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TMI Blog2015 (4) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... nt : Ms. Sulekha Verma, CIT, D.R. ORDER Per J.Sudhakar Reddy, AM This is an appeal filed by the assessee and is directed against the order passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) by the Ld.CIT, Delhi-IV, New Delhi dt. 24.3.2004. 2. Facts in brief:- The assessee is a Public Sector Undertaking. It filed its return of income for the Assessment Year (hereinafter referred to as the AY ) 1999-2000 on 29.12.1999 declaring income of ₹ 384,41,23,010/-. The assessment was completed u/s 143(3) of the Act on 28.2.2002 determining the total income at ₹ 545,87,46,200/-. 2.1. The Ld.CIT, Delhi-IV initiated proceedings u/s 263 of the Act by issuing a notice on 20.2.2004, on the ground that the order passed by the AO u/s 143(3) of the Act on 28.2.2002 is erroneous, as well as prejudicial to the interest of Revenue, for the reason that the AO has allowed deduction of ₹ 809.86 lakhs under the head salaries, wages and allowances for provision made pending finalisation of Pay Revision of employees which had become due from 01.01.1997. He was of the view that this liability which accrues on account of pay revision, is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto with the employees for pay revision. 8. In view of the above stated factual and legal position, the order passed by the AO is held to be erroneous as well as prejudicial to the interests of revenue. The AO is directed to add this amount of ₹ 809.86 lacs to the income of the assessee. 3. Aggrieved the assessee is before us on the following grounds. 1.That on facts and circumstances of the case and in law, the Commissioner of Income Tax, Delhi IV (briefly the CIT ) erred in assuming jurisdiction under Section 263 of the Income Tax Act in as much as the assessment order was neither erroneous nor prejudicial to the interest of revenue.. 2.That on facts and circumstances of the case and in law, the CIT erred in directing the assessing officer to add the amount of ₹ 809.86 lacs to the income of the appellant. 3.That on facts and circumstance of the case and in law, the CIT erred in holding that deduction ofRs.809.86 lacs allowed by A.O. being the provision for pay revision to be effective from 1.1.1997 was not allowable because the liability had not accrued. 4. That on facts and circumstances of the case and in law, the CIT erred in holding that liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out that the preliminary MOU itself was drawn on 24.9.2000 and whereas the provision was made for the AY 1999-2000. She submitted that the Ld.CIT has considered the various documents produced by the assessee and has come to a conclusion that, there is not even a single document which suggests that the liability has accrued during the year. She pointed out that the preliminary MOU, the authorisation from the Board of Directors, as well as the formal MOU had taken placed much after the finalisation of the accounts of the impugned AY. She supported the order of the First Appellate Authority. 7. Rival contentions heard. On a careful consideration of the facts and circumstances of the case, on perusal of orders of lower authorities, material on record and case laws cited, we hold as follows. 8. In this case, from the order of Ld.CIT it is clear that, by way of an internal office order passed on 28.12.1998, a Committee was constituted for holding discussions with the Representatives of Employees for formulating an approach of the Board of Directors, towards the pending pay revision w.e.f. 1.1.1997. The Department of Public Enterprises issued an office memo on 14.1.1999, authorisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with effect from 1.8.1992. Therefore, the liability for wage increase really accrued for the respondent assessee with effect from 1.8.1992. The assessee is entitled to claim deduction of such wage increase attributable up to the end of the previous year, no matter what amount was ascertained and payment made later. In the decision of the Supreme Court referred to above, it is made very clear that what is to be considered is whether the liability is attributable to the previous year or not and it is immaterial if the actual liability was ascertained and settled only in the next year. Even though the other two decisions cited by the assessee are not directly on the point, the principles laid down therein are applicable to the facts of this case. It is clear from the orders that by the time the accounts were finalised and returns were filed, the assessee had ascertained the actual liability attributable to the previous year and therefore the actual amount payable only was claimed based on mercantile system of accounting followed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a business liability has definite origin in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be estimated with reasonable 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 praesenti 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. As facts and circumstances of the present case are identical with the ratio laid down by the Hon ble Supreme Court, respectfully following the findings of the Hon ble Supreme Court and also the decisions relied upon by the assessee, we direct the Assessing Officer to allow the claim of deduction of provision for salary of ₹ 40.71 lakhs as the services rendered are in presentee. Ground No.3 is accordingly allowed. 8.4. In our considered view, though the date of signing of the M.O.U. i.e. 24.09.2000, which is done after the approval of the Department of Public Enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the courses permissible in law and it has resulted in loss of Revenue ; or where two views are possible and the Income tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income tax Officer is unsustainable in law. It has been held by this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). 10. In the instant case, the Commissioner noted that the Income tax Officer passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the Income tax Officer failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant company was not placed before the Assessing Officer. Thus, there was no material to sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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