DCIT, CIRCLE-1, KOLKATA, KOLKATA vs. M/S MCNALLY BHARATI ENGINEERING CO.LTD., KOLKATA

ITA No.100/Kol/2011 is an appeal filed by the Revenue against the order dated 30.09.2010 of CIT(A)-I, Kolkata relating to A.Y 2006-07. The assessee has filed a Cross Objection against the very same order of CIT(A) which is C.O. 13/Kol/11.

Ground No.1 raised by the revenue in its appeal and the only ground of cross objection raised by the assessee in its Cross Objection can be conveniently disposed off together. These grounds read as follows :- Ground of appeal of the Revenue:

The Assessee is a company. It is engaged in the business of manufacture and sale of metallurgical machinery, materials handling and conveying plant/machinery/spares and coal washing plant on a turnkey contract basis. For A.Y.2006-07 the assessee filed return of income on 28.11.2006 declaring total income of ‘Nil ‘as per the normal provisions of the Act and book profits as per the provisions of section 115JB of the Income Tax Act, 1961 (Act) at Rs.5,71,66,526/-. The assessee had debited a sum of Rs.44,57,282/- in the profit and loss account on account of leave encashment which was outstanding on 31.03.2006. Under the provision of section 43B(f) of the Act any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee shall be allowed as deduction in computing the total income only in the year in which the sum is actually paid by him. In other words, the deduction on account of expenditure in the form of leave encashment paid by an employer to the employee cannot be allowed on the basis of the provision or on the basis of accrual under the mercantile system of accounting, made in the books of account and will be allowed only to the extent the leave encashment is actually paid to the employee by the employer. The plea of the assessee before the AO was that since section 43B(f) of the Act was declared unconstitutional by the Hon’ble Calcutta High Court in the case of Exide Industries Limited vs UOI 292 ITR 470 (Cal) provision for leave encashment thus based on proper estimate is a certain liability and should be allowed as deduction. The AO however after making a reference to the fact that an appeal against the decision of the Hon’ble Calcutta High Court in the case of Exide Industries Ltd. (supra) has been preferred 3

Before CIT(A) the assessee, apart from reiterating its claim for deduction of the entire sum of Rs.44,57,282/- based on the decision of the Hon’ble Calcutta High Court in the case of Exide Industries Ltd. (supra) made an alternative submission that the assessee in any event should be allowed a deduction of Rs.13,82,121/- which was the leave encashment actually paid by the assessee from 01.04.2007 till the due date for filing the return of income u/s 139(1) of the Act. The CIT(A) accepted the alternative argument of the assesee and deleted the addition made by AO to the extent of Rs.13,82,121/-. Aggrieved by the order of CIT(A) allowing deduction to the extent of Rs.13,82,121/- the revenue has raised ground No.1 before the Tribunal. Aggrieved by the order of CIT(A) sustaining the addition of the remaining sum which was the provision made for leave encashment the assessee has filed the cross objection.

We have considered the rival submissions. As far as the ground of appeal of the revenue is concerned, we do not find any merits in the grounds of appeal raised by the revenue. The proviso to section 43B clearly lays down that nothing contained in section 43B(f) shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub- section (1) of section 139 of the Act, in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. It is no doubt true that the assessee in the present case did not file the evidence regarding payment of Rs.13,82.121/- before the due date of filing the return of income u/s 139(1) of the Act by the assessee for the

As far as the Cross Objection filed by the assessee is concerned, in view of the pendency of the constitutional validity of section 43B(f) of the Act before the Hon’ble Supreme Court, it would be just and proper to direct the AO to follow the ultimate decision that might be taken in the said proceedings and decide the grievance projected by the assessee in the cross objection. Thus the cross objection filed by the assessee is treated as allowed for statistical purposes.

Ground No.2 raised by the revenue reads as follows :- “2. That on the facts and in the circumstances of the case Ld. CIT (Appeals) has erred in directing to delete the addition of Rs.99,237/-.”

The Assessee as an employer withheld the provident fund contribution payable by its employees from their salaries payable, as their share of contribution to PF. As per section 36(1)(va) of the Act, the sum so withheld as employees contribution to PF, if it is not paid on or before the due date as provided under the relevant law governing the 5

On appeal by the assessee, the CIT(A) directed the AO to allow the claim of the assessee for deduction and in doing so, the CIT(A) followed the decision of the Hon’ble Delhi High Court in the case of CIT vs AIMIL Ltd. & Ors. 229 CTR 418 (Del) wherein it was held that employees’ contribution to PF should be allowed as deduction which is paid on or before the due date of filing the return of income u/s 139 of the Act. Aggrieved by the order of CIT(A) the revenue has raised ground no.2 before the Tribunal.

At the time of hearing it was brought to our notice that the Hon’ble Calcutta High Court has also taken the view that employees’ contribution to PF paid on or before the due date of filing the return of income u/s 139(1) of the Act should be allowed as deduction. In this regard the decision of the Hon’ble Calcutta High Court in the case of M/s. Akzo Nobel India Ltd. Vs CIT in ITA 110 of 2011 order dated 14.06.2016 and in the case of CIT vs Vijayshree Ltd., of the Hon’ble Calcutta High Court in GA No.2607 of 2011 order dated 06.09.2011 was filed before us. In the order in the case of Vijayshree Ltd., (supra), the Hon’ble Calcutta High Court held as follows : “The only issue involved in this appeal is as to whether the deletion of the addition by the Assessing Officer on account of Employees’Contribution to ESI and PF by invoking the provision of Section 36(1)(va) read with Section 2(24)(x) of the Act was correct or not. It appears that the Tribunal below, in View of the decision of

In view of the aforesaid decision of the Hon’ble Calcutta High Court, we do not find any merits in ground no.2 raised by the revenue and accordingly the same is dismissed.

Ground No.3 raised by the revenue reads as follows :-

During the year under consideration, the company issued unsecured Foreign Currency Convertible Bonds(FCCB) amounting to Rs. 30 crores. At the time of issuance of FCCB, the Assessee had incurred an expenditure of Rs. 1,34,11,254/- in relation to above issue. During the course of assessment proceedings, the AO called upon the Assessee to explain as to why the said expenditure should not be treated as capital expenditure. In response to the said query, the Assessee filed detailed reply vide its letter dated 08-10-2009 contending that since expenditure has been incurred for 7

Disregarding the above submission, the AO. in the order u/s 143(3) disallowed the expenditure incurred on issue of FCCB on the basis that since the expenses does not represent interest expenses, the same are not allowable. The AO further observed that since FCCBs are convertible into equity share, expenses incurred for such issue is in the nature of capital expenditure and not allowable as deduction in computing Total Income.

Before CIT(A) the assessee primarily placed reliance on the decision of the Hon’ble Rajasthan High Court in the case of CIT vs Secure Meters Ltd. (2010) 321 ITR 611 (Raj.) wherein it was held that debentures when issued are loans and whether it is convertible or non convertible does not militate against the nature of the debenture being in the nature of the loan and therefore expenditure incurred would be admissible as revenue expenditure. It was also brought to the notice of CIT(A) that SLP filed by the department against the aforesaid decision of the Hon’ble Rajasthan High Court was rejected. Further reliance was placed on the Hon’ble Mumbai ITAT in the case of Mahindra & Mahindra vs JCIT 36 SOT 348 (Mum) wherein it was held that the expenditure incurred on account of foreign currency convertible bonds (FCCB) would be admissible as revenue expenditure.

The CIT(A) on consideration of the above submissions was of the view that the expenditure in question has to be allowed as deduction. The following were the relevant observations of CIT(A):- “I have gone through the contention of the appellant and the A.O. and read through the judgments relied upon by the A/R. The matter has already been decided by the 8

Aggrieved by the order of CIT(A) the revenue has raised ground no.3 before the Tribunal.

Before us the ld. DR relied on the order of AO. The ld. Counsel for the assessee reiterated the submissions as were made before CIT(A). It was also brought to our notice that in assessee’s own case in ITA No.840/Kol/2013 by order dated 15.07.2016 this tribunal allowed similar claim of the assessee.

We have considered the rival submissions. We are of the view that the issue in question is squarely covered by the decisions referred to by the assessee before CIT(A). The debentures whether convertible or non convertible are in the nature of loan at the time of their issuance and any expenditure incurred on issue of such debentures or bonds had to be regarded as part of the borrowing cost and have to be allowed as a deduction and as a revenue expenditure. This expenditure cannot be regarded as capital. We do not find any infirmity in the order of CIT(A) and accordingly ground no.3 raised by the revenue is dismissed.

Ground No.4 raised by the revenue reads as follows :-

The assessee entered into an agreement dated 11.08.1999 with M/s. Hooghly Mills Co.Ltd for purchase of the property owned by M/s. Hooghly Mills Co.Ltd at at Raja Santosh Roy Road, Kolkata. The assessee paid a sum of Rs.3 crores as advance at the time of the agreement for sale. It is the plea of the assessee that the property in question which was agreed to be purchased by the assessee was a land on which the assessee wanted to construct a building to be used as its office premises. However due to disputes the ultimate sale did not fructify. In full and final settlement, M/s. Hooghly Mills Co.Ltd., refunded only a sum of Rs.85 lacs, by way of refund of advance paid under the agreement of sale. The assessee thus incurred a loss of Rs.2,15,00,000/-. The cancellation of the agreement and repayment of Rs.85 lacs was in the month of May, 2004 and therefore the loss of Rs.2,15,00,000/- was written off in the books of account and claimed as a deduction while computing the total income of the assessee.

The AO was of the view that the loss in question was a capital loss and cannot be allowed as deduction as the advances in question was given for acquiring the capital asset. The AO in this regard made a reference to the decision of the Hon’ble Supreme Court in the case of Hashimara Industries Limited 230 ITR 927 (SC) wherein it was held that the deposit made by the assessee in connection with a leave and license agreement to work in a mill and loss due to irrecoverability of such deposit was to be regarded as a capital loss and not a business loss.

Before CIT(A) the assessee submitted that deduction u/s 28 or 37(1) of the Act is admissible for loss incidental to business and the only test to be satisfied is that the loss must arise from or spring directly from carrying on business. In other words, in order that loss occasioned from non-realisation of the advances should be allowed as business 10

The CIT(A) was of the view that the decisions relied upon by the assessee before him directly supported the plea of the assessee that the loss in question was a loss incidental to the business and was not a capital loss. He therefore held that the disallowance made by the AO cannot be sustained. Aggrieved by the order of CIT(A) the revenue has raised ground no.4 before the Tribunal.

We have given a very careful consideration to the rival submissions. We are of the view that order of the CIT(A) does not call for any interference. The decision of the Hon’ble Rajasthan High Court in the case of Anjani Kumar Co. Ltd. (supra) and the decision of ITAT, Mumbai in the case of Pik Pen Pvt. Ltd. (supra) clearly support the conclusions arrived at by CIT(A). As far as the decision of the Hon’ble Supreme Court in the case of Hashimara Industries Co.Ltd. (supra) is concerned, as rightly contended by the ld. Counsel for the assessee, in the aforesaid decision the assessee acquired right to carry on the business which itself was on capital account and the loss suffered on such capital account was also held to be a capital loss and not a business loss. In the present case the Assessee did not acquire any capital asset and merely paid advance for acquiring capital asset. We are therefore of the view that there is no merit in ground no.4 raised by the revenue and the same is dismissed.

Ground No.5 raised by the revenue reads as follows :- “5. That on the facts and in the circumstances of the case Ld. CIT ( Appeals) has erred in directing to exclude retention money of Rs. 28,87,72,022/- in computing total income under normal provision as well as in computing Book Profit u/s. 115JB.”

We have already seen that the assessee filed its return of income disclosing the total income as ‘Nil ‘under the normal provisions of the Act besides declaring book profits under the provision of section 115JB of the Act. In the proceedings before CIT(A) the assessee filed an additional ground of appeal where in the assessee claimed that a sum of Rs.28,87,72,022/- was retention money over which the assessee has no rights and therefore the sum in question cannot be considered as income both under the normal provision of the Act as well as while computing the book profit u/s 115JB of the Act. 12

With regard to the claim of the assessee that the said sum cannot also be regarded as part of the book profits u/s 115JB of the Act. The assessee relied on the following decisions :- (i) Bangalore ITAT in the case of Syndicate Bank -vs.- ACIT (2006) 7 SOT 51 (Bang) where it has been held that the entry by way of crediting the profit and loss account in respect of zero coupon bond is of notional credit and not in respect of interest accruing during the year. Hence, even though the same has been credited to profit and loss account, it needs to be excluded while computing the book profit as per Section 115JA. If notional income has been credited to P&L account and the said income has not accrued during the year, the same cannot be considered as "to disclose the result of working of the company during the financial year as provided under Part-I and Part- II of Schedule VI to the Companies Act, 1956."

The CIT(A) agreed with the contentions put forth by the assessee. On the admission of the additional ground, the CIT(A) was of the view that the facts to decide the additional ground were already available on record and therefore there should not be any hindrance in entertaining the additional ground. The CIT(A) placed reliance on the decision of the Hon’ble Supreme Court in the case of Jute Corporation of India 187 ITR 688 (SC) and the decision in the case of NTPC Ltd. 229 ITR 383(SC) to come to the conclusion that when facts to decide an additional ground of appeal are available on record and when it was only a question of applying the law to those facts for correctly deciding the liability to tax of an assessee in accordance with law, the additional grounds of appeal should be permitted to be raised.

As far as the question whether retention money can be regarded as income under the normal provisions of the Act is concerned, the CIT(A) was of the view that even in the mercantile system of accounting, income cannot be said to have resulted even though the entry might have been made in the books of accounts. In this regard the 14

With regard to including the retention money in computing the book profits the CIT(A) held as follows :- “11.9 Whether the above amount needs to be excluded in computing Book Profit u/s 115JB or not, the above issue is only academic as once it is upheld that the income has not accrued to the assessee, the same cannot be brought to tax under the special provisions of Section 115JB of the Act. In a plethora of decisions it has been held that MAT cannot be levied on notional income which has not accrued to the assessee. It can be levied only on real book profits which have been earned by the company. If the notional income has been credited to P&L account and the said income has not accrued during the year, the same cannot be considered as “to disclose the result of working of the company during the financial year as provided under Part-I and Part-II of Schedule VI to the Companies Act, 1956." The above principle has been upheld by Hon'ble Bangalore Tribunal in the case of Syndicate Bank (supra) & Hon'ble Mumbai Tribunal in the case of Hitkari Fibres Ltd. (supra) & Frigsales (I) Ltd. (supra). It may be noted that in rendering the above decisions, the Hon'ble Tribunal has referred to the decision of Apex Court in the case of Apollo Tyres vs CIT (2002) 255 ITR 273 (SC) and held that the above decision does not debar the assessee to make the above adjustment in computing Book Profit u/s 115JA/JB.

Aggrieved by the order of CIT(A) the revenue has raised ground no.5 before the Tribunal.

We have heard the submissions of the ld. DR, who submitted that the CIT(A) ought not to have admitted the additional ground for adjudication. In our view this is not the grievance projected by the revenue in the grounds of appeal. Apart from the above we 15

The ld. DR submitted that the assessee was following the mercantile system of accounting and therefore had to account for all receipts on accrual basis and cannot seek to exclude the retention money on the ground that the assessee’s is titled over the retention money remains in suspense till the conclusion of all the terms of contract to the satisfaction of the customer. With regard to the excluding the aforesaid receipts from the book profits u/s 115JB of the Act it was submitted by him that the provision of explanation to section 115JB of the Act clearly lays down what are the sums to be excluded and included to the profit as per profit and loss account prepared in accordance with the provisions of the Companies Act, 1956 and the retention money is one of the sums that had to be excluded from the book profits as laid down in Explanatin-1 to section 115JB(2) of the Act.

The ld. Counsel for the assessee while reiterating the plea of the assessee as put forth before CIT(A) further placed reliance on the decisions of the Hon’ble ITAT, Kolkata Bench in the case of DCIT vs Binani Industries Ltd. In ITA NO.144/Kol/2012 for A.Y.2009-10 order dated 02.03.2016 wherein the entire case laws on the issue has been discussed. The Tribunal finally concluded in the aforesaid decision that if the receipt is not in the nature of income then it cannot be considered as income for the purpose of book profit u/s 115JB of the Act. On the other hand if a receipt is considered as income but is exempt by virtue of any specific provision of the Act, then the same would be treated s part of the book profit u/s 115JB of the Act. Thus the ld. Counsel for the assessee submitted that since the retention money in question was not in the nature of income at all it should not be included as part of the book profit u/s 115JB of the Act.

We have already seen that the issue whether retention money in the case of contracts executed on a turkey basis can be regarded as income at all is no longer res integra and has been concluded by the Hon’ble Calcutta High Court in case of CIT Vs. Simplex Concrete (Piles) India Pvt. Ltd. [179 ITR 8]. In the aforesaid decision the Hon’ble Calcutta High Court on identical facts held that having regard to the terms and conditions of the contract, it could not be held that either 10 per cent. or 5 per cent., as the case may be, being retention money, became legally due to the assessee on the completion of the work. Only after the assessee fulfilled the obligations under the contract, the retention money would be released and the assessee would acquire the right to receive such retention money. Therefore, on the date when the bills were submitted, having regard to the nature of the contract, no enforceable liability accrued or arose and, accordingly, it could not be said that the assessee had any right to receive the entire amount on the completion of the work or on the submission of bills. The assessee had no right to claim any part of the retention money till the verification of satisfactory execution of the contract. Therefore, the Tribunal was right in holding that the retention money in respect of the jobs completed by the assessee during the relevant previous year should not be taken into account in computing the profits of the assessee for the assessment year in question. In view of the aforesaid decision of the Hon’ble High Court rendered on identical facts as that of the Assessee’s case, there can be no doubt that retention money does not have any character of income.

ITA No.532/Kol/2012 is an appeal by the revenue while ITA NO.217/Kol/2012 is an appeal by the assessee. Both these appeals are directed against the order dated 30.12.2011 of CIT(A)-I, Kolkata relating to A.Y.2007-08.

Ground no.1 raised by the revenue in its appeal and ground no.1 and 1.1 raised by the assessee in its appeal can be conveniently decided together . These grounds are as follows :- Ground of appeal of the Revenue: “1. That on the facts and in the circumstances of the case Ld. CIT(A) was not justified and erred in confirming the addition of an amount of Rs.18,41,476/- on account of provision for leave encashment u/s43B of the Act. “

Ground No.2 raised by the revenue reads as follows :- “2. That on the facts and in the circumstance of the case the Ld. CIT(A) was not justified and erred in allowing the expenditure of Rs.1,74,19,164/- under the head Foreign Currency Convertible Bond being revenue in nature although the addition was rightly made by the A.O. being the said expenditure as Capital in nature. “

This ground of appeal is identical to ground no.3 raised by the revenue in A.Y.2006-07 in ITA NO.100/Kol/2011. For the reasons stated while deciding the said identical ground of appeal of the revenue in AY 2006-07, we uphold the order of CIT(A) and dismiss ground no.2 raised by the revenue.

Ground No.3 raised by the revenue in its appeal and ground no.3 raised by the assessee in its appeal can be conveniently decided together. These grounds of appeal read as under :- Ground of appeal of the Revenue: “3. That on the facts and in the circumstances or the case Ld. CIT(A) was not justified and erred in deleting the addition of an amount of Rs.57,25,701/- on account of income from Service Charges not credited to Profit & Loss A/c but as appearing in the TDS Certificates filed u/s 194J of the Act. “

In the course of assessment proceedings, the AO noticed that the Assessee had claimed credit for Tax deducted at Source (TDS) in respect of certain payments received by the Assessee on which tax had been deducted at source u/s 194J of the Act amounting to Rs. 3,99,472/-. Sec.194J of the Act is applicable when payment is made by way of fees for professional or technical services rendered. The AO called upon the Assessee to show how corresponding income of Rs.71,20,701 is shown in the profit and loss account as or under the head fees for professional or technical services. In its reply to the aforesaid query of the AO, the Assessee filed reply dated 08-11-2010 in which the Assessee claimed that receipts from contract credited in profit and loss account amounting to Rs. 4,74,82,22,653/- includes both income from contractors as well as professional services. The A.O., however found that there was only a sum of Rs.13,95,000/- reflected in the profit and loss account as receipts under the head service charges. The AO while passing the order u/s 143(3) dated 21-12-2010, considered income from service charges amounting to Rs. 13,95,000/- as the only income received from professional services and disallowed balance amount of Rs. 57,25,701/- stating that there was nothing on record to prove that the differential amount of Rs. 57,25,701/- has been duly accounted for in the accounts as income.

Before CIT(A), the Assessee submitted that it is involved in the business of manufacture and sale of metallurgical machinery, materials handling and conveying plant/machinery/spares and coal washing plant on a turnkey contract basis. After the contract is undertaken, the scope of work required for execution of the contract includes designing, engineering, manufacture, construction, erection etc. Contract revenue received for carrying out all the above activities is booked under the head 'contract sales' in the P&L account. The Assessee further pointed out that while executing the contract, 25

The CIT(A) on perusal of the details/ information filed before him and after confronting the said details to the AO for his comments and after recording the fact that the AO did not give any comments despite adequate opportunity was of the view that the evidence filed before him needs to be taken into consideration for deciding the issue. The CIT(A) found that TDS certificate from CESC which reflected that they have paid Rs.70,65,601 to the Assessee as professional charges was in respect of 300 TPH Coal washery at Sarasthali Open Cast Mines having a total contract value of Rs. 1,40,00,000/-. The CIT(A) found that as per the contract with CESC activities like

In respect of the balance income of Rs. 55,100/-, the CIT(A) found that the same has been received by the Assessee from Eastman Crusher Company (P) Ltd. for which copy of the invoice filed by the Assessee showed that the said receipt was on account of design and engineering charges of ball mill against Customer Purchase Order No. 154/VIII: 752V-1:2005:29910. The CIT(A) also found that the said sum was also duly reflected as part of the contract sales credited in the profit and loss account.

The CIT(A) was therefore of the view that since the amount of income as reflected in the TDS certificate is already booked under the head 'Contract Sale' and not shown separately under the head 'services charges/ professional charges', disallowance made by the A.O. was totally unjustified. The CIT(A) also held that before making the disallowance, no opportunity was given to the Assessee to explain the above discrepancy by the A.O. which was against the basic principle of natural justice. The CIT(A) was of the view that although the TDS has been deducted u/s 194J of the Act, it does not automatically imply that the income shall be booked under that specific head. The CIT(A) found that the Assessee's total revenue for the relevant previous year from contract was Rs. 475 Crs which included all types of contracts like supply contracts, erection & service contract, design & engineering contract as well as composite contracts (comprising of either or all of above types). He held that the AO before coming to a conclusion that income as shown in TDS certificate has not been credited to

Aggrieved by the order of CIT(A) observing that the amounts represented by TDS certificate has already been booked under the head “Contracts “and his further conclusion that the disallowance made by AO seems to be unjustified, the revenue has raised ground no.3 before the Tribunal. The assessee is aggrieved by the direction of CIT(A) in and by which the CIT(A) directed the AO to verify other revenues as booked in the profit and loss account to come to a definite conclusion that the amounts represented by TDS certificates has been booked as part of the contract sale receipts, the assessee has raised ground no.3 before the Tribunal.

At the time of hearing it was brought to our notice that the AO gave effect to the directions of CIT(A) in the impugned order and passed an order dated 2.7.2012. In the said order the AO has accepted that the disputed income as shown in the TDS certificate has been included in the contract sales already disclosed by the assessee. The following were the relevant observations of the AO in this regard :- “In respect of credit of income under Service Charges, the A/R produces all the relevant documents wherefrom it is found that the income relating to TDS deducted u/s 194J included in the total turnover which is also verified from the TDS certificates issued by CESC. Hence, the claim of the assessee made before ld. CIT(A) is found correct and accordingly the same is allowed.”

Since the AO has himself accepted the claim of the assessee, we are of the view that there is no merit in ground no.3 raised by the revenue. As far as ground no.3 raised by

Ground no.4 raised by the revenue in this appeal read as follows :- “4. That on the facts and in the circumstances of the case the Ld. CIT(A) was not justified and erred while directing the A.O. to exclude the amount of retention money of Rs.46.01,77,049/- in computing total income as well as computing book profit u/s.115JB of the I.T. Act. “

This ground of appeal is identical to ground no.5 raised by the revenue in ITA No.100/Kol/2011 for A.Y.2006-07. The details of the retention money in this year are given in page no.29 of the assessee’s paper book and the same is given as Annexure-3 to this order. All the other facts and circumstances are identical to the facts and circumstances as it prevailed in A.Y.2006-07. For the reasons stated therein we uphold the order of CIT(A) directing the AO to exclude the amount of retention money while computing the total income as per the normal provisions of the act as well as while computing the book profit u/s115JB of the Act. Ground no.4 raised by the revenue is accordingly dismissed.

Ground No.5 raised by the revenue reads as follows :-

At the time of hearing it was admitted by the parties that no such issue arises out of the order of CIT(A) and that this ground of appeal has been erroneously raised in the

Ground No.6 raised by the revenue reads as follows :- “6. That on the facts and in the circumstances of the case Ld. CIT(A) was not justified and erred in deleting the addition made of an amount of Rs.1,28.35,000/- by the A.O on account of Advances written off on the contention that the said advances are not incidental to the business of the assessee and has not been given during the normal course of business.”

During the previous year, advances amounting to Rs. 1,29,40,600/- was written off In the books of accounts of the Assesssee, as they could not be recovered from the concerned parties. Break-up of the sum so written off is as follows:-

On appeal by the Assessee, the CIT(A) relying on decision Hon’ble ITAT in assessee's own case in A.Y. 2003-04 and decision of Hon’ble Hyderabad ITAT in ITW Signode Ltd -vs.- DCIT (2007) 110 TTJ 170 (Hyd) held that advances written off in the course of business needs to be allowed u/s 28 read with section 37(1) of the Act.

Aggrieved by the order of CIT(A) the revenue has raised ground no.6 before the Tribunal.

We have heard the submissions of the ld. DR and the ld. Counsel for the assessee. The ld. DR relied on the order of AO. The ld. Counsel for the assessee submitted that the issue has been decided in favour of assessee by Hon’ble Kolkata Tribunal in assessee’s own case in A.Y.2003-04 vide order dated 11-01-2017 (ITA No.99/Kol/.2011) wherein it was held that advances represent the money given in relation to business contracts of the assessee and as the necessary details of the parties were duly furnished, the order of CIT(A) holding that advances written off in the course of business is allowable u/ s 28 r.w.s. 37(1) was upheld. Further reliance was placed on the decision of the Hon'ble Supreme Court in the case of Badridas Daga -vs.- CIT (1958) 34 ITR 10 (SC) has held that :-

It was submitted that names of the parties to whom advances were given along with its purpose and other relevant details pertaining to the same had duly been furnished before the A.O vide letter dated 20~12-2010. It was submitted that when the principal amount is doubtful to be recovered, interest is not required to be booked in the accounts since it is not probable that income would arise to the assessee. Hence, following the principle of prudency, no interest was booked from ODC Carriers. With regard to the Inter corporate deposits/advances it was submitted that these were advances given in the normal course of business. Reliance was placed on the decision of ITAT Hyderabad

We have given a very careful consideration to the rival submissions. The factual details with regard to the corporate advances have to be narrated for the purpose of deciding the issue raised by the revenue in ground no.6 in respect of Inter corporate deposits and interest on intercorporate deposits of Rs.1,27,50,000/-.

The assessee had given a sum of Rs.1 crore as advances to MacNeill Engineering Ltd.(NEL). It is not in dispute that the advances given to MacNeill Engineering Ltd represented money given in relation to business contracts of the assessee. MEL was a company belonging to Willamson Magor group. ODC Engineering and Constructions Pvt. Ltd owed a sum of Rs.50,00,000/- to MEL. MEL requested ODC Engineering &

The letters exchanged between the parties in this regard are placed at page nos. 69 to 77 of the assessee’s paper book. After the aforesaid arrangement ODC Engineering & Constructions Pvt. Ltd and ODC Carriers Pvt. Ltd., requested their dues to the assessee to be converted into ODCss. The details of the conversion of the amounts originally given as advances to MEL and conversion into ODC is given below : Date Particulars Amount 01-04-2000 Advance given to Mcneil Engineering Ltd. 1,00,00,00 2000-01 Add Interest on above 12,17,788 1,12,17,788 2000-01 Interest paid 3,00,000 1,09,17,788 2001-02 Add Interest on above 12,73,600 1,21,91,388 2002-03 Add Interest on above 16,00,000 (A) 1,37,91,388 2004-05 Advances converted to ODC carriers instead of 77,50,000 Mcneill 2004-05 Advances converted to ODC engineering instead of 50,00,000 Mcneill 2004-05 Less Interest written off in the books (B) 10,41,388 (A)- (B) 1,27,50,000 31-03-2007 Advances written off in the books - ODC Carriers 77,50,000 - ODC Engineering 50,00,000 1,27,50,000

It is clear from the aforesaid details that the amount in question represented the money given in relation to contracts and had nexus with the business of the assessee. 34

As far as the remaining sum of Rs.1,35,55,600/- being old government deposits are concerned the details of old government advances off are given at page-66 of the assessee’s paper book. The old Govt deposits which were written off were so written off owing to the smallness of the amount and the efforts involved in recovering these deposits. We are satisfied that the claim for deduction on account of write off of these sums had to be considered as allowable expenditure u/s 28 r.w.s. 37(1) of the Act.

As far as the advance written off of Rs.1,35,000/- of Kumardhubi division is concerned, these advances were given for business purpose to various parties for purchase of goods , consumable stores and electrical installation. These advances had nexus with the business of the assessee and their write off in the books of accounts has to be considered as allowable deduction u/s 28 r.w.s. 37(1) of the Act. We therefore are of the view that CIT(A) was fully justified in allowing deduciton claimed by the assessee. We also find that the arguments advanced by the assessee before us clearly supports the conclusion arrived at by CIT(A). For the reasons given above we dismiss ground no.6 raised by the revenue.

In the result the appeal by the revenue is dismissed.

This ground of appeal is identical to ground no.2 raised by the revenue in its appeal in ITA NO.100/Kol/2011 for A.Y.2006-07. For the reasons stated there in while decided the aforesaid ground of appeal we hold that the deduction on account of employees contribution to Provident Fund paid by the assessee on or before the due date of filing the return of income u/s 139(1) of the Act is allowed as deduction. Ground no.2 raised by the assessee is accordingly allowed.

Ground No.4 raised by the assessee reads as follows :- “4.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and erred in disallowing provision for doubtful debt amounting to Rs. 8,72,921/- as diminution in the value of assets and not considering the same as provision for losses in computing book profit u/ s 115JB of the Act.”

During the relevant previous year, an amount of Rs. 8,72,921/ - was debited to P&L account on account of provision for doubtful debts. Such provision was duly reduced from the Total Debtors as per Schedule 9 of the Balance Sheet and the net figure of Debtors after reducing such provision was shown in the Annual Accounts. In the return of income, provision for doubtful debts amounting to Rs. 8,72,921/ - was not added back while computing Book Profit u/s 115JB of the Act.

In the order of assessment passed u/s 143(3) of the Act, provision for doubtful debt was added back while computing Book Profit u/s 115JB of the Act. The AO did not give any reasons in the order of assessment for doing so. 36

Before us it was submitted by the learned counsel for the Assessee that the amount of Rs. 8,72,921/- although termed as provision, represents bad debts written off. The assessee debited the aforesaid amount in the profit and loss account and also reduced the corresponding amount in Schedule 9 - to the Balance Sheet, against 'Sundry Debtors '. Besides debiting P&L A/ c and creating a provision for bad and doubtful debt, assessee simultaneously obliterated said provision from its accounts by reducing corresponding amount from debtors on assets side of Balance Sheet. Hence, the amount provided represents bad debts written off. In this connection, he placed reliance on the decision of the Hon'ble Apex Court in the case of Vijaya Bank -vs.- CIT (2010) 323 ITR 166 (sq, wherein it was held that once an amount was debited in the Profit & Loss account and corresponding debts were reduced, it was nothing but a write-off of bad debt. Since the amount debited has been reduced from debtors, it represents bad debts and therefore the same cannot be added in computing Book profit. He relied on the following decisions in support of his claim as aforesaid: - CIT-vs.-Yokogawa India Ltd. (2012) 204 Taxman 305 (Kar) - CIT -vs.- Kirloskar Systems Ltd. (2014) 220 Taxman 1 (Kar) - Flex Foods Ltd. -vs.- DCIT (ITA N 0.4800/DeV2011) - Murugappa Morgan Thermal Ceramics Ltd. -vs.- ACIT (IT A No.2208/Mds/2010) - Trent Ltd, Mum -vs.- Department of Income Tax (IT A no. 1073/Mum/2005) The ld. DR relied on the order of CIT(A).

After considering the rival submissions we are of the view that the question before us is as to whether the debit in the profit and loss account under the head “provision for 37

In the result the appeal of the assessee is partly allowed.

ITA No.533/Kol/2012 is an appeal by the revenue while ITA No..218/Kol/2012 is an appeal by the assessee. Both the appeals are directed against the order dated 30.12.2011 of CIT(A)-I, Kolkata relating to A.Y.2008-09.

Ground No.1 raised by the revenue in its appeal and ground no.1 and 1.1. raised by the assessee in its appeal can be conveniently decided together. These grounds of appeal are as follows :-

The facts and circumstances under which these grounds of appeal arise for consideration are identical to ground no.1 raised by the revenue in ITA No.100/Kol/2011 for A.Y.2006-07 and C.O.No.13/Kol/2011 for A.Y.2006-07. For the reasons stated therein ground no.1 raised by the revenue is dismissed while ground 1.0 & 1.1 raised by the assessee are treated as allowed for statistical purposes.

Ground No.2 raised by the revenue reads as follows :- “2. That on the facts and in the circumstance of the case the Ld. CIT(A) was not justified and erred in allowing the expenditure of Rs.2,58,997/- under the head Foreign Currency Convertible Bond being revenue in nature although the addition was rightly made by the A.O. being the said expenditure as Capital in nature. “

This ground of appeal is identical to ground no.3 raised by the revenue in A.Y.2006-07 in ITA No.100/Kol/2011. For the reasons stated therein we uphold the order of CIT(A) and dismiss ground no.2 raised by the revenue.

Ground No.3 raised by the revenue reads as follows :-

This ground of appeal is identical to ground no.5 raised by the revenue in A.Y.2006-07 in ITA No.100/Kol/2011. The details of the retention money in this A.Y. are given at page no.29 of the assessee’s paper book and the same is given as Annexure-4 to this order. All the other facts and circumstances are identical to the facts and circumstances as it prevailed in A.Y.2006-07. For the reasons stated therein we uphold the order of CIT(A) directing the AO to exclude the amount of retention money while computing the total income as per the normal provisions of the act as well as while computing the book profit u/s115JB of the Act. Ground no.3 raised by the revenue is accordingly dismissed.

Ground No.4 raised by the revenue in its appeal and ground no.3. raised by the assessee in its appeal can be conveniently decided together. These grounds of appeal are as follows :- Revenue’s appeal: “4. That on the facts and in the circumstances of the case the Ld. CTT(A) was not justified and erred while giving direction to the A.O. to verify the account of provision made for employees' benefit in computing book profit 115JB of the Act and grant the relief accordingly, if the contention of the appellant is found to be correct. The direction of the Ld. CIT(A) tentamounts to set aside the case to the file of the A.O. which is not empowered to do and this is a question of involvement of law.”

On appeal by the Assessee, the CIT(A) found that as per Note 21 of Schedule 22 to the Balance Sheet all defined benefit plans recognised in Financial Statements including contribution to employee's benefit were adjusted with General Reserve and was made as per actuarial valuation. The CIT(A) therefore held that the amount represents ascertained liability. The CIT(A) following the decision of CIT -vs.- Sain Processing & Weaving Mills P. Ltd (2010) 325 ITR 565 (Del) held that since provision for contribution to employee's benefit is a normal business expenditure and same has been disclosed in the notes to accounts, said expenditure is to be taken into account for the purpose of arriving at book profits u/s 115JB of the Act. He held that normally the provision for employee’s benefit is required to be debited to the P&L account. Hence in order to arrive at correct Book Profit, same is required to be reduced from net profit. The issue was however set aside to the file of A.O. to verify the account of provision made for employee's benefit while computing Book Profit and grant relief accordingly. 97. Aggrieved by the order of the CIT(A) directing the AO to reduce the aforesaid sum for arriving at book profit u/s.115JB of the Act, the revenue has raised ground No.4

We have heard the rival submissions. The learned DR relied on the order of the AO. The learned counsel for the Assessee submitted that expenses incurred on contribution to employees' benefit is a normal allowable business expenditure. It was submitted that as per clause (c) of Explanation (1) of Sec. 115JB of the Act only ascertained liability is required to be added back while computing Book Profit. Since provision on account of employees' benefit is created on the basis of actuarial valuation, it is an ascertained liability which is not required to be added back while computing book profit. Reliance in this regard can be placed on the decision of CIT - vs.- National Hydro Electric Power Corporation Ltd (2010) 45 DTR 117 (P&H) wherein similar view was upheld by the Hon'ble High Court. It was submitted that the issue is squarely covered by the decision of Hon'ble Pune Tribunal in K.K Nag Ltd -vs.- ACIT (2012) 52 SOT 0381 (Pune Trib) wherein it was held that on a conjoint reading of sub-sections (2), (3A) of section 211 and Part 11 of Schedule VI to the Companies Act, 1956 and the Accounting Standard - 15, it was imperative for the assessee to set out the incremental liability towards leave encashment in the annual accounts. If the same is set out by way of a disclosure in the Notes forming part of the annual accounts and not by way of an entry in the P&L account, the same is sufficient because the net profit as shown in the P&L account for the purposes of Explanation 1 to the second Proviso to section 115JB of the Act is to be understood with reference to the Notes to accounts accompanying the annual accounts also. It was held that use of the expression 'net profit' in Explanation 1 to the second Proviso to section 115JB of the Act makes it clear that the impugned incremental liability towards leave encashment not debited to the Profit & Loss account but otherwise disclosed in the Notes to Accounts will have to be taken into account

At the time of hearing it was brought to our notice that pursuant to the directions of CIT(A) in the impugned order AO passed an order dated 05.07.2012 giving effect to the directions of CIT(A) in which the AO had not accepted the claim of the assessee and made the following observations :- “In respect of disallowance of claim of downward adjustments of Rs.1,02,88,421/- in the computation of Book of Profit, the direction of Ld. CIT(A) relates to verification on account of provision made for Employees benefit while computing book profit cannot be carried out for giving relief because the amount of rs.1,02,88,421/- was excluded by the AO in computing book profit, but there was no scope to verification of Provision from P&L accounts, Ld. CIT(A) did not give order to verify from which angle the provision has to be verified. Hence, no further relief may be allowed against the disallowance of claim.”

Before us the ld. DR reiterated the stand of the AO as reflected in the assessment order as well as in the order giving effect to the order of CIT(A). The ld. Counsel for the assessee reiterated the submissions as were made before CIT(A). The ld. Counsel for the assessee also attempted to argue that the findings of the AO in the order dated 05.07.2012 giving effect to the directions of CIT(A) in the impugned order are

We have considered the order of CIT(A) and are of the view that the conclusions drawn by CIT(A) are clearly supported by the decisions referred to by CIT(A) as well as the decisions referred to by the ld. Counsel for the assessee before us. Since the amount in question was an obligation of the assessee as an employer the liability arising on account of such obligation should also be considered while arriving at the book profit for the purpose of Sec.115JB of the Act. Thus on the principle laid down in the decisions on which the ld. Counsel has placed on reliance, we are of the view that CIT(A) was justified in accepting the plea of the assesses. With regard to the directions of CIT(A) to verify whether the account of the provisions made for employee benefit has already been debited in the profit and loss account, the directions of CIT(A) his order is correct and is for the assessee to explain as to how the sum in question are not debited in the profit and loss account but nevertheless need to be excluded . We do not find any merits in the grounds raised by the assessee also.

In the result ground no.4 raised by the revenue and ground no.3 raised by the assessee are dismissed.

In the result the appeal by the revenue in ITA No.533/Kol/2012 is dismissed.

Ground No.4 raised by the assessee reads as follows :- “4.0 That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and erred in disallowing provision for doubtful debt amounting to Rs. 9,34,523/- as diminution in the value of assets and not considering the same as provision for losses in computing book profit u/ s 115JB of the Act.”

The issue that arises for consideration in the aforesaid ground of appeal is with regard to Disallowance of provision for doubtful debts for the purpose of arriving at book profit u/s.115JB of the Act of Rs. 9,34,523/-. During the relevant previous year an amount of Rs. 9,34,523/ - was debited to P&L account on account of provision for doubtful debts. Such provision was duly reduced from the Total Debtors as per Schedule 8 of the Balance Sheet and the net figure of Debtors after reducing such provision was shown in the Annual Accounts. In the return of income, provision for doubtful debts amounting to Rs. 9,34,523/ - was not added back while computing Book Profit u/s 115JB of the Act. In the Assessment passed order u/s 143(3), the AO added back the provision for doubtful debt while computing Book Profit u/s 115JB of the Act.

On appeal by the Assessee, the CIT(A) held that provision for doubtful debt is nothing but diminution in the value of investments and as amendment brought in section 115JB by Finance Act, 2009 is retrospectively applicable, disallowance made by A.O was upheld.

In the result all the appeals by the revenue are dismissed, cross objection of the Assessee is allowed for statistical purpose and the other two appeals by the assessee are partly allowed. Order pronounced in the court on 01.03.2017.

M/s. McNally Bharat Engineering Company Limited, 4, Mangoe Lane, Kolkata- 700001. 2. D.C.I.T. Cirle-1, Kolkata. 3. CIT(A)-I, Kolkata 4. CIT- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.