THE LD. A.R. VEHEM ENTLY OPPOSED FOR ADDITION OF THE SAME. ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 21 26. ON THE OTHER HAND THE LD. D.R. ARGUED THAT THE LEAVE TRAVEL CONCESSION WAS BASED ON PERFORMING THE JOURNEY BY T HE EMPLOYEES. THE LIABILITY AROSE ONLY WHEN THE EMPLOYEES PERFORM THE TOUR. TILL SUCH TIME THE EMPLOYEES UNDERTAKES THE TOUR THE COMPAN Y DOES NOT INCUR ANY LIABILITY OR THE EXPENDITURE. THE LD. A.R. FUR THER ARGUED THAT AS SEEN FROM THE ASSESSMENT ORDER THE ASSESSEE HAS NO T FURNISHED ANY DETAILS WITH REGARD TO THE DETAILS CALLED FOR BY TH E A.O. THEREFORE THERE IS NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). 27. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE LTC EXPENDITURE IS ALLOWED AS PER THE SCHEME OF THE LEAVE TRAVEL CONCESSION OF THE COMPANY. THE LIABILITY COMMENCES NO SOONER THE EMPLOYEE UNDERTAKES THE TOUR WITHOUT THE COMMENC EMENT OF THE TOUR THERE IS NO LIABILITY ACCRUE OR ARISE UNDER THE LEA VE TRAVEL CONCESSION. IN THE CASE OF THE COMPANY IT IS EVIDENT FROM THE ASS ESSMENT ORDER THAT THE ASSESSEE HAS NOT FURNISHED THE LTC RULES THE O PERATION OF LTC ACCOUNT THE AMOUNTS ACTUALLY INCURRED OUT OF THE A CCOUNT TREATMENT GIVEN TO THE UNUTILIZED AMOUNTS AND THE AMOUNT THAT CANNOT BE UTILIZED ETC. THOUGH THE A.O. HAS CALLED FOR THE SPECIFIC D ETAILS THE ASSESSEE HAS NOT FURNISHED THE ABOVE DETAILS. THE EXPENDITUR E CANNOT BE ASCERTAINED ON ACTUARIAL VALUATION AND THE EXPENDIT URE HAS TO BE ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 22 ASCERTAINED AND DETERMINED ON THE BASIS OF THE LTC RULES AND THE DETAILS CALLED FOR BY THE A.O. AND THE JOURNEYS UNDERTAKEN AS DISCUSSED ABOVE. THEREFORE WE ARE OF THE CONSIDERED OPINION THAT TH E ASSESSEE COMPANY REQUIRED TO SUBMIT THE ABOVE DETAILS AND THE ISSUE NEEDS FURTHER VERIFICATION AT THE END OF THE A.O. TO ASCERTAIN TH E LIABILITY ACCRUED. THEREFORE THIS ISSUE IS REMITTED BACK TO THE FILE OF THE A.O. TO EXAMINE THE DETAILS AND DECIDE THE ISSUE AFRESH ON MERITS. ACCORDINGLY THE APPEAL OF THE ASSESSEE ON THIS GROUND IS ALLOWED FO R STATISTICAL PURPOSES. 28. GROUND NO.8 IS RELATED TO THE PAYMENT MADE TO A .P. TRANSCO TOWARDS SERVICE LINE CHARGES. DURING THE ASSESSMEN T PROCEEDINGS THE A.O. FOUND THAT THE ASSESSEE HAS THE MADE THE PAYME NTS TO A.P. TRANSCO A SUM OF ` 14 78 47 000/- AND EXPLAINED THAT THE COMPANY IS ENGAGED IN THE MANUFACTURE OF STEEL OF 3.1 MILLI ON TONNES AND IS ON THE VERGE OF EXPANDING THE CAPACITY TO 6.3 MILLION TONNES. THE PROCESS OF STEEL MANUFACTURE IS COMPLEX AND REQUIRES CONTIN UOUS POWER SUPPLY WHICH IS A MAJOR REQUIREMENT IN MANUFACTURE OF STEE L. SINCE THE ASSESSEE IS AN INTEGRATED STEEL PLANT IT REQUIRES CONTINUOUS POWER SUPPLY AND ANY INTERRUPTIONS WILL JEOPARDIZE THE PL ANT AND MACHINERY AND COMPANY WILL INCUR HUGE LOSSES. IN ORDER TO ENS URE CONTINUOUS POWER SUPPLY FOR SMOOTH PRODUCTION THE COMPANY HAS ENTRUSTED THE JOB OF 'EXTENSION OF POWER SUPPLY FOR CMD OF 400 MV A' TO M/S. ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 23 APTRANSCO. AS PER THE TERMS AND CONDITIONS RINL HA S TO RELEASE PAYMENTS TO M/S. APTRANSCO ON NON-REFUNDABLE BASIS. THE AMOUNT PAYABLE BY RINL UNDER THE AGREEMENT IS TOWARDS SERV ICE LINE CHARGES AND FOR DEVELOPMENT CHARGES FOR EXTENSION OF POWER SUPPLY FOR A CMD OF 400 MVA. THE BRIEF NATURE OF WORK INCLUDES A) UPGRADING KALAPAKA-VSS 220 KV DC LINE WITH TWIN MOOSE CONDUCTOR B) ERECTION OF 220 KV DC LINE FROM VSS TO MRS WITH MOOSE CONDUCTOR C) ERECTION OF 315 MVA POWER TRANSFORMER BRAY EXTE NSIONS (HV&LV) AND LAYING OF 220 KV CABLE AT PGCIL SUB STATION. AS PER CLAUSE NO.5.3.2.2 THE SERVICES LINES CREATED IN THE EXECUTION OF THE WORK SHALL BE THE PROPERTY OF M/S. APTRANSCO WH ICH IN TURN WILL MAINTAIN THE SAME AT ITS OWN COST IRRESPECTIVE OF T HE FACT THAT A PORTION OR FULL COST OF THE SERVICE LINE HAS BEEN PAID BY R INL/VSP. AS THE PAYMENT MADE BY RINL TO M/S. APTRANSCO DOES NOT CRE ATE ANY RIGHT TO RINL ON THE ASSETS CREATED IN THE EXECUTIO N OF WORK AND THE PAYMENT MADE IS NOT REFUNDABLE TO RINL THE EXPENDI TURE INCURRED BY THE COMPANY IS ACCOUNTED FOR IN THE BOOKS OF ACC OUNTS AS REVENUE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE FOR THE BUSINESS OF THE COMPANY HENCE REQUESTED THE AO TO ALLOW THE SAME AS REVENUE EXPENDITURE. ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 24 29. THE A.O. NOT BEING CONVINCED WITH THE EXPLANATI ON DISALLOWED AND ADDED BACK THE SAME TO THE TOTAL INCOME. THE AO OBSERVED THAT THE EXPENDITURE WAS TOWARDS ADDITIONAL POWER L INES TO MEET THE REQUIREMENTS OF NEW UNIT BEING SET UP BY THE ASSESS EE. THE SAID EXPENDITURE CLEARLY WAS PRIOR TO SETTING UP OF THE NEW UNIT OR PRIOR TO EXPANSION OF THE CAPACITY THUS SUCH EXPENDITURE IS PREOPERATIVE EXPENDITURE AND CANNOT BE TREATED AS REVENUE. 30. AGGRIEVED BY THE ORDER OF THE A.O. THE ASSESSE E WENT ON APPEAL BEFORE THE CIT(A). THE LD. CIT(A) CONFIRMED THE ORDER OF THE A.O. BUT ACCEPTED THE CONTENTION THAT THE EXPENDITURE WAS IN THE NATURE OF REVENUE EXPENDITURE. SINCE TH E WORK RELATING TO ERECTION AND ALLOWING SERVICE LINES ARE NOT COMPLETED AND THE PURPORTED ASSETS HAVING BECAME NO N- FUNCTIONAL THE ASSESSEE WOULD NOT BE ENTITLED TO C LAIM THE EXPENDITURE AS REVENUE EXPENDITURE FOR IMPUGNED A.Y . AND ACCORDINGLY CONFIRMED THE ORDER FOR THE A.O. 31. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSES SEE IS IN APPEAL BEFORE US. DURING THE APPEAL HEARING THE L D. A.R. ARGUED THAT THE ASSESSEE INCURRED THE EXPENDITURE T OWARDS THE SERVICE LINE CHARGES FOR DEVELOPMENT AND EXTENSION OF POWER ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 25 SUPPLY FOR CMD OF 400MVA. WHILE AGREEING WITH THE CONTENTION OF THE ASSESSEE THAT SERVICE LINES ARE O WNED BY THE A.P. TRANSCO AND EXPENDITURE WAS REVENUE EXPENDITUR E THE CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE SAME C ANNOT BE ALLOWED IN THE YEAR UNDER CONSIDERATION. THE ORDER OF COMPLETION OF ERECTION OF SERVICE LINES IS OF NO CO NSEQUENCE IN THE HANDS OF THE ASSESSEE AS THE ASSESSEE HAS INCUR RED A LIABILITY TO THE EXTENT OF THE EXPENDITURE DURING T HE IMPUGNED ASSESSMENT YEAR. FURTHER THE ASSESSEE RELIED ON T HE DECISION OF THIS TRIBUNAL IN SARVARAYA SUGARS LIMITED IN ITA NO.367/VIZAG/2013 ORDER DATED 19.12.2014. 32. ON THE OTHER HAND THE LD. D.R. RELIED ON THE O RDER OF THE LOWER AUTHORITIES. 33. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE HAD INCURRED EXPEND ITURE OF ` 14.78 CRORES TOWARDS LAYING ELECTRICAL LINES FOR PO WER SUPPLY OF CMD 400 MVA. THE AMOUNT WAS INCURRED FOR SERVICE L INES AND DEVELOPMENT CHARGES AND THE PAYMENT WAS MADE. THER E IS NO DISPUTE WITH REGARD TO THE GENUINENESS OF EXPENDITU RE AND THERE IS NO DISPUTE THAT THE EXPENDITURE INCURRED W AS A ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 26 REVENUE EXPENDITURE AS HELD BY CIT(A) IN ITS ORDER. THIS TRIBUNAL ALSO HELD THAT THE EXPENDITURE IN QUESTION WAS REVENUE EXPENDITURE IN SARVARAYA SUGARS LIMITED CIT ED (SUPRA) FOLLOWING THE JUDGEMENT OF HONBLE RAJAST HAN HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN ZINC LIMITED 221 CTR 637 (RAJ.). THE COMPANY HAS INCURRED THE EXPENDITU RE FOR THE BUSINESS PURPOSE AND FOLLOWING THE MERCANTILE SYSTE M OF ACCOUNTING. THE COMPANY IS NOT A NEW UNIT WHICH HA S TO COMMENCE ITS PRODUCTION AND IT IS GOING CONCERN AND THE EXPENDITURE IS INTENDED FOR EXPANSION AND UNINTERRU PTED POWER SUPPLY WHICH IS USEFUL FOR THE CAPACITY UTILIZATIO N OF THE COMPANY. THE ASSET DOES NOT BELONG TO THE COMPANY AND THE ASSET BELONG TO THE A.P. TRANSCO AND THE ASSESSE H AS NO RIGHT ON THE ASSET THUS THE SAME CANNOT BE HELD AS CAPITA L ASSET. THE CASE IS SQUARELY COVERED BY THE ORDER OF THIS T RIBUNAL IN SARVARAYA SUGARS LIMITED CITED (SUPRA). RESPECTFULL Y FOLLOWING THE VIEW TAKEN BY THIS TRIBUNAL WE HOLD THAT THE EX PENDITURE IS REVENUE EXPENDITURE AND ALLOWABLE IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND ALLOW THE APPEAL OF THE ASSES SEE. ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 27 34. GROUND NO.9 IS RELATED TO THE DISALLOWANCE MADE BY THE A.O. U/S 14A R.W.S. RULE 8D OF THE ACT AMOUNTING TO ` 19 46 250/-. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE MADE THE INVE STMENT OF ` 361.60 CRORES IN THE SHARES OF VARIOUS COMPANIES. SINCE THE RETURN ON THE SAID INVESTMENT IS THE DIVIDENDS WHICH IS EXEMP T FROM THE TAX AS PER SECTION 10(34) OF THE ACT THE A.O. INVOKED THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF THE ACT AND ACCORDINGLY MADE THE DISALLOWANCE OF ` 90 46 215/-. DURING THE APPEAL HEARING THE LD. A .R. SUBMITTED THAT THERE WAS NO EXEMPT INCOME IN THE YE AR UNDER CONSIDERATION HENCE CONTENDED THAT THE ADDITION IS NOT JUSTIFIED IN THE ABSENCE OF THE EXEMPT INCOME. FURTHER THE LD. A.R . ARGUED THAT THE INVESTMENTS WERE STRATEGIC INVESTMENTS AND RELIED O N THE ORDER OF THIS TRIBUNAL IN THE CASE OF D. VEERABHADRA REDDY (HUF) 263/VIZAG/2014 DATED 23.6.2017. 35. ON THE OTHER HAND THE LD. D.R. RELIED ON THE O RDERS OF THE LOWER AUTHORITIES. 36. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THERE IS NO DISPUTE WITH REGARD TO THE LD. A.RS CONTENTI ON THAT THE ASSESSEE ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 28 COMPANY HAS NO EXEMPT INCOME IN THE YEAR UNDER CONS IDERATION. THIS TRIBUNAL FOLLOWING THE JUDGMENT OF HONBLE MADRAS H IGH COURT IN THE CASE OF REDINGTON INDIA PRIVATE LIMITED VS. ACIT 77 TAXMANN.COM 257 HELD IN THE CASE RELIED UPON BY THE ASSESSEE THAT W HEN THERE IS NO EXEMPT INCOME THERE IS NO CASE FOR MAKING THE DISA LLOWANCE U/S 14A R.W.R 8D OF THE ACT. FOR READY REFERENCE WE EXTRACT THE RELEVANT PARAGRAPH OF THE ORDER OF THE ORDER OF THE TRIBUNAL CITED (SUPRA) WHICH READS AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS RENTAL INCOME FROM GODOWN S AND THE BUSINESS LOSS. THE ASSESSING OFFICER HAS COMPLETED THE ASSES SMENT U/S 143(3) BY ORDER DATED 04.11.2011. THE LD.CIT HAS CALLED FOR THE RECORD U/S 263 AND ISSUED THE NOTICE FOR REVISION FOR INCORRECT SET OF F OF BUSINESS LOSS AGAINST THE RENTAL INCOME. AFTER VERIFICATION OF THE MATER IAL ON RECORD THE LD.CIT HAS DROPPED THE ISSUE WITH REGARD TO INCORRECT SET OFF OF BUSINESS LOSS AGAINST THE INCOME FROM PROPERTY WHICH WAS EXAMINED BY THE ASSESSING OFFICER. DURING THE COURSE OF REVISION PROCEEDINGS IT HAS COME TO THE NOTICE OF LD.CIT THAT THE ASSESSEE HAS MADE INVESTMENTS IN SHARES AND BONDS AND DID NOT MAKE DISALLOWANCE WHICH WAS REQUIRED TO BE MADE U/S14A OF IT ACT. THE ASSESSEE EXPLAINED THAT THERE WERE NO EXPENSES INCURRED IN RELATION TO THE EXEMPT INCOME WHICH WAS CLAIMED AS DEDUCTION FO R THE ASSESSMENT YEAR 2009-10. HENCE THE ASSESSEE ARGUED BEFORE TH E LD.CIT THAT SECTION 14A IS NOT APPLICABLE IN ASSESSEES CASE. AS PER T HE OBSERVATION OF THE LD.CIT THE ASSESSEE MADE THE INVESTMENTS TO THE TU NE OF RS.19 90 625/- IN SHARES AND BONDS FROM THE BORROWED FUNDS AND THE IN TEREST EXPENDITURE RELATING TO THE EARNING OF DIVIDEND INCOME IS REQUI RED TO BE DISALLOWED U/S 14A. THOUGH CIT OPINED THAT THE EXPENDITURE RELATI NG TO THE EARNING OF DIVIDEND INCOME REQUIRED TO BE DISALLOWED THERE WA S NO FINDING GIVEN BY THE CIT IN HIS ORDER WITH REGARD TO EARNING OF DIVI DEND INCOME. THE CIT ALSO DID NOT REBUT THE EXPLANATION OFFERED BY THE A SSESSEE STATING THAT NO EXPENDITURE WAS INCURRED FOR MAKING THE INVESTMENTS . THE LD.DR DID NOT MAKE ANY CLARIFICATION WITH REGARD TO THE QUANTUM O F DIVIDEND INCOME EARNED BY THE ASSESSEE. THE LD.AR SUBMITTED PAPER BOOK ENCLOSING THE COPY OF STATEMENT OF COMPUTATION RETURN OF INCOME BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. IT IS SEEN FROM THE PROFI T AND LOSS ACCOUNT AND THE STATEMENT OF COMPUTATION OF INCOME THAT THE ASSESSE E HAS NOT DERIVED ANY DIVIDEND INCOME. WHEN THE ASSESSEE HAS NO EXEMPT I NCOME THE QUESTION OF DISALLOWANCE U/S14A R.W.RULE 8D IS NOT CALLED FO R. THE SAME VIEW IS ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 29 EXPRESSED BY THE DECISION OF HONBLE MADRAS HIGH CO URT IN REDINGTON (INDIA) LTD. VS. ADDL.CIT 77 TAXMAN.COM 257 HONBL E DELHI HIGH COURT IN CHEM INVESTMENTS VS. CIT 61 TAXMAN.COM 118 AND THE HONBLE GUJARAT HIGH COURT IN PRINCIPAL CIT VS. SINTEX INDUSTRIES LT D. 82 TAXMAN.COM 171 HELD THAT NO DISALLOWANCE IS CALLED FOR WHEN ASSESS EE MAKES SMALL INVESTMENT FROM THE SURPLUS FUNDS. THERE WAS NO DI VIDEND INCOME EARNED BY THE ASSESSEE AND THE CASE WAS TAKEN FOR REVISION TO DISALLOW THE BUSINESS LOSS CLAIMED AGAINST THE PROPERTY INCOME W HICH WAS EXAMINED BY THE AO AND DROPPED THE ASSESSMENT PROCEEDINGS AND T HE LD.CIT ALSO SATISFIED THAT THERE IS NO CASE FOR REVISION ON ACC OUNT OF INCORRECT SET OFF OF BUSINESS LOSS. WITH REGARD TO THE ISSUE OF DISALL OWANCE U/S 14A AS PER THE JUDICIAL PRONOUNCEMENTS NO DISALLOWANCE IS CALLED F OR WHEN THERE IS NO EXEMPT INCOME. THEREFORE WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO CASE FOR REVISION OF ORDER U/S 263 AND ACCORDING LY WE SET ASIDE THE ORDERS OF THE CIT AND ALLOW THE APPEAL OF THE ASSES SEE. 37. RESPECTFULLY FOLLOWING THE VIEW TAKEN BY THIS T RIBUNAL IN THE ORDER CITED (SUPRA) WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE APPEAL OF THE ASSESSEE ON THIS GROUND . 38. GROUND NO.10 IS RELATED TO THE ENTERTAINMENT EX PENDITURE. THE ASSESSEE DEBITED A SUM OF ` 1 16 80 899/- WHICH WAS DISALLOWED BY THE A.O. UNDER THE HEAD OTHER EXPEND ITURE WHICH WAS FALLING UNDER SUNDRIES. ON APPEAL BEFORE THE C IT(A) THE LD. CIT(A) SCALED DOWN THE DISALLOWANCE TO THE EXTENT O F ` 10 LAKHS. FOR THE SAKE CLARITY AND CONVENIENCE WE EXTRACT THE RELEVANT PARAGRAPH OF THE LD.CIT(A)S ORDER WHICH READS AS U NDER: 17.3 I HAVE CONSIDERED THE SUBMISSIONS. I HAVE PER USED THE DETAILS FILED VIDE PAGES 371-529 OF THE PAPER-BOOK. AT PAGE 371 THE BREAKUP FOR ENTERTAINMENT EXPENDITURE OF RS.1 16 80 299/- W AS GIVEN OF WHICH THE MAJOR ITEM RELATED TO RS.62 72 501/- CLASSIFIED UNDER THE HEAD 'GENERAL ACCOUNTS'. THE OTHER HEADS RELATED TO EXPE NDITURE INCURRED TOWARDS TEA SNACKS MILK AND OTHER EXPENSES FOR CU STOMERS OR OFFICIAL GUESTS AT VARIOUS OFFICE LOCATIONS WHICH IN MY VIE W ARE ALLOWABLE EXPENSES AND ACCORDINGLY THE AO IS DIRECTED TO ALLO W THE SAME. UNDER ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 30 THE SUB-HEAD 'GENERAL ACCOUNTS' SUBSTANTIAL EXPENS ES HAVE BEEN INCURRED FOR VARIOUS EVENTS TO THE TUNE OF P5 62 7 2 501/-. I HAVE PERUSED THE BREAK-UP DETAILS FILED IN REGARD TO THE SE EXPENSES AND NOTED THAT SOME OF THESE EXPENSES CANNOT BE CONSIDE RED TO BE WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINES S AS LAID DOWN IN SECTION 37 OF THE I.T.ACT. SOME OF THESE EXPENSES S UCH AS DINNER FOR INDIAN AIRLINE OFFICIALS ARGO FORESTRY DEPARTMENT FOOD ARRANGEMENTS FOR COMMONWEALTH GAMES TEAM CATERING ARRANGEMENTS AT C RICKET STADIUM SOUTH ZONE VOLLEY BALL AND BASKET BALL TEAM PM TRO PHY VISIT ETC. ARE SUBSTANTIAL AND DO NOT SATISFY THE CONDITIONS LAID DOWN IN SECTION 37 OF THE I.T.ACT. THESE EXPENSES CANNOT BE SAID TO FACIL ITATE SALES OF THE ASSESSEE NOR CAN BE SAID TO BE INCURRED FOR HRD PR OGRAMME AS CONTENDED IN THE WRITTEN SUBMISSION AND CANNOT BE C ONSIDERED FOR ALLOWANCE U/S.37. HENCE I AM OF THE VIEW THAT A ROU ND-SUM DISALLOWANCE OF RS.10 00 000/- IS JUSTIFIED IN THE FACTS OF THE CASE.. ACCORDINGLY THE AO IS DIRECTED TO RESTRICT THE DIS ALLOWANCE TO RS.10 00 000/- UNDER THE HEAD 'ENTERTAINMENT EXPENS ES'. GROUND NO.13 IS PARTLY ALLOWED. 39. DURING THE APPEAL HEARING THE LD. A.R. SUBMITT ED THAT THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS AND THERE IS NO LAVISH EXPENDITURE INCURRE D AND THE SAME WAS PURELY INCURRED FOR HOSTING THE LUNCH TO VARIOU S OFFICIAL TEAMS VISITED THE COMPANY AND ARGUED THAT THE EXPENDITURE IS ALLOWABLE U/S 37 OF THE ACT. THE ASSESSEE IS A PUBLIC SECTOR UNDERTAKING AND THERE IS NO PERSONAL ADVANTAGE EXCEPT BUSINESS CONS IDERATION FOR INCURRING SUCH EXPENDITURE. CONSIDERING THE VOLUME OF THE BUSINESS THE LD.AR SUBMITTED THAT EXPENDITURE WAS VERY MUCH REASONABLE. 40. ON THE OTHER HAND THE LD. D.R. SUPPORTED THE O RDERS OF THE LOWER AUTHORITIES. ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 31 41. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. ON VERIFICATION OF THE ORDER OF THE LD. CIT( A) THE EXPENDITURE WAS INCURRED TOWARDS TEA SNACKS MILK AND OTHER EX PENSES FOR CUSTOMERS OR OFFICIAL GUESTS AT VARIOUS OFFICE LOCA TIONS. THE EXPENSES WERE ALSO INCURRED FOR DINNER FOR AIRLINE OFFICIALS AND AGRO FOREST DEPARTMENT FOOD ARRANGEMENT FOR COMMON WEAL TH GAMES TEAMS AND CATERING ARRANGEMENTS AT CRICKET STADIUM SOUTH ZONE VOLLEYBALL TEAM ETC. THESE EXPENSES MAINLY INCURR ED FOR THE PURPOSE OF PROMOTING THE SPORTS AND GAMES ARE IN TH E NATURE OF MARKETING AND ADVERTISEMENT EXPENSES RELATED TO THE BUSINESS ACTIVITY OF THE ASSESSEE. ON CAREFUL VERIFICATION OF THE ORDER OF THE LD. CIT(A) THERE IS NO DOUBT REGARDING GENUINE OF THE EXPENDITURE AND NO LAVISH EXPENDITURE WAS INCURRED BY THE ASSES SEE EXCEPT THE LUNCH AND DINNER EXPENSES. THEREFORE WE DO NOT FI ND ANY REASON TO RESTRICT THE DISALLOWANCE. ACCORDINGLY WE ALLO W THE APPEAL OF THE ASSESSEE AND SET ASIDE THE ORDERS OF THE LOWER AUTH ORITIES. THE APPEAL OF THE ASSESSEE ON THIS GROUND IS ALLOWED. 42. GROUND NO.11 IS RELATED TO THE INTEREST UY/S 23 4C OF THE ACT. THE A.O. CHARGED INCORRECT INTEREST U/S 234C OF THE ACT. HOWEVER THE ASSESSEE SUBMITTED THAT THE A.O. PASSED THE ORD ER U/S 154 OF ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 32 THE ACT AND RECTIFIED THE MISTAKE. THEREFORE THIS GROUND HAS BEEN WITHDRAWN BY THE ASSESSEE. SINCE THE ISSUE HAS ALR EADY BEEN SETTLED BY RECTIFICATION THE GROUND NO.11 WITH REG ARD TO INTEREST U/S 234C OF THE ACT HAS BECOME INFRUCTUOUS. ACCORDINGL Y THE SAME IS DISMISSED. 43. IN THE RESULT THE APPEAL OF THE ASSESSEE FOR T HE A.Y. 2004-05 IS ALLOWED & 2011-12 IS PARTLY ALLOWED. ITA 64/VIZAG/2014 (A.Y. 2011-12) (REVENUE APPEAL): 44. GROUND NOS.2 & 3 ARE RELATED TO THE EXPENDITURE INCURRED FOR AFFORESTATION AND HORTICULTURE. DURING THE PREVIOU S YEAR RELEVANT TO THE ASSESSMENT YEAR THE A.O. FOUND THAT THE ASSESS EE DEBITED SUM OF ` 4 73 07 517/- TOWARDS AFFORESTATION AND HORTICULTU RE EXPENSES. THE A.O. TREATED THE SAME AS CAPITAL EXPENDITURE AN D DISALLOWED AND ADDED BACK TO THE INCOME. ON APPEAL BEFORE TH E CIT(A) THE LD. CIT(A) DELETED THE ADDITION. HENCE THE REVENU E IS IN APPEAL BEFORE THIS TRIBUNAL. 45. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE SAME ISSUE HAS COME UP FOR ADJUDICATION BEFORE THIS ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 33 TRIBUNAL IN APPEAL NO.9 & 16/VIZAG/2013 DATED 29.4. 2015 AND THE COORDINATE BENCH OF THIS TRIBUNAL CONFIRMED THE ORD ER OF THE LD. CIT(A) AND DISMISSED THE APPEAL OF THE REVENUE. FO R READY REFERENCE WE EXTRACT THE RELEVANT PARAGRAPH OF THE ORDER OF THIS TRIBUNAL. 6. RIVAL CONTENTIONS WERE HEARD. ON A CAREFUL CO NSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW WE FIND TH AT ASSESSING OFFICER HIMSELF NOTED IN HIS ORDER THAT THE RECEIPT ON SALE OF TREES WAS CONSIDERED AS REVENUE RECEIPT FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09 BY THE REVENUE. THIS VIEW TAKEN BY THE ASSESSING OFFICER HAS BEEN UPHELD BY THE LD. CIT(A) ALSO. THE VIEW TAKEN BY THE LEARNED CIT( A) WAS CONTESTED BY THE APPELLANT BEFORE THIS BENCH AND VIDE ORDER DT.8 TH JANUARY 2015 IN ITA NOS.94 95 AND 97/VIZ/2012 THE COORDINATE BENCH HAS TAKEN THE VIEW THAT THE SALE PROCEEDS OF THE TREES IS REVENUE IN NATURE . WHEN THE RECEIPT FROM SALE OF TREES IS ASSESSED AS REVENUE RECEIPT THE E XPENDITURE INCURRED ON MAINTENANCE OF THE TREES IS ALSO TO BE ALLOWED AS R EVENUE EXPENDITURE. FURTHER THE EXPENDITURE WAS INCURRED VERY MUCH DUR ING THE COURSE OF THE BUSINESS OF THE ASSESSEE AND NO ENDURING BENEFIT IS OBTAINED ON ACCOUNT OF THE EXPENDITURE INCURRED. THEREFORE WE FIND NO IN FIRMITY IN THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND WE CONFIRM THE ORDER O F THE LD. CIT(A). ACCORDINGLY GROUND NO.2 OF THE REVENUE IS DISMISSE D. 46. RESPECTFULLY FOLLOWING THE DECISION OF THIS TRI BUNAL WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 47. GROUND NO.4 IS RELATED TO PERIPHERAL DEVELOPMEN T EXPENDITURE. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR THE A.O. FOUND THAT THE ASSESSEE HAS DEBITED SUM OF ` 2 95 28 640/- TOWARDS PERIPHERAL DEVELOPMENT EXPENSES. THE COMPANY EXPLA INED TO THE A.O. THAT ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 34 'THESE ARE THE EXPENDITURES INCURRED BY THE COMPANY IN THE SURROUNDING VILLAGES OF THE PLANT WHERE THE DISPLACED PEOPLE AR E RELOCATED. SOME OF SUCH EXPENDITURES WERE INCURRED ON REPAIRS OF ROADS SUPPLY OF DRINKING WATER TO VILLAGES RENOVATION/CONSTRUCTION OF COMMU NITY CENTRE LITERACY PROGRAMS HEALTHCARE AND DEVELOPMENT OF PERIPHERAL AREAS. THESE EXPENDITURES ARE INCURRED FOR THE DEVELOPMENT OF SU RROUNDING COMMUNITY IN ACCORDANCE WITH THE POLICIES OF THE GOVT. OF INDIA RELATING TO PSUS ON SUCH ACTIVITIES. ACCORDINGLY DURING THE FINANCIAL YEAR 2010-11 (AY 2011-12) AN AMOUNT OF RS.2 95 28 640/- HAD BEEN SPENT BY THE CO MPANY ON REPAIRS TO ROADS IN VADLAPUDI VILLAGE CONSTRUCTION OF SCHOOLS IN CHINNAPALEM PEDA GANTYADA AGANMPUDI VADLAPUDI VILLAGES CONSTRUCTI ON OF BOUNDARY WALLS IN SURROUNDING VILLAGES SUPPLY OF DRINKING WATER AT R H COLONY CONSTRUCTION OF MOTHER BLOOD BANK AT IRCS PREMISES CONSTRUCTION OF COMMUNITY WELFARE CENTRE IN PEDAGANTYADA VILLAGE CONSTRUCTION OF ROB BRIDGE IN VSP GANGAVARAM ETC. NOT BEING CONVINCED WITH THE EXPLANATION OF THE ASSESSEE THE A.O. DISALLOWED THE EXPENSES AS NOT DUE TO COMMERCI AL EXPEDIENCY AND ADDED BACK TO THE INCOME. 48. ON APPEAL BEFORE THE CIT(A) THE LD. CIT(A) ALL OWED THE APPEAL OF THE ASSESSEE AND DELETED THE DISALLOWANCE MADE BY THE A.O. AGGRIEVED BY THE ORDER OF THE A.O. THE REVENU E IS IN APPEAL BEFORE THIS TRIBUNAL. 49. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE SAME ISSUE HAS COME FOR ADJUDICATION BEF ORE THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEAR AND IN THE APPELLATE ORDER DATED 29.4.2015 IN ITA NO.9 AND 16 FOR THE A.Y. ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 35 2009-10 AND 2010-11 CONFIRMED THE ORDER OF THE LD. CIT(A). FOR READY REFERENCE WE EXTRACT THE ORDER OF THIS TRIBU NAL. 8. RIVAL CONTENTIONS WERE HEARD. THE CONTENTION OF THE REVENUE IS THAT THE LEARNED CIT(A) GRANTED RELIEF B Y OBSERVING THAT THE ASSESSING OFFICER MADE THE ADDITION ONLY BY DOUBTIN G THE ENTRIES CONTRARY TO THE FACT THAT THE ASSESSING OFFICER EXAMINED THE ENTIRE EVIDENCE ON RECORD BEFORE MAKING THE DISALLOWANCE. WE DO NOT FI ND MUCH FORCE IN THE CONTENTION OF THE REVENUE. THE LEARNED CIT(A) APPRA ISED THE ENTIRE EVIDENCE ON RECORD AND CAME TO THE CONCLUSION THAT THE EXPENDITURE INCURRED BY THE APPELLANT AS A PART OF THE CORPORAT E SOCIAL RESPONSIBILITY IS TO BE ALLOWED AS 8 ITA.NO.9 14 15 & 16/VIZAG/2013 M/S. RASHTRIYA ISPAT NIGAM LIMITED VISAKHAPATNAM. EXPENDITURE AND THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN DOUBTING THE EXPENDITUR E MERELY ON THE GROUND THAT THE EXPENDITURE WAS ACCOUNTED ON THE BASIS OF A JOURNAL ENTRY AT THE END OF THE YEAR. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW WE FIND NO INFIRMI TY IN THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY WE CONFIRM THE SAME. RESPECTFULLY FOLLOWING VIEW TAKEN BY THIS TRIBUNA L WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE APPEAL O F THE REVENUE. 50. GROUND NO.5 IS RELATED TO THE COMMUNITY DEVELOP MENT EXPENSES. THE A.O. FOUND THAT THE ASSESSEE HAS INC URRED A SUM OF ` 3 39 00 000/- AS COMMUNITY DEVELOPMENT EXPENSES W HICH WAS CLAIMED AS A DEDUCTION. THE ASSESSEE EXPLAINED THA T THE EXPENDITURE WAS INCURRED TOWARDS MANY COMMUNITY DEV ELOPMENT ACTIVITIES UNDERTAKEN BY VISAKHAPATNAM STEEL PLANT FOR THE DEVELOPMENT OF THE DOWN TRODDEN PEOPLE AND COMMUNIT Y AS A WHOLE. VSP INCURRED EXPENDITURE ON VISAKHA VIMALA V IDYALAYAM A ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 36 SCHOOL LOCATED IN THE SURROUNDING PLACES OF STEEL P LANT WHICH IMPARTS EDUCATION IN TELUGU AND THE WARDS OF VSP EM PLOYEES AND OTHER POOR CHILDREN LIVING IN THE NEARBY COLONIES A ND VILLAGES ARE BENEFITED. APART FROM THE ABOVE VSP HAS BEEN CONDU CTING MEDICAL CAMPS IN MANY VILLAGES CONDUCTING OTHER WELFARE AC TIVITIES FOR THE BENEFIT OF THE NEEDY AND DOWNTRODDEN. 51. THE A.O. NOT BEING CONVINCED WITH THE EXPLANATI ON OF THE ASSESSEE HELD THAT THE ENTIRE EXPENDITURE WAS GRATU ITOUS AND HAS NO CONNECTION WITH THE BUSINESS AND DO NOT QUALIFY FOR THE BUSINESS EXPENDITURE. ACCORDINGLY DISALLOWED HOLDING THAT THE EXPENDITURE WAS NOT INCURRED IN CONNECTION WITH THE COMMERCIAL EXPEDIENCY OF THE BUSINESS. 52. AGGRIEVED BY THE ORDER OF THE A.O. THE ASSESSE E WENT ON APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE HOLDING THAT THE EXPENDITURE WAS BUSIN ESS EXPENDITURE AND FOLLOWED THE DECISION OF HONBLE HIGH COURT OF MADRAS IN CIT VS. MADRAS REFINERIES LIMITED. 53. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVEN UE IS IN APPEAL BEFORE THIS TRIBUNAL. ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 37 54. DURING THE APPEAL THE LD. D.R. SUPPORTED THE O RDER OF THE A.O. AND THE LD. A.R. RELIED ON THE ORDER OF THE LD . CIT(A). 55. WE HAVE HEARD BOTH THE PARTIES PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE COMPANY HAS INCURRED EXPENDITURE ON COMM UNITY DEVELOPMENT ACTIVITIES FOR THE DEVELOPMENT OF DOWNT RODDEN PEOPLE AND COMMUNITY AS A WHOLE. IT HAS INCURRED EXPENDIT URE ON SCHOOL LOCATED IN THE SURROUNDING PLACES AND IMPARTING EDU CATION IN TELUGU TO THE WARDS OF THE VISAKHAPATNAM STEEL PLANT EMPLO YEES AND POOR PEOPLE LIVING IN NEARBY COLONIES AND CONDUCTING MED ICAL CAMPS IN MANY VILLAGES. THE COMPANY HAS A CORPORATE RESPONS IBILITY AND COMPANY REQUIRED TO SPEND CERTAIN AMOUNT TOWARDS CO RPORATE RESPONSIBILITY. AS PER THE JUDICIAL RULINGS RELIED UPON BY THE ASSESSEE IN THE CASE OF MADRAS REFINERIES LIMITED 2 66 ITR 170 THE HONBLE MADRAS HIGH COURT HELD AS UNDER: CIT V. MADRAS REFINERIES LTD. [2004] 266 JTR 170113 8 TAXMAN 261 (MAD). 'THE CONCEPT OF BUSINESS IS NOT STATIC. IT HAS EVOL VED OVER A PERIOD OF TIME TO INCLUDE WITHIN ITS FOLD THE CONCRETE EXPRES SION OF CARE AND CONCERN FOR THE SOCIETY AT LARGE AND THE PEOPLE OF THE LOCALITY IN WHICH THE BUSINESS IS LOCATED IN PARTICULAR. BEING KNOWN AS A GOOD CORPORATE CITIZEN BRINGS GOODWILL OF THE LOCAL COMMUNITY AS ALSO WIT H THE REGULATORY AGENCIES AND THE SOCIETY AT LARGE THEREBY CREATING AN ATMOSPHERE IN WHICH THE BUSINESS CAN SUCCEED IN A GREATER MEASURE WITH THE AID OF SUCH GOODWILL. MONIES SPENT FOR BRINGING DRINKING W ATER AS ALSO FOR ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 38 ESTABLISHING OR IMPROVING THE SCHOOL MEANT FOR THE RESIDENTS OF THE LOCALITY IN WHICH THE BUSINESS IS SITUATED CANNOT B E REGARDED AS ACTUALLY OUTSIDE THE AMBIT OF THE BUSINESS CONCERNS OF THE A SSESSEE ESPECIALLY WHEN THE UNDERTAKING OWNED BY THE ASSESSEE IS ONE W HICH IS TO SOME EXTENT A POLLUTING INDUSTRY. HENCE EXPENDITURE INC URRED BY THE ASSESSEE FOR ESTABLISHING DRINKING WATER FACILITIES TO THE R ESIDENTS IN THE VICINITY OF ITS REFINERY AND FOR PROVIDING AID TO THE SCHOOL RU N FOR THE BENEFIT OF THE CHILDREN OF THOSE RESIDENTS WAS ALLOWABLE AS DEDUCT ION. THE RATIO DECIDED ON THE EXPENDITURE INCURRED ON SC HOOLS ALSO SPEAKS IN FAVOUR OF THE COMPANY AS SUBMITTED BELOW. (I) ITAT VS. HILL(B) AND CO.(P) LTD. (1983) 142 1TR 018 5 IT IS HELD THAT AN EXPENDITURE TO GIVE FACILITIES TO THE LABOURERS AND THEIR CHILDREN WAS MOTIVATED BY CONSIDERATIONS OF COMMERC IAL EXPEDIENCY. THE DONATIONS MADE TO A SCHOOL WERE RIGHTLY HELD TO BE ALLOWABLE EXPENDITURE. (II) IN THE CASE OF CIT VS. INDIA RADIATORS LTD. (1999) 236 ITR 0719 MADRAS HIGH COURT AND IN THE CASE OF CHAMBAL FERTILIZERS & CHEM. LTD. VS. ACIT TAX WORLD DECEMBER VOL.XUV PA RT C.P.195 THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH ALSO HEL D THAT EXPENDITURE ON SCHOOL WHERE CHILDREN OF THE EMPLOYE ES ARE STUDYING IS ALLOWABLE. 57. THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESS EE PLACING THE RELIANCE ON MADRAS REFINERIES LIMITED. THERE WAS N O DISPUTE WITH REGARD GENUINENESS OF THE EXPENDITURE. SINCE THE C OMPANY HAS SPENT THE SUMS TOWARDS THE EDUCATIONAL MEDICAL CAMP S FOR THE PEOPLE WHO ARE RE-LOCATED THE SAME IS ALLOWABLE EXP ENDITURE. IT IS OBLIGATION ON THE PART OF THE COMPANY TO GIVE SUPPO RT TO THE PEOPLE WHO ARE DISPLACED DUE TO SETTING UP OF THE INDUSTRY BY LOSING THEIR LANDED PROPERTY AND ASSETS. THE COMPANY IS DISCHAR GING ITS OBLIGATION FOR THE SAME PURPOSE. THEREFORE FOLLOW ING THE DECISION ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 39 OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. MADRAS REFINERIES LIMITED WE HOLD THAT THE CIT(A) HAS RIG HTLY ALLOWED THE APPEAL OF THE ASSESSEE AND ACCORDINGLY UPHOLD THE O RDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 58. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ITA 664/VIZAG/20123 (A.Y. 2008-09) (REVENUE APPEAL) : 59. ALL THE GROUNDS OF APPEAL ARE RELATED TO CHARGI NG OF INTEREST U/S 201 & 201(1A) OF THE ACT FOR NON-DEDUCTION OF T AX AT SOURCE. THE ASSESSEE-COMPANY M/S RASHTRIYA ISPAT NIGAM LIMI TED RINL) VISAKHAPATNAM HAS ENTERED INTO THE FOLLOWING AGREEM ENTS WITH M/S BHARAT HEAVY ELECTRICALS LIMITED (BHEL) FOR INDIGEN OUS SUPPLY AND SERVICES: (I) INDIGENOUS DESIGN & ENGINEERING AND SUPPLY OF PLANT MACHINERY AND EQUIPMENT INCLUDING COMMISSION ING SPARES AND INSURANCE PARES FOR TURBO BLOWER & AUXIL IARIES (TB-4) INCLUDING PIPE WORK ELECTRICALS AND INSTRUM ENTATION (AGREEMENT NO.VSP-6.3 MTPA EXPN/TB-4/INDS/BHEL/M- 735/2007 DT 11.07.2007) (II) STORAGE HANDLING ERECTION COMMISSIONING AND PG TESTS OF PLANT MACHINERY AND EQUIPMENT INCLUDING INSURANCE INLAND TRANSPORTATION ETC FOR TURBO BLO WER & AUXILIARIES (TB-4) INCLUDING PIPE WORK ELECTRICS A ND INSTRUMENTATION (AGREEMENT NO.VSP-6.3 MTPA EXPN/TB- 4/ERC/BHEL/M-736/2007 DT. 11 07.20O7). ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 40 CONTRACT NO.(I) ABOVE HAS BEEN ENTERED FOR SUPPLYI NG ALL 'INDIGENOUS PLANT MACHINERY AND EQUIPMENT WITH AUX ILIARIES INCLUDING INSURANCE SPARES AND COMMISSIONING SPARES FOR THE A BOVE WORK AND ALSO SUPPLY OF DRAWING & DOCUMENTS IN CONFORMITY TO THE CONTRACT SPECIFICATION AND THE VALUE OF THE CONTRACT AS PER COPY OF AGREEMENT PRODUCED IN THIS OFFICE IS RS 63 33 36 000/ - CONTRACT NO(II) ABOVE HAS BEEN ENTERED FOR STORAGE HANDLING ERECTION COMMISSIONING AND PG TESTS OF PLANT MACH INERY AND EQUIPMENT INCLUDING INSURANCE INLAND TRANSPORTATIO N ETC. FOR TURBO BLOWER AND AUXILIARIES (TB-4) INCLUDING PIPE WORK ELECTRICS AND INSTRUMENTATION AND THE VALUE OF THE CONTRACT AS PE R COPY OF AGREEMENT PRODUCED IN THIS OFFICE IS RS.6 44 00 000 /-. 60. THE A.O. HELD THAT THE WORKS CONTRACT COVERED B Y THE TWO AGREEMENTS ARE NOTHING BUT COMPOSITE CONTRACTS FOR SUPPLY AND ERECTION OF THE MACHINERY INTERDEPENDENT AND FALLS WITHIN THE PURVIEW OF CHAPTER XVVIIB FOR DEDUCTION OF TAX AT SOURCE. THE ASSESS EE IS OF THE VIEW THAT FIRST CONTRACT IS FOR THE SUPPLY OF THE MACHINERY A ND SECOND CONTRACT IS FOR COMMISSIONING OF EQUIPMENT AND BOTH ARE INDEPENDENT CONTRACTS BUT NOT INTERDEPENDENT. THEREFORE CONTRACT-I CONSTITUTE PUR CHASES AND THE PROVISIONS OF TDS IS NOT APPLICABLE WHEREAS THE CON TRAT-II IS WORKS CONTRACT AND THE TDS WAS MADE. THE AO NOT CONVINCED WITH THE EXPLANATION TREATED THE ASSESSEE AS ASSESSEE IN DEF AULT AND IMPOSED THE INTEREST U/S 201 & 201(1A) OF THE ACT. 61. AGGRIEVED BY THE ORDER OF THE A.O. THE ASSESSE E WENT ON APPEAL ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 41 BEFORE THE CIT(A) AND THE LD. CIT(A) VERIFIED BOTH THE CONTRACTS AND HELD THAT BOTH ARE INDEPENDENT CONTRACTS AND CONTRACT NO .(I) IS A SUPPLY CONTRACT AND CONTRACT NO.(II) IS A WORKS CONTRACT A ND THE ASSESSEE REQUIRED TO DEDUCT TAX AT SOURCE ON THE WORKS CONTRACT I.E. CONTRACT NO.(II) AND ASSESSEE NEED NOT REQUIRE TO DEDUCT TAX AT SOURCE O N THE SUPPLY CONTRACT I.E. CONTRACT NO.(I). THE LD. CIT(A) RELIED ON THE ORDER OF THIS TRIBUNAL IN THE CASE OF ITAT VISAKHAPATNAM IN THE CASE OF NTPC LIMITED VS. ITO (2013) 36 CCH 359. FOR READY REFERENCE WE EXTRACT RELEVANT PARAGRAPH OF THE LD. CIT(A) ORDER AS UNDER: 6.2 I HAVE CONSIDERED THE VARIOUS CONTENTIONS RAISED THE WRITTEN SUBMISSIONS AND THE DECISIONS RELIED ON. A COPY OF THE TWO AGREEMENTS ENTERED WITH BHEL WAS ALSO FILED AS PART OF THE PAP ER-BOOK WHICH WAS ALSO CONSIDERED. THE VARIOUS GROUNDS RAISED ARE AGA INST THE LEVY OF DEMAND U/S.201(1) OF RS.14 35 159/- AND INTEREST U/ S.201(1A) OF RS.6 52 987/- AND ARE DEALT TOGETHER. I FIND THAT T HE PRIMARY ISSUE TO BE RESOLVED IS TO ASCERTAIN WHETHER THE CONTRACT-I ENT ERED WITH BHEL FOR INDIGENOUS DESIGN ENQUIRY SUPPLY OF PLANT & MACHI NERY AND EQUIPMENT FOR TURBO BLOWER WOULD CONSTITUTE A WORKS CONTRACT OR A SUPPLY CONTRACT. 6.3 FROM THE PERUSAL OF CONTRACT-I IT IS SEEN THAT ITS RECITALS READ AS UNDER :- 'AND WHEREAS THE EMPLOYER HAS ENTRUSTED TO THE PRIN CIPAL CONTRACTOR THE WORK COVERING DESIGN MANUFACTURE AND SUPPLY OF IND IGENOUS PLANT MACHINERY AND EQUIPMENT WITH AUXILIARIES INCLUDING INSURANCE SPARES AND COMMISSIONING SPARES FOR 'TURBO BLOWER & AUXILIARIE S (TB#4)' HEREINAFTER REFERRED TO AS 'EQUIPMENT' FOR THE SAID WORK. ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 42 AND WHEREAS THE PRINCIPAL CONTRACTOR HAS AGREED TO SUPPLY ALL INDIGENOUS PLANT MACHINERY AND EQUIPMENT WITH AUXILIARIES INC LUDING INSURANCE SPARES AND COMMISSIONING SPARES FOR THE ABOVE WORK AND ALS O SUPPLY OF DRAWING & DOCUMENTS IN CONFORMITY TO THE CONTRACT SPECIFICATI ON. AND WHEREAS THE PRINCIPAL CONTRACTOR CONFIRMED ALL AFORESAID INDIGENOUS EQUIPMENT/ITEMS AND DRAWINGS & DOCUMENTS SHALL BE S UPPLIED BY THE CONTRACTOR WERE INCLUDED AND COVERED BY THE CONTRAC T PRICE'. 6.4 THE SCOPE OF WORK UNDER THE SAID CONTRACT-I IS DEFINED IN SCHEDULE 2 OF THE AGREEMENT AS FOLLOWS: SCHEDULE 2 SCOPE OF WORK 2.1 GENERAL THE CONTRACT SPECIFICATION NO.BHEL/MT/TB-4/JULY 200 7 SUBMITTED BY THE CONTRACTOR AND ACCEPTED BY THE EMPLOYER IN CONJ UNCTION WITH VARIOUS CLAUSES OF THIS CONTRACT SHALL BE BINDING F OR THE PURPOSE OF DETERMINING THE SCOPE OF WORK UNDER THIS AGREEMENT AND SHALL FORM INTEGRAL PART OF THIS CONTRACT. 2.2 SCOPE OF WORK IN CONSIDERATION OF THE PAYMENTS TO BE MADE BY THE EMPLOYER THE PRINCIPAL CONTRACTOR SHALL BE RESPONSIBLE FOR THE F OLLOWING: 2.2.1 DESIGN SUPPLY OF DRAWING & DOCUMENTS PROCURE MENT OF MATERIALS MANUFACTURE/FABRICATION INSPECTION TES TING AND SUPPLY OF ALL INDIGENOUS EQUIPMENT ON F.O.T. WORKS BASIS WITHIN T HE TIME STIPULATED IN SCHEDULE 4 (DELIVERY). THE EQUIPMENT/ITEMS ARE TO BE SUITABLY AND SECURELY PACKED FOR ROAD TRANSPORT IN INDIA AND FOR STORAGE UNDER TROPICAL C ONDITIONS. 2.2.2 SUPPLY OF ALL EQUIPMENT FOUNDATION BOLTS INCL UDING BOLTS OF SPECIAL DESIGN IF ANY AND THOSE MADE OF ALLOY/SPECIAL STEE LS IF AN AND INDIGENOUS SPECIAL EMBEDMENT IF ANY THAT MAY BE RE QUIRED FOR THE EQUIPMENT ON F.O.T. WORKS. ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 43 2.2.3 THE PRINCIPAL CONTRACTOR SHALL SUPPLY WITH TH E PLANT MACHINERY AND EQUIPMENT SUFFICIENT QUANTITY OF COMMISSIONING SPARES THAT MAY BE REQUIRED UPTO PAC AND DURING PERFORMANCE GUARANT EE TEST. THE PRICES FOR THE SAME INCLUDED IN THE TOTAL SUPPLY PR ICE OF EQUIPMENT. THE LIST OF COMMISSIONING SPARES INCLUDED WITH QUA NTITIES INDICATED IN THE CONTRACT SPECIFICATION. IF THE QUANTITIES SUPPL IED ARE FOUND TO BE INADEQUATE FURTHER QUANTITY AS REQUIRED SHALL BE S UPPLIED WITHOUT ANY EXTRA COST AND WITHOUT AFFECTED THE WORK. COMMISSIO NING SPARES SHALL BE THE COMMISSIONING AND DURING PG TESTS. LEFT OUT SPARES IF ANY AFTER PROVISIONAL ACCEPTANCE OUT OF THOSE INDICATE D IN THE LIST SHALL BE HANDED OVER TO THE EMPLOYER. 2.2.4 SUPPLY OF INSURANCE SPARES AS PER THE AGREED ITEMS AND QUANTITY ALONG WITH THE EQUIPMENT. 2.2.5 SUPPLY OF INITIAL FILLS AND CONSUMABLES ON F. O.T. WORKS BASIS AS PER THE CONTRACT SPECIFICATIONS AND GENERAL CONDITI ON OF CONTRACT. THESE INITIAL FILLS SHALL BE DELIVERED ALONG WITH T HE EQUIPMENT. 2.2.6 THE PRINCIPAL CONTRACTOR SHALL SUPPLY SPECIAL OPERATION & MAINTENANCE TOOLS AND TACKLES INCLUDING SPECIAL IN STRUMENTS REQUIRED FOR CALIBRATION PROGRAMMING ETC. AS PER THE CONTR ACT SPECIFICATION. THE PRINCIPAL CONTRACTOR ALSO UNDERTAKES THAT SUPPL Y OF NECESSARY OPERATION MAINTENANCE TOOLS WILL BE MADE AVAILABLE AT ANY TIME LATER DURING THE LIFE OF THE PLANT AND REASONABLE COST. 2.2.7 THE SCOPE OF SUPPLY OF THE PRINCIPAL CONTRACT OR SHALL INCLUDE SPECIAL TOOLS & TACKLES INCLUDING SPECIAL INSTRUMEN TS REQUIRED FOR ERECTION TESTING AND COMMISSIONING AS PER THE CONT RACT SPECIFICATION'. 6.5 A PERUSAL OF THE RECITALS AND ABOVE CLAUSES OF THE CONTRACT-I CLEARLY SHOW THAT THE CONTRACT IS PRIMARILY ONE OF SUPPLY O F MACHINERY EQUIPMENT AND SPARES. FURTHER IT IS NOTED BHEL VIDE LETTER D TD.26.03.2010 HAS CONFIRMED THAT NO SEPARATE 'DESIGN & ENGINEERING' ACTIVITY IS INVOLVED UNDER THE CONTRACT-I AND AS THE JOB INVOLVES SUPPLY OF PLANT MACHINERY AND EQUIPMENT AND THERE ARE NO SEPARATE CHARGES FORWARDS 'DESIGN & ENGINEERING' ON THE SUBJECT SUPPLY COVERED OF UNDER CONTRACT-I. ON THIS ASPECT THE APPELLANT ALSO RELIED ON THE CBDT CIRCULAR WHICH CLARIFIES AS UNDE R: WHERE HOWEVER THE CONTRACTOR UNDERTAKES TO SUPPL Y ANY ARTICLE OR THING FABRICATED ACCORDING TO THE SPECIFICATIONS G IVEN BY GOVERNMENT OR ANY OTHER SPECIFIED PERSON AND THE PROPERTY IN S UCH ARTICLE OR THING PASSES TO THE GOVERNMENT OR SUCH PERSON ONLY AFTER SUCH ARTICLE OR THING IS DELIVERED THE CONTRACT WILL BE A CONTRACT FOR SALE AND AS SUCH ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 44 OUTSIDE THE PURVIEW OF THIS SECTION. 6.6 CONSIDERING THE ABOVE I AM OF THE OPINION THAT THE CONTRACT-I PERTAIN TO SUPPLY OF MACHINE EQUIPMENT AND SPARES. BESIDES IT IS NOTED THAT UNDER THE TERMS OF CONTRACT-TI BHEL IS REQUIRED TO RENDE R CERTAIN SERVICES SUCH AS THE WORK OF INLAND TRANSPORTATION INCLUDING INSURAN CE TILL DELIVERY AT SITE OF IMPORTED AND INDIGENOUS ITEMS AND STORAGE HANDLING ERECTION TESTING COMMISSIONING DEMONSTRATION OF PERFORMANCE GUARANT EE OF COMPLETE PLANT AS A WHOLE AND OTHER RELATED SITE WORK CONFORMING T O THE CONTRACT SPECIFICATIONS] FROM THE PERUSAL OF BOTH THE CONTRA CTS IT IS NOT POSSIBLE TO COME TO A CONCLUSION THAT DUE TO THE SERVICES REQUI RED TO BE RENDERED UNDER CONTRACT-TI THE TERMS OF CONTRACT-I WOULD BE IN TH E NATURE OF WORKS CONTRACT. 6.7 FURTHER IT IS NOTED THAT THE HON'BLE 1TAT VIS AKHAPATNAM BENCH DEALT WITH A SIMILAR ISSUE IN THE CASE OF NTPC LTD. IN TH AT CASE M/S. NTPC A PLU INVITED BIDS FOR DIFFERENT PACKAGES OF WORK WHICH I NCLUDED DESIGN ENGINEERING MANUFACTURE FORWARDING ERECTION AND COMMISSIONING OF 1000MW EXPANSION OF SSTPP STAGE -II AND THE CONTRAC T WAS SPLIT INTO TWO PARTS IE. FIRST CONTRACT (SUPPLY CONTRACT) RELATIN G TO DESIGN ENGINEERING MANUFACTURE AND SUPPLY OF EQUIPMENT AND SECOND CONT RACT RELATING TO INSTALLATION SUPERVISION AND COMMISSIONING ETC. A SPECT. THE ASSESSING OFFICER TOOK A VIEW THAT BOTH THE CONTRACTS ARE COM POSITE CONTRACT IN NATURE AND TDS SHALL BE DEDUCTIBLE ON THE PAYMENTS MADE UN DER THE FIRST CONTRACT AND THIS WAS UPHELD BY THE CIT(A). HOWEVER HON'BLE TRIBUNAL REFERRING TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF KONE ELEVATORS (INDIA) LTD AND THE D ECISION OF HON'BLE 1TAT HYDERABAD IN THE CASE OF POWER GRID CORP OF INDIA L TD HELD THAT SUPPLY CONTRACT IS IN THE NATURE OF CONTRACT OF SALE' AND HENCE THE PROVISIONS OF SEC.194C SHALL NOT APPLY TO IT. 6.8 IT IS NOTED THAT THE HON'BLE ITAT VISAKHAPATNA M IN THE NTPC CASE HAS DISCUSSED THE APPLICABILITY OF THE VARIOUS DECISION S RELIED ON BY THE AO AND IT IS SEEN THAT THE VERY SAME DECISIONS WERE RELIED ON BY THE AO IN THIS CASE. THE HON'BLE ITAT AFTER DISCUSSION OF THE CASE-LAWS RELIED ON BY THE AO CAME TO THE CONCLUSION THAT THE CONTRACT IS ONE OF SUPPL Y AND NOT A CONTRACT OF WORK. I FIND THAT THE RATIO LAID DOWN IN THE CASE O F NTPC IS APPLICABLE TO THE PRESENT CASE IN VIEW OF SIMILAR FACTS AND ISSUES AN D IN VIEW OF THE DISCUSSION THEREIN OF THE VARIOUS DECISIONS WHICH WERE ALSO RE LIED ON BY THE AO IN THE IMPUGNED ORDER. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL TRIBUNAL IT IS HELD THAT THE ASSESSEE IS NOT LIABL E TO DEDUCT TDS ON THE PAYMENTS MADE UNDER THE CONTRACT-I TO BHEL AS THE TERMS OF CONTRACT INDICATE IT IS ONE FOR SUPPLY OF MACHINERY AND EQUI PMENT AND HENCE DOES NOT FALL WITHIN THE AMBIT OF SECTION 194C OF THE I.T. A CT. AS IT IS FOUND THAT THE APPELLANT IS NOT LIABLE TO DEDUCT TDS U/S.194C THE AO IS DIRECTED TO DELETE THE IMPUGNED DEMAND RAISED U/S.201(1) AND 201(1A) OF TH E I.T. ACT. ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 45 62. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVEN UE IS IN APPEAL BEFORE US. 63. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS PLACED ON RECORD. THE CONTRA CT-I IS A SUPPLY CONTRACT PRIMARILY FOR SUPPLY OF THE MACHINERY EQUI PMENT AND SPARES AND CONTRACT-II IS WORKS CONTRACT FOR COMMISSIONING THE EQUIPMENT. THE LD. CIT(A) AFTER VERIFICATION OF THE RECITALS OF THE CO NTRACT GIVEN A FINDING THAT BOTH ARE INDEPENDENT CONTRACTS AND HELD THAT IT IS NOT POSSIBLE TO COME TO CONCLUSION THAT DUE TO SERVICES REQUIRED TO BE REND ERED UNDER CONTRACT NO.(II) THE TERMS OF THE CONTRACT NO.(I) WOULD BE IN THE NATURE OF WORKS CONTRACT. THE LD. DR DID NOT BRING ANY OTHER EVIDEN CE TO SHOW THAT THE FINDING GIVEN BY THE LD. CIT(A) IS INCORRECT AND AL SO DID NOT PLACE ANY OTHER DECISION TO SUPPORT THE VIEW OF THE DEPARTMEN T. THE FACTS ARE IDENTICAL TO THE DECISION OF THIS TRIBUNAL IN THE C ASE OF NTPC LIMITED CITED (SUPRA). SINCE THE CIT(A) HAS ALLOWED THE APPEAL O F THE ASSESSEE FOLLOWING THE ORDER OF THIS TRIBUNAL WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS UPHELD. ITA NO.13/VIZAG/2013 664/VIZAG/2013 & NOS.57 & 64/ VIZAG/2014 M/S. RASHTRIYA ISPATH NIGAM LIMITED VISAKHAPATNAM 46 63. IN THE RESULT THE ASSESSEES APPEALS FOR THE A SSESSMENT YEAR 2004-05 IS ALLOWED AND FOR THE ASSESSMENT YEAR 2011 -12 IS PARTLY ALLOWED. THE REVENUES APPEALS FOR THE ASSESSMENT YEARS 2008-09 & 2011-12 ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22 ND NOV17. SD/- SD/- ( . ) ( . . ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 22.11.2017 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT M/S. RASHTRIYA ISPAT NIGAM LIMIT ED FINANCE & ACCOUNTS DEPARTMENT VISAKHAPATNAM STEEL PLANT VIS AKHAPATNAM 2. / THE RESPONDENT THE JCIT(OSD) CIRCLE-3(1) VIS AKHAPATNAM 3. + / THE CIT VISAKHAPATNAM 4. + ( ) / THE CIT (A) VISAKHAPATNAM 5. # . . # / DR ITAT VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT VISAKHAPATNAM