2002 (9) TMI 257 - AT - Income Tax

Summary

Issues involved: Appeal against CIT(A)'s order for the assessment year 1989-90, CoD clearance, disallowance of provision for revision of pay scale of officers based on BPE guidelines.

CoD Clearance for Grounds of Appeal:
The assessee did not obtain CoD clearance for certain grounds of appeal, leading to the withdrawal of those grounds.

Disallowance of Provision for Revision of Pay Scale:
The AO disallowed a provision of Rs. 1,03,07,000 for revision of pay scale of officers, citing it as contingent upon Government approval. The CIT(A) upheld this disallowance, prompting the assessee to appeal to the ITAT.

Factual Background and Legal Position:
The revision of pay scales for officers was in progress and ultimately approved by the Government. The ITAT noted that the provision was based on BPE guidelines and a decision to increase salaries was already in existence. Citing the principle of prudence, the ITAT emphasized the need to make provisions for known liabilities even if the exact amount cannot be ascertained. Referring to a Supreme Court case, the ITAT concluded that the liability had definitely arisen and was not contingent, directing the AO to allow the deduction of Rs. 1,07,00,000 for the provision.

Conclusion:
The ITAT allowed the appeal, directing the AO to allow the deduction for the provision for increase in salaries and wages.