DCIT, CIRCLE-4(1), BHUBANESWAR vs. M/S. THE ORISSA STATE CO-OPERATIVE MILK PRODUCERS FEDERATION LTD., BHUBANESWAR

Shri M.K.Gautam, ld CIT DR appeared for the revenue and Shri Shri M.K.Gautam, ld CIT DR appeared for the revenue and Shri Shri M.K.Gautam, ld CIT DR appeared for the revenue and Shri B.K.Mahapatra, ld AR appeared for the assessee. B.K.Mahapatra, ld AR appeared for the assessee.

The revenue has raised the following grounds: The revenue has raised the following grounds:

On the facts and in the circumstances of the case, the Ld.

1. On the facts and in the circumstances of the case, the Ld. CIT(A) is not justified in law as well as on facts in deleting the CIT(A) is not justified in law as well as on facts in deleting the CIT(A) is not justified in law as well as on facts in deleting the addition of Rs.49,25,896/ addition of Rs.49,25,896/- made by the AO adducing fresh evidence made by the AO adducing fresh evidence

At the outset, ld CIT DR filed a written submission in regard to appeal filed by the revenue, which is as under:

It was submitted by ld CIT DR that the assessee is a Co-operative Society doing the business of manufacturing, trading and distribution of milk, milk products and cattle feed. It was the submission that in the course of assessment, the Assessing Officer had made an addition of Rs.49,25,896/- on account of non-payment of ‘entry tax’ within due date of filing of return by invoking the provisions of section 43B of the Act. It was the submission that the ld CIT(A) had deleted the addition by holding that he has verified the payment. It was the submission that there was violation of Rule 46A insofar as the evidences were not produced before the Assessing Officer.

It was fairly agreed by ld AR that he has no objection if the issue is restored to the file of the Assessing Officer and the assessee would produce the said evidences before the AO.

We have considered the rival submissions. As it is noticed that the ld CIT(A) has not called for a remand report from the Assessing Officer in respect of payment of entry tax of Rs.49,25,896/-, therefore, the issue is restored to the file of the AO. The Assessing officer shall after giving an opportunity to the assessee, examine whether the entry tax has been paid in full before the filing of the return. Once the assessee is able to prove that the entry tax has been paid before the due date of filing the return, the addition as deleted by the ld CIT(A) would stand confirmed. In the event, the assessee is unable to prove that the entry tax has not been paid before P a g e 6 | 13 the due date of filing of return in the relevant assessment year, to such an extent the addition shall be restored in view of the provisions of section 43B of the Act. Consequently, Ground No.1 of revenue stands allowed for statistical purposes.

In respect of ground No.2, ld CIT DR submitted that the issue is against the action of the ld CIT(A) in deleting the addition of Rs.2,56,24,179/- made by the AO on account of provision for salary.

It was the submission by ld CIT DR that the assessee, co-operative society had made the provision in the books of account for the arrear salary on the basis of revised pay scale approved in the VIth pay commission. It was the submission that a Committee had been constituted only on 16.2.2009 and the report of the Committee was obtained only on 4.5.2009 by which date the account of the assessee had been closed for the relevant assessment year. It was the submission that the amount had not crystalised and the revised pay scale having been approved by the Committee only on 4.5.2009, the amount shown as provision in the assessee’s account was nothing but a contingent liability. It was the submission that in view of the decision of the Co-ordinate Bench of Bangalore ITAT in the case of Bharat Electronics Ltd. vs. DCIT (59 ITD 116), the addition is liable to be confirmed and the order of the ld CIT(A) reversed.

In reply, ld AR submitted that the provisions for salary has been made on the basis of VIth pay Commission report. The calculation provided therein itself was a foundation for making the provision and consequently, a scientific approach had been done and the issue was no more a contingent liability. It was the submission that in view of the decision of the Hon’ble Supreme Court in the case of Bharat Earth Movers vs CIT, 245 ITR 428 (SC), the issue was liable to be held in the favour of the assessee. Ld AR also relied on the decision of the Hon’ble Delhi High Court in the case of Housing & Urban Development Corporation Ltd., vs ACIT (2020) 115 taxmann.com 166 (Del)to support his contention.

We have considered the rival submissions. We find that the issue is covered by the decision of the Hon’ble Delhi High Court in the case of Housing & Urban Development Corporation Ltd., vs ACIT (2020) 115 taxmann.com 166 (Del), wherein in para 19, it has been held as follows: “19. The position in the current case is that the liability had already arisen with certainty. The committee was constituted for the purpose of wage revision. That the wages would be revised was a foregone conclusion. Merely because the making of the report and implementation thereof took time, it could not be said that there was no basis for making the provision. In view of the above, we hold that the IT AT and CIT (A) have fell in error by disallowing the expenditure of Rs. 1.60 crores on account of anticipated pay revision in Assessment Year 2007-08. The first and second questions of law are thus answered in favour of the appellant. Accordingly, it is directed that the revenue shall now pass consequential orders accepting the deduction of Rs. 1.60 crores.”

Further, the issue is also settled now by the principles laid down by Hon’ble Supreme Court in the case of Bharat Earth Movers vs CIT, 245 ITR 428 (SC), wherein, the Hon’ble Supreme Court has held as follows: “Law is settled- 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 praesenti 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. Applying the above-said settled principles to the facts of the case at hand we are satisfied that provision made by the appellant company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary. ‘In Metal Box Company of India Ltd. Vs. Their Workmen (1969) 73 ITR 53 the appellant company estimated its liability under two gratuity schemes framed by the company and the amount of liability was deducted from the gross receipts in the P&L account. The company had worked out on an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the company was that every year the company worked out the additional liability incurred by it on the employees putting in every additional year of service. The gratuity was payable on the termination of an employees service either due to retirement, death or termination of service – the exact time of occurrence of the latter two events being not determinable with exactitude before hand. A few principles were laid down by this court, the relevant of which for our purpose are extracted and reproduced as under :- (i) For an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is paid; permissible only in case of amounts actually expended or (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business;

The assessee is under the administrative control of the Govt. of Odisha, Department of Fishery and Animal Husbandry and following the mercantile system, of accounting. Accordingly, the assessee has charged the provision in the profit and loss account under “salary’ pending finalization of revision of wage/salary of its employees as per VIth pay commission. A committee was constituted by the assessee to revise the salary of the employee on the basis of VIth pay commission and on the basis of the committee report, the arrear salary was paid to the employees of the assessee. A perusal of the decision of the Hon’ble Supreme Court in the case of Bharat Earth Movers (supra), the Hon’ble Supreme Court has categorically 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.”.

In assessee’s case, the calculation sheets are available. Therefore, the scientific method of calculation is done and the pay revision has also been approved. Thus, applying the principles laid down by the Hon’ble Supreme Court in the case of Bharat Earth Movers (supra), it cannot be held that the provision for the pay revision is an unascertained liability nor the liability does not crystalise. This being so, we are of the view that the assessee is entitled to the expenditure in respect of pay revision as claimed. Consequently, the addition deleted by the ld CIT(A) stands upheld.

In respect of next ground, the ld CIT DR submitted that this issue was against the action of the ld CIT(A) in deleting the addition of Rs.45,98,415/- representing commission paid to the agents. 16. It was the submission by ld CIT DR that the commission @ 0.05 paise per liter of milk was being paid to agents as commission. It was the submission that on the year end, the provision has been made. The assessee has not been able to show how much commission was paid in the subsequent year or whether the amount remained unpaid. Ld CIT DR drew our attention to pages 49 to 69 of APB to submit that the said details gave names and amount of the persons to whom the commission has been paid. At the outset, a question was raised whether the commission can be paid to a private individual by the Co-operative Society. It was the submission that the quantity of milk sold was not available against the specified name. He submitted that the order of the ld CIT(A) in deleting the addition is not P a g e 11 | 13 based on a reasonable finding. It was the prayer that the order of the ld CIT(A) may be reversed and that of the AO restored.

In reply, ld AR submitted that the accounts of the assessee are audited by the Controller of Co-operative Societies. It was the submission that the amount had been paid in subsequent years. It was also the submission that the sales during the relevant assessment was nearly Rs.269.75 crores on which, the said commission fo Rs.45,98,415/- has been paid. It was the submission that the Assessing Officer in the assessment order has disallowed the same only on the ground that the commission to the agents was shown as a provision. It was the submission that none of the details have been verified by the AO and issues now raised by the ld CIT DR are the fresh issues, which are beyond the issues raised by the AO. It was the submission that the ld CIT(A) has deleted the addition by considering the fact that the assessee is following mercantile system of accounting and the commission had accrued to the agents. It was the submission that the order of the ld CIT(A) be liable to be upheld.

We have considered the rival submissions. A perusal of the assessment order clearly shows that the Assessing Officer has not questioned the genuineness of the payment of commission. He has only questioned the allowability of the same on account of commission being shown as provision in the accounts of the assessee. The methodology of the computation of commission is also available at 0.05 paise per litre. This P a g e 12 | 13 is also not a disputed fact. In these circumstances, in view of the principles laid down by the Hon’ble Supreme Court in the case of Bharat Earth Movers (supra), as the liability has crystalised, the same cannot be treated as contingent liability. In these circumstances, we are of the view that the findings of the ld CIT(A) are on right footing, which does not call for any interference. This ground stands dismissed.

In the result, appeal of the revenue is partly allowed for statistical purposes. Order dictated and pronounced in the open court on 21/9/2022.