Ita/53/2016 Of Pr Commissioner Of Income Tax Panchkula v. M/S Haryana Agro Industries Corporation Ltd Panchkula

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.53 of 2016 (O&M)Date of decision: 26.4.2016 Principal Commissioner of Income Tax, Panchkula Vs, ..-.-- Appe M/s Haryana Agro Industries Corporation Limited .....Responde CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTALHON’BLE MRS. JUSTICE RAJ RAHUL GARG 1. Whether Reporters of local papers may be allowed to see thejudgment?2. To be referred to the Reporters or not?YES3. Whether the judgment should be reported in the Digest? Present:Mr. Yogesh Putney, Advocate for the appellant. Ajay Kumar Mittal, J inThis appeal has been preferred by the revenue under section260A of the Income Tax Act, 1961 (in short, “the Act’) against the orderdated 10.9.2015, Annexure A.3 passed by the Income Tax AppellateTribunal, Division bench, Chandigarh in ITA No.157/CHD/2014, for theassessment year 2010-11, claiming following substantial question of law:- * Whether on the facts and in the circumstances of the case, thelearned ITAT has erred by upholding the order of CIT(A) anddeleting the additions made on account of provision for arrearsof salary ofLT2,04,52,413/- being as prior period expenses and contingent liabilities?” A few facts relevant for the decision of the controversyinvolved as narrated in the appeal may be noticed. The respondent-assesseeis a government undertaking engaged in the activities of manufacturing andSale of feed, pesticides, storage of agriculture produce and trading ofagricultural implements and agriculture related activities. It filed its returnof income on 13.10.2010 by declaring income of|a2,11,71,693/- which wasrevised on 282.2011 at.Ly8,48,13,167/-. Subsequently, the case wasselected under compulsory scrutiny. Notice under Section 143(2) of the Actwas issued to the assessee. The representative of the assessee attended theassessment proceedings. It was noticed by the Assessing Officer that as perpage No.48 of point Nos.(ix) and (x) of Notes to Accounts, the StateGovernment vide its notification dated 7.1.2009 had revised the pay scalesof its employees with effect from 1.1.2006. As per the instructions of theState Government, 40% arrears of the revised pay scales amounting to—=106.37 lacs were released during the year 2009-10, provision tor which wasmade during 2008-09. The remaining provision for 60% arrears of therevised pay scales amounting to.Ly204.52 lacs was made during the year2009-10. Vide order sheet entry dated 29.1.2013, the assessee was asked toexplain why these provisions created during the year may not be disallowedas these expenses were eligible in the year of payment. The assessee in itsreply dated 30.1.2013 stated that its Board of Directors held a meeting on18.3.2009 wherein a resolution was passed to pay arrears of pay scales atthe rate of 60% of the total arrears during the year under consideration asper which a provision was made forLy2,04,52,.413/- on accrual basis as thaccounts of the assessee were maintained on mercantile system. The ITA No.53 of 2016 (O&M) submission made by the assessee was not accepted by the Assessing Officeras the provision made was allowed only in the year of payment irrespectiveof the accounting method followed by the assessee and further no liabilityhad incurred in the said case. Accordingly, assessment order dated 4.2.2013,Annexure A.l was passed by the Assessing Officer. Aggrieved by theorder, the assessee filed appeal before the Commissioner of Income Tax(Appeals) [CIT(A)]. Vide order dated 27.12.2013, Annexure A.2, theCIT(A) partly allowed the appeal deleting the addition made by theAssessing Officer on account of provision of arrears of salary amounting toVC2,04,52,413/-. Not satisfied with the order, the revenue filed appealbefore the Tribunal. Vide order dated 10.9.2015,Annexure A.3, the Tribunaldismissed the appeal. Hence the instant appeal by the revenue.3We have heard learned counsel for the appellant-revenue. 4It has been categorically recorded by the Tribunal afterexamining the matter that as per notification dated 7.1.2009 issued by theState Government, the arrears of pay revision were to be paid by theassessee in two instalments i.e. 40% during the financial year 2008-09 and60% in the next financial year. The liability was thus not in the nature ofany contingent liability. Since the method adopted by the assessee wasmercantile system of accounting and the provision on account of arrears forSalary payment was made in the accounts on accrual basis, the disallowancemade by the Assessing Officer was not held to be justified. Whileconcurring with the findings recorded by the CIT(A), it was recorded by theTribunal as under:- “9. We have heard the rival contentions and perused the materialavailable on record. We are in total agreement with thefindings given by the learned CIT(Appeals). The provision ofavailable on record. We are in total agreement with thefindings given by the learned CIT(Appeals). The provision of 5 the pay revision was made by the assessee as per notificationdated 7.1.2009 in view of the minutes of Board meeting heldon 18.3.2009. A copy of the extract of the minutes of the Boardheld on 18.3.2009 was also filed before us. It was very clearfrom the perusal of this that the arrears of pay revision were tobe paid by the assessee in two instalments 1.e. first instalmentbeing 40% of the aggregate arrears during the financial year2008-09 i.e. relevant assessment year 2009-10 and secondinstalment of 60% of the aggregate arrears in the financial year2009-10 i.e. 2010-11. It is quite clear that the hability ofpayment of 60% of arrears of salary has arisen during theassessment year under consideration and the liability was alsodischarged at a future date. In this view, the liability is not inthe nature of any contingent liability. From these facts, it canbe very easily inferred that there was an ascertained liability inthe form of payment of arrears of revised pay scales, whichpartly was booked in an earlier year and the remaining in thepresent year. Since the assessee is following the mercantilesystem of accounting and the provision on account of arrearsfor salary payment was made in the accounts on the accrualbasis, the disallowance made by the Assessing Officer was notjustified. This way, we do not find any infirmity in the order ofthe learned CIT(Appeals).” The findings recorded by the Tribunal are pure findings of fact which have not been shown to be illegal or perverse by the learned counselfor the appellant-revenue. Thus, no substantial question of law arises. Theappeal stands dismissed. (Ajay Kumar Mittal)Judge April 26, 2016 =7&= (Raj Rahul Garg) Judge