The Odisha Small Industries corporation Limited, Cuttack V. ACIT,Circle-2(1), Cuttack

ITA 310/CTK/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5313 (ITAT-CUTTACK)
• Duration Of Justice: 2 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 25-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AMBIKA PRASAD MOHANTY
• Keywords: Tax effect
• Section: 147; 143(2); 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BEFORE AND ARUN KHODPIA, ACCOUNTANT MEMBER The Orissa Small Industries Corporation Ltd., Industrial Estate, Cuttack PAN/GIR No. (Appellant Per Bench This is an appeal filed by the assessee against the order of the ld CIT(A), Cuttack assessment year 2. Shri Ambika Prasad Mohanty, ld AR appeared for the assessee and Shri M.K.Gautam, ld CIT DR appeared for the revenue. 3. The appeal is time barred by 1195 days. The assessee has filed condonation petition dated 25.9.2 negligence or inaction of the counsel/authorized representive appointed for dealing and advising on Income tax matter by the assessee, the appeal IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/SHRI GEORGE MATHAN, JUDICIAL AND ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.310/CTK/2019 Assessment Year :2009-2010 The Orissa Small Industries Corporation Ltd., Industrial Estate, Cuttack Vs. ACIT, Circle 2(1), Cuttack PAN/GIR No.AAACO 2101 M (Appellant) .. ( Respondent Assessee by : Shri Ambika Prasad Mohanty, AR Revenue by : Shri M.K.Gautam, CIT Date of Hearing : 20 /9 Date of Pronouncement : 20/9 O R D E R This is an appeal filed by the assessee against the order of the ld , Cuttack dated 10.3.2016 in Appeal No. 651/2014 assessment year 2009-10. Shri Ambika Prasad Mohanty, ld AR appeared for the assessee and Shri M.K.Gautam, ld CIT DR appeared for the revenue. The appeal is time barred by 1195 days. The assessee has filed condonation petition dated 25.9.2019, wherein, it is stated that due to the negligence or inaction of the counsel/authorized representive appointed for dealing and advising on Income tax matter by the assessee, the appeal Page1 | 10 IN THE INCOME TAX APPELLATE TRIBUNAL, JUDICIAL MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER 2010 ACIT, Circle 2(1), Cuttack Respondent) Ambika Prasad Mohanty, AR : Shri M.K.Gautam, CIT DR 9/2022 9/2022 This is an appeal filed by the assessee against the order of the ld 651/2014-15 for the Shri Ambika Prasad Mohanty, ld AR appeared for the assessee and Shri M.K.Gautam, ld CIT DR appeared for the revenue. The appeal is time barred by 1195 days. The assessee has filed 019, wherein, it is stated that due to the negligence or inaction of the counsel/authorized representive appointed for dealing and advising on Income tax matter by the assessee, the appeal ITA No.310/CTK/2019 Assessment Year :2009-2010 Page2 | 10 could not be filed in the stipulated period. It was stated that even after the additions, the tax effect on the assessee company would be nil by referring to the appeal effect order of the ACIT dated 13.8.2014. However, the counsel was required to challenge the matter before the ITAT, which was not done by the counsel appointed for the purpose. In the petition, it is stated that the delay in filing the appeal was neither deliberate nor intentional but due to the circumstances beyond the control of the appellant. Ld A.R. before us reiterated the submissions made in the petition and requested to condone the delay. Ld CIT DR opposed the condonation petition. 4. After considering the rival submissions and perusing the condonation petition, we are satisfied that the delay in filing the appeal was not intentional and deliberate because by delaying the appeal the assessee will not get any benefit. The Hon’ble Supreme Court in the case of Collector, Land Acquisition vs Mst. Katiji (1987) 167 ITR 471 has held that there can be no presumption of deliberateness or negligence or mala fides in case of delay, because litigants run a serious risk without any benefit by the delay. The judiciary is respected not for legalizing injustice on technical grounds but for removing injustice. Respectfully following the decision of the Hon’ble Supreme Court in the case of Mst Katji (supra), we condone the delay of 1195 days and admit the appeal for hearing ITA No.310/CTK/2019 Assessment Year :2009-2010 Page3 | 10 5. The assessee has raised the following grounds of appeal: “1. For that the Learned CIT (Appeal) has failed both in law & on facts to consider and adjudicate the fact that the order u/s 147 was passed without issuing statutory notice u/s 143(2) which is unlawful thereby the order of assessment liable to be quashed. 2. For that, learned CIT (Appeals) is wrong both in law as well as in facts in holding re opening u/s 147 is justified in case of change of opinion/or allowing the learned AO to rectify his own mistake if any in order u/s 143(3). 3. For That, the learned CIT (appeals) is wrong and unlawful in disallowing Rs.6,60,71,079/-, amount of pay revision added to the total income of the assesse wrongly presuming to be a provision rather than estimated expenditure thereby liable to be deleted. 4. For that the learned CIT (Appeal) has erred both in law & fact by ignoring the position of law with respect to any addition made out of suspicion, surmise, guess without any cogent reason is not sustainable.” 6. At the time of hearing, ld AR of the assessee has withdrawn the grounds in respect of reopening of assessment by issuance of notice u/s.143(2) of the Act being Ground Nos.1 & 2. Consequently, Ground Nos.1 & 2 of the assessee stand dismissed as withdrawn. 7. In respect of other grounds, it was submitted by ld AR that the assessee is a Government of Odisha undertaking. It was the submission that during the relevant assessment year, the assessee had made a provision for pay revision to an extent of Rs.6,60,71,070/-. It was the submission that the Assessing Officer had disallowed the said provision on the ground that the said provision was an unascertained liability. It was the submission that on appeal, the ld CIT(A) also upheld the action of the Assessing Officer. ITA No.310/CTK/2019 Assessment Year :2009-2010 Page4 | 10 8. Ld AR submitted that the issue is now squarely covered by the decision of the co-ordinate Bench of this Tribunal in the case of DCIT vs M/s. Industrial Development Corporation of Orissa Ltd in ITA No.379/CTK/2017 for the A.Y. 2009-10, wherein, in paras 7 & 8, it has been held as follows: “7. After carefully considering the submissions of both the sides and perusing the entire material available on record along with the orders of authorities below, we find that during the course of assessment proceeding, the AO noticed that the assessee has made a provisions of Rs.282.73 lakh towards revision of pay and debited the same to the profit and loss account of the year and the same being purely a contingent and unascertained liability, therefore, the AO stated that it was not admissible as a deduction for computing the income for the relevant assessment year. However, the CIT(A) deleted the impugned addition relying on the decision of Haryana Agro Industries Corporation Ltd. (2017) 391 ITR 127 (P&H) and Bharat Heavy Electrical Ltd. 245 ITR 428 (Delhi), held that the provision towards pay revision debited to the P&L Account is an ascertained liability crystallized in the year under appeal and the same is an admissible deduction. The relevant observations of the CIT(A) in this regard are as under :- “Decision :The Hon'ble Apex Court in the case of Meal Box Company of India Ltd. V.s Their Workmen, 73(1969)ITR 53 held as follows : "If a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to quantify and discharge at a future date. What. should be certain is the incurring of the liability. It should also be capable of being 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 present though it will be discharged at a future date it does not make any difference if the future date on which the liability shall have to be discharges is not certain. ''' In appellant's case, the Board of Directors of IDCOL in their 323rd meeting held on 23.12.2008, constituted a committee to examine and recommend the revision of scale of pay of the employees of IKIWL and IFCAL w.e.f. 01.01.2006 in line with State Govt, employees. In the mean time the Govt, of Orissa by a notification dated 07.01.2009 revised the pay scale of Govt, employees. The recommendation of the committee constituted by the Board of Directors of IDICOL was placed before the Board in their 324 th meeting held on 11.02.2009. While considering the recommendation ITA No.310/CTK/2019 Assessment Year :2009-2010 Page5 | 10 of the committee, the Board constituted a Directors' Committee to examine the projected cash flow statement of IDCOL Group of Companies and submit a suitable note to CMD on the capability of the IDCOL Group to bear the additional financial burden. CMD was authorized by the Board to take necessary action on the same. The Directors' Committee has considered the projected profitability statement and projected cash flow statement for the next 5 years from FY 2009-10 to FY 2013-14 along with the audited figures for FY 2006- 07, FY 2007-08 and estimated figures for FY 2008-09. The Committee has mentioned that the Corporation is in a position to bear the additional financial burden. The amount payable in FY 2008-09 is crystallized when the Board of Directors of IDCOL and the committees of the Board had taken the decision on 11.02.2009 and 16.02.2009 on the basis of the ascertained liabilities to pay arrear salary to the employees as per recommendation of 6th Pay Commission w.e.f 01.06.2006 . In view of the above and placing reliance in the case of CIT vs. Haryana Agro Industries Corporation Ltd. (2017) 391 ITR 127 (P&H) HC and Bharat Heavy Electrical Ltd. 245 ITR 428( Delhi), it is held that the provision towards pay revision debited to the P&L Account is an ascertained liability crystallized in the year under appeal and hence it is an admissible deduction. This ground of appeal of the appellant is allowed.” From the above observations of the CIT(A), we find that the CIT(A) while dealing with the issue has observed that the Board of Directors of assessee company on 323rd meeting held on 23.12.2008 has constituted a committee to examine and recommend the revision of sale of pay of the employees of IKIWL and IFCAL w.e.f.01.01.2006 in the line with State Government employees. The committee has mentioned that the corporation is in a position to bear the additional financial burden and the amount payable in F.Y.2008-2009 is crystallized when the Board of Directors of assessee company and the committees of the Board had taken the decision on 11.02.2009 & 16.02.2009 on the basis of ascertained liabilities to pay arrear salary to the employees as per the recommendation of 6th Pay Commission w.e.f. 01.06.2006. Therefore, the CIT(A) has rightly allowed the deduction towards pay revision debited to the profit and loss account holding the same as ascertained liability crystallized during the year under consideration. We also find that the case laws relied on by the CIT(A) are squarely applicable to the present facts of the case. Ld. DR also could not bring any new material on record to controvert the above findings of the CIT(A). Accordingly, we do not see any good reason to interfere with the observations of the CIT(A) in deleting the addition so made by the AO on account of admissibility of provisions created for unforeseen and unascertained expenditure. Thus, we uphold the findings of the CIT(A) recorded in this regard and dismiss the grounds of appeal raised by the Revenue. 8. Thus, appeal of the Revenue is dismissed.” ITA No.310/CTK/2019 Assessment Year :2009-2010 Page6 | 10 9. It was further submitted that the issue is also covered by the decision of the Hon’ble Delhi High Court in the case of Housing & Urban Development Corporation Ltd., vs ACIT (2020) 115 taxmann.com 166 (Del), wherein in para 19, it has been held as follows: “19. The position in the current case is that the liability had already arisen with certainty. The committee was constituted for the purpose of wage revision. That the wages would be revised was a foregone conclusion. Merely because the making of the report and implementation thereof took time, it could not be said that there was no basis for making the provision. In view of the above, we hold that the IT AT and CIT (A) have fell in error by disallowing the expenditure of Rs. 1.60 crores on account of anticipated pay revision in Assessment Year 2007-08. The first and second questions of law are thus answered in favour of the appellant. Accordingly, it is directed that the revenue shall now pass consequential orders accepting the deduction of Rs. 1.60 crores.” 10. It was further submitted that the issue is also settled now by the principles laid down by Hon’ble Supreme Court in the case of Bharat Earth Movers vs CIT, 245 ITR 428 (SC), wherein, the Hon’ble Supreme Court has held as follows: “Law is settled- If a business 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. What should be certain is the incurring of the liability. It should also be capable of being 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 make any difference if the future date on which the liability shall have to be discharged is not certain. Applying the above-said settled principles to the facts of the case at hand we are satisfied that provision made by the appellant company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary. ‘In Metal Box Company of India Ltd. Vs. Their Workmen (1969) 73 ITR 53 the appellant company estimated its liability under two gratuity schemes framed by the ITA No.310/CTK/2019 Assessment Year :2009-2010 Page7 | 10 company and the amount of liability was deducted from the gross receipts in the P&L account. The company had worked out on an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the company was that every year the company worked out the additional liability incurred by it on the employees putting in every additional year of service. The gratuity was payable on the termination of an employees service either due to retirement, death or termination of service – the exact time of occurrence of the latter two events being not determinable with exactitude before hand. A few principles were laid down by this court, the relevant of which for our purpose are extracted and reproduced as under :- (i) For an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is paid; permissible only in case of amounts actually expended or (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the fulfillment of which may result in the reduction or even extinction of the liability, would not have the effect of converting that liability into a contingent liability; (iv) A trader computing his taxable profits for a particular year may properly deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be made in a subsequent year if it can be satisfactorily estimated. So is the view taken in Calcutta Co. Ltd. Vs. Commissioner of Income-Tax, West Bengal (1959) 37 ITR 1 wherein this court has held that the liability on the assessee having been imported, the liability would be an accrued liability and would not convert into a conditional one merely because the liability was to be discharged at a future date. There may be some difficulty in the estimation thereof but that would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case.” 11. It was the submission that the Board of Directors of the assessee company had approved the calculation sheets made for the provision of pay revision. It was the submission that the 6 th pay commission revision was prepared in the financial year 2010-11 and was intimated vide letter dated 3.1.2011 by the Deputy Secretary to Govt. Industries Department, ITA No.310/CTK/2019 Assessment Year :2009-2010 Page8 | 10 Govt. of Odisha. It was the submission that the said provision was not unascertained liability but was an ascertained liability and the same was liable to be allowed. 12. In reply, ld CITA DR drew our attention to the Annual report of the assessee, wherein, at page 17, of the auditor’s report, the auditors have passed a comment in para 12 regarding pay revision that “ the Corporation has provided a sum of Rs.660,71,079/- towards pay revision, of which Rs.452,35,382/- was debited to prior period expenditure and a sum of Rs.208,35,697/- was debited to current year expenditure. The Management could not justify the basis on which the provision as made in the accounts. As a result, we reserve our comments regarding the adequacy of the provision for the same and also the consequential impact on the gratuity provision”. It was submitted that the auditors had categorically given a comment that the management could not justify the basis on which the provision was made and consequently, the said provision was clearly a contingent liability and not an ascertained liability. He further drew our attention to the order of the ld CIT(A) at page 4 para 6 to submit that the provision was made for the pay revision in the 37 th Annual report for financial year 2008-09 in assessment year 2009-10. The proposal for implementation of the 6 th pay commission was given only on 3.1.2011 and by the said date, the account for the assessment year 2009-10 was already closed. When this is read with the auditor’s comment, it clearly shows that ITA No.310/CTK/2019 Assessment Year :2009-2010 Page9 | 10 the provision for the pay revision was an unascertained liability for the assessment year 2009-10. It was the submission that the assessee has also attached the vouchers in respect of pay revision and it is dated 31.3.2013, which went on to say that for the assessment year 2009-10, the liability was not crystalised. It was the prayer that the order of the ld CIT(A) and that of the AO upheld. 13. We have considered the rival submissions. At the outset, a perusal of the auditor’s comment shows that the Management has replied to the said comments, wherein, it is mentioned that “ calculation sheets were available at the time of audit. As it is a provision for pay revision, excess/less will be adjusted in the accounts of the subsequent years after obtaining pay revision order” . Thus, it is clear that the Management has categorically confirmed that the provision has been made on a scientific method and the calculation was very much available. This has not been dislodged. On perusal of the decision of the Hon’ble Supreme Court in the case of Bharat Earth Movers (supra), the Hon’ble Supreme Court has categorically held that “ if a business 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.”. 14. In assessee’s case, the calculation sheets are available. Therefore, the scientific method of calculation is done and the pay revision has also been approved by the Government though on 3.1.2011. Thus, applying the ITA No.310/CTK/2019 Assessment Year :2009-2010 Page10 | 10 principles laid down by the Hon’ble Supreme Court in the case of Bharat Earth Movers (supra), it cannot be held that the provision for the pay revision is an unascertained liability nor the liability does not crystalise. This being so, we are of the view that the assessee is entitled to the expenditure in respect of pay revision as claimed. Consequently, the addition made by the AO and confirmed by the ld CIT(A) stands deleted. 15. In the result, appeal of the assessee is partly allowed. Order dictated and pronounced in the open court on 20/9/2022. Sd/- sd/- (Arun Khodpia) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 20/9/2022 B.K.Parida, SPS (OS) Copy of the Order forwarded to : By order Sr.Pvt.secretary ITAT, Cuttack 1. The Appellant : The Orissa Small Industries Corporation Ltd., Industrial Estate, Cuttack 2. The Respondent: ACIT, Circle 2(1), Cuttack 3. The CIT(A)-, Cuttack 4. Pr.CIT-, Cuttack 5. DR, ITAT, Cuttack 6. Guard file. //True Copy//