IN INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER) I.T.A. No.1272 & 1273/Mum/2013 (Assessment Years: 2006-07 & 2007-08) Torm Shipping India Pvt Ltd vs ITO, 93)(4), Mumbai (formerly known as Orinoco Marine Consultancy India Pvt Ltd) II Floor, Leela Business Park Andheri Kurla Road,Andheri (E), Mumbai 400 059 PAN : AACO1884D (Assessee) (Respondent) Assessee by Shri Girish Dave Respondent by Shri Mallikarjun Utture Date of hearing : 10-10-2016 Date of pronouncement : 14 -10-2016 ORDER Per ASHWANI TANEJA, AM: There are two appeals filed by assessee for assessment years 2006-07 and 2007-08. First we shall take up appeal for A.Y. 2006-07 in ITA No.1272/Mum/2013. First we shall take up appeal for AY 2006-07 in ITA 1272/Mum/2013: 2. This appeal has been filed by assessee against order of Commissioner of Income-tax (Appeals)-7, Mumbai [hereinafter called 2 I.T.A. No.1272/Mum/2013 CIT(A)] dated 26-09-2012 passed against assessment order u/s 143(3) r.w.s. 147 dated 30-12-2009 on following grounds: assessee objects to order dated 26 September 2012 passed by Commissioner of Income-tax (Appeals) - 7, Mumbai ("CIT(A)") for assessment year 2006-07 on following among other grounds: 1. CIT(A) erred in holding that Dy. Commissioner of Income Tax- 3(3) ("DCIT") was justified in reopening assessment under section 147 of Act. 2. CIT(A) erred in confirming addition of Rs.1,16,50,971 as deemed income under sections 69B/69C of Act. 3. CIT(A) erred in confirming disallowance of Rs. 9,00,000 being professional fees paid to consultants. 4. CIT(A) erred in confirming disallowance of Rs. 7,65,120 towards rent paid to OMCI Marine Services Private Limited by invoking provisions of section 40A(2)(b) of Act. 5. above grounds are without prejudice to each other. 3. During course of hearing, it was stated at very outset by Ld. Counsel appearing on behalf of assessee that in this case, impugned order passed u/s 147 of Act is illegal in eyes of law. Our attention was drawn to additional grounds filed by assessee vide its petition dated 21-06-2016, which are as under: 1. On facts and circumstances of case, learned Assessing Officer erred in not following procedure for reassessment as laid down by Supreme Court in its decision in GKN Driveshafts (India) Pvt Ltd vs. ITO (259 ITR 19). 2. On facts and circumstances of case, learned Commissioner of Income Tax (Appeals) erred in affirming reassessment proceedings when no addition is made by Assessing Officer for issue on which reassessment proceedings were initiated. reassessment order dated 30 .12.2009 is contrary to Jurisdictional Bombay High Court decision in case of CIT vs. Jet Airways (331 ITR 236). Therefore, reassessment proceeding on other income deserves to be quashed as bad in law. 3. On facts and circumstances of case, assessment proceedings were initiated with issue of notice under Section 143(2) and 142(1) of Act on 24.07.2008 without disposing 3 I.T.A. No.1272/Mum/2013 objection filed by Assessee for reopening of assessment. Therefore, reassessment order dated 30.12.2009 passed deserves to be set aside. 4. During course of hearing it was argued that additional grounds are purely legal grounds and go to root of matter and do not require any investigation of fresh facts and, therefore, they should be admitted in interest of justice and fairness. 5. Per contra, Ld. DR did not raise any objection with regard to additional grounds raised and, therefore, additional grounds are admitted for adjudication. 6. It was stated at very outset by Ld. Senior Counsel appearing on behalf of assessee that in this case, there has been gross failure on part of Assessing Officer in not following mandate of law while framing assessment order u/s 147. It was submitted that though Reasons were furnished by Assessing Officer in response to request of assessee and objections were raised by assessee with regard to reopening of case but objections raised by assessee were not disposed of by Assessing Officer before framing assessment order. It was explained to Assessing Officer that income alleged to have been escaped in Reasons had already been included by assessee in its return of income filed originally. It was also requested to Assessing Officer to drop reassessment proceedings as there was no escapement of income. Assessing Officer was satisfied with reply of assessee and, therefore, he did not make any addition in re-assessment order in respect of income alleged to have been escaped in Reasons recorded. But Assessing Officer did not accept request of assessee for dropping proceedings 4 I.T.A. No.1272/Mum/2013 and framed assessment order making additions on other issues which were not raised in reasons recorded. It was submitted that assessment order framed by Assessing Officer is not permissible under law in view of judgment of Hon ble Bombay High Court in case of CIT(A) vs Jet Airways Ltd 331 ITR 236 (Bom). Reliance was also placed on another judgment of Hon ble Bombay High Court in case of V.M. Salgaonkar Sales International vs ACIT 59 Taxman.com for proposition that Assessing Officer could not have completed reassessment proceedings without disposing of objections raised by assessee. Reliance was also placed in this regard on judgment of Hon ble Supreme Court in case of GKN Driveshafts (India) Ltd 259 ITR 19 (SC). 7. Per contra, Ld. DR submitted that on perusal of assessment order, admittedly, in this case objections were not disposed of by Assessing Officer and admittedly no addition has been made in reassessment order framed by Assessing Officer with regard to income which was alleged to have been escaped in Reasons recorded by Assessing Officer. But in view of judgment of Hon ble Karnataka High Court in case of N Govindraju vs ITO ITA No. 504/2013, assessment order passed by Assessing Officer was not bad in law. 8. We have gone through submissions made by both sides, details and evidences brought before us as well as judgments placed before us by both sides. brief background and facts of case as noted from orders of lower authorities are that earlier survey action u/s 133A was carried out by department on premises of assessee company on 23-08-2005. In said survey proceedings, survey officers noticed that company had rendered certain services 5 I.T.A. No.1272/Mum/2013 to M/s. Belmont Ship Management B.V. during F.Y.2005-06 which was not recorded in books of accounts till date of survey. Consequent to that, Managing director of company offered aforesaid sum as income to be taxed in survey proceedings. Subsequent to that, when assessee's returned income was filed on 18/11/2006 declaring total income of Rs.1,57,70,538/- , but from perusal of computation of income of assessee, AO could not find mention of disclosure which was made by Managing Director of assessee company during survey proceedings conducted in office premises of assessee company on 23/08/2005. Therefore taking note of aforesaid non-disclosure of additional income which was offered to tax by assessee company during survey proceedings, AO issued notice dated 2/6/2008 u/s 148 of Act asking assessee to file return of income for reassessment for escapement of income which was not disclosed. 9. In response, assessee filed its return of income and requested for supplying copy of reasons. Accordingly, Assessing Officer supplied copy of reasons recorded to assessee which reads as under: survey under section 133A of Act was carried out on 23.08.2005 at office premises of assessee at Leela Business Park, Andheri (E), Mumbai 400059. During course of survey statement of Capt. Shridhar Bharalhan, Managing Director was recorded. In answer to question no.25 of his statement, MD has admitted undisclosed income at Rs.50,00,000/-. assessee has filed return of income on 18.11.2006, paper copy of which was furnished on 21.11.2006. In return of income assessee has not shown any income from other sources. additional income disclosed during survey should have been disclosed in return as income from other sources. return fled does not indicate that additional income of Rs. 6 I.T.A. No.1272/Mum/2013 50,00,000/- admitted during course of survey, has been included in total income. I have, therefore, reason to believe that income of Rs.50,00,000/- has escaped assessment. 10. In response, assessee filed detailed reply clarifying that income alleged to have been escaped in Reasons has already been included by assessee while filing its original return and, therefore, there was no escapement of income, therefore, proceedings should be dropped. Relevant part of assessee s reply dated 23-08-2008 reads as follows: income referred to during survey u/s 133A is contained in head Management Fees' and amount of USD 100.0001- due from M/s Belmont Ship Management B V. has been included in income of company and contained in profit of company. same has been considered for computation of total income in return of income filed with department. 11. Again, vide letter dated 09-10-2009 it was submitted by assessee that amount of so called Rs.50 lacs was in fact amount of USD 1,00,000 which has already been included in income of impugned assessment order and offered to tax by assessee and, therefore, same cannot be added again. It was requested by assessee to drop re-assessment proceedings. But Assessing Officer went on with reassessment proceedings and completed same and framed impugned reassessment order. It is noted that income alleged to have been escaped in Reasons recorded by Assessing Officer was not added by Assessing Officer in reassessment order. Subsequently, during course of appellate proceedings before Ld. CIT(A), remand report was called for. In remand report, it was admitted by Assessing Officer that impugned income has been included by assessee in return of income filed on 21-11-2006 for 7 I.T.A. No.1272/Mum/2013 A.Y. 2006-07, but re-assessment proceedings were initiated because Assessing Officer was not able to make out from perusal of return filed by assessee whether impugned income has been included in return or not. 12. We have gone through assessment order, remand report of Assessing Officer and order of Ld. CIT(A). It is admitted fact that impugned income has already been included by assessee in return filed originally. only difficulty with Assessing Officer was that from perusal of return he was not able to make out whether impugned income has been included in return or not. Even if we appreciate difficulty faced by Assessing Officer, then also, same was clarified by assessee by way of his reply submitted during course of re-assessment proceedings. facts and evidences were brought on record showing that impugned income has been included in return filed by assessee. Thereafter, no doubt was left and, therefore, no further query was asked by Assessing Officer in this regard. It was so confirmed by AO when he made no addition in this regard in assessment order. This factual situation has been accepted by Assessing Officer in his remand report also. Under these circumstances, Assessing Officer was obliged under law to drop re-assessment proceedings as per mandate given under law as also explained by jurisdictional High Court in case of CIT vs Jet Airways Ltd (supra) observing as under:- 14. second line of precedent is reflected in judgment of Rajasthan High Court in (CIT v. Shri Ram Singh 306 ITR 343. Rajasthan High Court construed words used by Parliament in section 147 particularly words that Assessing Officer 'may assess or reassess such income and 8 I.T.A. No.1272/Mum/2013 also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in course of proceedings' under section 147. Rajasthan High Court held as follows: ". . . if is only when, in proceedings under section 147 Assessing Officer, assesses or reassesses any income chargeable to tax, which has escaped assessment for any assessment year, with respect to which he had "reason to believe" to be so, then, only in addition, he can also put to tax, other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in course of proceedings under section 147. To clarify it further, or to put it in other words, in our opinion, if in course of proceedings under section 147, Assessing Officer were to come to conclusion, that any income chargeable to tax, which, according to his "reason to believe", had escaped assessment for any assessment year, did not escape assessment, then, mere fact that Assessing Officer entertained reason to believe, albeit even genuine reason to believe, would not continue to vest him with jurisdiction, to subject to tax, any other income, chargeable to tax, which Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in course of proceedings under section 147." 15. Parliament, when it enacted Explanation (3) to section 147 by Finance (No. 2) Act, 2009 clearly had before it both lines of precedent on subject. precedent dealt with two separate questions. When it effected amendment by bringing in Explanation 3 to section 147, Parliament stepped in to correct what it regarded as interpretational error in view which was taken by certain courts that Assessing Officer has to restrict assessment or reassessment proceedings only to issues in respect of which reasons were recorded for reopening assessment. corrective exercise embarked upon by "Parliament in form of Explanation 3 consequently provides that Assessing Officer may assess or reassess income in respect of any issue which comes to his notice subsequently in course of proceedings though reasons for such issue were not included in notice under 9 I.T.A. No.1272/Mum/2013 section 148 (2). decisions of Kerala High Court in Travancore Cements Lid. 's case (supra) and of Punjab & Haryana High Court in Vipan Khanna s case (supra) would, therefore, no longer hold field. However, insofar as second line of authority is concerned, which is reflected in judgment of Rajasthan High Court in Shri Ram Singh's case (supra), Explanation 3 as inserted by Parliament would not take away basis of that decision. view which was taken by Rajasthan High Court was also taken in another judgment of Punjab & Haryana High Court in CIT v. Atlas Cycle Industries [19891 180 IJR 3191. decision in Atlas Cycle Industries' case (supra) held that Assessing Officer did not have jurisdiction to proceed with reassessment, once he found that two grounds mentioned in notice under section 148 were incorrect or non-existent. decisions of Punjab & Haryana High Court in Atlas Cycle Industries' case (supra) and of Rajasthan High Court in Shri Ram Singh's case (supra) would not be affected by amendment brought in by insertion of Explanation 3 to section 147. Explanation 3 lifts embargo, which was inserted by judicial interpretation, on making of assessment or reassessment on grounds other than those on basis of which notice was issued under section 148 setting out reasons for belief that income had escaped assessment. Those judicial decisions had held that when assessment was sought to be reopened on ground that income had escaped assessment on certain issue, Assessing Officer could not make assessment or reassessment on another issue which came to his notice during proceedings. This interpretation will no longer hold field after insertion of Explanation 3 by Finance Act (No. 2) of 2009. However, Explanation 3 does not and cannot override necessity of fulfilling conditions set out in substantive part of section 147. Explanation to statutory provision is intended to explain its contents and cannot be construed to override it or render substance and core nugatory. Section 147 has this effect that Assessing Officer has to assess or reassess income ("such income") which escaped assessment and which was basis of formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during course of proceedings. However, if after issuing notice under section 148, he accepted contention of 10 I.T.A. No.1272/Mum/2013 assessee and holds that income which he has initially formed reason to believe had escaped assessment, has as matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, fresh notice under section 148 would be necessary, legality of which would be tested in event of challenge by assessee. 16. We have approached issue of interpretation that has arisen for decision in these appeals, both as matter of first principle, based on language used in section 147(1) and on basis of precedent on subject. We agree with submission which has been urged on behalf of assessee that section 147(1) as it stands postulates that upon formation of reason to believe that income chargeable to tax has escaped assessment for any assessment year, Assessing Officer may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during proceedings as having escaped assessment. words "and also" are used in cumulative and conjunctive sense. To read these words as being in alternative would be to rewrite language used by Parliament. Our view has been supported by background which led to insertion of Explanation 3 to section 147. Parliament must be regarded as being aware of interpretation that was placed on words "and also" by Rajasthan High Court in Shri Ram Singh case (supra). Parliament has not taken away basis of that decision. While it is open to Parliament, having regard to plenitude of its legislative powers to do so, provisions of section 147(1) as they stood after amendment of 1-4-1989 continue to hold field. In that view of matter and for reasons that we have indicated, we do not regard decision of Tribunal in present case as being in error. question of law shall, accordingly, stand answered against revenue and in favour of assessee. appeal is, accordingly, dismissed. There shall be no order as to costs. 13. It is well accepted legal position that judgment of jurisdictional High Court is binding upon all authorities working under jurisdiction of High Court. It is further noted by us that identical view 11 I.T.A. No.1272/Mum/2013 has been taken by Hon ble Delhi Court in case of Ranbaxy Laboratories Ltd vs CIT 12 taxmann.com 74 (Delhi), wherein it was held that where reasons for initiation of reassessment proceedings ceased to survive then AO had no jurisdiction to reassess issues other than issues in respect of which proceedings were initiated. This judgment was followed by Hon ble Delhi High Court in its recent judgment in case of Oriental Bank of Commerce vs Addnl. CIT 49 taxmann.com 485 (Delhi). 13.1. Hon ble Gujrat High Court in case of CIT vs Mohmed Juned Dadani 30 taxmann.com 1(Gujarat) held that when on ground on which reopening of assessment was based, no addition was made by AO in order of reassessment, then he could not have made additions on some other grounds which did not form part of reasons recorded by him. 13.2. In case of DCIT v. Takshila Education Society 378 ITR 520 (Pat), it was observed by Hon ble Patna High Court that if in course of proceedings under section 147 of Income tax Act, 1961, Assessing Officer comes to conclusion that any income chargeable to tax which, according to his reason to believe had escaped assessment for any assessment year, did not escape assessment, then mere fact that Assessing Officer entertained reason to believe, albeit even genuine reason to believe, would not continue to vest him with jurisdiction to subject to tax any other income chargeable to tax which Assessing Officer may find to have escaped assessment and which may come to his notice subsequently in course of proceedings under section 147. Hon ble Patna High Court discussed in detail and followed ratio laid down by Hon ble Rajasthan High Court in case of CIT v. Shri Ram Singh 306 ITR 340 wherein it was held by Hon ble Rajasthan High Court that once Assessing officer comes to conclusion that income with 12 I.T.A. No.1272/Mum/2013 respect to which he had entertained reason to believe to have escaped assessment, was found to have been explained, his jurisdiction come to stop at that, and he does not continue to possess jurisdiction to put to tax any other income which subsequently comes to his notice in course of proceedings, which was found by him to have escaped assessment. 13.3. Hon ble Chattisgarh High Court in case of ACIT v. Major Deepak Mehta 344 ITR 641 held that if AO finally found that there was no escapement of income in respect of head which form reason to believe in notice issued u/s 148, then impugned reassessment order was to be set aside. 13.4. Under these circumstances, we find that re-assessment order passed by Assessing Officer is not valid in eyes of law. Assessing Officer was bound to drop re-assessment proceedings. Assessing Officer was of course at liberty to record fresh reasons and initiate re-assessment proceedings in case any another escaped income was found by him, as permitted under law. But once Assessing Officer was of view that escaped income as alleged in reasons recorded by him was not income actually escaped, but already included in its taxable income and offered to tax by assessee, it was not legally permissible for him to continue with reassessment proceedings. 14. It is further noted by us from perusal of Reasons recorded that Reasons have been recorded on basis of mere doubts. There were no bases with AO to allege that too with support of any cogent material that impugned income was not included by assessee in its income offered to tax. Reopening of assessment is not permitted merely on basis of some notions or presumptions. Nor it is allowed 13 I.T.A. No.1272/Mum/2013 merely for making verification of some basic facts. There must be existence of some tangible material indicating escapement of income. Then only, AO is permitted to resort to provisions of reopening contained in sections 147 to 151 of Act. Because, once assessment is reopened on valid basis, entire pandara s box is open before AO. Therefore AO may then bring to tax not only income escaped from tax which was mentioned in Reasons recorded, but also any other escaped income that may come to his notice during course of reassessment proceedings. Reopening of assessment attacks and pierces concept of finality of litigation. Therefore, invalid reopening done in casual manner and without following parameters of law may cause undue hardship to taxpayers. Thus, in view of aforesaid legal discussion and facts of case before us, we find that AO s action of continuing with reassessment proceedings and framing of impugned reassessment order is contrary to law and facts and, therefore, same is hereby quashed. 15. Since we have quashed re-assessment order on jurisdictional aspect, we do not find it necessary to go into merits of case. Now we shall take up appeal for AY 2007-08 in ITA No. 1273/Mum/2013: 16. This appeal has been filed by assessee against order of Commissioner of Income-tax (Appeals)-7, Mumbai [hereinafter called CIT(A)] dated 06-09-2012 passed against assessment order u/s 143(3) dated 06-12-2009 on following grounds: appellant objects to order dated 6 September 2012 passed by Commissioner of Income-tax (Appeals) - 7, Mumbai ("CIT(A)") 14 I.T.A. No.1272/Mum/2013 for assessment year 2007-08 on following among other grounds: 1. CIT(A) erred in confirming disallowance of Rs. 7,83,672 being professional fees paid to consultants. 2.The leaned CIT(A) erred in confirming action of Dy. Commissioner of Income Tax - 3(3) ("DCIT") in making addition of Rs. 38,33,170 towards provision for leave encashment while computing income under section I15JB of Income-tax Act. 3.The above grounds are without prejudice to each other. 17. Ground 1: In this ground, assessee has challenged action of Ld. CIT(A) in confirming aggregate disallowance of Rsa.7,83,672 made by Assessing Officer on ground that these expenses represent amount of professional fees paid by assessee for issuing fresh shares and, therefore, these are capital in nature. 18. brief facts are that during year, assessee paid sum of Rs.7,50,000 to M/s DM Harish & Co and sum of Rs.33,672 to M/s Lodha & Co on account of professional fees for consultancy in various matters. Assessing Officer disallowed same on ground that this consultancy was given for valuation of shares carried out for issuance of shares of company and, therefore, these are not allowable as revenue expenses. Being aggrieved, assessee filed appeal before Ld. CIT(A) and submitted that these expenses are revenue in nature in as much as expenditure has been incurred for valuation of shares. It was alternatively argued that in any case, entire amount of professional fees is not connected with valuation of shares. But, Ld. CIT(A) was not satisfied with submissions of assessee and, therefore, he confirmed disallowance. 19. During course of hearing before us, Ld. Senior Counsel of assessee fairly submitted that even if some part of its expenses may 15 I.T.A. No.1272/Mum/2013 not be allowable as revenue expenses, but entire professional consultancy was not rendered in connection with valuation / issuance of shares of company only, and, therefore, disallowance made is factually incorrect. 19.1. Per contra, Ld. DR relied upon orders of lower authorities. 20. We have gone through orders of lower authorities. It is noted by us that Ld. CIT(A) has not carefully analysed alternate submission of Ld. Senior Counsel wherein it was submitted that entire amount of fee paid did not belong to consultancy rendered for valuation / issuance of shares. It was reiterated before us that assessee company regularly seeks information on various matters and expenses incurred for other routine matters would fall in revenue field and, therefore, wrongly disallowed. We find force in argument of Ld. Senior Counsel and, therefore, we send this issue back to file of Assessing Officer for verifying these facts. assessee shall submit requisite details to show for what purposes consultancy fees was paid by assessee. consultancy fee paid by assessee in connection with day to day legal matters and other matters which are not connected with issuance of shares should be allowed as revenue expenses. Thus, this issue is sent back to file of Assessing Officer. This ground may be treated as allowed, for statistical purpose. 21. Ground 2: In this ground, assessee has contested action of Ld. CIT(A) in confirming action of Assessing Officer in making addition of Rs.38,33,170 on account of provision for leave encashment while computing book profit u/s 115JB of Act. 22. During course of assessment proceedings, Assessing Officer 16 I.T.A. No.1272/Mum/2013 added provision on account of leave encashment u/s 115JB on ground that provision represents unascertained liabilities. Being aggrieved, assessee filed appeal before Ld. CIT(A) and submitted that provision of leave encashment has been made on basis of actuarial valuation report and keeping in views requirements of Accounting Standard-15. assessee filed detailed submission before Ld. CIT(A) attacking addition made by Assessing Officer. Relevant part of same is reproduced hereunder for sake of ready reference:- 5.1 relevant portion of section 115JB of Act is reproduced herewith for your good self s ready reference: 115JB Explanation [1]. For purposes of this section, "book profit" means net profit as shown in profit and loss account for relevant previous year prepared under sub-section (2), as increased by (a) amount of income-tax paid or payable, and provision thereof, or (b) amounts carried to any reserves, by whatever name called other than reserve specified under section 33.4C; or (c) amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or (d) amount by way of provision for losses of subsidiary companies; or (e) amount or amounts of dividends paid or proposed; or (f) amount or amounts of expenditure relatable to any income to which section 10 (other than provisions contained in clause (38) thereof) or section 11 or section 12 apply; or (g) amount of depreciation, h) amount of deferred Ins and provision therefore, (i) amount or amounts set aside as provision for diminution in value of any asset, if any amount referred to in clauses (a) to (i) is debited to profit and loss account, and as reduced by........ 17 I.T.A. No.1272/Mum/2013 5.2 It may be noted that leave encashment could only fall under clause (c) of Explanation I to section 115./B of Act. Clause (c) categorically states that ascertained liabilities should not be considered while increasing book profits of company. 5.3 DCIT has also rightly accepted that if liability is ascertained, it can be claimed under 115JB of Act. 5.4 company would like to invite your attention to Note No. 10 of Schedule 14 forming part of Audited Balance Sheet and Profit and Loss Account of company for year ending 31 March 2007 (Refer page 19 & 20 of compilation). In Note No. 10, it is dearly stated that provision of Leave encashment as per AS 15 has been done by actuarial valuation. 5.5 However, learned DCIT failed to appreciate that valuation done by company is by actuarial valuation and as said pro vision is for ascertained liability, provision for leave encashment ought not to added to book profits of appellant company under section 115/B of Act. 5.6 Reliance in this connection is placed in ruling of Mumbai Tribunal in case of ACJT v/s Piramal Holdings Ltd (ITA No. 3224/M/200) (Refer page 170-175 of compilation) wherein Tribunal has held as under: "...We have perused records and considered matter carefully. dispute is regarding addition of Rs. 4,40,526/- being provision for leave encashment while computing book profit under section 115/B. It is settled legal position that while computing book profit only specified adjustments as mentioned in Explanation 1 to section 115JB(2) can be made. Clause (c) of use Explanation 1 provides for adjustment of amount set aside as provision for meeting liability other than ascertained liabilities. provision for leave encashment calculated as per scheme is ascertained liability actually incurred by assessee in view of judgment of Hon'ble Supreme Court in case of Bharat Earthmovers (supra). Therefore in our view no adjustments could be made on this account 18 I.T.A. No.1272/Mum/2013 while computing book profit. order of CIT(A) deleting addition is accordingly upheld" Treatment under normal provisions of Act and under section 115JB are not comparable 5.7 At para 7.5 of assessment order DCIT also observed as under: two different stands of assessee on same issue is contradictory. While computing profit u/s 115JB, provisions of Ad cannot change. provision cannot become ascertained liability if taxes are paid according to provisions of section 115JB .. 5.8 relevant portion of section 43B of Act is reproduced here under for your Honour's ready reference: 43B. Notwithstanding anything contained in any other provision of this Act, deduction otherwise allowable under this Act in respect of (a) (f) any sum payable by assessee as employer in lieu of any leave at credit of his employee, shall be allowed (irrespective of previous year in which liability to pay such sum was incurred by assessee according to method of accounting regularly employed by him) only in computing income referred to in Section 28 of that previous year in which such sum is actually paid by him" 5.10 Under provisions of Act, Section 43B provides for allowabiity of certain expenditure only on payment basis. As per clause (7) of Section 43B of Act, any sum payable as employer in lieu of any leave at his credit to employee is allowed only in year in which such sum is actually paid. 5.9 relevant portion of section 115JB of Act has been reproduced above in para 5.2. 5.10. Under section I15JB, Explanation (1) to section provides that book profits should be increased by amount set aside to provisions made for meeting liabilities other than ascertained liabilities. 5.11 Thus, appellant submits that it is clear from above that treatment as required by legislature under normal provisions is for allowability of leave encashment on payment 19 I.T.A. No.1272/Mum/2013 basis whereas under section 115JB book profits should be increased by leave encashment if liability is not ascertained liability. 5.12 Accordingly, appellant submits that treatment of leave encashment as required by legislature under normal provisions and under section 115JB are different and not comparable with each other and observation made by learned DCIT is incorrect. 5.13 Further, appellant submits that while computing income under section 115JB of Act, learned DCIT cannot make any additions or deletions to book profit other than those specifically mentioned in Explanation to section 115JB of Act. 5.14 Reliance in this connection is placed on decision of Supreme Court in case of Apollo Tyres Ltd. (255 ITR 273) (Refer 176- 186 of compilation) wherein Apex Court has held : ----- We notice that use of words "in accordance with provisions of Parts II and III of Schedule VI to Companies Act' was made for limited purpose of empowering assessing authority to rely upon authentic statement of accounts of company. Therefore, we are of opinion, Assessing Officer while computing income under section 1 15J has only power of examining whether books of account are certified by authorities under Companies Act as having been properly maintained in accordance with Companies Act. Assessing Officer thereafter has limited power of making increases and reductions as provided for in Explanation to said section. To put it differently Assessing Officer does not have jurisdiction to go behind net profit shown in profit and loss account except to extent provided in Explanation to section 115....... 5.15. In view of above, Company submits Book Profits under section 115JB ought not to be increased by leave encashment provision. 23. Per contra, Ld. DR relied upon orders of lower authorities. It is noted that it is admitted fact that provision for leave encashment has been made on basis of actuarial valuation report. 20 I.T.A. No.1272/Mum/2013 Relevant notes in this regard have also been given by assessee in its annual financial statements. These facts have not been disputed by lower authorities. Under these circumstances, it cannot be said that provision for leave encashment is unascertained liability. We find force in submissions of assessee made before Ld. CIT(A) wherein relying upon judgement of Hon ble Supreme Court in case of Bharat Earth Movers (supra) as well as decision of Tribunal in case of ACIT vs Piramal Holdings Ltd in ITA No.3224/Mum/2007, it was argued that while computing book profits, provision for leave encashment (if calculated on scientific basis as per actuarial valuation) is not required to be added back as it cannot be said to be unascertained liability. Further, it is not case of lower authorities that Profit & Loss Account of assessee company has not been prepared in accordance with provisions of Parts II & III of Schedule VI of Companies Act, 1956. Under these circumstances, Assessing Officer is not permitted to make any adjustment in view of well settled position of law as has been clarified by Hon ble Supreme Court in case of Apollo Tyres Ltd 255 ITR 273 (SC). It is noted that reliance by lower authorities upon provisions of section 43B is misplaced here. Thus, lower authorities have misunderstood and misapplied provisions of law on facts of case before us. In our view, provision for leave encashment debited by assessee in its P&L Account cannot be added while computing book profits u/s 115JB in given facts of case and, therefore, same is directed to be deleted. Assessing Officer is directed to re-compute income u/s 115JB after excluding aforesaid amount. This ground is allowed. 21 I.T.A. No.1272/Mum/2013 24. In result, appeal for A.Y. 2006-07 is allowed and appeal for A.Y. 2007-08 is partly allowed. Order pronounced was pronounced in open court at conclusion of hearing. Sd/- Sd/- (JOGINDER SINGH) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt: 14th October, 2016 Pk/- Copy to : 1. assessee 2. respondent 3. CIT(A) 4. CIT 5. Ld. Departmental Representative for Revenue, E-Bench (True copy) By order ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES Torm Shipping India Pvt Ltd. (formerly known as Orinoco Marine Consultancy India Pvt Ltd) v. ITO-93)(4), Mumbai