DCIT, NEW DELHI vs. M/S. CENTRAL COTTAGE INDUSTRIES CORPORATION OF INDIA LTD., DELHI

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ITA 1733/DEL/2014Status: DisposedITAT Delhi17 March 2016AY 2010-115 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the provision for pay revision was an ascertained liability, not a contingent one, and that the CIT(A) had rightly deleted the addition. The decision was based on established High Court judgments.

What were the facts?

The assessee, a public sector undertaking, claimed a deduction for a provision made towards pay revision of employees. The Assessing Officer disallowed this provision, considering it a contingent liability. The CIT(A) deleted the addition, holding it to be an ascertained liability.

What were the issues?

Whether a provision made for pay revision of employees, pending government approval, constitutes an ascertained liability deductible in the current year.

Which sections of the Income-tax Act were involved?

Section 143(3)

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Before: SHRI N. K. SAINI & SMT SUCHITRA KAMBLE

Hearing: 17.03.2016Pronounced: 17.03.2016

ORDER PER SUCHITRA KAMBLE, JM

This appeal is filed by the Revenue against the order dated 26/12/2013 passed by the CIT(A)- VI, New Delhi. 2. The grounds of appeal are as follows:-

“ The DCIT, Circle -3(1), New Delhi is hereby directed to file appeal in the above mentioned case before the ITAT, New Delhi on the following ground of appeal.

1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition made on account of disallowance of provision for pay revision by failing to appreciate that the proposal for pay revision is pending for approval from Government and as such does not qualify as ascertained liability.

3. The assessee is a public sector undertaking, engaged in promotion and trading of handicrafts and allied items. The return of income for assessment year 2010-11 was filed declaring an income of Rs.1,10,06,000/-. The Assessing Officer completed the assessment u/s 143(3) vide order dated 30/11/2012 at a total income of Rs.3,05,97,850/-. The Assessing Officer made disallowance of ‘provision made towards liability’ on account of pay revision of employees amounting to Rs. 1,95,58,000/-. The Assessee claimed an expense of Rs. 198.58 lakhs on account of provision for pay revision, pending approval of the same from the Government. The revision of pay scale was due as per DPE guidelines. Following accrual system of accounting, the assessee estimated the liability on a reasonable basis and provided the same in the books of account. The liability was an ascertained liability. The Assessing Officer however did not accept the contention of the assessee and held that the assessee’s liability is contingent in nature and accordingly disallowed the entire expenditure.

4.

The Assessee filed appeal before the CIT(A). The CIT(A) held that in the past such provision was allowed towards liability on account of pay revision of employees and the same is not being a contingent liability, therefore deleted the said addition.

5.

The Ld. DR relied upon the assessment order.

6.

The Ld. AR submitted that the issue related to deduction in respect of provision made on account of pay revision is covered by the following judgments in favour of the assessee. The case laws are as under:

1.

CIT Vs. Kerala State Financial Enterprises Ltd. (2009 178 Taxmann 449 (Ker. HC) 2. CIT Vs. Bharat Heavy Electrical Ltd. (2012) 26 Taxmann. Com 252 (Delhi HC) 3. Electronics Corp. of India Ltd. vs. ACIT Cir 2(2) Hyd. (2012) 28 Taxmann. Com 280 (ITA Hyd.)

7.

The Ld. DR could not distinguish the facts of the case laws submitted by the assessee.

8.

We have perused all the records and heard both the counsels. In case of CIT Vs. Bharat Heavy Electrical Ltd. (2012) 26 Taxmann. Com 252 (Delhi HC) it was held that with the expiry of one wage settlement or agreement, invariably, there is a time lag when another fresh wage revision agreement is negotiated and entered. The deduction claimed for that period cannot be termed as contingent because the wage and probable revision or rates of revision would be within the fair estimation of the employer. The issue is fully covered in assessee’s favour and the CIT (A) has rightly deleted the said addition in respect of provision for pay revision.

9.

In result, the appeal of the Revenue is dismissed.

The order is pronounced in the open court on 17th of March 2016.

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