Ita/103/2016 Of Pr Commissioner Of Income Tax Panchkula v. M/S Haryana Warehousing Corporation

I N THE HI GH COURT OF PUNJAB AND HARYANA AT CHANDI GARH I NCOME TAX APPEAL No. 103 of 2016 ( O&M)DATE OF DECI SI ON: 11. 11. 2016 Pr . Commi ssi oner of I ncome Tax, Panchkul a …. . Appel l antver sus M/ s Har yana War ehousi ng Cor por at i on . . . . . Respondent CORAM: - HON’ BLE MR. JUSTI CE S. J. VAZI FDAR, CHI EF JUSTI CE HON’ BLE MR. JUSTI CE DEEPAK SI BAL Pr esent :Mr . Yogesh Put ney, Advocat e f or t he appel l antMr . Raj esh Gar g, Seni or Advocat e wi t hMr . Sandeep Kumar , Advocat e f or t he r espondent. . S. J. VAZI FDAR, CHI EF JUSTI CE: Thi s i s an appeal agai nst t he or der of t he Tr i bunalpar t l y al l owi ng t he assessee’ s appeal agai nst t he or der of t he CI T( Appeal s) . The mat t er per t ai ns t ot heAssessmentYear2009- 10( i nadver t ent l y ment i oned as 1999- 2000 i n par agr aph 1 of t heTr i bunal ’ s or der ) . 2.Accor di ng t o t he appel l ant , t he f ol l owi ng subst ant i alquest i ons of l aw ar i se i n t hi s appeal : - “ ( i )Whet her on t he f act s and i n t heci r cumst ances of t he case, t he Ld. I ncomeTax Appel l at e Tr i bunal was r i ght i n l aw i ncancel l i ng t heor derpassed by t heCommi ssi oner of I ncome Tax under Sect i on 263 of t he I ncome Tax Act , 1961 by hol di ngt hat t her e i s not hi ng i n t he af or esai dor der t o show t hat assessment or der passedby t he Assessi ng Of f i cer was er r oneous i nso f ar as pr ej udi ci al t o t he i nt er est s oft he r evenue? ( i i )Whet her on t he f act s and i n t heci r cumst ances of t he case, t he or der passedby t he Ld. I ncome Tax Appel l at e Tr i bunalwas r i ght i n l aw i n al l owi ng t he appeal oft he Respondent - Assessee on t he i ssue onaccount of r evi si on of pay scal es as pr i orper i od expenses and not al l owabl e underSect i on 37 of t he I ncome Tax Act , 1961? ( i i i ) Whet her on t he f act s and i n t heci r cumst ances of t he case, t he or der passedby t he Ld. I ncome Tax Appel l at e Tr i bunalwas r i ght i n l aw i n al l owi ng t he appeal oft he Respondent - Assessee on t he i ssue onaccount of Mi sc. expenses of Rs. 50, 16, 675/ -bei ng capi t al i n nat ur e? ( i v)Whet her on t he f act s and i n t heci r cumst ances of t he case, t he or der passedby t he Ld. I ncome Tax Appel l at e Tr i bunalwas per ver se i n nat ur e and agai nst l aw asi t gr ossl y over l ooked t he mat er i alevi dence/ i nf or mat i on on r ecor d? ( v)Whet her on t he f act s and i n t heci r cumst ances of t he case, t he Ld. I ncomeTax Appel l at e Tr i bunalwas r i ght i n l aw i npar t l y accept i ng t he or der passed by t heCommi ssi oner of I ncome Tax under Sect i on263 of t he I ncome Tax Act , 1961 andexami ni ng t he i ssues on mer i t s of mat t eronce i t i s f ound t hat i nvocat i on ofpar t i cul ar pr ovi si ons of Act i s val i d? 3.The appeal i s admi t t ed onl y wi t h r espect t o quest i on( i i ) and t he quest i on i s answer ed i n f avour of t heassessee/ r espondent . The ot her quest i ons do not r ai se a subst ant i alquest i on of l aw. I n t he r esul t , we have di smi ssed t he appeal . 4.For t he r el evant assessment year ,t he r espondentf i l edi t s r et ur n of i ncome on 30. 09. 2009 decl ar i ng an i ncome of aboutRs. 15. 57 cr or es. A r evi sed r et ur n was f i l ed on 31. 03. 2011 decl ar i ngan i ncome of about Rs. 19. 02. cr or es. The assessment was ul t i mat el ycompl et ed on 19. 12. 2011 under sect i on 143( 3) of t he I ncome Tax Act ,1961 ( f or shor t , “ t he Act ” ) assessi ng t he i ncome at about Rs. 21. 77cr or es. On 18. 01. 2012, t he assessee f i l ed an appeal bef or e t he CI T( Appeal s) whi ch was di smi ssed by an or der dat ed 02. 04. 2013. 4.For t he r el evant assessment year ,t he r espondentf i l edi t s r et ur n of i ncome on 30. 09. 2009 decl ar i ng an i ncome of aboutRs. 15. 57 cr or es. A r evi sed r et ur n was f i l ed on 31. 03. 2011 decl ar i ngan i ncome of about Rs. 19. 02. cr or es. The assessment was ul t i mat el ycompl et ed on 19. 12. 2011 under sect i on 143( 3) of t he I ncome Tax Act ,1961 ( f or shor t , “ t he Act ” ) assessi ng t he i ncome at about Rs. 21. 77cr or es. On 18. 01. 2012, t he assessee f i l ed an appeal bef or e t he CI T( Appeal s) whi ch was di smi ssed by an or der dat ed 02. 04. 2013. Ther eaf t er , i t was not i ced t hat t he assessee had debi t eda sum of about Rs. 12. 88 cr or es i n t he pr of i t and l oss account i nr espect of “ Revi sed Pay Scal es” . The not es on account st at ed t hatt hi s was a pr ovi si on on an ad hoc basi s f or t he payment of r evi sedpay scal es of t he st af f . The CI T f ound t hi s t o be an omi ssi onl eadi ng t o t he i ncome bei ng under assessed t o t he ext ent of aboutRs. 12. 88 cr or es and obser ved t hat t he Assessi ng Of f i cer had been negl i gent i n not maki ng pr oper enqui r y and i n not exami ni ng t heexpenses cl ai med by t he assessee. I t was, t her ef or e, hel d t hat t heassessment was pr ej udi ci al t o t he i nt er est of t he Revenue. The CI T f ur t her not ed t hat t he assessee had al so debi t eda sum of about Rs. 50 l acs i n r espect ofunabsor bed over head oncapi t al wor ks under “ Mi scel l aneous Expenses” i n t he pr of i t and l ossaccount and obser ved t hatt he expendi t ur e bei ng capi t al i n nat ur ewas r equi r ed t o be capi t al i sed and deduct i on as r evenue expendi t ur ewas not al l owabl e. I t was f ur t her not ed t hat a sum of about Rs. 22 l acsunder t he head “ Pr ocur ementofWheat Account ” was debi t ed whi chper t ai ned t o car r y over char ges of t he Nagpur Mandi and t hat t her ecover y of t hi s amount was doubt f ul but not bad and t he same was,t her ef or e, not al l owabl e under sect i on 36 as a bad debt . The CI Tf ound t hat t he Assessi ng Of f i cer had al l owed t he deduct i on wi t houtany enqui r y t o ver i f y t he same.Last l y, a di scr epancy was not ed onaccount of not char gi ng t ax at maxi mum mar gi nal r at e as per t hepr ovi si ons of sect i on 167B of t he Act . The assessee was t r eat ed asan AOP. We ar e concer ned i n t hi s appeal onl y wi t h r egar d t o t hef i r st t wo i t ems, namel y, t he pr ovi si on of r evi si on of pay scal esand t he unabsor bed over head on capi t al wor k under mi scel l aneousexpense as t he depar t ment had succeeded on a demur er i n r espect oft he ot her t wo cl ai ms. 5.Accor di ngl y, a not i ce dat ed 12. 01. 2014 was ser ved upont he assessee cal l i ng upon i t t o show cause why t he assessment or derbe not set asi de/ cancel l ed under sect i on 263 and t he Assessi ngOf f i cer be notdi r ect ed t o make a f r esh assessment . I n vi ew of t he above obser vat i ons, an or der dat ed 06. 03. 2014 was passed by t he CI Tunder sect i on 263( 1) . 6.The Assessi ng Of f i cer t her eaf t er passed a f r eshassessment or der dat ed 23. 03. 2015 under sect i on 143( 3) r ead wi t hsect i on 263. As r egar ds t he pr ovi si on f or r evi si on of pay scal es,t he Assessi ng Of f i cer al l owed onl y 40% i n t he year i n quest i on. Theexpendi t ur e of aboutRs. 50 l acson const r uct i on, r epai r andmai nt enance of war e- houses cl ai med at 14% of t he pr oj ect cost washel d t o be capi t al expendi t ur e i n nat ur e and was, t her ef or e, addedback t o t he r et ur ned i ncome. above obser vat i ons, an or der dat ed 06. 03. 2014 was passed by t he CI Tunder sect i on 263( 1) . 6.The Assessi ng Of f i cer t her eaf t er passed a f r eshassessment or der dat ed 23. 03. 2015 under sect i on 143( 3) r ead wi t hsect i on 263. As r egar ds t he pr ovi si on f or r evi si on of pay scal es,t he Assessi ng Of f i cer al l owed onl y 40% i n t he year i n quest i on. Theexpendi t ur e of aboutRs. 50 l acson const r uct i on, r epai r andmai nt enance of war e- houses cl ai med at 14% of t he pr oj ect cost washel d t o be capi t al expendi t ur e i n nat ur e and was, t her ef or e, addedback t o t he r et ur ned i ncome. As we ment i oned ear l i er , by t he i mpugned or der dat ed21. 10. 2015, t he Tr i bunal set asi de t he or der passed by t he CI Tunder sect i on 263. I t may onl y be not ed at t hi s st age t hat t he CI T( Appeal s) , by an or der dat ed 20. 12. 2015, set asi de t he f r eshassessment or der dat ed 23. 05. 2015 i n vi ew of t he i mpugned or der oft he Tr i bunal dat ed 21. 10. 2105. We ar e, however , concer ned i n t hi sappeal onl y wi t h t he or der of t he Tr i bunal dat ed 21. 10. 2105. :Re: Quest i on Nos. ( i ) & ( v) 7.Quest i ons ( i ) and ( v) ar e i nt er - r el at ed and ar e deal twi t h t oget herespeci al l yas we have, f or t he pur pose of t hi sappeal , pr oceeded on t he basi st hat sect i on 263 was val i dl yi nvoked. Sect i on 263, i n so f ar as i t i s r el evant , r eads as under : -“ Revi si on of or der s pr ej udi ci al t o r evenue. 263.( 1) The Pr i nci pal Commi ssi oner or Commi ssi onermay cal l f or and exami ne t he r ecor d of anypr oceedi ng under t hi s Act , and i f he consi der st hat any or der passed t her ei n by t he Assessi ngOf f i cer i s er r oneous i n so f ar as i t i spr ej udi ci al t o t he i nt er est s of t he r evenue,he may af t er gi vi ng t he assessee anoppor t uni t y of bei ng hear d and af t er maki ng orcausi ng t o be made such i nqui r y as he deemsmay cal l f or and exami ne t he r ecor d of anypr oceedi ng under t hi s Act , and i f he consi der st hat any or der passed t her ei n by t he Assessi ngOf f i cer i s er r oneous i n so f ar as i t i spr ej udi ci al t o t he i nt er est s of t he r evenue,he may af t er gi vi ng t he assessee anoppor t uni t y of bei ng hear d and af t er maki ng orcausi ng t o be made such i nqui r y as he deems necessar y, pass such or der t her eon as t heci r cumst ances of t he case j ust i f y, i ncl udi ngan or der enhanci ng or modi f yi ng t heassessment , or cancel l i ng t he assessment anddi r ect i ng a f r esh assessment . ” 8.The CI T ( Appeal s) di d not mer el y di r ect t he Assessi ngOf f i cer t o r econsi der t he i ssues and t o pass an assessment or dert her eaf t er , but r et ur ned a f i ndi ng on mer i t s di r ect i ng t heAssessi ng Of f i cer t o r e- comput e t he i ncome i n accor dance t her ewi t h.I n t hat event , t he assessee was ent i t l ed t o f i l e an appeal agai nstt he or der of t he CI T ( Appeal s) bef or e t he Tr i bunal and t he Tr i bunalwas bound t o consi der t he i ssues on mer i t s as wel l . necessar y, pass such or der t her eon as t heci r cumst ances of t he case j ust i f y, i ncl udi ngan or der enhanci ng or modi f yi ng t heassessment , or cancel l i ng t he assessment anddi r ect i ng a f r esh assessment . ” 8.The CI T ( Appeal s) di d not mer el y di r ect t he Assessi ngOf f i cer t o r econsi der t he i ssues and t o pass an assessment or dert her eaf t er , but r et ur ned a f i ndi ng on mer i t s di r ect i ng t heAssessi ng Of f i cer t o r e- comput e t he i ncome i n accor dance t her ewi t h.I n t hat event , t he assessee was ent i t l ed t o f i l e an appeal agai nstt he or der of t he CI T ( Appeal s) bef or e t he Tr i bunal and t he Tr i bunalwas bound t o consi der t he i ssues on mer i t s as wel l . 9.The CI T i n t he or der dat ed 06. 03. 2014, passed undersect i on 263( 1) of t he Act , deal t wi t h each of t he i ssuessepar at el y. I n par agr aph- 2, t he CI T not ed t hat t he assessee haddebi t ed a sum of about Rs. 12. 88 cr or es i n t he pr of i t and l ossaccount i n r espect of t he r evi sed pay scal es; t hat t he not es onaccount ment i oned t hat i t was a pr ovi si on made on an ad hoc basi sf or t he payment of r evi sed pay scal es of t he st af f ;t hat t he samewas not added back i n t he t axabl e i ncome by t he assessee or by t heAssessi ng Of f i cer and t hat , as per t he pr ovi si ons of sect i on 37,any expendi t ur e not speci f i cal l y cover ed under sect i ons 30 t o 36 i sdeduct i bl e pr ovi ded i t i s i ncur r ed dur i ng t he pr evi ous year and i snot i n t he nat ur e of per sonal or capi t al expenses and i s i ncur r edwhol l y and excl usi vel y f or busi ness pur poses. Thus f ar t he or deronl y r ecor ds t he f act s. What f ol l ows i s i mpor t ant .The CI Texpr essl y hel d t hat i n vi ew of t hi s omi ssi on, t he i ncome was underassessed t o t he ext ent of about Rs. 12. 88 cr or es and t hat t heAssessi ng Of f i cer had been negl i gent i n not maki ng pr oper enqui r i esand i n not exami ni ng t he expenses cl ai med by t he assessee. The doubt , i f any, t hat t he CI T had deci ded t he mat t er on mer i t s i s setat r est by t he f ol l owi ng obser vat i ons: - “ The cl ai m of t he assessee has been consi der edand not ed t hat t he as per t he copy of mi nut es ofmeet i ng dat ed 25. 03. 2009 of t he Boar d Di r ect or sf ur ni shed by t he assessee, t he r evi si on of pay scal eof Har yana War ehousi ng Cor por at i on has been appr ovedvi de agenda i t em No. 26 i n whi ch i t has been pr oposedt o adopt Fi nance Depar t ment Let t er No. 1/ 83/ 2008/ 1PR( FD) dat ed 7/ 1/ 2009 f or r evi si on of pay scal es oft he empl oyees of Har yana War ehousi ng Cor por at i onw. e. f . 1. 1. 2006. As per t he Govt . Pol i cy 40% ar r earwi l l be gi ven i n t he cur r ent f i nanci al year and 60%i n t he next f i nanci al year . The f i nanci ali mpl i cat i on f or i mpl ement i ng t he r evi sed paymentscal es was est i mat ed at Rs. 8. 50 Cr . Appr ox. f or t heyear 2005- 06, 2006- 07 and 2007- 08. Ther ef or e, t heassessee shoul d have made pr ovi si on f or expendi t ur eof 40% onl y i n t he cur r ent f i nanci al year . However ,t he assessee has pr ovi ded Rs. 12, 88, 15, 000/ - . TheA. O. has f ai l ed t o ver i f y t he same. Ther ef or e, t heA. O. i s di r ect ed t o ver i f y t he same and al l ow t heper mi ssi bl e amount onl y. ” Ther e i s, t her ef or e, a cl ear di r ect i on t o t he Assessi ngOf f i cer t o al l ow t he expendi t ur e of onl y 40% i n t he cur r entf i nanci al year .The CI T, t her ef or e, exer ci sed hi s di scr et i on undersect i on 263 t o deci de t he i ssue on mer i t s.Faced wi t h t hi s or der ,t he Assessi ng Of f i cer had no opt i on but t o al l ow t he expendi t ur e asdi r ect ed by t he CI T. The Assessi ng Of f i cer coul d not possi bl y passan assessment or der cont r ar y t o t hese di r ect i ons. Thi s i s pr eci sel ywhat t he Assessi ng Of f i cer di d whi l e passi ng t he f r esh assessmentor der dat ed 23. 03. 2015. Al t hough t he Assessi ng Of f i cer does notst at e t hat he had f ol l owed t he or der of t he CI T, i t i s obvi ous t hathe di d. I n any event , consi der i ng t he nat ur e of t he obser vat i ons oft he CI T, he was bound t o f ol l ow t he same. 10.Thi s i s al so t he case i n r espect of t heunabsor bedover head on capi t al wor ks under “ Mi scel l aneous Expenses” of aboutRs. 50 l acs. The CI T expr essl y obser ved t hat t hi s expense const i t ut ed capi t al expendi t ur e and “ was r equi r ed t o be capi t al i sedand deduct i on as Revenue expendi t ur e was not al l owabl e” .Thi s i scl ear l y a f i ndi ng on mer i t s. The CI T di d not l eave any scope f orr econsi der at i on by t he Assessi ng Of f i cer . The Assessi ng Of f i cer , ont hi s i ssue, deci ded t he mat t er i n accor dance wi t h t he di r ect i ons oft he CI T ( Appeal s) as he was i ndeed bound t o. 11.The CI T, t her ef or e, deci ded t hese t wo cl ai ms on mer i t s.Even t he ot her i ssues wer e deci ded by t he CI T on mer i t s. However ,t hey ar e not r el evant f or t he r easons al r eady st at ed.The Tr i bunalwas, t her ef or e, bound t o consi der t he case on mer i t s as wel l . Wehave come t o t he concl usi on t hat t he deci si on of t he Tr i bunal onmer i t s must be uphel d. I n vi ew t her eof , i t was open t o t he Tr i bunaland i t cer t ai nl y i s open t o us t o pr oceed on t he basi s t hat t hepr oceedi ngs under sect i on 263 wer e val i d. Once we pr oceed even on ademur er t hat t he pr oceedi ngs under sect i on 263 ar e val i d,we ar eent i t l ed, i ndeed bound t o consi der t he i ssues on mer i t s. :Re: Quest i on ( i i ) 12.The Har yana St at e had not i f i ed t her evi si on of payscal es of i t s empl oyees wi t h ef f ect f r om 01. 01. 2006. Thi s waspr obabl y i n vi ew of t he si xt h pay commi ssi on.The Fi nanci alCommi ssi oner & Pr i nci pal Secr et ar y t o Gover nment Har yana, Fi nanceDepar t ment , addr essed a l et t er dat ed 07. 01. 2009 t o t hi s Cour t , al lheads of depar t ment s i n Har yana, al l Di vi si onal Commi ssi oner s i nHar yana, al l Deput y Commi ssi oner s i n Har yana and al l Sub Di vi si onalOf f i cer s ( Ci vi l ) i n Har yana.The l et t er , t hough not speci f i cal l yaddr essed t o t he assessee, appear s t o have been f or war ded t o t heassessee as wel l . The subj ect of t he l et t er was “ Revi sed paypackage f or mul at i on and i mpl ement at i on t her eof - Document s r egar di ng” . The l et t er f or war ded cer t ai n document s f or i nf or mat i onand act i on. The l et t er r equi r ed act i on t o be t aken i n t he l i ght oft he r ul es and not i f i cat i ons r ef er r ed t o t her ei n i mmedi at el y t oensur e payment of sal ar y t o gover nment ser vant s who had el ect ed t obe gover ned by t he sai d r ul es. Par agr aph 4 of t he l et t er r eads asunder : - r egar di ng” . The l et t er f or war ded cer t ai n document s f or i nf or mat i onand act i on. The l et t er r equi r ed act i on t o be t aken i n t he l i ght oft he r ul es and not i f i cat i ons r ef er r ed t o t her ei n i mmedi at el y t oensur e payment of sal ar y t o gover nment ser vant s who had el ect ed t obe gover ned by t he sai d r ul es. Par agr aph 4 of t he l et t er r eads asunder : - “ 4.The under si gned i s f ur t her di r ect ed t o i mpr essupon you t hat t he ar r ear s shoul d be dr awn i n t woi nst al l ment s, t he f i r st i nst al l ment bei ng r est r i ct edt o 40% of t he aggr egat e ar r ear dur i ng t he cur r entf i nanci al year 2008- 09 and t he second i nst al l ment of60% of aggr egat e ar r ear wi l l be dr awn af t er t her ecei pt of i nst r uct i on whi ch wi l l be i ssuedsepar at el y i n due cour se. ” I t i s i mpor t ant t o not e t he wor d “ ar r ear s” . The wor d,absent anyt hi ng el se at l east , i ndi cat es t hat t he amount s wer epayabl e even on t hat dat e, namel y, 07. 01. 2009 – t he dat e of t hel et t er .A not i f i cat i on f or t he i mpl ement at i on t her eof was al soi ssued. 13.At a meet i ng of t he Boar d ofDi r ect or s oft he assesseeon 25. 03. 2009, t he subj ect ofagenda I t em No. 26 was “ Revi si on ofpay scal es of Har yana War ehousi ng Cor por at i on w. e. f . 1. 1. 2006. ” TheMi nut esof t he meet i ng r ef er r ed t o t he sai d l et t er dat ed07. 01. 2009. The Mi nut es f ur t her r ead under : - “ The Har yanaWar ehousi ng Cor por at i on i sf ol l owi ng t he St at e Govt . f or r evi si on of pay scal esof i t s empl oyees. The l ast Gener al Revi si on of paywas made w. e. f . 1/ 1/ 1996 f or Cor por at i on’ s empl oyeeson t he St at e Govt . pat t er n. As per Regul at i on 13 ofHar yana War ehousi ng Cor por at i on ( Of f i cer s & St af f )Regul at i ons, 1994 t he power t o f i x or r evi se t hescal e of pay i n t he Cor por at i on shal l vest i n t heBoar d of Di r ect or s subj ect t o f i nal appr oval of t heGover nment .I t i s, t her ef or e, pr oposed t o adopt Fi nanceDepar t ment l et t er No. 1/ 83/ 2008/ 1PR( FD) dat ed7/ 1/ 2009 and af or esai d not i f i cat i on i n t o- t o f orr evi si on of pay scal es of t he empl oyees of Har yana War ehousi ng Cor por at i on w. e. f . 1/ 1/ 2006. As perGovt . pol i cy 40% ar r ear wi l l be gi ven i n t he cur r entf i nanci al year and 60% i n t he next f i nanci al year .The f i nanci al i mpl i cat i onf or i mpl ement i ng t her evi sed pay scal es woul d be Rs. 8. 50 cr or eappr oxi mat el y f or t he year 2005- 06, 2006- 07 & 2007-08. The f unds wi l l be ar r anged f r om Cor por at i on’ sown sour ces. Cat egor y- wi se exi st i ng f unct i onal payscal es and pr oposed r evi sed f unct i onal pay st r uct ur ei n r espect ofCor por at i on empl oyees have beenment i oned i n t he st at ement encl osed at Annexur e- I I . ” 14.The par t i es pr oceeded on t he basi s t hatt he deci si ont aken at t he meet i ng of 25. 03. 2009 was t o be i mpl ement ed.Thequest i on bef or e us i s as t o when t he l i abi l i t y t o pay t he ar r ear sar ose. I n ot her wor ds, t he quest i on i s whet her t he l i abi l i t y t o payt he ent i r e ar r ear s ar ose i n t he assessment year i n quest i on,namel y, 2009- 10 or whet her t he l i abi l i t y ar ose t o t he ext ent of 40%i n t he assessmentyear 2009- 10 and t o t he ext ent of 60% i n t hef ol l owi ng assessment year 2010- 11. Thi s r equi r ed an i nt er pr et at i onof t he deci si on of t he assessee’ s Boar d of Di r ect or sdat ed25. 03. 2009. The CI T, i n t he or der under sect i on 263, hel d t hat t heassessee shoul d have made pr ovi si on t o t he ext ent of onl y 40% i nt he cur r ent f i nanci al year i . e. 2008- 09 cor r espondi ng t o assessmentyear 2009- 10. 15.I n our vi ew, however , t he Tr i bunal r i ght l y hel d t hat t heent i r e l i abi l i t y was i ncur r ed i n t he assessment year i n quest i on;had been est i mat ed wi t h r easonabl e cer t ai nt y and t hat i t was not acont i ngent l i abi l i t y. The assessee was, however , l i abl e t odi schar ge a par t of t hat l i abi l i t y at a f ut ur e dat e.What i sr el evant i swhent he assessee’ s deci si ont hatt heamount waspayabl e was t aken.The pr ovi si on f or t he payment of t he sal ar yi ncl udi ng ar r ear s was not a cont i ngent l i abi l i t y. I t ar ose onaccount of t he si xt h pay commi ssi on whi ch was appr oved by t he Har yana Gover nment and adopt ed by t he assessee. We ar e i n agr eementwi t h t hi s f i ndi ng of t he Tr i bunal . 16.The concl udi ng par t of t he Mi nut es adopt ed t he l et t erdat ed 07. 01. 2009. The Mi nut es al so r ef er r ed t o t he ar r ear s. As wement i oned ear l i er , t he wor d “ ar r ear s” ,absent anyt hi ng el se,i ndi cat es t hat t he l i abi l i t y had been i ncur r ed and had al so beenagr eed t o be di schar ged. The l i abi l i t y, t hus, ar ose i n pr aesent iand not i n f ut ur o. A par t of t he l i abi l i t y was t o be di schar ged i nf ut ur e.The accr ual of a l i abi l i t y and t he t i me f or t he di schar get her eof ar e di f f er ent mat t er s. I n t he mer cant i l e syst em, t he mer epost ponementof t he dat e of payment of a l i abi l i t y al r eadyi ncur r ed, acknowl edged and agr eed t o be met ar i ses i n t he year i ti s st at ed t o be so i ncur r ed and met . 17.Mr . Gar g, t he l ear ned seni or counsel appear i ng on behal fof t he assessee, r el i ed upon t he j udgment of t he Supr eme Cour t i nBhar at Ear t h Mover s vs. Commi ssi oner of I ncome Tax, Kar nat aka,( 2000) 6 Supr eme Cour t Cases 645, whi ch i s al so r ef er r ed t o by t heTr i bunal . The Supr eme Cour t hel d: - “ 4. The l aw i s set t l ed: i f a busi nessl i abi l i t y has def i ni t el y ar i sen i n t he account i ngyear , t he deduct i on shoul d be al l owed al t hough t hel i abi l i t y may have t o be quant i f i ed and di schar gedat a f ut ur e dat e. What shoul d be cer t ai n i s t hei ncur r i ng of t he l i abi l i t y. I t shoul d al so becapabl e of bei ng est i mat ed wi t h r easonabl ecer t ai nt y t hough t he act ual quant i f i cat i on may notbe possi bl e. I f t hese r equi r ement s ar e sat i sf i edt he l i abi l i t y i s not a cont i ngent one. Thel i abi l i t y i s i n pr aesent i t hough i t wi l l bedi schar ged at a f ut ur e dat e. I t does not make anydi f f er ence i f t he f ut ur e dat e on whi ch t hel i abi l i t y shal l have t o be di schar ged i s notcer t ai n.5. I n Met al Box Co. of I ndi a Lt d.V.Wor kmen[ ( 1969) 73 I TR 53 : AI R 1969 SC 612] t he appel l antCompany est i mat ed i t s l i abi l i t y under t wo gr at ui t y schemesf r amed by t he Company and t he amount ofl i abi l i t y was deduct ed f r om t he gr oss r ecei pt s i nt he P&L account . The Company had wor ked out on anact uar i al val uat i on i t s est i mat ed l i abi l i t y andmade pr ovi si on f or such l i abi l i t y not al l at oncebut spr ead over a number of year s. The pr act i cef ol l owed by t he Company was t hat ever y year t heCompany wor ked out t he addi t i onal l i abi l i t yi ncur r ed by i t on t he empl oyees put t i ng i n ever yaddi t i onal year of ser vi ce. The gr at ui t y waspayabl e on t he t er mi nat i on of an empl oyee’ s ser vi ceei t her due t o r et i r ement , deat h or t er mi nat i on ofser vi ce— t he exact t i me of occur r ence of t hel at t er t wo event s bei ng not det er mi nabl e wi t hexact i t ude bef or ehand. A f ew pr i nci pl es wer e l ai ddown by t hi s Cour t , t he r el evant of whi ch f or ourpur pose ar e ext r act ed and r epr oduced as under :( i ) f or an assessee mai nt ai ni ng hi saccount s on mer cant i l e syst em, a l i abi l i t yal r eady accr ued, t hough t o be di schar ged at af ut ur e dat e, woul d be a pr oper deduct i on whi l ewor ki ng out t he pr of i t s and gai ns of hi sbusi ness, r egar d bei ng had t o t he accept edpr i nci pl es of commer ci al pr act i ce andaccount ancy. I t i s not as i f such deduct i on i sper mi ssi bl e onl y i n case of amount s act ual l yexpended or pai d; ( i i ) j ust as r ecei pt s, t hough not act ualr ecei pt s but accr ued due ar e br ought i n f ori ncome t ax assessment , so al so l i abi l i t i esaccr ued due woul d be t aken i nt o account whi l ewor ki ng out t he pr of i t s and gai ns of t hebusi ness; ( i i i ) a condi t i on subsequent , t hef ul f i l l ment of whi ch may r esul t i n t her educt i on or even ext i nct i on of t he l i abi l i t y,woul d not have t he ef f ect of conver t i ng t hatl i abi l i t y i nt o a cont i ngent l i abi l i t y; and( i v) a t r ader comput i ng hi s t axabl epr of i t s f or a par t i cul ar year may pr oper l ydeduct not onl y t he payment s act ual l y made t ohi s empl oyees but al so t he pr esent val ue ofany payment s i n r espect of t hei r ser vi ces i nt hat year t o be made i n a subsequent year i fi t can be sat i sf act or i l y est i mat ed. 6. So i s t he vi ew t aken i n Cal cut t a Co. Lt d.V. CI T [ ( 1959) 37 I TR 1 : AI R 1959 SC 1165] wher ei nt hi s Cour t has hel d t hat t he l i abi l i t y on t heassessee havi ng been i mpor t ed, t he l i abi l i t y woul dbe an accr ued l i abi l i t y and woul d not conver t i nt oa condi t i onal one mer el y because t he l i abi l i t y wast o be di schar ged at a f ut ur e dat e. Ther e may be some di f f i cul t y i n t he est i mat i on t her eof but t hatwoul d not conver t t he accr ued l i abi l i t y i nt o acondi t i onal one; i t was al ways open t o t he t axaut hor i t i es concer ned t o ar r i ve at a pr operest i mat e of t he l i abi l i t y havi ng r egar d t o al l t heci r cumst ances of t he case. ” 18.The l i abi l i t y, i n t he case bef or e us, ar ose i n t heassessment year 2009- 10. Si xt yper cent of i t was l i abl e t o bedi schar ged i n t he next assessment year . I t i s, undoubt edl y,est i mat ed wi t h mor e t han j ust r easonabl e cer t ai nt y. The l i abi l i t ywas, t her ef or e, not a cont i ngent one but one i n pr aesent i . A par tof i t was t o be di schar ged at a f ut ur e dat e. The j udgment suppor t st he assessee’ s case. 19.Quest i on ( i i ) i s, t her ef or e, answer ed agai nst t heappel l ant and i n f avour of t he assessee. :Re: Quest i on ( i i i ) 18.The l i abi l i t y, i n t he case bef or e us, ar ose i n t heassessment year 2009- 10. Si xt yper cent of i t was l i abl e t o bedi schar ged i n t he next assessment year . I t i s, undoubt edl y,est i mat ed wi t h mor e t han j ust r easonabl e cer t ai nt y. The l i abi l i t ywas, t her ef or e, not a cont i ngent one but one i n pr aesent i . A par tof i t was t o be di schar ged at a f ut ur e dat e. The j udgment suppor t st he assessee’ s case. 19.Quest i on ( i i ) i s, t her ef or e, answer ed agai nst t heappel l ant and i n f avour of t he assessee. :Re: Quest i on ( i i i ) 20.Thi s i s not a subst ant i al quest i on of l aw. The assesseesubmi t t ed i t s account i ng pol i cy si nce i ncept i on. I t char ged t headmi ni st r at i ve expenses i ncur r ed on const r uct i on st af fat 14% t ocapi t al wor k and r epai r and mai nt enance. The syst em was adopt edf r om t he PWD. The r emai ni ng expenses wer e char ged t o r evenueexpendi t ur e as unabsor bed over head on capi t al wor ks undermi scel l aneous expenses i n t he pr of i t and l oss account . Thi s was t hef i r st t i me t hat t he Depar t menthad not accept ed t he assessee’ scase. The Tr i bunal f ound on f act s t hat t he CI T ( Appeal s) had notpoi nt ed out any def ect i n t he assessee’ s account i ng pol i cy. Thi swas di scl osed i n t he r et ur n. I t was not cont ended t hat t he assesseehad not di scl osed t he t r ue and pr oper i ncome. Thus,a subst ant i alquest i on of l aw i n t hi s r egar d does not ar i se. Thi s quest i on i s, t her ef or e, al so answer ed agai nst t he Depar t ment / Revenue and i nf avour of t he assessee. :Re: Quest i on ( i v) 21.Fr om what we have obser ved ear l i er , i t i s appar ent t hatt he or der of t he Tr i bunal does not suf f er f r om any per ver si t y. Evenon i ssue No. 3, t he Tr i bunal has t aken a possi bl e vi ew. Thi squest i on i s, t her ef or e, al so answer ed i n f avour of t he assessee andagai nst t he Depar t ment / Revenue. 22.I n t he ci r cumst ances, t he appeal i s di smi ssed. ( S. J. VAZI FDAR)CHI EF JUSTI CE 11. 11. 2016par kash* ( DEEPAK SI BAL)JUDGE NOTE: Whet her speaki ng/ non- speaki ng: Speaki ng Whet her r epor t abl e: YES