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TMI Blog2022 (9) TMI 724X X X X Extracts X X X X X X X X Extracts X X X X ..... d not have the benefit of the "Comprehensive Service Agreement" [hereafter referred to as "CSA"] obtaining between the respondent/assessee and GE International Ltd. i.e., the contractor. 4.1 The CSA is dated 20.06.2009. It is not in dispute that the CSA expires on 31.03.2025. 5. Under the CSA, the respondent/assessee is required to pay bonus, which is dependent on the efficiency parameters, concerning generation of power, as stipulated in the aforementioned CSA being achieved. 5.1 The record shows that the respondent/assessee was required to pay bonus to GE International Ltd. in case it ensured 90% availability of the Power Plant for operation. In the event that the availability fell below 90%, the respondent/assessee was entitled to levy penalty. 6. Furthermore, the CSA also provides for the following clauses, which according to the appellant/revenue are suggestive of the fact that the liability to pay the bonus is contingent. In other words, the contention of the respondent/assessee, that liability to pay bonus subsists i.e., arises in praesenti is untenable. The clauses on which emphasis is laid by Mr Agarwal are extracted hereunder: "(i) In case owner is entitled to an av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was produced before the Commissioner of Income Tax (Appeals) [in short, "CIT(A)"]. Therefore, this objection no longer survives. 12. The contention advanced by Mr Jain, that the liability to pay bonus in the second scenario, so to speak, is contingent, is completely misconceived. 12.1 The fact that liability has accrued in the relevant year is not in dispute. If this fact is accepted, then merely because the liability is defrayed in future, cannot convert the liability which arises in presenti into one that is contingent. 13. The argument advanced on behalf of the appellant/revenue, that the contractor i.e., GE International Ltd. could waive the obligation undertaken by the respondent/assessee to pay bonus will also not turn what is an accrued liability, in the relevant year, into a contingent liability. 13.1 In support of his submission, Mr Jain has relied upon the judgment of the Supreme Court dated 09.08.2000 rendered in Bharat Earth Movers vs. Commissioner of Income-Tax, (2000) 245 ITR 428 (SC). 14. We have heard the learned counsel for the parties and perused the record. 15. Briefly, the facts which arise in this case, over which there is hardly any dispute are as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d into a long term Comprehensive Service Agreement (CSA) with GE International, a renowned International organization, on 20.06.2009 for the power plant and the said agreement is valid till March 31, 2025. As per the agreement with GE, the party has to ensure 90% availability of the Power Plant for operation and if they ensure availability above 90% then they are eligible for Bonus otherwise they are liable for penalty. This will accrue on year to year basis and will be finally settled on closure of the contract. During the year under consideration, the contractor has ensured the 90% availability of the power plant to the assessee. Accordingly, the assessee booked an expenditure of Rs.12,99,68,406/- on account of bonus payable to the contractor. These facts were not disputed by the revenue at any point of time. There was no uncertainty regarding the incurrence of the expenditure and assessee becomes liable to pay the bonus to the contractor as soon as the contractor fulfills the conditions of annual availability of power plant in terms of the factors given under the said contract. Thus, the assessee has established that a business liability has definitely arisen in the accounting y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty was deducted from the gross receipts in the P&L account. The company had worked out on an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the company was that every year the company worked out the additional liability incurred by it on the employees putting in every additional year of service. The gratuity was payable on the termination of an employees service either due to retirement, death or termination of service - the exact time of occurrence of the latter two events being not determinable with exactitude before hand. A few principles were laid down by this court, the relevant of which for our purpose are extracted and reproduced as under :- (i) For an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is paid; permissible only in case of amounts actually expended or (ii) Just as receipts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom year-to-year. 19.1 In the relevant year, this liability arose and was payable. The fact that in a given year, when the respondent/assessee may not receive the requisite funds from its purchasers i.e., customers who purchase power from it, does not, in any manner, do away with the liability of the respondent/assessee to pay bonus to GE International Ltd. 19.2 The only options available to the respondent/assessee, perhaps, depending on its funds flow situation, was to either pay the same immediately, in the form of cash, or adjust the same against amounts owed by GE International Ltd., under the CSA. To our minds, as adverted to above, that will not convert the liability into a contingent liability. 20. The other argument, (and in this regard we may only reiterate the principles enunciated in Bharat Earth Movers), that because in future the liability could be reduced or become extinct, and hence should be treated as a contingent liability, is completely untenable. The possibility of liability being scaled down or becoming extinct cannot convert it into a contingent liability. Therefore, this submission is without merit. 21. The reliance by Mr Agarwal on Excel Industries Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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