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TMI Blog2017 (11) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... ment/settlement is reached and signed by the bank with the employees and till then the provision is not allowable?" 3. Learned counsel for the appellant contended that the Tribunal has seriously committed an error in reversing the finding recorded by CIT(A) which reads as under:- "4.10 It is seen that the provision made by the bank for pay revision of employees in the books of accounts over a period of 2-3 years, will remain only a provision till the liability to pay the revised pay arises. The liability to pay would arise only when an agreement/settlement is reached by the bank with the employees. The agreement with the employees would entail determining the quantum of pay revision which is to be given to each employee and also the date from which the pay revision would become effective. Therefore, the liability would accrue only in the year in which such an agreement is signed by the bank. Before this period/year, any provision made by bank for this purpose would only remain a provision, which would be desirable on the grounds of prudence, conservatism and good governance. But this practice and the amount debited in the accounts on account of any provision is not allowable as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount, but was only a contingent liability which may arise on the happening of a particular contingency and was not allowable as a deduction in assessment of tax. This court in dealing with a case under the Wealth-tax Act in Standard Mills Co. Ltd. v. Commissioner of Wealth tax held that a liability under the award of the Industrial Court to pay gratuity to its imployees at certain rates on death while in service, or on voluntary retirement or resignation after fifteen years 'continuous service, or on termination of service after certain specified periods, but not if the employee was dismissed for dushonesty or misconduct, was a mere contingent liability which arose only when the employment of the employee was determined by death, incapacity, retirement or resignation: the liability did not exist in praesenti....." (iii) Hon'ble Bombay High Court has observed in the case of M/s Phalton Sugar Works Ltd. V/s CIT 162 ITR 622 that "The question before us is not whether an assessee, maintaining books of account on the mercantile system, is entitled to claim deduction in the year in which the liability arose notwithstanding the fact that he was disputing his liability, but whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of an event is not expenditure. 4.12 Thus, considering the essence of the proposition laid out by the Hon'ble Supreme Court, I hold that no deduction is allowable to the appellant on account of any adhoc provision made in the books of accounts on account of pay Revision of employees. This amount would accrue and become allowable as a deduction only in the year of agreement for pay revision having been signed by the Bank with the representative of employees. Any amount set aside by the bank every year for this purpose would only qualify as a measure of good governance and in accounting terms as a principle of conservatism. Therefore, the disallowance of Rs. 14 lacs made by the AO at 10% of the amount of Rs. 140 lacs debited in the accounts is enhanced to the extent of 100% of the amount claimed on this account." 4. He contended that Tribunal while considering the matter observed as under:- "4.3. We have heard rival contentions and perused the material available on record. The ld. A/R of the assessee contended that in the immediately preceding assessment year 2009-10 the claim of the assessee in respect of provision of pay revision of employees was accepted by the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be revised and in fact revised @ 17.5%. Therefore, we do not find any merit in the conclusion draw by ld. CIT (A).Thus the orders of ld. CIT (A) as well as AO are hereby set aside. We also find that the case of the assessee is covered by the decision of the ITAT Jaipur Bench in the matter of Jhalawar Kendriya Sahakari Bank Ltd. vs. ACIT in ITA No. 1032/JP/2011 dated 14.08.2014 whereby the claim of the assessee was allowed. Respectfully following the decision of Coordinate Bench of the ITAT, we set aside the orders of the lower authorities and allow the claim of the assessee by deleting the disallowance." 4. Counsel for the respondent has relied upon the decision of Delhi High Court in case of Commissioner or Income Tax V/s Bharat Heavy Electrical (2013) 352 ITR 0088(Delhi) wherein it has been held as under:- "6. In this case, the Tribunal had noticed that there was no dispute as regards the terms of employment of the workers and officers. The only question was the exact quantification of the compensation or wage revision. The Tribunal also held that provision for wage revision was based on past experience, interim Pay Commission of government employees, previous Pay Commission& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect from the date of expiry of the previous settlement. In fact, It is only on this understanding and expection that the employees continue to work without any demand for immediate increase of wages after the expiry of the existing settlement. 3. Even though learned standing counsel for the Revenue contended that contractual arises only on the date of signing the agreement, we are unable to accept this argument in this case. In the normal course, an agreement called settlement as increase in wages takes effect from the date of expiry of the previous settlement and this case is no exception to it. What is important is not the date of signing the agreement nor the later approval granted by the Government, but the effective date of commencement of the wage revision under the agreement. There is no dispute that the wage increase was granted as a continuous measure from the date of expiry of the previous settlement, i.e. w.e.f. 1st August, 1992. Therefore, the liability for wage increase really accrued for the respondent assessee w.e.f. 1st August, 1992. The assessee is entitled to claim deduction of such wage increase attributable upto the end of the previous year, no matter exact ..... 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