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2018 (1) TMI 904 - HC - Income TaxClaim for accrued for ascertain liability of interest on overdue deposits claimed - Held that - There can be no doubt that the assessee/bank was not only aware of its liability on the particular aspect, but, in fact, was able to crystallize it and set it out expeditiously in its returns. The possibility of likelihood of the depositor renewing the overdue deposit or for that matter, the payment being made later, in no way deflects from the reality that the assessee is able to identify its liability at the time, when it filed its returns. In that sense-for the reasons spelt out in detail in Aggarwal and Modi s case (2016 (1) TMI 790 - DELHI HIGH COURT), the liability was ascertained and not unascertained. Consequently, the question of law is answered in favour of the assessee and against the Revenue.
Issues Involved:
1. Remanding the issue of interest on overdue deposits to the Assessing Officer (AO). 2. Acceptance of the provision made for interest on overdue deposits contingent on actual payment to customers. Detailed Analysis: 1. Remanding the Issue of Interest on Overdue Deposits to the AO: The primary issue was whether the Tribunal was correct in law in remanding the issue relating to interest on overdue deposits back to the file of the Assessing Officer (AO). The Tribunal had remitted the matter without recording its own conclusions, which aggrieved the assessee. The High Court noted that the assessee, a scheduled bank, had claimed an ascertained liability of ?17 crores towards interest on overdue deposits in its return. The AO disallowed this claim, arguing that the liability had not crystallized or arisen in the present time. However, the CIT(A) allowed the appeal, referencing the RBI Circular and previous year’s observations, stating that the liabilities were definite and crystallized during the relevant previous year. The CIT(A) highlighted that the liability was accounted for at the rate of savings bank deposits, as per the RBI Circular, and was thus an ascertained liability. The High Court concluded that the Tribunal’s decision to remit the issue back to the AO was incorrect, as the liability was indeed ascertained and crystallized, thereby answering this question in favor of the assessee. 2. Acceptance of Provision Made for Interest on Overdue Deposits: The second issue revolved around whether the Tribunal was correct in holding that the provision made for interest on overdue deposits was not acceptable until it was ascertained that the actual payment had been made to the customers. The High Court referred to several precedents, including the Supreme Court’s decision in Bharat Earth Movers Ltd. vs. CIT, which established that a business liability should be allowed as a deduction if it has definitely arisen in the accounting year, even if it may be quantified and discharged at a future date. The Court emphasized that the liability should be capable of being estimated with reasonable certainty, and the actual quantification at a future date does not make it a contingent liability. The High Court also referred to Aggarwal and Modi Enterprise (Cinema Project) Co. (P) Ltd. vs. CIT, where it was held that the liability’s ascertainment does not depend on its actual payment but on its reasonable certainty. In the present case, the High Court noted that the assessee was aware of its liability and had crystallized it in its returns. The possibility of depositors renewing the overdue deposits or payments being made later did not negate the reality that the liability was ascertained. Thus, the High Court concluded that the provision made for interest on overdue deposits was indeed acceptable, answering this question in favor of the assessee. Conclusion: The High Court allowed the appeal, concluding that the liability for interest on overdue deposits was ascertained and crystallized, and thus, the provision made by the assessee was acceptable. The Tribunal’s decision to remit the issue back to the AO was incorrect, and the questions of law were answered in favor of the assessee.
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