Gail (India) Ltd., V. CIT, Delhi-IV,

ITA 2577/DEL/2004

• Counselvise Citation: 257720114 RSA 2004
• Duration Of Justice: 10 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 06-01-2015
• Assessment Year: 1999-2000
• Appeal Filed On: 28-05-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SULEKHA VERMA
• Assessee Lawyers: ROHIT JAIN; SHIKHA SHARMA
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : D NEW DELHI BEFORE SHRI I.C.SUDHIR, JM AND SHRI J.SUDHAKAR REDDY, A.M. ITA NO. 2 5 77 /DEL/20 0 4 ASSESSMENT YEAR : 199 9 - 2000 GAIL INDIA LTD. VS. CIT , DELHI - IV NEW DELHI NEW DELHI (APPELLANT) (RESPONDENT ) APPELLANT BY : - SHRI ROHIT JAIN, ADV. & MS.SHIKHA SHARMA, C.A. RESPONDENT BY : - MS. SULEKHA VERMA, CIT, D.R. O R D E R 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 RS.3 84,41,23,010/ - . THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 28.2.2002 DETERMINING THE TOTAL INCOME AT RS.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 W ELL AS PREJUDICIAL TO THE INTEREST OF REVENUE, FOR THE REASON THAT THE AO HAS ALLOWED DEDUCTION OF RS.809.86 LAKHS UNDER THE HEAD SALARIES, WAGES AND ALLOWANCES FOR PROVISION MADE PENDING FINALISATION OF PAY REVISION OF EMPLOYEES WHICH HAD BECOME DUE F ROM 01.01.1997. HE WAS OF THE VIEW THAT THIS LIABILITY WHICH ACCRUES ON ACCOUNT OF PAY REVISION, IS NEITHER ASCERTAINABLE NOR HAD ITA 2577/DEL/2004 AY: 1999 - 2000 GAIL INDIA LTD., NEW DELHI 2 BEEN APPROVED DURING THE P.Y. RELEVANT TO THE A.Y. 1999 - 2000. IN REPLY THE ASSESSEE CONTENDED THAT THE EXPENDITURE IS CONTR ACTUAL IN NATURE AND THAT IT IS NOT A CONTINGENT LIABILITY. RELIANCE WAS PLACED ON A CCOUNTING STANDARDS AS 4 AND AS 6 AS WELL AS THE JUDGEMENT OF HON BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT, REPORTED IN 245 ITR 428 (SC) . THE SUBMIS SIONS OF THE ASSESSEE COMPANY WERE RECORDED AS UNDER. (I) THE EXPENDITURE PROVIDED IS CONTRACTUAL IN NATURE AND WAS NOT CONTINGENT. SINCE THE ACCOUNTS WERE BEING MAINTAINED ON MERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, PROVISION MADE FOR PAY REVISION WA S AN ALLOWABLE DEDUCTION. (II) THE RELIANCE WAS PLACED ON AS 4(I) AND 6(B) CLAIMING THAT PROVISION HAS TO BE MADE FOR ALL KNOWN LIABILITIES EVEN IF THESE CANNOT BE DETERMINED WITH CERTAINTY. THE ASSESSEE ALSO SUBMITTED THAT SINCE LIABILITY HAD ACCRUED, IT COULD BE CLAIMED AS DEDUCTION EVEN IF IT HAD NOT BECOME DUE AS PAYABLE. RELIANCE WAS PLACED ON THE SUPREME COURT JUDGEMENT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT REPORTED IN 245 ITR 428. IN THIS CASE THE HON BLE SUPREME COURT HAD HELD THAT IF A BUS INESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. 2.2. THEREAFTER THE LD.CIT REJECTED THE ARGUMENTS OF THE ASSESSEE THAT THE PAY REVISION OF THE EMPLOYEES WAS DUE FROM 1.1.1997 AND EVEN IN THE ABSENCE OF AN AGREEMENT, M O U OR MINIMUM OFFER, IT WAS BUSINESS PRUDENCE TO PROVIDE FOR THE ESTIMATED LIABILITY FOR THE F.Y. 1998 - 99 , IN ACCOUNTS WRITTEN FOR THAT YEAR FOR THE REASON THAT THE LIABILITY CANNOT BE QUANTIFIED WITH CERTAINTY. HE HELD THAT IN THE CASE OF PUBLIC SECTOR UNDERTAKINGS, SUCH LIABILITIES CANNOT BE EXACTLY QUANTIFIED BEFORE AN AGREEMENT IS ENTERED INTO WITH THE EMPLOYEES IN RESPECT OF SUCH PAY REVISION AS APPROVED B Y THE GOVERNMENT. HE FURTHER HELD THAT EVEN IF A LIBERAL VIEW IS TAKEN, SUCH LIABILITY COULD BE CONSIDERED AS HAVING ARISEN IN THE ACCOUNTING YEAR, EVEN IF THE MANAGEMENT HAS TAKEN A DECISION OR HAS MADE AN OFFER ABOUT THE ITA 2577/DEL/2004 AY: 1999 - 2000 GAIL INDIA LTD., NEW DELHI 3 MINIMUM ENHANCEMENT IN SALARIES AND WAGES. AT PARA 7 AND 8 HE CONCLUDED AS FOLLOWS. 7. IN THE PRESENT CASE, THE ASSESSEE IN FACT, HAD SET APART THE MONEY WHICH COULD BECOME AN EXPENDITURE IN FUTURE IF AND WHEN ANY AGREEMENT WAS ENTERED INTO 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 RS.809.86 LACS TO THE INCOME OF THE ASSESSEE. 3. AGGRIE VED 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 MUC H 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 RS.809.86 LACS TO THE INCOME OF T HE APPELLANT. 3 .THAT ON FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE CIT ERRED IN HOLDING THAT DEDUCTION OFRS.809.86 L ACS 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 LIABILITY TOWARDS PAY REVISION WOULD ARISE ONLY AFTER THE AGREEMENT ENTERED INTO WITH THE EMPLOYEES IN RESPECT OF PAY REVISION. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR VARY ANY OF THE GROUNDS EITHER AT BEFORE THE HEARING OF APPEAL. 4. WE HAVE HEARD SHRI ROHIT JAIN, THE LD.COUNSEL FOR THE ASSESSEE AND MS. SULEKHA VERMA, LD.CIT, D.R. ON BEHALF OF THE REVENUE. 5. MR.ROHIT JAIN, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SOLE GROUND ON WHICH THE LD.CIT INVOKED HIS POWER OF JURISDICTION U/S 263 OF THE ACT IS THAT THE LIABILITY IN QUESTION HAS NOT ACCRUED DURING THE YEAR AND THAT THE LIABILITY WAS ALSO NOT ASCERTAINABLE DURING T HE YEAR, FOR THE REASON THAT EVEN THE PRELIMINARY MOU WAS NOT DRAWN UP DURING THE YEAR. HE ARGUED THAT THE ASSESSEE HAD, BASED ON PAST EXPERIENCE, DEMANDS OF THE UNIONS, AND MANY OTHER FACTUAL CRITERIA , HAD ESTIMATED THE OUTGO THAT THE ASSESSEE HAS TO I NCUR TOWARDS SALARIES AND MADE A PROVISION FOR THE SAME BOTH ITA 2577/DEL/2004 AY: 1999 - 2000 GAIL INDIA LTD., NEW DELHI 4 DURING THE EARLIER AY 1998 - 99 AND THE CURRENT AY 1999 - 2000. HE SUBMITTED THAT IT CANNOT BE SAID THAT THE LIABILITY IS NOT ASCERTAINABLE AND IT IS WRONG TO SAY THAT THE LIABILITY HAS NOT ACCRU ED DURING THE YEAR. HE SUBMITTED THAT THE GENUINENESS OF THE PAYMENT IS NOT A QUESTION AND IT IS ONLY THE YEAR OF ALLOWABILITY THAT THE LD.CIT IS QUESTIONING. 5.1. FOR THE PROPOSITION THAT PENDING PAY REVISION FIXATION, WHEN A PROVISION IS MADE BY A PUBLI C SECTOR UNDERTAKING, THE SAME SHOULD BE ALLOWED AS A DEDUCTION, HE RELIED ON THE FOLLOWING CASE LAWS. ( I ) CIT VS. BHARAT HEAVY ELECTRICAL LTD. 325 ITR 88 (DEL) ( II ) CIT VS. KERALA STATE FINANCIAL ENTERPRISES LTD. 178 TAXMAN 449 (KERALA) ( III ) TATA COMMUNICATIONS LTD. VS JCIT(2013) 57 SOT 1 (MUMBAI TRIBUNAL) HE FURTHER CONTENDED THAT THE VIEW TAKEN BY THE AO WAS A POSSIBLE VIEW AND UNDER THOSE CIRCUMSTANCES, THE COMMISSION CANNOT INVOKE HIS POWERS U/S 263 OF THE ACT. FOR THIS PROPOSITION HE RELIED ON THE FOLLOWING CASE LAWS. ( I ) CIT VS. MAX INDIA LTD. 295 ITR 282 (SC) ( II ) CIT VS. DLF LTD. ITA 236/2010 (DELHI HIGH COURT) 6. MS.SULEKHA VERMA, THE LD.CIT, D.R. ON THE OTHER HAND VEHEMENTLY OPPOSED THE CONTENTIONS OF THE ASSESSEE AND SUBMITTED THAT THE FACTS OF THE PRESENT CASE ARE ENTIRELY DIFFERENT FROM THE FACTS OF THE PUBLIC SECTOR UNDERTAKINGS CASE WHICH WERE BEFORE THE HON BLE DELHI HIGH COURT AS WELL AS THE HON BLE KERALA HIGH COURT. SHE POINTED OUT THAT THE PRELIMINARY MOU ITSELF WAS DRAWN ON 24.9.2000 AND WHEREAS THE PROVI SION 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 AUT HORITY. ITA 2577/DEL/2004 AY: 1999 - 2000 GAIL INDIA LTD., NEW DELHI 5 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 I T 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, AUTHORISING THE PUBLIC SECTOR UNDERTAKING TO START WAGE REVISION NEGOTIATIONS WITH THE WORKERS. IT WAS THERE AFTER ON 17.8.1999, THAT THE ANNUAL ACCOUNTS OF THE COMPAN Y WERE CERTIFIED BY THE DIRECTORS, WHEREIN A PROVISION FOR THE ABOVE PAY REVISION LIABILITY, WAS MADE IN THE ACCOUNTS. THE ISSUE IS WHETHER A PROVISION MADE TOWARDS IMPUGNED PAY REVISION IS ALLOWABLE AS A DEDUCTION OR NOT. 8.1. THE HON BLE DELHI HIGH CO URT IN THE CASE OF CIT VS. BHEL LTD. (SUPRA) AT PARA 6 AND 7 HELD AS FOLLOWS. 6. IN THIS CASE, THE TRIBUNAL HAD DNOTICED THAT THERE WAS NO DISPUTE AS REGARDS THE TERMS OF EMPLOYMENT OF THE WORKERS AND OFFICERS. THE ONLY QUESTION WAS THE EXACT QUANTIFICAT ION OF THE COMPENSATION OR WAGE REVISION. THE TRIBUNAL ALSO HELD THAT PROVISION FOR WAGE REVISION WAS BASED ON PAST EXPERIENCE, INTERIM PAY COMMISSION OF GOVERNMENT EMPLOYEES, PREVIOUS PAY COMMISSION S REPORTS OF PUBLIC SECTOR EMPLOYEES, UNION DEMANDS AND OTHER RELEVANT FACTORS. THE TRIBUNAL ALSO HELD THAT WITH THE EXPIRY OF ONE WAGE SETTLEMENT OR AGREEMENT, INVARIABLY, THERE IS A TIME LAG WHEN ANOTHER FRESH WAGE REVISION AGREEMENT IS NEGOTIATED AND ENTERED. THE DEDUCTION CLAIMED FOR THAT PERIOD CANNOT B E TERMED AS CONTINGENT BECAUSE THE WAGE AND THE PROBABLE REVISION OR RATES OF REVISION WOULD BE WITHIN THE FAIR ESTIMATION OF THE EMPLOYER. IN THIS CASE, BHEL HAD THE BENEFIT OF PAST EXPERIENCE OF SUCH PAY REVISIONS. ITS LIABILITY COULD NOT BE CHARACTERI SED AS CONTINGENT BUT WAS IN FACT ASCERTAINED; THE QUANTIFICATION, HOWEVER , HAD NOT HAPPENED. 7. IN VIEW OF THESE FACTS, THIS COURT HOLDS THAT THERE IS NO INFIRMITY WITH THE REASONING OF THE TRIBUNAL ABOUT THE DEDUCTION CLAIMED ON ACCOUNT OF WAGE REVISION BEING PERMISSIBLE. ITA 2577/DEL/2004 AY: 1999 - 2000 GAIL INDIA LTD., NEW DELHI 6 8.2. THE HON BLE KERALA HIGH COURT IN THE CASE OF CIT VS. KERALA STATE FINAN CIAL ENTERPRISES LTD. (SUPRA) AT PARA 3 HAS HELD AS FOLLOWS. 3. EVEN THOUGH LD.STANDING COUNSEL FOR THE REVNUE CONTENDED THAT CONTRACTUAL LIABILITY ARISES ONLY ON THE DATE OF SIGNING THE AGREEMENT, WE ARE UNABLE TO ACCEPT THIS ARGUMENT IN THIS CASE. IN THE NORMAL COURSE, AN AGREEMENT CALLED SETTLEMENT AS INCREASE IN WAGES TAKES EFFECT FROM THE DATE OF EXPIRY OF T HE PREVIOUS SETTLEMENT AND THIS CASE IS NO EXCEPTION TO IT. WHAT IS IMPORTANT IS NOT THE DATE OF SIGNING THE AGREEMENT NOR THE LATER APPROVAL GRANTED BY THE GOVERNMENT, BUT THE EFFECTIVE DATE OF COMMENCEMENT OF THE WAGE REVISION UNDER THE AGREEMENT. THER E 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 ACT UAL LIABILITY ATTRIBUTABLE TO THE PREVIOUS YEAR AND THEREFORE THE ACTUAL AMOUNT PAYABLE ONLY WAS CLAIMED BASED ON MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. WE ARE THEREFORE OF THE VIEW THAT THE TRIBUNAL WAS PERFECTLY JUSTIFIED IN ALLOWING T HE CLAIM. THE APPEAL THEREFORE FAILS AND THE SAME IS ACCORDINGLY DISMISSED. 8.3. THE MUMBAI BENCH OF THE ITAT IN THE CASE OF TATA COMMUNICATIONS LTD. VS. JCIT (SUPRA) AT PARA 6 HAS HELD AS FOLLOWS: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE ORDERS OF THE LOWER AUTHORITIES AND ALSO GONE THROUGH THE JUDICIAL DECISIONS CITED BY THE COUNSEL FOR THE ASSESSEE. IT IS NOT IN DISPUTE THAT SALARY AND WAGES ACCRUE DAILY, WEEKLY, FORTNIGHTLY OR MONTHLY AS PER THE CONTRACT OF THE EMPLOYMENT. ITA 2577/DEL/2004 AY: 1999 - 2000 GAIL INDIA LTD., NEW DELHI 7 THIS I S SO AS SERVICES IS RENDERED IN PRAESENTI, THE LIABILITY OF THE EMPLOYER TO COMPENSATE THE EMPLOYEES FOR THE SERVICES RENDERED ALSO ACCRUES IN PRAESENTI. A PERUSAL OF THE ORDERS OF THE LOWER AUTHORITIES SHOW THAT WHAT IS ACTUALLY IN DISPUTE IS THE QUANTIFI CATION OF COMPENSATION. AS THE ASSESSEE IS A PSU, THE PAY REVISION DEPENDS UPON THE DECISION OF THE GOVERNMENT. AS THE PERSONNEL DEPARTMENT OF THE ASSESSEE HAD KNOWLEDGE OF DEALING WITH SUCH PAY HIKES IN THE PAST, THE ASSESSEE CAN ESTIMATE THE QUANTUM OF S UCH ENHANCED LIABILITY. THE LIABILITY WAS CERTAIN AND IT WAS JUST A MATTER OF TIME WHEN IT WOULD ARISE. WHAT WAS NOT CERTAIN IS, OVER THE QUANTUM OF PAY HIGH. ASSESSEE TOOK THE MOST PRUDENT DECISION OF MAKING PROVISION OF SALARIES AT RS.40.71 LAKHS. IT IS ALSO SEEN THAT WHAT WAS PROVIDED BY THE ASSESSEE IS ONLY 40% OF THE ACTUAL PAY HIKE PROPOSED BY THE DPE. IT IS ALSO TO BE SEEN THAT THE CONTRACT WITH THE EMPLOYEES EXPIRED ON 31.12.1996 AND THE ASSESSEE HAS MADE A PROVISION ONLY FOR THE PERIOD OF JANUARY T O MARCH, 1998. THE REVENUE AUTHORITIES HAVE DISALLOWED THE CLAIM ONLY ON THE BASIS THAT THE COMMISSION SUBMITTED ITS REPORT IN JUNE, 1999. IN OUR CONSIDERATE VIEW, WHAT IS IMPORTANT IS NOT THE DATE OF SIGNING THE AGREEMENT NOR THE DATE OF APPROVAL GRANTED BY THE DPE, WHAT IS IMPORTANT IS THE EFFECTIVE DATE OF COMMENCEMENT AND ON THAT NOTE WE FIND THAT THE LIABILITY IS ACCRUED DURING THE YEAR UNDER CONSIDERATION. IT IS ALSO TO BE NOTED THAT THE PROVISION FOR SALARY WAS NOT A CONTINGENT LIABILITY. IT WAS IN R ESPECT OF THE OUTCOME OF THE DECISION OF THE DPE. FOR THIS PROPOSITION, WE DRAW THE SUPPORT FROM THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT 245 ITR 428 WHEREIN THE HON BLE SUPREME COURT HAS HELD THAT : IF 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 M AKE 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 FINDIN GS 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 RS.40.71 LAKHS AS THE SERVICES RENDERED ARE IN PRESENTEE. GROUND NO.3 IS ACCORDIN GLY ALLOWED. ITA 2577/DEL/2004 AY: 1999 - 2000 GAIL INDIA LTD., NEW DELHI 8 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 ENTERPRISES, THE NEGOTIATIONS WERE COMPLETED DURING THE YEAR AND THE LIABILITY WAS KNOWN AS LIABILITY ACCRUED FROM THE EFFECTIVE DATE OF COMMENCEMENT. IT IS ALSO TO BE NOTED THAT THE PROVISION FOR SALARY WAS NOT A CONTINGENT LIABILITY. IT WAS IN RESPECT OF THE OUTCOME OF THE DECISION OF THE D PE. 8.5. CONSISTENT WITH THE VIEWS TAKEN BY THE JURISDICTIONAL HIGH COURT AS WELL AS HON BLE KERALA HIGH COURT, WE HOLD THAT THE PROVISION FOR WAGES MADE TOWARDS IMPENDING PAY REVISION, SHOULD BE ALLOWED AS A DEDUCTION . THE LD.CIT HAS NOT MADE ANY EFFORT TO PROVE THAT THE QUANTUM OF PROVISION MADE IS UNREALISTIC OR IMAGINARY. UNDER THESE CIRCUMSTANCES WE HOLD THAT THE CLAIM OF THE ASSESSEE IS ALLOWABLE. 8.6 . IN THIS CASE WE ARE ON THE ISSUE AS TO WHETHER THE LD.CIT HAS PROPERLY INVOKED HIS POWERS U/S 263 OF THE ACT, THE HON BLE DELHI HIGH COURT IN TH E CASE OF CIT VS. DLF LTD. (SUPRA) CONSIDERED THE JUDGEMENT OF HON BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. 243 ITR 282 AND FROM PARA 8 ONWARDS HELD AS FOLLOWS. 8. MR. ABRAHAM RELIED ON THE JUDGMENT OF THE DIVISION BENCH OF THE HIGH COURT OF MADRAS IN VENKATAKRISHNA RICE COMPANY V. CIT [1987] 163 ITR 129 INTERPRETING 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE.' THE HIGH COURT HELD (PAGE 138) : 'IN THIS CON TEXT, IT MUST BE REGARDED AS INVOLVING A CONCEPTION OF ACTS OR ORDERS WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF REVENUE. THERE MUST BE SOME GRIEVOUS ERROR IN THE ORDER PASSED BY THE INCOME TAX OFFICER, WHICH MIGHT SET A BAD TREND OR PATTERN FOR SIMI LAR ASSESSMENTS, WHICH ON A BROAD RECKONING, THE COMMISSIONER MIGHT THINK TO BE PREJUDICIAL TO THE INTERESTS OF REVENUE ADMINISTRATION.' IN OUR VIEW, THIS INTERPRETATION IS TOO NARROW TO MERIT ACCEPTANCE. THE SCHEME OF THE ACT IS TO LEVY AND COLLECT TA X IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO AN ERRONEOUS ORDER OF THE INCOME TAX OFFICER, THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INTERESTS O F THE REVENUE. 9. THE PHRASE 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE' HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREA TED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. FOR EXAMPLE, WHEN AN INCOME TAX OFFICER ADOPTED ONE OF THE COURSES PERMIS S IBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE ; OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME TAX OFFICER HAS TAKEN ONE VI EW 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. ITA 2577/DEL/2004 AY: 1999 - 2000 GAIL INDIA LTD., NEW DELHI 9 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 TH E 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 OFF ICER. THUS, THERE WAS NO MATERIAL TO SUPPORT THE CLAIM OF THE APPELLANT THAT THE SAID AMOUNT REPRESENTED COMPENSATION FOR LOSS OF AGRICULTURAL INCOME. HE ACCEPTED THE ENTRY IN THE STATEMENT OF THE ACCOUNT FILED BY THE APPELLANT IN THE ABSENCE OF ANY SU PPORTING MATERIAL AND WITHOUT MAKING ANY INQUIRY. ON THESE FACTS THE CONCLUSION THAT THE ORDER OF THE INCOME TAX OFFICER WAS ERRONEOUS IS IRRESISTIBLE. WE ARE, THEREFORE, OF THE OPINION THAT THE HIGH COURT HAS RIGHTLY HELD THAT THE EXERCISE OF THE JURI SDICTION BY THE COMMISSIONER UNDER SECTION 263(1) WAS JUSTIFIED. 11. THE SECOND CONTENTION HAS TO BE REJECTED IN VIEW OF THE FINDING OF FACT RECORDED BY THE HIGH COURT. IT WAS NOT SHOWN AT ANY STAGE OF THE PROCEEDINGS, THAT THE AMOUNT IN QUESTION WAS F IXED OR QUANTIFIED AS LOSS OF AGRICULTURAL INCOME AND ADMITTEDLY IT IS NOT SO FOUND BY THE TRIBUNAL. THE FURTHER QUESTION WHETHER IT WILL BE AGRICULTURAL INCOME WITHIN THE MEANING OF SECTION 2(1A) OF THE ACT AS ELUCIDATED BY THIS COURT IN CIT V. RAJA BE NOY KUMAR SAHAS ROY [1957] 32 ITR 466, DOES NOT ARISE FOR CONSIDERATION. IT IS EVIDENT FROM THE ORDER OF THE HIGH COURT THAT THE FINDINGS RECORDED BY THE TRIBUNAL THAT THE APPELLANT STOPPED AGRICULTURAL OPERATION IN NOVEMBER, 1982, AND THE RECEIPT UNDER CONSIDERATION DID NOT RELATE TO ANY AGRICULTURAL OPERATION CARRIED ON BY THE APPELLANT, WERE NOT QUES TIONED BEFORE IT. THOUGH WE DO NOT AGREE WITH THE HIGH COURT THAT THE SAID AMOUNT WAS PAID FOR BREACH OF CONTRACT AS INDEED IT WAS PAID IN MODIFICATION /RELAXATION OF THE TERMS OF THE CONTRACT, WE HOLD THAT THE HIGH COURT IS JUSTIFIED IN CONCLUDING THAT THE SAID AMOUNT WAS A TAXABLE RECEIPT UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. 12. WE FIND NO MERIT IN THE APPEAL AND DISMISS THE SAME WITH COSTS. 8. 7 . APPLYING THE PROPOSITIONS LAID DOWN IN THIS BINDING JUDGEMENT OF THE JURISDICTIONAL HIGH COURT, TO THE FACTS OF THE CASE, WE HAVE TO HOLD THAT THERE IS NO ELEMENT OF UNSUSTAINABILITY IN THE ORDER OF THE AO, AS FAR AS THE ALLOWING OF THE DEDUCTION OF THE PROVISION MADE IN SALARIES FOR IMPENDING PAY REVISION IS CONCERNED. THUS THE INVOCATION OF JURISDICTION U/S 263 OF THE ACT BY THE LD.CIT IS BAD IN LAW. 9. IN THE RESULT THE APPEAL OF T HE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY, 2015 . SD/ - SD/ - ( I.C. SUDHIR ) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 19 TH FEBRUAR Y , 2015 *MANGA ITA 2577/DEL/2004 AY: 1999 - 2000 GAIL INDIA LTD., NEW DELHI 10 COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FIL E BY ORDER ASST. REGISTRAR