2021 (3) TMI 850 - HC - Income Tax

Provision for wage arrears - whether an ascertained liability - HELD THAT - Following the ratio laid down by the Hon'ble Supreme Court in the judgments reported in Bharat Earth Movers Vs. Commissioner of Income Tax 2000 (8) TMI 4 - SUPREME COURT and Calcutta Co. Ltd., Vs. Commissioner of Income Tax 1959 (5) TMI 3 - SUPREME COURT the question of law is decided against the Revenue and in favour of the assessee.

Summary

Issues:
Challenge to order passed by Income Tax Appellate Tribunal regarding assessment year 2006-07 on the question of provision for wage arrears as an ascertained liability.

Analysis:

Issue 1: Provision for Wage Arrears
- The Revenue challenged the order regarding the provision for wage arrears for the assessment year 2006-07.
- The substantial question of law was whether the provision for wage arrears of ?5.80 crores, accounted on a cash basis, should be considered an ascertained liability.
- The High Court analyzed previous judgments, including the Supreme Court's decision in Bharat Earth Movers case, to determine the nature of the liability.
- Referring to the Calcutta Co. Ltd. case, the Court emphasized that an accrued liability does not become conditional merely because it is to be discharged in the future.
- The Court concluded that the provision made by the company for meeting the liability under the leave encashment scheme was entitled to deduction and was not a contingent liability.
- The appeal was allowed, the judgment was set aside, and the question was answered in favor of the assessee and against the revenue.

Issue 2: Compliance with Court Directions
- The Court expressed dissatisfaction with the Tribunal's failure to comply with directions to provide a supplementary statement of the case based on relevant records.
- Despite the Tribunal's request for an extension, the Court found the delay unreasonable and emphasized the obligation of all authorities to act in aid of the Court.
- The Court deplored the Tribunal's lack of responsiveness and sensitivity to the Court's directions, urging better compliance in the future.

Issue 3: Application of Legal Principles
- The Court applied established legal principles to determine the deductibility of estimated expenditure incurred by the appellant.
- Referring to the Calcutta Co. Ltd. case, the Court emphasized that the estimated expenditure was allowable as a deduction in arriving at the profits and gains of the business.
- The Court criticized the Revenue's stance on disallowing the deduction, highlighting inconsistencies in their approach to computing profits and gains.

Conclusion:
- The Court dismissed the appeal based on the Supreme Court judgments cited by the respondent's counsel.
- Following the legal precedents set in the Bharat Earth Movers and Calcutta Co. Ltd. cases, the question of law was decided against the Revenue in favor of the assessee.
- The Tax Case Appeal was dismissed with no costs awarded.

This detailed analysis of the judgment highlights the legal issues, application of precedents, and the Court's conclusions on each aspect of the case.