M/S. LIBERTY GROUP MARKETING DIVISION,KARNAL vs. ACIT, KARNAL

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

1. That the ld. CIT(A) ld. CIT(A) is against law and facts.

2. That in the facts and circumstances of the case of the appellant firm the order of the ld. CIT(A) in upholding the validity of reassessment proceedings initiated u/s 147/148 on the basis of audit objections and reconsideration of issue of admissibility of ESI expenses for which all facts were fully and truly disclosed before the AO while framing original assessment is highly arbitrary, illegal, void and uncalled for.

3. That, in the facts and circumstances of the case of the appellant firm the order of the ld. CIT(A) in confirming the order of the ACIT in inferring under re assessment proceedings that ESI liability of Rs. 17,33,331/- was not ascertained liability demand is altogether arbitrary, illegal, void and uncalled for.”

2. Ground No.1 being general in nature required no adjudication at our end. Ground No. 2 has not been pressed by the ld. AR. Hence Ground No. 2 stands dismissed.

3. Briefly stated, the facts giving rise to this ground as noted by the ld. CIT(A) at para 4 page 2 are that the as per details furnished by the assessee it was noticed that the joint Director ESIC, Ambala City raised a demand of Rs.34,32,576/- against the assessee on account of ESI which is disputed. The assessee filed a suit against this demand before the CJ(SD), Karnal denying its liability. The Ld. CJ(SD), Karnal vide his order dated 12.12.2005 directed the assessee to deposit the 50% of amount till the final decision of the case with the observation that the amount will be paid back to the assessee if the case is decided in his favour. It has been observed by the AO that the amount in question is disputed amount and the liability is, therefore, not an ascertained liability and the same is not allowable. Hence, 50% of Rs.34,25,576/- i.e. Rs. 17,16,288/- which is the amount deposited by the assessee under the direction of the court cannot be treated as expenditure for the year under consideration and required to be added back to the income of the assessee. The assessee carried the matter before the ld. CIT(A) but remained empty handed as the appeal of the assessee was disallowed on all three grounds. Now the assessee is before the Tribunal in this second appeal with the grounds as reproduced hereinabove

5. The ld. DR strongly supported the action of the AO as well as the impugned order. However, he did not object to this fact that the assessee lost the case in civil court and has deposited remaining 50% amount which has been allowed by the AO in this year of payment.

6. On careful consideration of the above from written submissions of the assessee placed before the AO [page 2 of assessee’s paper book] it is clear that the payment was made under the orders of the civil court. The relevant part reads as under:

“ESI demand paid Rs. 1733331.50

The Director of Employees state Insurance Covered persons doing production of Footwear at their own premises under ESI Act For the period July 1989 to 1992 and 1997 to Nov 1999 on the basis of production charges paid and raised ESI demand of Rs 3432576.00. The Assessee went in appeal in the court against Impugned order and for stay of said demand.

The Chief Judicial magistrate Granted stay subject to deposit of 50% of demanded amount of Rs 3432576.00. We undertake that if the demand is vacated Court, then the expenditure claimed will be In our income suo-moto.

Copies of order of the Director, ESI alongwith Notice court stay order and copy of challan for payment of Rs. 1733331.50 are enclosed.”