2008 (9) TMI 21 - HC - Income Tax

Assessee provided a sum under the head salaries & wages , pending revision AO made additions on ground that liability on account of wage revision had not been ascertained & accrued during the year which ended on 31.3.1998 Tribunal observed that Accounting Standard 4 issued by ICAI is not applicable & there was no indication of any revision for the year 1.7.97 to 31.3.98 tribunal rightly hold that liability itself had been incurred only during the F.Y. 1998-99 assessee appeal dismissed

Summary

Issues:
1. Disallowance of provision for salaries and wages for assessment year 1998-1999.
2. Accrual of liability for wage revision during the financial year 1997-1998.
3. Applicability of Accounting Standard 4 in the case.

Issue 1: Disallowance of provision for salaries and wages for assessment year 1998-1999:
The dispute revolved around the disallowance of a provision of Rs 72 lacs for salaries and wages made by the assessee for the assessment year 1998-1999. The Assessing Officer disallowed this provision as the liability had not accrued during the relevant financial year ending on 31.03.1998. The Commissioner of Income Tax (Appeals) agreed with the assessee, leading to the deletion of the addition. However, the revenue contended before the Tribunal that the decision to revise wages was taken after the balance sheet date, indicating that the liability did not accrue during the financial year in question.

Issue 2: Accrual of liability for wage revision during the financial year 1997-1998:
The assessee argued that the liability for wage revision had accrued during the financial year 1997-1998, even though it was quantified later. The Tribunal analyzed the Board of Directors' decision-making process and minutes of meetings to determine that the conscious decision to revise pay scales was made after 31.03.1998. The Tribunal concluded that the liability to pay any extra amount due to revised pay scales arose during the financial year 1998-1999, not in the previous year.

Issue 3: Applicability of Accounting Standard 4 in the case:
The Tribunal discussed the applicability of Accounting Standard 4 issued by the Institute of Chartered Accountants of India. While noting that no notification was issued by the Central Government approving the standard, the Tribunal concluded that the standard was not applicable in the present case. It emphasized that events occurring after the balance sheet date should relate to conditions existing on the balance sheet date. In this case, the Tribunal found no indication of pay scale revisions for the relevant period, leading to the determination that the liability was incurred by the assessee during the financial year 1998-1999.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the appeal as no substantial question of law arose for consideration based on the detailed analysis of the issues surrounding the disallowance of the provision for salaries and wages, the accrual of liability for wage revision, and the applicability of Accounting Standard 4 in the case.