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ACIT, Circle 13(1) Room No.406 Core III, C.R.Building, New Delhi Vs. National Fertilizers Ltd. Scope Complex 7 IP Estate Institutional area, Lodhi road New Delhi
May, 22nd 2015
                   DELHI BENCHES: `E', NEW DELHI


                           ITA No. 4076/Del/2013
                                   AY: 2009-10

ACIT, Circle 13(1)      vs.       National Fertilizers Ltd.
Room No.406                       Core III, Scope Complex 7
C.R.Building, IP Estate           Institutional area, Lodhi road
New Delhi                         New Delhi

                                  PAN: AAACN 0189 N
      (Appellant)                                (Respondent)

           Assessee by   : Sh. Ved Jain, C.A.
                            Ms.Rano Jain, Adv.
                            Sh. VM Chourasiya, Adv.
           Dept. by : Sh. Gunjan Prasad, CIT, D.R.



      This is an appeal filed by the Revenue against the order of the
Ld.CIT(A)-XVI, New Delhi dated 29.4.2013         pertaining to the Assessment
Year (A.Y.) 2009-10.

2.    Facts in brief:- The assessee is a company engaged in the business of
manufacturing and trading of         Nitrogenous Fertilisers and other related
industrial products. It filed its return of income on       29.9.2009 declaring
income of Rs.253,15,13,265/-. It was revised on 30.3.2011 declaring the
very same income.      The AO passed an order u/s 143(3) of the Act on
14.11.2011   determining the total income at Rs.350,78,38,270 inter alia
making the following additions/disallowances.

i. Business income                                        Rs.253,15,13,265

ii. undisclosed interest income                           Rs. 6,48,20,000
                                  ITA 4076/Del/2013
                                      AY: 2009-10
                                National Fertilizers Ltd.

iii. Disallowance of demurrage charges                      Rs. 2,36,00,000

iv. Diminution of slow moving spares                        Rs. 6,98,38,000

v. Provision of post retirement benefits                    Rs. 7,79,00,000

vi. Provision of wage arrears                               Rs. 74,01,67,000

     total income                                           Rs. 350,78,38,265

total income rounded off:                                   Rs. 350,78,38,270

3.      Aggrieved the assessee carried the matter in appeal.           The First

Appellate Authority has granted part relief. The Revenue has filed apepal

before us on the following grounds.

1.     The Ld.CIT(A) has erred in law and on facts in deleting the addition
made by the assessing officer amounting to Rs. 6,48,20,000/- crores on
account of interest accrued on advances given to M/s Karsan ;
2.     The Ld. CIT(A) has erred in law and on facts in allowing Rs.
2,36,00,000/- on account of Demurrage & Wharfage expenses by not
considering these expenses of penal nature;
2.1 The Ld. CIT(A) has erred in law and on facts in not appreciating the
provision laid down in explanation to Sec.37(1) wherein it has been laid that
any amount paid for the purpose which is an offence or which is prohibited by
law shall not be allowed as expenditure incurred for business purpose;
2.2 The Ld. CIT(A} has erred in law and facts in ignoring the fact that the
Railway Act has defined the demurrage and wharfage as the charge levied,
charge means the blame or accusation, hence is of penalty nature;
3.     The Ld. CIT (A) has erred in law and facts in deleting the addition of Rs.
7,79,00,000/- on account of disallowance of provision for post retirement
benefits ignoring the fact that these are unascertained liabilities and cannot
be allowed as per provisions of AS -15;
4.     The Ld. CIT (A) has erred in law and facts in deleting the addition of Rs.
74;01,67,000/- on account of disallowance of provision for wage arrears
ignoring the fact that as per assessee company, the calculation was made on
estimated basis. Thus, these are unascertained liabilities and cannot be
allowed as per provision of section 37{1) of the Act;
5.     The appellant craves to be allowed to add any fresh grounds of appeal
and/or delete or amend any of the grounds of appeal.

4.      We have heard Mr.Gunjan Prasad, Ld.CIT(A), D.R. on behalf of the

Revenue and Mr.Ved Jain, the Ld.Counsel for the assessee.

                                 ITA 4076/Del/2013
                                     AY: 2009-10
                               National Fertilizers Ltd.

5.     On a careful consideration of the facts and circumstances of the case,
on perusal of material on record, orders of the authorities below, case laws
cited, we hold as follows.

6.     The first ground that arises for our consideration is the deletion of an

addition being accrued interest on advances given to M/s Karsan.             This

issue has been discussed at page 2 para 3 of the assessment order. The

Ld.CIT(A) has dealt with the same at page 41 para 4.1 onwards. Both the

parties submitted that the issue is squarely covered in favour of the

assessee by an order passed by the ITAT on the very same issue for the AY

2004-05 and 2005-06. The Hon'ble Jurisdictional High Court had affirmed

the order of the Tribunal in ITA 541/2012 dt. 24th September, 2012 and at

page 19 has held as follows.

"The Tribunal endorsed the finding of the CIT(A). It relied upon its decision for
the AY 2004-05, as is apparent from its discussion in para 9. The Tribunal's
finding would show that it had also relied upon the decision of the Supreme
Court in Fuerst Day Lawson Ltd. Vs. Jindal Exports Ltd. (AIR 2001 SC 2293).

This Court also noticed that having regard to the terms of the repeated
Arbitration Act, 1940, an award could not be enforceable. The same was the
case with the foreign award, the Court had to first adjudicate as to the

In these circumstances, the assessee's right to interest was a mere claim, till
the date of the judgement of the Court dt. 4th Dec.2006. In other words, the
right to interest crystallised after the judgement of the Court. Till then, it was
inchoate. For this reason, the Tribunal's finding cannot be faulted with. No
substantial question of law arises. The appeal is therefore dismissed."

6.1.   Respectfully following the same, we dismiss this ground of Revenue.

                                 ITA 4076/Del/2013
                                     AY: 2009-10
                               National Fertilizers Ltd.

7.      Ground no.2 is against the deletion of             addition of Rs.2,36,00,000
being    demurrage &     wharfage     charges.       These charges are paid to the
railways towards delay in loading and unloading operations beyond the time
frame fixed by the Indian railways. The AO was of the view that the amount
paid as demurrage and wharfage to the railways is a fine or penalty and
hence disallowed the expenditure. The Ld.CIT(A) has dealt with the issue at
page    44 para 5. The payment in question is not the penalty or fine for
violation of any statute. It is compensatory in nature. The issue stands
covered by the following decisions.

i. Nanhoomal Jyoti Prasad vs. CIT (1980) 123 ITR 269 (All.)
ii. Mahalaxmi Sugar Mill Co.Ltd. vs. CIT (1986) 157 ITR 683 (Del.)

Imcola (Exports) Ltd. ITA 974/Mum/2009.

Respectfully following the same we uphold the finding of the First Appellate
Authority and dismiss this ground of Revenue.

8.      Ground no.3 is against deletion of disallowance made by the AO of
Rs.7,79,00,000 being provision for post retirement benefits.

8.1.    The First Appellate Authority has at page 49 para 7.1 to 7.6 has dealt
with this issue. The Hon'ble Supreme Court in the case of Bharat Earth
Movers vs. CIT (SC) 245 ITR 428 has held that liability being a determined
one, though to be discharged in future, did not make it a contingent liability
and it is an allowable liability. The First Appellate Authority in this case has
followed the judgement of Hon'ble Supreme Court. Thus we find no reason
to interfere with the same. Ground no.3 is dismissed.

9.      Ground    no.4   is   against      the     deletion     of   disallowance    of
Rs.74,01,67,000 being a provision made for wage arrears.                    The First
Appellate Authority has dealt with this issue at paras 8.1 to 8.10.                 The
provision in this case was made based on an office memorandum dt.
26.11.2008 issued by the Government on the recognition of the Pay Revision
Committee, for revision of pay scales w.e.f. 1.1.2007.                 This is not a
contingent liability. In the case of ACIT vs. NTPC in ITA 4246/Del/2011
order dt. 23.11.2011, the Tribunal at page 6 para 7 onwards held as follows.

                                  ITA 4076/Del/2013
                                      AY: 2009-10
                                National Fertilizers Ltd.

"7. We have carefully considered the submissions and perused the records.
We find that Hon'ble Apex Court in the case of Bharat Earth Movers vs CIT
has held that ` if a business liability has definitely arisen 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 though the actual quantification may not be possible. If
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 future date on which the liability shall have to be
discharged is not certain.

8.     Applying the ratio from the aforesaid case law in the present case, we
find that wage revision was due w.e.f. 1.1.2007 and the order under appeal
is for year 2007-08 relevant to AY 2008-09. The liability in this regard has
certainly crystallised and cannot be considered contingent. In our considered
opinion, this issue is squarely covered by the decision of the Hon'ble Apex
Court in the case of Bharat Earth Movers vs. CIT, hence , we do not find any
infirmity in the order of the Ld.CIT(A) and accordingly, we uphold the same.

9.1.   The issue is covered by the decision of the Hon'ble Delhi High Court in

the case of CIT vs. BHEL 352 ITR 88 (Del) wherein it was held that provision

for wage revision was based on past experience, previous Pay Commission's

reports and other relevant factors and the deduction claimed for period,

between the expiry of one wage settlement or agreement, cannot be termed

as contingent because the wage and the probable revision or rates of

revision would be within the fair estimation of the employer thus, deduction

claimed on account of wage revision are permissible.

9.2.   Respectfully following the same we dismiss this ground of the

                                      ITA 4076/Del/2013
                                          AY: 2009-10
                                    National Fertilizers Ltd.

       10.   In the result the appeal by the Revenue stands dismissed.

       Order pronounced in the open court on 20th May, 2015.

                Sd/-                                        Sd/-
           (C.M. GARG)                              (J. SUDHAKAR REDDY)
        JUDICIAL MEMBER                             ACCOUNTANT MEMBER

Dated: 20th May, 2015

·    Manga

Copy forwarded to: -

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

                                                                          By Order,

                                                                ASSISTANT REGISTRAR

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