Sage Metals Ltd., New Delhi vs Department Of Income Tax

DCIT, vs. Sage Metals Ltd., Circle 7(1), Room No. 238A, 346, Functional Industrial 2nd Floor, C.R. Bldg., I.P. Estate, Estate, Patparganj, New Delhi. New Delhi. AAACS2801A

(Appellant) (Respondent)

Appellant by : Sh. Ramesh Chandra, CIT DR & Sh. B.R.R. Kumar, Sr. DR Respondent by : Sh. V.P. Gupta, Adv.

Date of Hearing: 08.05.2015 Date of Pronouncement: 20.05.2015

ORDER

PER SHRI C.M. GARG, J.M.

This appeal has been preferred by the Revenue agaisnt the order

of the Commissioner of Income Tax (Appeals)-X, dated 12/07/2013 in

appeal no. 13/2011-12 for A.Y. 2008-09 and dated 21/08/2013 passed

u/s 154 of the Act.

2. The sole ground raised by the Revenue reads as under: 2

" The ld. CIT(A) has erred in law and on the facts and circumstances of the case, in deleting the addition of Rs. 6037000/- being made by the Assessing Officer on account of provisions for gratuity and leave encashment."

3. We have heard the argument of both the sides and carefully

perused the relevant material placed on record, inter-alia, assessment

order, order of the CIT(A) dated 12/7/2013, paper book filed by the

assessee spread over 34 pages and impugned order of the CIT(A) dated

21/08/2013for A.Y. 2008-09 passed u/s 154 of the Income Tax Act, 1961

(for short the Act).

4. The ld. Departmental Representative (DR) pointed out that the

CIT(A) in his order dated 21/08/2013 passed u/s 154 of the Act deleted

the addition made on account of provision for Gratuity and leave

encashment on unjustified and incorrect premise. Therefore, the same

may be set aside by restoring that of the AO on this issue.

5. The ld. Counsel of the assessee drawn our attention towards order

of the CIT(A) passed u/s 154 of the Act (supra) and submitted that the

provision for gratuity and leave encashment was fully explained during

the course of appellate proceedings and the same was computed on the

basis of a certificate given by actuarial expert which clearly establish that

the provisions for gratuity and leave encashment are based on a

scientific methodology which is also certified by a specialist. The ld.

Counsel vehemently contended that in view of the above facts of the 3

present case the issue is squarely covered in favour of the assessee by

the decision of Hon'ble Supreme Court in the case of Rotork Controls

Ltd. vs. CIT, 314 ITR 62 (SC). The ld. Counsel pointed out that the

CIT(A) in the original order dated 12/07/2013 dimissed the ground no. 2

of the assessee ignoring the relevant facts of the case which was

subsequently rectified by passing impugned order u/s 154 of the Act and

the same is sustainable.

6. On careful consideration of above sumissions from the order of the

CIT(A) passed u/s 154 of the Act, we observe that the CIT(A) granted

relief for the assessee with following observations:

"2. It has been contended by the AR of the appellant that provision for gratuity (Rs. 49,01,000/-) and leave encashment (Rs. 11,36,000/-) had been fully explained during the course of appellate proceedings and it had been also recorded that the provision was computed on the basis of a certificate given by actuarial. This clearly established that the provision was based on a scientific mythodology and certified by a specialist. This aspect has also been mentioned itself in the body of the appellate order. In view of these facts, the issue is clearly covered in favour of the appellant by the decisions of Rotork Controls Ltd. 314 ITR (SC) and, therefore, it appears to be a mistake apparent from record.

3. After considering the rectification application of the AR as well as the details in the appellate order, it appears that through oversight this aspect has not been adjudicated by considering this fact which is also mentined in the above order itself. Accordingly, in view of the fact that the provisions had been made on the basis of actuarial experts, there is a scientific basis for arriving at this provision, which is also consitently belong followed by the appellant.

4. Since this is an oversight and mistake apparent from record, the contentins of the appellant are fully justified and, therefore, 4

this ground of the appellant is being allowed in view of the issue being covered by the Apex Court judgment."

7. In view of abvoe, we are inclined to hold that since the provision

for gratuity and leave encashment were fully explained by the assessee

before the authorities below and the ld. CIT(A) also recorded that the

provision was computed on the basis of scientific methodology and also

certified by the actuarial specialist. Under above noted facts, we

respectfully follow the decision of Hon'ble Supreme Court in the case of

Rotork Controls India Pvt. Ltd. (supra), wherein it was held that a

provision is a liability which can be measured only by using a substantial

degree of estimation and the same is recognized when (a) an enterprise

has a present obligation as a result of a past event; (b) it is probable that

an outflow of resources will be rquired to settle the obligation, and (c) a

reliable estimate can be made of the amount of the obligation and if

these conditions are not met no provision can be recognized. Meaning

thereby for legal recognition of a provision aforesaid conditions are to be

fulfilled or required to be met by the assessee.

8. In the present case, the assessee by way of scientific

methodology had established that the impugned provisions were

recognized by using a substantial scientific methodology and estimation

which was also certified by an actuarial specialist. In this situation, the

provision for gratuity and leave encashment made by the assessee are 5

held to be fully explained or sustainable and the same is allowable as

per ratio laid down by the Hon'ble Apex Court in the case of Rotork

Controls (supra). Accordingly, we are unable to see any infirmity or any

other valid reason to interfere with the impugned order and we upheld

the same. Accordingly, sole ground of the Revenue being devoid of

merits being dismissed.

9. In the result, the appeal of the Revenue is dismissed.

This decision was pronounced in the open court on 20.05.2015

Sd/- Sd/-

(S.V. MEHROTRA) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 20.05.2015 *Kavita, P.S.

Copy to:

1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, New Delhi. TRUE COPY

By Order

ASSISTANT REGISTRAR 6

Sl. Description Date No.

1. Date of dictation by the Author 19.05.2015

2. Draft placed before the Dictating Member 19.05.2015

3. Draft placed before the Second Member

4. Draft approved by the Second Member

5. Date of approved order comes to the Sr. PS

6. Date of pronouncement of order

7. Date of file sent to the Bench Clerk

8. Date on which file goes to the Head Clerk

9. Date of dispatch of order