Dresser Valve India (P.) Ltd. v. ACIT
ITA No. 6464 (Mum.) of 2007
A.Y. : 2003-04. Dated : 24-4-2009
S. 115JB — For purpose of computing book profits u/s.115JB,
although provisions made by an assessee are not allowable as deduction, yet
certain provisions which are capable of estimation with a reasonable certainty
without quantification are allowable, as they are ascertainable.
For the relevant assessment year, the assessee-company
added back the amount of provision for gratuity while computing its total
income but did not do the same while computing book profits in terms of S.
115JB. The Assessing Officer, having found that the assessee had failed to
follow AS-15 and the actuarial method referred to therein with regard to
gratuity for determining actual liability, added back the provision for
gratuity to the book profits u/s.115JB. On appeal, the CIT(A) upheld the
action of the Assessing Officer.
The Tribunal, following the decisions in Dy. CIT v. Oman
International Bank SAOG, (2006) 100 ITD 285 Delhi (SB) and Bharat Earth
Movers v. CIT, (2000) 245 ITR 428/112 Taxman 61 (SC), set aside the order
of the CIT(A). The Tribunal noted as under :
(a) The provisions of S. 115JB are a code by themselves
and determination of the book profits has to be done only as per the
provisions of S. 115JB, which unambiguously provide for exclusion of
provision of ascertained liabilities for the purpose of ‘book profits’.
(b) Although the provisions are not allowable as
deduction, yet certain provisions which are capable of estimation with a
reasonable certainty without quantification are allowable, as they are
ascertainable. On finding that the actual quantification is not a legal
necessity in matters of ascertainment of the gratuity, the provision of
gratuity in the assessee’s case was capable of being estimated with a
reasonable certainty and, therefore, it was not a contingent or
unascertained liability. It was an ascertained liability and the same was
outside the scope of the provisions of clause (c) of Explanation 1 to S.
115JB, warranting no addition to the ‘book profits’.
(c) The Supreme Court has held in the case of Bharat
Earth Movers (supra) as under :
“Business liability arising in the accounting year — the
deduction should be allowed although the liability may have to be quantified
and discharged at a future date. What should be certain is the incurring of
the liability. It should also be capable of being estimated with reasonable
certainty without actual quantification. Till these requirements are
satisfied, the liability is not a contingent one. The liability is in
presenti though it will be discharged at a future date. It does not make any
difference if the date on which the liability has to be discharged it is not
certain.”
