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TMI Blog2018 (1) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... APPL. 1856/2018 (for exemption) Allowed, subject to just exceptions ITA 57/2018 Admit. 1. The following questions of law arise : (i) Whether in the facts and circumstance of the case, the Tribunal was correct in law in remanding the issue relating to interest on overdue deposits back to the file of the Assessing Officer? (ii) Whether in the facts and circumstances of the case, the Tribunal was correct in law in holding that the claim of the Appellant with respect to provision made for interest on overdue deposits was not acceptable until it is ascertained that the actual payment of the provision has been made to the customers or not? 2. Ms. Vibhooti Malhotra accepts notice of appeal. With the consent of counsel for parties, the appeal was heard finally. 3. The question of law sought to be urged by the assessee is that the ITAT was correct in remitting the issues with respect to the claim for accrued for ascertain liability of interest on overdue deposits claimed by it. 4. The assessee - a scheduled bank had in its return claimed an ascertained liability of ₹ 17 crores towards the interest on overdue deposits. The AO was of the opinion that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable certainty though the actual quantification may not be possible. If these requirements are satisfied, the liability is not a contingent one. The liability is in present though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. The above principle was also followed by Hon'ble Supreme Court in Metal Box Co. of India Ltd. Vs Their workmen [73 ITR 53] and Calcutta Co. Ltd. Vs CIT [37 ITR 1]. In view of the above factual and legal position as the liability determined as per RBI Circular are definite and ascertained liability, therefore, allowable under the provisions of the Act. As such this ground is decided in favour of the appellant. 5. The ITAT, in the impugned judgment was of the opinion that the expenditure was unascertained and the liability, uncrystalized. The ITAT without recording its own conclusions on this aspect, remitted the matter to the AO. The assessee is therefore, aggrieved. 6. The assessee relies upon the decision of the Supreme Court in Bharat Earth Movers Ltd. Vs CIT, (2000) 245 ITR 428 (SC); Calcutta Co. Ltd. Vs CIT (1959) 37 ITR 1; a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had challenged it in the higher forum. Also the fact that the Assessee had failed to debit the liability in its books of accounts did not prevent it to claim the said sum as deduction either under Section 10(1) or under Section 10(2)(xv) of the Income Tax Act, 1922. It was held whether the Assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the Assessee might take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter. 40. This was in line with the earlier decision in Calcutta Co. Ltd. v. Commissioner of Income Tax, West Bengal MANU/SC/0098/1959 : (1959) 37 ITR 1 (SC) where the Supreme Court explained that an Assessee following the mercantile system of accounting could claim a deduction of an estimated expenditure towards development of plots purchased by it even before actually incurring the expenditure. This was not a statutory liability but a contractual one. The Assessee in that case was a developer dealing in land and property. The Supreme Court noted that the relevant clauses of the sale deed spelt out the undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ischarged at some future date. As was observed by Lord Herschell in Buss el v. Town and County Bank, Ltd. (1888) 13 App. Cas. 418: The duty is to be charged upon 'a sum not less than the full amount of the balance of the profits or gains of the trade, manufacture, adventure, or concern'; and it appears to me that that language implies that for the purpose of arriving at the balance of profits all that expenditure which is necessary for the purposes of earning the receipts must be deducted, otherwise you do not arrive at the balance of profits, indeed, otherwise you do not ascertain, and cannot ascertain, whether there is such a thing as profit or not. The profit of a trade or business is the surplus by which the receipts from the trade or business exceed the expenditure necessary for the purpose of earning those receipts. That seems to me to be the meaning of the word profits in relation to any trade or business. Unless and until you have ascertained that there is such a balance, nothing exists to which the name 'profits' can properly be applied. 43. In Bharat Earth Movers v. Commission of Income Tax (supra), the Supreme Court had an occasion to expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. It is not as if such deduction is permissible only in case of amounts actually expended or paid; (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the fulfillment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. 45. The Supreme Court in Bharat Earth Movers v. Commission of Income Tax (supra) held that the provision made by the Assessee for meeting its liability under the leave encashment scheme would entitle it to deduction since it was not a contingent liability. 46. The above dictum was followed by this Court in R.C. Gupta v. Commissioner of Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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