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TMI Blog1995 (8) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... o allow depreciation at the higher rate when the certificate is actually obtained and filed with the Assessing Officer. We consider this plea on the part of the assessee to be very much reasonable. Although therefore, for the time being, we uphold the action of the lower authorities, at the same time again, we direct that depreciation at the higher rate of 50% be allowed to the assessee when the assessee files the requisite certificate before the Assessing Officer. 2. The assessee claimed depreciation on certain building whose title had not, till the end of the relevant previous year, been transferred in the name of the assessee. The Assessing Officer, therefore, did not allow depreciation on the said building inasmuch as the building was not being legally owned by the assessee. The action of the Assessing Officer was upheld by the CIT(A). We approve of the actions of the lower authorities in this regard by following the two decisions of the Karnataka High Court in the cases of CIT v. Bharath Gold Mines Ltd. [1991] 192 ITR 639 and Ramkumar Mills (P.) Ltd. v. CIT [1989] 180 ITR 464. 3. The next ground relates to the claim of the assessee for allowance of the amount of executi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng part of the accounts for the year ended 31-3-1990 shown in the printed accounts book clearly shows that the employee's remuneration includes provision for executive wage revision of 79,503(000). Thus it appears that although the company might not have shown the amount to be included within " provision " or " contingent liabilities ", actually however, the company meant the amount to be of the nature of provision only. The learned counsel for the assessee has also drawn our attention to the " Cabinet note " dated 26-9-1989. He argues that this Cabinet note forms the basis of considering that the revision in the pay-scales of the executives of the company was a certainty and merely a formality of the nature of approval by the Cabinet was required to materialise the proposal already in the air and known to everybody. He furthermore states that the letter dated 4-4-1990 of the Additional Secretary, Bureau of Public Enterprises, Ministry of Industry was merely of the nature of communicating the above-mentioned decision of the Cabinet. He thus contends that the liability must be considered to have accrued during the relevant previous year only. He also argues that the liability was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... departmental representative also argues that even the above-mentioned letter dated 4-4-1990 was also not a conclusive one and that however, ultimately the communication dated 22-2-1991 from the Ministry of Defence, Department of Defence Production and Supplies addressed to the Chairman Managing Director of the assessee-company can be considered to have the effect of declaring and also approving the revised scales for the employees of the assessee-company. 4(a). In this connection, the learned DR has relied on the decision of the Allahabad High Court in the case of New Victoria Mills Co. Ltd. v. CIT [1966] 61 ITR 395 in which it has been held that though under the mercantile system of accounting all items of credit are brought into credit immediately they become legally due and before they are actually received, and all expenditure is debited, for which a legal liability has been incurred before it is actually disbursed, yet before a credit or debit entry can legitimately be made in the accounts it must be shown that a certain enforceable liability has accrued or arisen. The Allahabad High Court held furthermore that such liability must be one that has been ascertained and capab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of the final proposal after one month from that date, clearly shows that the inclusion of the liability in the accounts of the assessee had been made merely on the basis of a guesswork and not by taking into consideration any ascertained liability. The learned DR has also relied on a catena of decisions of different Courts in support of his contention that contingent and unascertained liabilities are not allowable as expense. 5. When we examine all the relevant materials placed on our record in a dispassionate manner, we find that the claim of the assessee is merely based on certain expectations and not on the basis of any definite material. There is no doubt about the fact that a talk about revision in the pay-scales of the executives of the Government companies was very much in air and it was also a certainty that there would be some upward revision in such pay-scales, inasmuch as the economy had already shown an inflationary trend. However, how much would be the upward revision in such pay-scales and from which date such revised pay-scales would be effective, was very much a matter of speculation, and was subject to finalisation of the proposals in this regard and accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xecutives, of PSEs. It was furthermore stated towards the end that pending the examination by that group there should not be any upward revision of these allowances and perks. It is clear from the above discussions that the above-mentioned draft Note dated 26-9-1989 only contained certain tentative proposals and there could be no question of any finality about revision of the pay-scales including the allowances and perks of the employees of the Government companies simply on the basis of this Note. 5(b). On the other hand, the communication dated 4-4-1990 of Shri Suresh Kumar, Additional Secretary, Bureau of Public Enterprises, Ministry of Industry, also made discussions about the pending pay revision for the executives. Para 14 of the said communication reads as below : --- " 14. Proposals received from each individual enterprise are required to be approved by the Government, i.e., the administrative Ministry acting in consultation with the BPE. It is, therefore, requested that the proposals received from the public enterprises under your administrative control may be examined expeditiously and forwarded on the file with the comments and observations of the FA/IFW to the BPE, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be applicable to all matters. So far as payment of arrears of salary to the employees is concerned, the liability must be considered to arise only when the pay-scales are revised and not before that. Hence, the different decisions as relied upon by the learned counsel for the assessee do not seem to be having such application. A brief examination of the several decisions relied on by the learned DR may also be made : (a) CIT v. Swadeshi Cotton Flour Mills (P.) Ltd. [1964] 53 ITR 134 (SC) : It was held in this case that an employer who follows the mercantile system of accounting incurs a liability towards profit bonus only when the claim, if made, is settled amicably or by industrial adjudication. (b) CIT v. Amrit Banaspati Co. Ltd. [1966] 59 ITR 388 (All.) : The Court held that the assessee as employer followed the mercantile system of accounting, the liability of the employer towards the allowance payable to the employees arose only when it was finally settled amicably or by industrial adjudication and the claim to deduction was admissible only in the year when the liability under the award was finally determined. (c) Mysore Lamp Works Ltd. v. CIT [1990] 185 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at that future point of time. The learned counsel for the assessee has tried to argue in this connection that the fact that the balance-sheet was signed by the assessee even before sending the proposal to the Government, shows that the liability had become final to be taken into consideration in the accounts of the assessee. We are, however, not able to agree with this argument. What was taken into consideration in the accounts of the assessee was merely a provision based on certain proposals put forward by the assessee. The proposal became an accomplished fact only on issue of the approval letter prescribing the actual revised pay-scales by the Government on 22-2-1991. We, therefore, finally hold that the entire liability under consideration did accrue on 22-2-1991. So far as the year under our present consideration is concerned, not any portion of the liability can be allowed inasmuch as the liability was merely of the nature of a contingent liability till the end of the relevant accounting year. The alternative plea of the assessee also cannot be accepted inasmuch as the revised pay-scales came at a later date and hence, the arrears of salary, etc., even pertaining to the curr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he closing stock of a trader according to the market value or cost price, whichever is lower at the option of the trader, the cost price should be taken as meaning " original cost price " and not a notional cost price. The Supreme Court again held in the case of Investment Ltd. that a tax-payer is free to employ for the purpose of his trade, his own method of keeping accounts and for that purpose to value his stock-in-trade either at cost or at market price. The Supreme Court furthermore held that a method of accounting adopted by the trader consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping account or of valuation. At the same time again, the Supreme Court furthermore held the method of accounting regularly employed may be discarded only if in the opinion of the taxing authorities income of the trade cannot be properly deduced therefrom. In the instant case, the assessee purchased the relevant materials in New York, certainly at Dollar price. There cannot by any question about the proposition that for evaluating the closing stock of such materials, the cost price of the materials s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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