ACIT, Panchkula V. M/s Haryana Agro Industries Corporation Ltd., Panchkula

ITA 157/CHANDI/2014

• Counselvise Citation: 15721514 RSA 2014
• Duration Of Justice: 1 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 31-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 11-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: B K NOHRIA
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.157/CHD/2014 (ASSESSMENT YEAR : 2010-11) THE A.C.I.T., VS. M/S HARYANA AGRO INDUSTRIES PANCHKULA CIRCLE, CORPORATION LTD., BAY NO.15-20, PANCHKULA. SECTOR 4, PANCHKULA. PAN: AAACH4686C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH, DR RESPONDENT BY : SHRI B.K. NOHRIA DATE OF HEARING : 07.09.2015 DATE OF PRONOUNCEMENT : 10.09.2015 O R D E R PER RANO JAIN, A.M . : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), PANCHKULA DATED 27.12.2013 FOR ASSESSMEN T YEAR 2010-11. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A GOVERNMENT OF HARYANA UNDERTAKING FOR CARRYING THE ACTIVITIES OF MANUFACTURING AND SALE OF FEED, PESTICIDES, STOR AGE OF AGRICULTURAL PRODUCE AND TRADING OF AGRICULTURAL IM PLEMENTS AND AGRICULTURAL RELATED ACTIVITIES ETC. FOR THE RELEVANT 2 ASSESSMENT YEAR, RETURN DECLARING INCOME OF RS.8,48 ,13,167/- WAS FILED. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE ASSESSING OFFICER NOTED THAT AS PER NOTES TO ACCOUN TS AT PAGE 48 ITEM NO.(VIII) AND (IX) READ AS UNDER : (VIII) THE STATE GOVERNMENT VIDE ITS NOTIFICATION DATED 07.01.2009 HAS REVISED THE PAY SCALE OF THE EMPLOYE ES OF THE STATE GOVERNMENT WITH EFFECT FROM 01.01.2006. AS PER .HE INS TRUCTION OF THE STATE GOVT. 40% ARREARS OF THE REVISED PAY SCAL ES AMOUNTING TO RS.106.37 LACS WERE RELEASED DURING THE YEAR 2009-1 0 AND FOR WHICH PROVISION WAS MADE DURING 2008-09. THE REMAINING PROV ISION FOR 60% ARREARS OF THE REVISED PAY SCALES AMOUNTING TO RS .204.52 LACS HAS BEEN MADE DURING THE YEAR 2009-10. (IX) THE COMPANY HAS MADE PROVISION OF SERVICE CHAR GE @ 1% ON THE PROCUREMENT OF THE GUNNY BAGS AMOUNTING TO R S.23.30 LACS FOR THE YEAR 2008-09 AND RS.20.11 LACS FOR THE YEAR 200 9-10 AS PAYABLE TO DIRECTOR FOOD & SUPPLY.' 3. THE ASSESSING OFFICER ASKED THE ASSESSEE TO JUS TIFY THE ELIGIBILITY OF YEAR OF PAYMENT OF THESE PROVISI ONS. THE ASSESSEE EXPLAINED TO THE ASSESSING OFFICER THAT TH E EXPENSES HAD BEEN CLAIMED ON ACCRUAL BASIS BY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER, THE ASSESSING OFFI CER REJECTED THE SUBMISSIONS OF THE ASSESSEE, IN VIEW O F THE FACT THAT THE PROVISION MADE IS ALLOWED AS PER INCOME TA X ACT ONLY IN THE YEAR OF PAYMENT IRRESPECTIVE OF THE METHOD O F ACCOUNTING FOLLOWED BY THE ASSESSEE AND NO LIABILIT Y HAS BEEN INCURRED IN THIS YEAR. THIS WAY, THE ASSESSING OF FICER MADE AN ADDITION OF RS.2,04,52,413/-. 3 4. AGGRIEVED BY THIS ORDER, THE ASSESSEE WENT IN A PPEAL BEFORE THE LEARNED CIT (APPEALS). THE ASSESSEE SUB MITTED THAT THE GOVERNMENT OF INDIA REVISED THE PAY SCALES OF T HE EMPLOYEES W.E.F. 1.1.2006 AND THE STATE GOVERNMENT ALSO FOLLOWED THE SAME AND ALLOWED THE REVISED PAY SCALE S TO ITS EMPLOYEES AND THE EMPLOYEES OF STATE GOVERNMENT UNDERTAKINGS. ACCORDINGLY, THE BOARD OF DIRECTORS OF THE ASSESSEE IN THEIR MEETING HELD ON 18.3.2009, PASSED A RESOLUTION TO PAY ARREARS OF PAY SCALES @ 60% OF TH E TOTAL ARREARS DURING THE YEAR UNDER CONSIDERATION. THE AMOUNT COMES TO RS.204.52 LACS AND A PROVISION FOR THIS WA S MADE AND A NOTE WAS GIVEN IN THE AUDITED ACCOUNTS ON ACC RUAL BASIS AS THE ASSESSEE MAINTAINS ITS ACCOUNTS ON MERCANTIL E SYSTEM. THE ASSESSEE ALSO FILED BEFORE THE LEARNED CIT (APP EALS) AND COPY OF LETTER FROM FINANCIAL COMMISSIONER AND PRIN CIPAL SECRETARY TO GOVERNMENT OF HARYANA AGRICULTURE DEPA RTMENT DATED 3.7.2009 IN RESPONSE TO LETTER DATED 26.2.200 9 OF THE ASSESSEE AND EXTRACT OF BOARD MEETING DATED 18.3.20 09. 5. THE LEARNED CIT (APPEALS) GOT CONVINCED WITH TH E SUBMISSIONS MADE BY THE ASSESSEE AND DELETED THE AD DITION MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT. TH E FINDINGS OF THE LEARNED CIT (APPEALS) ARE AS UNDER : 6.1 ON THE BASIS OF FACTS BEFORE ME, IT IS NOTED T HAT THE EXPENDITURE ON ACCOUNT OF ARREAR SALARY DUE TO REVISED PAY PACKAGE WAS PROVIDED IN THE ASSESSEE'S BOOKS OF ACC OUNT AS PER STATE GOVERNMENT NOTIFICATION DATED 07.01.2009 AND I N VIEW OF MINUTES OF BOARD MEETING HELD ON 18.03.2009. THE APP ELLANT MADE PROVISION FOR 40% ARREAR OF THE REVISE PAY SCAL ES OF 4 RS.L06.37 LACS IN YEAR 2008-09 TO BE RELEASED DURIN G 2009-10 AND THE REMAINING PROVISION OF 60% ARREARS OF THE R EVISED PAY SCALE OF RS.204.52 LACS WAS MADE DURING 2009-10 WHICH W AS TO BE RELEASED IN SUBSEQUENT YEAR 2010-11. THUS THE LIABI LITY WAS BOOKED IN THE ACCOUNT WHICH AROSE IN F.Y. 2009-10 AS PER THE MERCANTILE SYSTEM OF ACCOUNTING BEING FOLLOWED BY TH E APPELLANT. THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF JIWA N RAM SHEODUTTRAI (SUPRA) HAS HELD THAT THE ASSESSEE IS LIABLE TO REFLECT THE LIABILITY IN THE ACCOUNTS WHEN ADMITTED BY HIM OR WHE N THE DEMAND IS MADE AGAINST HIM OR WHEN THE LIABILITIES ASCERTAINE D AND THE ASSESSEE IS AT LIBERTY TO REFLECT THE SAME WHEN HE CHOOSES TO ADMIT THE LIABILITY. IN THE PRESENT CASE, THE LIABILITIES OF P AYMENT OF REMAINING PART OF ARREAR SALARY HAVE ARISEN DURING T HE ACCOUNTING PERIOD UNDER CONSIDERATION AND THAT THE LIABILITY WAS ALSO DISCHARGED AT A FUTURE DATE. THE INCURRING OF THE L IABILITY WAS ASCERTAINED BY THE YEAR UNDER APPEAL AND IT WAS NOT IN THE NATURE OF ANY CONTINGENT LIABILITY. THE A.O'S VIEW THAT NO LIAB ILITY HAS INCURRED IN THIS CASE DOES NOT HOLDS GOOD. FURTHER, THE AO'S ANOTH ER REASON FOR DISALLOWANCE THAT PROVISION MADE IS NOT ALLOWABLE AS P ER INCOME TAX ACT AND IS ALLOWED IN THE YEAR OF PAYMENT IRRESPE CTIVE OF THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE DOES NOT FIND ANY SUPPORT FROM ANY PROVISIONS OF THE INCOME TAX ACT N OR THE ACT HAS BARRED IN PROVIDING FOR PROVISIONS FOR THE ASCERTAIN ABLE LIABILITIES. THE SUB SECTION (2) OF SECTION 145 OF THE ACT GIVES POWER TO THE CENTRAL GOVERNMENT TO NOTIFY THE ACCOUNTING STANDARD S TO BE FOLLOWED BY THE ASSESSEE FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. IN THIS REGARD, THE NOTIFICATION NUMBER 9949 DATED 25.01.1996 ISSUED BY CBDT PROVIDES FOR ACCOUNTING ST ANDARDS RELATING TO DISCLOSURE OF ACCOUNTING POLICIES. ITEM NO . (A)(4)(I) OF THE NOTIFICATION STIPULATES THAT PROVISIONS SHOULD BE M ADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY AND REPRESENT ONLY A BEST ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION. THEREFORE, THE ACCOUNTING POLICY DOES RECOGNIZE THE PROVISIONS FOR KNOWN LIABILITIES IN T HE CASE OF ASSESSEES FOLLOWING THE MERCANTILE SYSTEM OF ACCOUN TING. 6.2 THEREFORE, IN VIEW OF ABOVE FACTS, IT IS UNDIS PUTED THAT THERE WAS ASCERTAINED LIABILITY IN THE FORM OF PAYMEN T OF ARREAR OF 5 REVISE PAY SCALES WHICH IN PART WAS BOOKED IN THE PR ECEDING YEAR AND PARTLY IN THE CURRENT YEAR AS PER DIRECTIONS OF STATE GOVERNMENT NOTIFICATION. IT IS ALSO CERTAIN THAT SU CH LIABILITY HAS BEEN DISCHARGED IN THE FOLLOWING YEAR. SINCE, THE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND PROVISI ON ON ACCOUNT OF ARREAR FOR SALARY PAYMENT AMOUNTING TO RS.2,04,52,413/- WAS MADE IN THE ACCOUNTS ON THE ACC RUAL BASIS, THEREFORE. THE AO WAS NOT JUSTIFIED TO DISALLOW THE AMOUNT OF RS.2,04,52,413/- ON ACCOUNT OF SUCH PROVISION AS N OTED IN THE ASSESSEES AUDITED ACCOUNTS. HENCE, THIS GROUND OF A PPEAL IS ALLOWED. 6. AGGRIEVED BY THE ORDER OF THE LEARNED CIT (APPE ALS), THE DEPARTMENT HAS COME IN APPEAL BEFORE US, RAISIN G THE FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY T HE ASSESSING OFFICER ON ACCOUNT OF PROVISIONS MADE FOR P AYMENT OF ARREARS, OF SALARY ON THE BASIS OF REVISION OF PA Y SCALES W.E.F. 01.01.2006. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE LIABILITY TO PAY THE ARREARS OF SALARY ACCRUED TO THE ASSESSEE DURING TH E FINANCIAL YEAR 2009-10, IGNORING THE FACTS THAT THE LIABILITY W AS CRYSTALLIZED WHEN A RESOLUTION WAS PASSED BY THE BO ARD OF DIRECTORS ON 18.03.2009. 3. IT IS PRAYED THAT THE ORDER OF THE LD. CIT (APPEA L) BE SET-ASIDE AND THAT OF THE A.O, BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GRO UNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND DISPOSED OFF. 7. THE LEARNED D.R. DURING THE COURSE OF HEARING B EFORE US SUBMITTED THAT THIS PROVISION WAS CREATED DURING THE YEAR. 6 HOWEVER, THESE EXPENSES WERE NOT ACCRUED DURING THE YEAR. AS PER HIM, THE SAID PROVISION WAS NOT ALLOWABLE AS PER THE INCOME TAX ACT AND IS ALLOWED IN THE YEAR OF PAYMEN T OF THE SAME AS NO LIABILITY HAS INCURRED IN THIS YEAR. I N VIEW OF THIS, IT WAS PRAYED THAT THE ORDER OF THE LEARNED C IT (APPEALS) MAY BE SET ASIDE AND THE ORDER OF THE ASSESSING OFF ICER BE CONFIRMED. 8. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPO N THE ORDER OF THE LEARNED CIT (APPEALS) AND SUBMITTED TH AT LEARNED CIT (APPEALS) HAS GIVEN A DETAILED FINDING OF FACT ON THE ISSUE AND THERE IS NO ERROR AND MISTAKE IN THE SAID FINDI NGS OF THE LEARNED CIT (APPEALS). IN VIEW OF THIS, IT WAS PRA YED THAT THE APPEAL OF THE DEPARTMENT BE DISMISSED. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE ARE IN TOTAL AGRE EMENT WITH THE FINDINGS GIVEN BY THE LEARNED CIT (APPEALS). T HE PROVISION OF THE PAY REVISION WAS MADE BY THE ASSESSEE AS PER NOTIFICATION DATED 7.1.2009 IN VIEW OF THE MINUTES OF BOARD MEETING HELD ON 18.3.2009. A COPY OF THE EXTRACT OF THE MINUTES OF THE BOARD HELD ON 18.3.2009 WAS ALSO FIL ED BEFORE US. IT WAS VERY CLEAR FROM THE PERUSAL OF THIS TH AT THE ARREARS OF PAY REVISION WERE TO BE PAID BY THE ASSE SSEE IN TWO INSTALLMENTS I.E. FIRST INSTALLMENT BEING 40% OF TH E AGGREGATE ARREARS DURING THE FINANCIAL YEAR 2008-09 I.E. RELE VANT ASSESSMENT YEAR 2009-10 AND SECOND INSTALLMENT OF 6 0% OF THE AGGREGATE ARREARS IN THE FINANCIAL YEAR 2009-10 I.E. 2010- 11. IT IS QUITE CLEAR THAT THE LIABILITY OF PAYME NT OF 60% OF 7 ARREARS OF SALARY HAS ARISEN DURING THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE LIABILITY WAS ALSO DISCHARGED AT A FUTURE DATE. IN THIS VIEW, THE LIABILITY IS NOT IN THE N ATURE OF ANY CONTINGENT LIABILITY. FROM THESE FACTS, IT CAN BE VERY EASILY INFERRED THAT THERE WAS AN ASCERTAINED LIABILITY IN THE FORM OF PAYMENT OF ARREARS OF REVISED PAY SCALES, WHICH PAR TLY WAS BOOKED IN AN EARLIER YEAR AND THE REMAINING IN THE PRESENT YEAR. SINCE THE ASSESSEE IS FOLLOWING THE MERCANT ILE SYSTEM OF ACCOUNTING AND THE PROVISION ON ACCOUNT OF ARREA RS FOR SALARY PAYMENT WAS MADE IN THE ACCOUNTS ON THE ACCR UAL BASIS, THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER WAS NOT JUSTIFIED. THIS WAY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (APPEALS). 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF SEPTEMBER, 2015. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACOUNTANT MEMBER DATED : 10 TH SEPTEMBER, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 8