Sanjay Arora, Accountant Member - This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-13, Mumbai ('CIT(A)' for short) dated 22.05.2013, partly allowing the assessee's appeal contesting the rectification of its assessment u/s. 143(3) vide order u/s. 154 of the Income tax Act, 1961 ('the Act' hereinafter) dated 01.03.2011 for Assessment Year (AY) 2004-05.
2. The issue arising in the instant appeal is the maintainability or otherwise in law of the invocation of section 154 of the Act by the Assessing Officer (AO) in the facts and circumstances of the case and, consequently, the resulting order there-under passed by him, since approved by the first appellate authority.
3. The brief facts of the case are that the assessment in the instant case was made by making a disallowance of Rs. 89,058/- (on account of ESIC payment) u/s. 43B in computing the assessee's business income vide order u/s. 143(3) dated 29.12.2006 (PB pages 1-3). This was followed by a notice u/s. 154 dated 13.01.2011 requiring the assessee to show-cause as to why the liability on account of bonus (Rs. 4,91,075/-), gratuity (Rs. 33,88,608/-) and leave encashment (Rs. 11,10,293/-), pre-existing on the first date of the assessment year (being outstanding since 31.03.2003), disallowed suo motu by the assessee u/s. 43B for AY 2003-04 on account of non-payment, claimed and allowed u/s. 43B for the current year, be not disallowed in computing its business income in-as-much as the same were not paid during the year, but liability in their respect transferred by the assessee to Greaves Ltd. (GL), on sale of its Undertaking thereto on slump sale basis during the year and the assessment rectified accordingly. The assessee objected to the notice by stating that in-as-much as the liability stood transferred to GL, the same is deemed to have been actually paid by it, and hence allowable u/s. 43B of the Act. The same, however, being not shown to have been actually paid, i.e., to the concerned employees, with the assessee in fact also not showing as to how the amount of the said liability stood reduced from the sale consideration for the slump sale (to GL), as contended by it, rectification order was passed disallowing the claim of the said expenditure u/s. 43B. The same found endorsement in appeal by the first appellate authority. Accepting a reduced sale price for the Undertaking from the purchaser does not amount to discharge of such liability, which would only be by way of payment to the concerned employees. The reversal of the allowance of the impugned sums u/s. 43B by the Assessing Officer (AO) being thus confirmed, the assessee is in second appeal.
4. Like contentions were raised before us. The assessment order u/s. 143(3) had been passed after considering all the details and information, so that it was a case of change of opinion, impermissible u/s. 154. The transfer of liabilities, along with assets, on the sale of the Undertaking on 'as is where is basis', as a going concern, would amount to an effective discharge of the relevant liability as far as the assessee is concerned. Even if another view of the matter is possible, the same lends a debatable character to the assessee's claim, taking it outside the ambit of section 154. As regards the claim qua leave salary, covered u/s. 43B(f), the hon'ble Calcutta High Court has in Exide Industries Ltd. v. Union of India [2007] 292 ITR 470/164 Taxman 9 struck down section 43B(f) as unconstitutional. Though appeal there-against has since been admitted, and its operation stayed, by the Apex Court, an appeal on the issue has also been admitted by the hon'ble jurisdictional High Court. The Mumbai Benches of the tribunal have in this view of the matter been restoring the issue of the allowability of deduction qua leave encashment salary, where unpaid, back to the file of the assessing authority, to be decided as per the decision by the Apex Court inExide Industries Ltd.'s case (supra) qua the constitutional validity of section 43B(f), settling the matter. The ld. DR, on the other hand, would rely on the orders by the Revenue authorities.
5. We have heard the parties, and perused the material on record.
The first question before us is that the assessee having explained the basis on which deduction qua the impugned sums stands claimed by it per its return of income for the year, could it at all be said that there had occurred a 'mistake' in accepting the said claim in assessment, for it to be rectified by recourse to section 154 of the Act? In our clear view, the said acceptance is, and for more than one reason, clearly a mistake apparent from record. The liability qua the impugned sum/s is clearly on the assessee. How could, one wonder, a statutory liability be at all contractually transferred to another, and how could, where so, the law give cognizance thereto. This aspect stands, in fact, unambiguously clarified by clauses 3(b), 3(c) and 3(k) of the agreement to sell dated 29.07.2003 between the assessee-company (PEPL) and (GL) (at PB pages 8-21), referred to during the course of hearing. All the liabilities as on the date of transfer (31.10.2003) are that of the assessee-company, which is/undertakes to settle the same. True, the liability stands taken into account in reckoning the sale consideration, but that does not alter the fact that the liability is, in law, of PEPL, which is also to bear all the litigation costs in relation thereto, i.e., where and to the extent the liability is contested. There is, as made abundantly clear in the agreement itself, no such transfer. Even otherwise, a person cannot, by contract, transfer or shift his statutory obligation to another. Any such contract, where so, is legally invalid. There is thus no basis whatsoever, both in law and on facts to hold that the impugned liability/s stand discharged by the assessee upon sale of its undertaking on 'as is where is' basis. Making funds available for payment to another, which is what the reckoning of the liability in arriving at the sale consideration recoverable from the transferee, implies, will not amount an actual discharge of the liability, so as to satisfy the mandate of section 43B, which would only be upon payment to the concerned employees. Keeping aside moneys for payment would not, after all, amount to an actual payment.
The section, which a non obstante provision, provides a condition (of payment) for the deduction of the liabilities specified therein, so that the deduction is deferred to the year of payment. The only exception is the year in which the liability accrues or arises, for which the time for payment gets extended to the due date for furnishing the return of income for that year. The liabilities under reference pertain to a year prior to the current year, so that the payment date, for the allowability of deduction in their respect, must fall within the relevant previous year, i.e., f.y. 2003-04. The payment would, again, even as emphasized by the ld. CIT(A), imply payment to the concerned employees, and there is no concept of deemed payment. This in fact is the crux of the matter, and represents the fundamental fallacy in the assessee's argument. There is nothing on record to show that the payment qua the impugned liabilities stands made to the concerned employees, much less during the year, which alone is relevant for its deduction for the current year. There is in fact no contention by the assessee to that effect at any stage, and which is the only condition or criterion that is required to be satisfied to meet the embargo of section 43B, providing for, in effect, a deferment of the deduction to the year of actual payment. This being, thus, admittedly not met, there is no question of its satisfaction, for the brought forward impugned liabilities to be allowed as deduction for the current year. As such, despite arguments in its respect being ostensibly raised and considered by the AO, its acceptance in assessment is clearly a mistake, which is apparent from record - the primary facts being in fact undisputed, validating its rectification by recourse to section 154 of the Act.
This leaves us with one argument, raised with reference to the constitutional validity to section 43B(f). We have for the purpose referred to the decision by the tribunal in the case of Birla General Finance (ITA No. 7530/Mum/2010 dated 23.01.2015/copy on record), as well as earlier decision in Essar Export & Production India Ltd. v. Asstt. CIT (ITA No. 6189/Mum/2011 dated 08.08.2012), the relevant part of which stands reproduced in the former order. In both the cases, as made abundantly clear, there was a concession by the Revenue, acting through the ld. DR, for the Tribunal to have restored the matter back to the file of the AO for a decision in agreement with that to be delivered by the hon'ble Apex Court in the case of Exide Industries Ltd. (supra). The plea for a similar set-aside, in view of clear stand by the Revenue in the present case, is misplaced. It needs to be appreciated that inasmuch as the decision by the Apex Court, to follow which the restoration has been made by the tribunal, is yet to be delivered, i.e., is pending therewith, there is no adjudication by the tribunal per the said decisions, which, being based on a concession, do not even otherwise lay down any precedent (Lakshmi Shanker Srivastava v. State (Delhi Administration) AIR 1979 SC 451). Pending its final decision, which would be binding on all the authorities and courts, the only effective order is that by the Apex Court, staying the operation of the decision of the Hon'ble Calcutta High Court, and shall obtain.
We may finally, though not referred to during hearing, also advert to the appellate order in Pembril India Industrial & Engg. Co. (P.) Ltd. dated 26.03.2014 (PB pages 22-25), wherein a similar action u/s. 154 by the Revenue was struck down by the first appellate authority. The basis of the said decision is that it was not clear if the liability/s under reference had been claimed or allowed in the hands of the transferee. It was not even clear as to in whose hands the liability/s is to be allowed. In the facts of the present case, there is, as aforesaid, no transfer of liability/s, which is abundantly clarified to be of the assessee-company, besides its transfer being impermissible in law. The liability is of the assessee-company, in whose books alone it stands debited and claimed as expenditure, so that the only condition for deduction, in view of section 43B, is of its payment, and which has not been shown to be, by either party. There is therefore no question of the said decision as being applicable in the facts of the case. The same, even otherwise, does not appear to be the correct view. This is as the liability, even where assumed by the transferee, would be on capital account, as part of the purchase consideration of the undertaking. Where, then, is the question of the transferee claiming the same? Section 43B lays down the addition qualification for deduction, which must be 'otherwise allowable' for the section to come into play. Where no expenditure stands borne by the transferee, the question of it claiming the same just does not arise.
6. In view of the foregoing, we find no merit in the assessee's claim/s. We are conscious, when we say so, that these are section 154 proceedings, scope of which is limited to mistakes apparent from record, so that issues that admit of debate stand excluded at the threshold. The discharge of the liability, implying payment to the beneficiaries, the employees to whom it is due/payable, and for payment to whom the sum/s is set aside, either by the assessee or on its behalf by the transferee company, has not been shown or even claimed, much less during the relevant previous year, which alone is relevant for claiming or being allowed deduction u/s. 43B, i.e., the provision under which the allowance had been earlier made, and stands reversed subsequently through recourse to s. 154. The primary condition of s. 43B, thus, stands not met - a fact which is not denied and, besides, is borne out of the record. A mistake, rectifiable u/s. 154, it is trite, could be either of fact or of law. The allowance of deduction of the impugned sums u/s. 43B was thus clearly a mistake apparent from record, liable to be rectified u/s. 154. This, quite simply, is the only issue relevant and, in any case, represents the core of the matter; the various aspects discussed being only to address the various arguments/contentions raised, and which again clarify an undisputed state of affairs, both on facts and in law. The deduction, therefore, could only be claimed in the year of payment. As clarified in Mysore Spg. & Mfg. Co. Ltd. v. CIT [1966] 61 ITR 572 (Bom.), we may further add, it is not necessary that the particular business, to which the deduction (in computing its business income) relates, is carried out by the assessee during the relevant year. We decide accordingly.
7. In the result, the assessee's appeal is dismissed.