BHARAT CABLE INDUSTRIES,MUMBAI vs. ACIT CIR 18(3), MUMBAI

आदेश / O R D E R

Per Manoj Kumar Aggarwal (Accountant Member)

by assessee reads as follows:- “1. On the facts and circumstances of the Appellant’s case and in law the Learned CIT(A) erred in confirming the disallowance of Rs. 12,85,262/- made by the Ld. AO on account of payment of gratuity. 2.1 Facts leading to the same are that the assessee being resident firm engaged in manufacturing and sale of electric wires was assessed for impugned AY u/s 143(3) on 30/12/2010 at loss of Rs.5.68 crores as against returned loss of Rs.5.81 crores filed by the assessee on 29/09/2008. The only adjustment made in the assessment was disallowance of gratuity of Rs.12,85,262/- 2.2 During assessment proceedings, it was noted that the assessee firm acquired the business of proprietary concern of one of the partner with effect from 01/10/2007. All the assets and liabilities of the proprietary concern were taken over at its book value as on 30/09/2007. It was further noted that the assessee debited gratuity of Rs.12,85,262/- in the profit & loss account. The Ld. AO opined that the liability was the liability of earlier years and belonged to proprietary concern and hence the same could not be allowed to the assessee firm.

3. Aggrieved, the assessee contested the same without any success before Ld.CIT(A) vide impugned order dated 29/10/2013 where Ld. CIT(A), placing reliance on several judicial pronouncements, concluded that the said payment were capital expenditure of the assessee firm and could not be allowed to assessee in terms of provisions of Section Bharat Cable Industries Assessment Year 2008-09 36(i)(v) and Section 43B. Aggrieved, the assessee in further appeal before us.

4. The Ld. Counsel for Assessee [AR] drew our attention to break-up of the gratuity expenses and contended that the expenses were towards future liabilities and hence allowable to the assessee. Per Contra, Ld. DR contended that no deduction could be allowed to the assessee for the liabilities of the proprietary concern.

5. We have heard the rival contentions and perused relevant material on record. As evident from documents on record, the break-up of the gratuity amount claimed by the assessee is as follows:-

No. Particulars Amount (Rs.) 1. Present value of past services 11,60,926/- gratuity liabilities on discounted basis 2. Annual Contribution 1,08,854/- 3. Others 15,482 Total 12,85,262/- Prima facie, it appears that the amount of Rs.11,60,926/- computed by the assessee relates to services rendered in the past by the employees to erstwhile proprietary concern. No details of annual contribution of Rs.1,08,854/- has been placed on record. In principle, we agree with the stand of Ld. CIT(A) that discharge of liability of the transferor concern for services rendered in the past are capital expenditure and hence, the same could not be allowed to the assessee. With these observations and for want of requisite details, we deem it fit to restore the matter back to Ld. AO for necessary adjudication with a direction to assessee to provide necessary details and substantiate his claim in this regard.

Bharat Cable Industries Assessment Year 2008-09 6. The assessee’s appeal stands allowed for statistical purposes. Order pronounced in the open court on 08th November, 2017.