Pr Commissionerof Incometax-6Appellantthrough:mr.rahulchaudhary,Seniorstandingcounsel With Ms. Lakshmigurung, Advocate v. Nationalfertilizersltd

*THE HIGH COURT OF DELHI AT NEW DELHI + ITA 782/2016 PR COMMISSIONEROF INCOMETAX-6AppellantThrough:Mr.RahulChaudhary,SeniorStandingCounsel with Ms. LakshmiGurung, Advocate Versus NATIONALFERTILIZERSLTD. LTD.RespondentThrough:Mr. Ved Jain, Mr. Pranjal Srivastava& Ms. Rano Jain, Advocates WITH + ITA 784/2016 PR COMMISSIONEROF INCOMETAX-6AppellantThrough:Mr.RahulChaudhary,SeniorStandingCounsel with Ms. LakshmiGurung, Advocate Versus NATIONALFERTILIZERSLTD . Respondent .Through:Mr. Ved Jain, Mr. Pranjal Snvastava& Ms. Rano Jain, Advocates WITH + ITA 817/2016 PR. COMMISSIONEROF INCOMETAX-6AppellantThrough:Mr.RahulChaudhary,SeniorStanding Counsel with Ms. LakshmiGurung, Advocate Versus ITANos.782,784,817and 551 of2016 NATIONAL FERTILIZERS LTD.RespondentThrough:Mr. Ved Jain, Mr. Pranjal Srivastava& Ms. Rano Jain, Advocates AND +ITA 551/2016 Versus CORAM:JUSTICE S.MURALIDHARJUSTICE CHANDER SHEKHARORDER%24.04.2017 CM APPL Nos. 41563/2016.41565/2016,43359/20161. Allowed, subject to all just exceptions. CM APPL No. 27836/2016 (delay of 240 davs in re-filing)lA. For the reasons stated therein, this application is allowed. The delay of240 days in re-filing the appeal is condoned. ITA Nos.782/2016.784/2016.817/2016, 551/20162. ITA Nos.782/2016,784/2016, 817/2016 are appeals by the Revenueunder Section 260 A of the Income Tax Act 1961 ('Act') directed against thecommon order dated 31®^ May, 2016 passed by the Income Tax AppellateTribunal('ITAT')in ITA Nos.3947, 3948,3949/Del/2013for theAssessment Years ('AY') 2006-07, 2007-08 and 2008-09. ITA 551 of 2016againby the Revenueis againstthe orderdated20^^ May, 2015 ofthe ITAT in ITA No. 4076/Del/2013for AY 2009-10. 3. These four appeals seek to raise a common questionwhetherthe ITATwas justified in deleting the disallowance of demurrage and wharfagecharges,which accordingto the Revenuewas in the natureofpenaltyand,therefore,not amenableto deductionunderSection37(1)ofthe IncomeTaxAct, 1961? 4. The said questionalreadystandsansweredin favourofthe Assesseeandagainstthe Revenue by the judgmentof this Court in MahalaxmiSugarMills Company v. CommissionerOf Income Tax,(1986) 157 ITR 683 and of the Allahabad Court in Nanhoomal Prasad v.(Delhi)HighJyotiCommissionerOfIncomeTax, (1980)123ITR 269 (All). 5. However,learnedcounselfor the Revenueseeksto rely on the judgmentofthe RajasthanHighCourtin TataIron&SteelCo. Ltd. v. UnionofIndia(decisiondated28th January2014 in SB Civil Misc. AppealNo. 65/1997).Havingperusedthe saidjudgment,the Courtis not persuadedto takeaviewdifferent from that earlier taken by this Court MahalaxmiSugar MillsCompanyv. CommissionerofIncome-Tax(supra). 6. The other questionraisedby the Revenueconcernsthe provisionmadefor superannuation/post-retirementbenefits of the employees of theAssessee. The Assessee made the provision on the basis of an actuarialreport. Its consistentstand was acceptedby the CommissionerofIncomeTax (Appeals) ['CIT(A)']who came to the conclusionthat it was not anitem of deduction covered under Section 43B of the Act. The ITAT in the impugned order followed the decision of the Supreme Court in BharatEarth Movers v CIT [2000] 245 ITR 428 (SC) and the decision of thisCourt in CIT vs. Bharat Heavy Electrical Ltd. [2013] 352 ITR 88 (Del)and upheld the order of the CIT (A). 7. The Court's attention is drawn by learned counsel for the Assessee to thedecision in CIT v Ranbaxy Laboratories Ltd. (2011) 334 ITR 341 (Del).The ratio of the above decision is that wherethere are actuarial reportssupportingthe provisionto meet a contingentliability, it cannot be gonebehindby the AssessingOfficer(AO) unless it is shownto be not based onany scientific or know financial principles. impugned order followed the decision of the Supreme Court in BharatEarth Movers v CIT [2000] 245 ITR 428 (SC) and the decision of thisCourt in CIT vs. Bharat Heavy Electrical Ltd. [2013] 352 ITR 88 (Del)and upheld the order of the CIT (A). 7. The Court's attention is drawn by learned counsel for the Assessee to thedecision in CIT v Ranbaxy Laboratories Ltd. (2011) 334 ITR 341 (Del).The ratio of the above decision is that wherethere are actuarial reportssupportingthe provisionto meet a contingentliability, it cannot be gonebehindby the AssessingOfficer(AO) unless it is shownto be not based onany scientific or know financial principles. 8. It is sought to be urged by learned counsel for the Revenue that onlybecause the actual payouts by way of post-retirement benefits to the AYsweremade foremployeesin the in question far less than the provisionthat purpose, the actuarialreport cannot be said to have been preparedon ascientific basis and was therefore not binding on the AO. 9. The Court is unable to accept this submission. The making of a provisionto meet a contingent liability need not be in order to meet such liabilityentirely in the year of its creation. The provision having been made on thebasis of an actuarial report, which is not shown by the Revenue to bunacceptable on the ground that it is not based on known accounting orfinancial principles, the mere fact that the actual pay out in a particular AYmay be far less than the provision cannot provide a justification to deny thededuction. The Court concurs with the view of the CIT (A) and ITAT thatthe provisiondoes not attract Section 43 B of the Act. The concurrent findingsofthe CIT (A) and the ITAT on the above issue does not give riseto anysubstantialquestionof law. 10. The thirdgroundurgedby the Revenueis regardingthe failureby ITATto discloseas partofits income,the interestaccruedon the advancemadebyit to M/s. Karsan. Learned counsel for the Revenue pointedout that by ajudgment dated 4th December 2006 of this Court, the arbitral award infavourof the AssesseeundertheArbitrationAct, 1940 was made rule oftheCourt. He submittedthat to that date it could be said that the althoughupinterestonthe advancehad not crystallized(as was heldby this Courtin itsorder dated 2^"^2012 in ITA 541/2012in the Assessee'sown September,case for the AY 2005-2006),for the subsequentAYs the right to receiveinterest had accrued to the Assessee and should have been added to itsincome. 11. Learned counsel for the Assessee, on the other hand, states that theconceptof'realincome'has been acceptedby the SupremeCourtin GodhraElectricityCo. Ltd. v. CIT, (1997)225ITR 746 (SC) and this was followedby this Court in its decision dated 19^^ May, 2015 in ITA No.268/2008{LiquidatorPolymerlandIndia Pvt. Ltd. v. DCIT). It is pointed out thatwhereno partofthe advancehas been able to berecoveredby the Assessee,notwithstandingtheAwardinits favour,no'realincome'can be saidto haveaccrued to it. 12. The ITAT has in the impugned order held as under: "There is no dispute that the ICA has awarded interest to the assessee@ 5% p.a. on the advance made to M/ s. Karsan. It is also not disputed that the assessee could not make recovery against theadvance (principalamount)of Rs.130.69crores, an amountof Rs.1.05crores only could be recovered leaving balance advance of Rs.l29. 64crores which could not be recoveredtill date. The notionalinterestawarded by the International Court of Arbitration, which has nowattainedfinalityis a hypotheticalincomewhichcannotbe subjectedtotax. Merelybecausethe said amounthas been awardedby way of anorder, does not mean that the assessee has received such income.Theassessee followed mercantile system of accounting where there cannotbe a situation of hypothetical income being taxed" "There is no dispute that the ICA has awarded interest to the assessee@ 5% p.a. on the advance made to M/ s. Karsan. It is also not disputed that the assessee could not make recovery against theadvance (principalamount)of Rs.130.69crores, an amountof Rs.1.05crores only could be recovered leaving balance advance of Rs.l29. 64crores which could not be recoveredtill date. The notionalinterestawarded by the International Court of Arbitration, which has nowattainedfinalityis a hypotheticalincomewhichcannotbe subjectedtotax. Merelybecausethe said amounthas been awardedby way of anorder, does not mean that the assessee has received such income.Theassessee followed mercantile system of accounting where there cannotbe a situation of hypothetical income being taxed" 13. Indeed, it is seen that no part of the advance given by the Assessee toM/s. Karsan has been able to be recovered by it. As pointed out by learnedcounsel for the Assessee, there was a case registered with the Central Bureauof Investigation (CBI) in that regard and any prospect of the money beingrecovered has all but vanished. Since no part of the principal amount couldactually be recovered by the Assessee,there was no 'real income' and thequestion of adding any notional accrued interest to its income on suchamount does not arise. In the entire facts and circumstancesof the case, theCourt agrees with the concurrent findings of the CIT (A) and ITAT. Nosubstantial question of law arises as regard this issue as well. 14. The appeals are accordingly dismissed. APRIL 24, 2017/tp S.MURALIDHAR,JCHANDER SHEKHAR, J ITANos. 782,784,817and551 of2016