XL INDIA BUSINESS SERVICES PVT. LTD.,NEW DELHI vs. ADDL. CIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: “G”, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No.2145/Del/2017 Assessment Year: 2011-12 M/s. XL India Business Vs. Addl. CIT, Services Pvt. Ltd., Special Range-9, New Delhi FF-101, Building No. G-11, Sarines Sonia Sadan, Community Centre, Vikas Puri, New Delhi PAN :AAACX0309A (Appellant) (Respondent) And S.A. No.16/Del/2019 [Arising out of ITA No.2145/Del/2017] Assessment Year: 2011-12 M/s. XL India Business Vs. Addl. CIT, Services Pvt. Ltd., Special Range-9, New Delhi FF-101, Building No. G-11, Sarines Sonia Sadan, Community Centre, Vikas Puri, New Delhi PAN :AAACX0309A (Appellant) (Respondent)

Appellant by Ms. Ananya Kapoor, Adv. Respondent by Shri S.S. Rana, CIT(DR)

Date of hearing 24.01.2019 Date of pronouncement 01.02.2019

2 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019

ORDER PER O.P. KANT, A.M.: This appeal by the assessee is directed against order dated 31/01/2017 passed by the Ld. Commissioner of Income-tax (Appeals)-10, New Delhi [ in short ‘the Ld. CIT(A)’] for assessment year 2011-12, raising following grounds:

“These grounds of appeal represent the grievances of the Appellant against order dated 31 January 2017 passed by the Learned Commissioner of Income Tax (Appeals) - 10 (“Ld. CIT(A)”) under section 250 of the Income-tax Act, 1961 (“the Act”) in the appeal filed by the Appellant against the assessment order dated 13 March 2015 issued under section 143(3) of the Act by the Learned Income Tax Officer, Ward 27(4) (“Ld. AO”). 1. That the assessment order passed under section 143(3) by the Ld. AO and the additions/ disallowances made by the Ld. AO are illegal, bad in law and without jurisdiction. 2. That the additions/ disallowances made are unsustainable, unjust, highly excessive and are not based on any material on record. The total income of the Appellant has been incorrectly and un-lawfully assessed by the Ld. AO at Rs 23,40,005 as against nil returned income under the normal provisions of the Act and Rs. 15,64,83,381 as against Rs. 12,51,87,502 under the provisions of section 115JB of the Act. 3. That the order of the Ld. CIT(A) to the extent of upholding the additions/ disallowances made in the assessment order issued by the Ld. AO, is erroneous and bad in law. Part I - Corporate Tax Grounds 4. That, in view of the facts and circumstances of the case, the Ld. CIT(A)/AO erred in facts and in law, in upholding the taxation of interest income on short term fixed deposits amounting to Rs. 23,25,832 as “Income from Other Sources” and denying deduction claimed under section 10A of the Act thereon, even though such interest income is inextricably linked with the business of the Appellant.

3 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019

4.1. That in view of the facts and circumstances of the case, the Ld. CIT(A)/AO erred in facts and in law in not appreciating that provisions of section 10A(1) and section 10A(4) of the Act are to be read together and provisions of section 10A(4) of the Act entitles the Appellant to claim deduction in respect of the profits of the business of the undertaking. 4.2. That in view of the facts and circumstances of the case, the Ld. CIT(A)/AO erred in facts and in law in not appreciating that Appellant had outstanding External Commercial Borrowing (“ECB”) and due to regulatory restrictions on the pre-payment of ECB, funds were temporarily parked in the short term fixed deposits to mitigate the cost of interest on ECB. 5. That in view of the facts and circumstances of the case, the Ld. CIT(A) erred in facts and in law in upholding the addition of Rs. 14,173 to interest on short term fixed deposits even though this amount had already been taxed in other years on the basis of accrual system of accounting regularly followed by the Appellant. 6. That in view of the facts and circumstances of the case, the Ld. CIT(A)/AO erred in facts and in law in treating provision for bonus amounting to Rs. 3,12,95,879 as unascertained liability and thereby upholding the addition made to book profits computed under section 115JB of the Act. 7. The Ld. AO has erred in charging of interest under section 234B of the Act. The same has been unjustly and illegally charged. It is also wrongly worked out. 8. The Ld. AO has erred in initiation of penalty proceedings under section 271(1)(c) of the Act.”

4 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019 appeal instead of application for extension of stay of recovery of demand. Accordingly, the appeal of the assessee was heard. 4. Briefly stated facts of the case are that the assessee was engaged in the business of providing IT enabled services to its Associated Enterprises (AEs). The assessee filed return of income showing income of Rs.11,79,19,001/-under the head profit in gains of the business, however after claiming deduction under section 10A of the Income-tax Act, 1961 (in short ‘the Act), the total income declared was nil. But in terms of section 115JB of the Act (Minimum Alternative Tax), the tax liability of Rs.2,49,50,495/-was shown. The case of the assessee was selected for scrutiny and statutory notices were issued. In view of the International Transactions carried out by the assessee, the matter was referred to the Ld. Transfer Pricing Officer (TPO) for determining arm’s length price of the International Transaction(s). The Ld. TPO, in the order passed under section 92CA(5) made the adjustment, however, on further rectification order passed under section 154 of the Act, the Ld. TPO proposed no adjustment. The Ld. Assessing Officer made additions on other corporate issues. Against those additions, the assessee preferred appeal before the Ld. CIT(A), who partly allowed the appeal of the assessee. Aggrieved with the addition sustained by the Ld. CIT(A), the assessee is in appeal before the Tribunal raising the grounds as reproduced above. 5. The learned counsel of the assessee submitted that grounds No. 1 to 3 of the appeal are general in nature. Hence, we are not required to adjudicate those grounds.

5 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019 6. The ground No. 4 to 4.2 of the appeal, are related to the issue whether the interest earned on short-term fixed deposits amounting to Rs.23,25,832/- is part of the business income or income under the head “income from other sources”. The lower authorities has denied deduction under section 10A of the Act on the said interest income, holding that the said interest income is not income earned from the business and same is part of income to be assessed under the head “income from other sources”. The Ld. counsel submitted that issue in dispute involved is identical to ground No. 4 to 4.2 of the appeal of the assessee for assessment year 2010-11 having ITA No. 1477/12/2017, wherein the issue has been restored to the file of the Ld. Assessing Officer. 6.1 The learned DR, on the other hand, submitted that the Tribunal in assessment year 2010-11 has not considered the decision of the Hon’ble Supreme Court in following cases:

“1. Conventional Fastners Vs CIT 2018-TIQL-202-SC-IT (Copy Enclosed) SLP dismissed. Since interest income earned from fixed deposits reserves kept as security and as a business pre-requisite had nothing to do with carrying on assessee's business of manufacture and sale of electric meters, same would not be entitled to benefit of deduction under section 80-IC 2 Pandian Chemicals Ltd Vs CIT [2003] 129 Taxman 539 (SC)/[2003] 262 ITR 278 (SC)/[2003] 183 CTR 99 (SC) (Copy Enclosed) where Hon’ble Supreme Court held that words 'derived from' in section 80HH must be understood as something which has direct or immediate nexus with an industrial undertaking. Derivation of interest or profits on deposit with Electricity Board could not be said to be flowing directly from industrial undertaking and, therefore, deduction for same could not be allowed

6 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019 3. CIT Vs Jvoti Apparels [2008] 166 Taxman 343 (Delhi)/[2007] 209 CTR 288 (Delhi) (Copy enclosed) where Hon’ble Delhi High Court held that interest earned by an exporter on fixed deposits kept by it with bank as margin money or security for bank guarantee in order to avail of credit facility for its export business has to be treated as 'income from other sources' and not as 'business income', inasmuch as it does not have an immediate nexus with export business. Therefore, such interest income cannot be considered for computing deduction under section 80HHC. 4. CIT v. Mereena Creations [2010] 189 Taxman 71 (copy enclosed) where Hon’ble Delhi High Court held that the interest earned by an exporter on fixed deposits kept by it with bank as margin money or security for bank guarantee in order to avail of credit facility for its export business has to be treated as ‘income from other sources 5. Tuticorin Alkali Chemicals & Fertilizers Ltd.Vs CIT M9971 93 Taxman 502 (SC)/ri9971 227 ITR 172 (SC)/n9971 141 CTR 387 (SC) (Copy Enclosed) where Hon’ble Supreme Court held that interest earned on short-term investment of funds borrowed for setting-up of factory during construction of factory before commencement of business has to be assessed as income from other sources and/if cannot be said that interest income is not taxable on ground that it would go to reduce interest on borrowed amount which would be capitalised.

6.2 We have heard the rival submissions and perused the relevant material on record. We note that the Tribunal (supra) in the case of the assessee itself for assessment year 2010-11 has considered the issue of interest earned by the assessee from short-term deposits. The relevant finding of the Tribunal is reproduced as under:

“40. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as cases referred to before us. The assessee has earned interest on short term fixed deposits amounting to Rs.63,67,249/-. The assessee’s contention has been that it had parked its funds generated out business activities in a short-term fixed deposit for the reasons that;

7 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019 firstly, to mitigate interest cost on outstanding ECBs which it could not repay pending regulatory approvals; secondly, amount was kept as margin money for obtaining bank requirement by STPI authorities; and lastly, amount kept in order to effectively manage the working capital requirement of its business. Assessee had an outstanding ECB amounting to Rs.2,28,55,000/- which was obtained in the earlier years for the purpose of business. As per the terms of ECB loan repayment schedule, the first installment was due on 31st December, 2012. However, on 29 January, 2009 considering the sufficiency of fund available, the assessee filed an application before the Citi Bank seeking requisite approval for prepayment of outstanding ECB. During the pendency of such approval from regulatory authorities the assessee temporarily parked its business fund with the bank on short term basis and also paid applicable interest on such outstanding ECB till its repayment. Thus, what is required to be seen in Section 10A r.w.s. 10A (4) is to determine profits of the business and not the profits derived from export activities carried on by the undertaking. The words ‘derived from’ which is appearing in Section 10A (1) is not found in Section 10A (4) which provides the computation mechanism of the profit which has been enshrined for the purpose of sub-section (1) and (1A) of Section 10A. In assessee’s case the Tribunal has decided this issue against the assessee on the ground that fixed deposits are not maintained by the bank for the requirement of letter of credit and it this finding of the Tribunal which has been affirmed by the Hon'ble High Court after making following observations: -

“In the grounds of appeal before the ITAT no specific challenge was raised by the Assessee to the above factual finding that the FDs were not being maintained to meet any requirement of the Bank for opening LC or for any other business purpose. In that view of the matter, the Court is unable to find any infirmity in the above treatment of interest income as income from other sources. No substantial question arises for consideration on this issue.” 41. Thus, in that year the issue was decided against by the Hon'ble High Court on the ground that there was a factual finding that the FDRs were not maintained to meet any requirement of bank for opening LC or for any other business purpose. In this year, the assessee has given the explanation as to why the FDRs were placed to mitigate the interest cost and was kept as margin money obtaining bank guarantee and also for making prepayment of ECB pending approval from the liquidator authority. Since, Id. CIT(A) in a very cursory manner has rejected this contention on the ground that no details of dates have been given when the funds were kept for FDR. The Assessing Officer without examining the correct provision of law especially enshrined in sub section (4) of Section 10A has

8 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019 blanketly held that interest on FDRs is ‘income from other sources’ which is not allowable for deduction u/s.lOA. Now there are catena of judgment of Hon'ble High Court including that of Hon'ble Jurisdictional High Court in the case of CIT vs. Hrithnik Export Pvt. Ltd. (supra) and Full Bench judgment of Hon’ble Karnataka High Court in the case of CIT vs. Hewlett Packard Global Soft Ltd. (supra). First of all, we find that Hon'ble Delhi High Court in the case of XLNC Fashions, ITA No. 438/2014, vide judgment dated 1st September, 2014 dealing with similar formula laid down in sub Section (4) of Section 10B had observed that sub Section (4) is a special provision which enables the assessee to compute the profits derived from the export of article or things or computer software and there is no conflict between sub-section (1) and sub-section (4). Both the provisions have to be read harmoniously, because later provides formula for finding out or compute what is eligible for deduction under sub-section (1). This ratio and principle were discussed by the Hon'ble High Court in the case of Hrithnik Export Pvt. Ltd. (supra) also, wherein the judgment of Hon'ble Karnataka High Court in the case of CIT vs. Motorola India Electronics Pvt. Ltd. (supra) was followed. Now full bench of Hon'ble Karnataka High Court has discussed this issue threadbare while examining the profits & gains of 100% EOU as to whether income by way of interest of bank deposits would be entitled to 100% deduction u/s.lOA or not. Hon'ble High Court has discussed all the judgments of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. v. CIT, CIT vs. Sterling Foods, and catena of other judgments, has observed and held as under: “34. We are of the considered opinion that the above referred decisions relied upon by the learned counsel for the Revenue, Mr. Aravind do not cover the cases under Sections 10-A and 10- B of the Act which are special provisions and complete code in themselves and deal with profits and gains derived by the assessee of a special nature and character like 100% Export Oriented Units (EOUs.) situated in Special Economic Zones (SEZs), STPI, etc., where the entire profits and gains of the entire Undertaking making 100% exports of articles including software as is the fact in the present case, the assessee is given 100% deduction of profit and gains of such export business and therefore incidental income of such undertaking by way of interest on the temporarily parked funds in Banks or even interest on staff loans would constitute part of profits and gains of such special Undertakings and these cases cannot be compared with deductions under Sections 80-HH or 80-IB in Chapter VI-A of the Act where an assessee dealing with several activities or commodities may inter alia earn profits and gains from the specified activity and therefore in those cases, the Hon'ble Supreme Court has held that the interest income would

9 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019 not be the income "derived from" such Undertakings doing such special business activity. 35. The Scheme of Deductions under Chapter VI-A in Sections 80- HH, 80-HHC, 80-IB, etc from the ‘Gross Total Income of the Undertaking', which may arise from different specified activities in these provisions and other incomes may exclude interest income from the ambit of Deductions under these provisions, but exemption under Section 10-A and 10-B of the Act encompasses the entire income derived from the business of export of such eligible Undertakings including interest income derived from the temporary parking of funds by such Undertakings in Banks or even Staff loans. The dedicated nature of business or their special geographical locations in STPI or SEZs. etc. makes them a special category of assessees entitled to the incentive in the form of 100% Deduction under Section 10-A or 10-B of the Act, rather than it being a special character of income entitled to Deduction from Gross Total Income under Chapter VI-A under Section 80-HH, etc. The computation of income entitled to exemption under Section 10- A or 10-B of the Act is done at the prior stage of computation of Income from Profits and Gains of Business as per Sections 28 to 44 under Part-D of Chapter TV before 'Gross Total Income' as defined under Section 80-B(5) is computed and after which the consideration of various Deductions under Chapter VI-A in Section 80HH etc. comes into picture. Therefore, analogy of Chapter VI Deductions cannot be telescoped or imported in Section 10-A or 10-B of the Act. The words 'derived by an Undertaking' in Section 10-A or 10-B are different from 'derived from' employed in Section 80-HH etc. Therefore, all Profits and Gains of the Undertaking including the incidental income by way of interest on Bank Deposits or Staff loans would be entitled to 100% exemption or deduction under Section 10-A and 10- B of the Act. Such interest income arises in the ordinary course of export business of the Undertaking even though not as a direct result of export but from the Bank Deposits etc., and is therefore eligible for 100% deduction………………………………………… Xxxxxxxxx 37. On the above legal position discussed by us, we are of the opinion that the Respondent assessee was entitled to 100% exemption or deduction under Section 10-A of the Act in respect of the interest income earned by it on the deposits made by it with the Banks in the ordinary course of its business and also interest earned by it from the staff loans and such interest income would not be taxable as 'Income from other Sources' under Section 56 of the Act. The incidental

10 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019 activity of parking of Surplus Funds with the Banks or advancing of staff loans by such special category of assessees covered under Section 10-A or 10-B of the Act is integral pari of their export business activity and a business decision taken in view of the commercial expediency and the interest income earned incidentally cannot be de-linked from its profits and gains derived by the Undertaking engaged in the export of Articles as envisaged under Section 10-A or Section 10-B of the Act and cannot be taxed separately under Section 56 of the Act.” 42. Thus, the ratio and principle laid down in the aforesaid judgments is quite clear that the computation of profit as given in sub-section (4) of Section 10A has to be seen in the context of entire income derived from income of export from such eligible undertaking including interest income derived from parking of funds. The words ‘derived by’ undertaking in Section 10A are derived from the words enshrined in Chapter VI A, and therefore, Profits & Gains of undertaking including incidental income by way of bank deposits is also entitled for 100% deduction u/s. lOA. Keeping in view this principle of law, we remand the issue for a limited purpose to the file of the Assessing Officer to examine the contention of the assessee that, whether the fixed deposits made by the assessee was made for over margin money obtaining bank guarantee; or for making prepayment of ECB for which funds were parked on temporaiy basis pending approval from the requisite authorities; or is in any manner inextricably linked with the assessee’s business. If the contention of the assessee is found to be correct on facts then deduction~oTsuch an interest has to be allowed while computing the profits u/s.lOA. With this limited direction, the matter is restored back to the file of the Assessing Officer who shall decide after giving due opportunity to the assessee. Thus, grounds no.4 to 4.2 is treated as partly allowed for statistical purposes.”

6.3 We find that the Tribunal has restored the matter to the file of Assessing Officer for verification of the facts whether the interest income was derived from the business undertaking. In the year under consideration, the learned counsel has claimed that interest income was earned from the same fixed deposits. Thus, we feel it appropriate to restore the issue in the year under consideration also to the Assessing Officer. However, we direct the Assessing Officer to keep in mind the various decisions cited by

11 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019 the learned DR before us and the direction of the Tribunal (supra) and decide the issue in dispute in accordance with law after affording opportunity of being heard to the assessee. The grounds No. 4 to 4.2 of the appeal are accordingly allowed for statistical purposes. 7. The ground No. 5 of the appeal relates to addition of Rs. 14,173/- related to interest income on short-term deposits, which according to the assessee has already been taxed in earlier years on the basis of the accrual system of accounting followed by the assessee. The learned counsel of the assessee submitted that this issue has also been sent to the Assessing Officer for verification by the Tribunal in assessment year 2010-11 and accordingly, she requested that the issue in dispute in the year under consideration might also be restored to the file of the Ld. Assessing Officer. 7.1 The Ld. DR, on the other hand, relied on the order of the lower authorities. 7.2 We have heard the rival submissions and perused the relevant material on record, including the order of the Tribunal (supra) for assessment year 2010-11. The Assessing Officer has assessed interest income on the basis of the TDS certificates, whereas according to the assessee the said interest income from the short-term fixed deposit has already been assessed in earlier years offered by the assessee on the accrual system of accounting followed. We find that identical issue has been restored to the Assessing Officer by the Tribunal (supra) in assessment year 2010-11 observing as under:

12 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019 “48. After considering the relevant observation and finding of the ld. CIT(A) and the contention raised by the learned counsel, we do not find any infirmity in the order of the learned CIT(A), because if the difference of interest amount has already been offered to tax in the year of accrual then there is no point for taxing the same in this year. In any case, we have already held while deciding ground no.4 to 4.2 subject to certain verification by the Assessing Officer if the interest income is subject to deduction, then ostensibly no addition can be made. Accordingly, in view of the direction given in ground no.4 and also in line with the direction of the Id. CIT(A), we hold that the Assessing Officer shall verify and delete the addition accordingly.”

7.3 Thus, respectfully following the above, the issue in dispute in the year under consideration is also restored to the file of the Assessing Officer for deciding in view of the direction of the Tribunal (supra) for assessment year 2010-11 in the case of the assessee itself. The ground of the appeal is accordingly allowed for statistical purposes. 8. The ground 6 of the appeal relate to treating provision for bonus amounting to Rs.3,12,95,879/-as unascertained liability for making addition to book profits computed under section 115JB of the Act. The learned counsel submitted that exactly identical issue of provision of the bonus, whether it is unascertained liability for the purpose of computing the book profit under section 115JB, has been restored by the Tribunal (supra) in assessment year 2010-11 to the file of the Assessing Officer. Accordingly, she submitted that issue in dispute in the year under consideration, might also be restored to the file of the Ld. Assessing Officer. 8.1 The learned DR, on the other hand, submitted that provision of bonus is not an ascertained liability and thus liable to be added back in view of the Explanation -1(c) below the section on

13 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019 115JB of the Act. In support of his claim, he relied on the following judgments:

“1. Malyalam Manorma Vs. CIT [2008] 169 Taxman 471 (SC)/[2008] 300 ITR 251 (SC)/[2008] 216 CTR 102 (SC) (Copy Enclosed). Where Hon’ble supreme Court held that once accounts have been prepared as per Companies Act 1956 & certified by the statutory auditors, then there is no adjustment that can be made for the purpose of Income Tax Act, u/s 115JB, except save the changes enumerated therein. 2 Appollo Tyres Ltd Vs CIT r20021 122 Taxman 562 (SC)/[2002] 255 ITR 273 (SC)/[2002] 174 CTR 521 (SC) (Copy Enclosed) where Hon’ble Supreme Court held that once accounts have been prepared as per Companies Act 1956 & certified by the statutory auditors, then there is no adjustment that can be made for the purpose of Income Tax Act u/s 115JB, except save the changes enumerated therein. 3 Whirlpool of India Ltd. and another Vs. Union of India [2013] 31 taxmann.com 200 (Delhi [2013] 214 Taxman 567 (Delhi)/[2013] 355 ITR 51 (Delhi)/[2013] 258 CTR 378 (Delhi) (Copy Enclosed) where Hon’ble Delhi High Court held that Provision for doubtful Debt is to be added u/s 115JB. 4 Eastern India Powertech Ltd. Vs. Addl CIT f2013l 32 taxmann.com 11 (Delhi - Trib.1/120131 21 ITR(T) 542 (Delhi - Trib.)/r2013l 57 SOT 110 (Delhi - Trib.HURO) (Copy Enclosed) where Hon’ble ITAT Delhi held that amount of provision for doubtful debt would be added to arrive at book profit under section 115JB even though dispute as to debt was subjudice 5 Lusture Manufacturers (P.) Ltd. Vs ITO T20161 73 taxmann.com 203 (Ahmedabad - Trib.) (Copy Enclosed) where Hon’ble ITAT Ahmedabad held that while computing book profit under section 115JB, amount set apart as provision for bad debts has to be added back to net profits.”

8.2 We have heard the rival submissions and perused relevant material on record including the order of the Tribunal (supra).

14 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019 The relevant finding of the Tribunal (supra) on the issue in dispute reproduced as under:

“57. The next issue relates to disallowance of provisions for bonus by considering it as unascertained liabilities at Rs.3,08,21,090/- for the purpose of computing the book profits u/s.H5JB. The Assessing Officer noted that assessee has declared book profit of Rs. 10,24,90,804/- and found that assessee has not added amount of Rs.3,08,21,090/- being provision for bonus created during the year. Since bonus has been paid next year, therefore, the exact liability is ascertained at the time of payment. Accordingly, he treated it to be unascertained liability and added back while computing the book profit u/s.l 15JB. 58. Ld. CIT(A) too confirmed the said addition on the ground that provision of bonus has not been proved to be made on scientific calculation and assessee could not provide figures of earlier year provision and its utilization to show that provision has been made on rational basis. 59. Before us, the learned counsel submitted as under: - “Appellant maintains its books of account on a mercantile basis. Accordingly, to conform with the accounting principles, as at the end of the financial year it creates a provision for various expenses which inter-alia includes provision for bonus. Appellant has an obligation to pay out bonuses as a result of its business activities. This result in a certain outflow of resources in order to settle the obligation in respect of which a reliable estimate can be made. The provision for bonus is a definite and certain liability which is computed on a scientific basis with a reasonable degree of estimation. Variation in estimate cannot convert it into a contingent or unascertained figure. ” He also strongly relied upon the judgment of Hon'ble Supreme Court in the case of Bharat Earth Movers vs. CIT, 245 ITR 428 (SC). He further submitted that the liabilities were ascertained in the case of assessee, because in the month of March itself based on the grade of the employees’ bonus was determined and provision was made. 60. On the other hand, learned Department Representative strongly relied upon the order of the Id. CIT(A).

15 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019 61. After considering the rival submissions and on perusal of the relevant findings given in the impugned orders as well as material referred to before us, we find that the only dispute is, whether the provision for bonus payment has been made on scientific basis or is ascertained liability or not. It is a well settled law that if a business liability has arisen in the accounting year then the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is incurring of the liability and it should also be capable of being estimated with reasonable certainties and there should be some rational basis for quantification, for making the provision. If liability is capable of being quantified on the basis of reasonable certainty, then it cannot be held to be contingent. Learned counsel had submitted that here in this case liability was ascertained as in the month of March itself the assessee has made the provision on the basis of actual bonus to be paid which is on the basis of grant of the employee. However, no detail or working has been given before us in this regard, therefore, we deem it fit to restore this issue to the file of the Assessing Officer who shall examine, whether the provision has been made on the basis" of rational or scientific basis or not and assessee shall demonstrate that such a reasonable degree of estimation has been considered while making the provision. If it is found that provision has been made on rational and reasonable basis, then such a provision needs to be allowed and cannot held to be contingent or unascertained. With this direction, this matter is restored back to the file of the Assessing Officer who shall decide this issue after giving due opportunity to the assessee.”

8.3 We find that the Tribunal has restored this issue to the file of the Assessing Officer to examine whether the provision of bonus has been made on the rational and scientific basis to demonstrate that same is an ascertained liability. In the year under consideration also, no such details or working has been produced before us and thus, we feel it appropriate to restore this issue to the file of the Assessing Officer in accordance with law after affording adequate opportunity of being heard to the assessee. The ground No. 6 of the appeal is accordingly allowed for statistical purposes. 9. The ground No. 7 of charging interest under section 234B of the Act being consequential, we are not required to adjudicate

16 ITA No.2145/Del/2017 & S.A. No. 16/Del/2019 upon. The ground No. 8 challenging initiation of penalty proceedings under section 27(1)(c) of the Act, is premature at this stage and accordingly, same is dismissed. 10. In the result, appeal of the assessee is allowed for statistical purposes. 11. Since, we have already decided the appeal of the assessee, the application filed before us for seeking extension of the stay granted by the Tribunal on the recovery of demand and extended by the Tribunal from time to time, is rendered infructuous and accordingly, we dismiss the same. 12. To sum up, the appeal of the assessee is allowed for statistical purposes and stay application is dismissed.

Order is pronounced in the open court on 1st February, 2019.

Sd/- Sd/- [BHAVNESH SAINI] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 1st February, 2019. RK/-[d.t.d.s] Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR

Asst. Registrar, ITAT, New Delhi