ACIT, NCC - 11 (1), CHENNAI V. M/S. CHENNAI CENTRAL CO-OPERATIVE BANK LTD., CHENNAI

ITA 80/CHNY/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1628 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 10-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S BHARATH
• Keywords: Non-deduction of tax; Corroborative evidences; Set aside
• Section: 40a(ia); 73; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , . , % BEFORE SHRI V.DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NOS.79 & 80 /CHNY/2020 ( / ASSESSMENT YEARS: 2010-11 & 2009-10) THE ASSISTANT COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE-11(1), ROOM NO.208, 2 ND FLOOR, BSNL BUILDING TOWER II, 16, CREAMS ROAD, CHENNAI-600 006. VS M/S. CHENNAI CENTRAL CO- OPERATIVE BANK LTD., 114/2, PRAKASAM SALAI, BROADWAY, CHENNAI-600 108. PAN: AAAAC0982C ( /APPELLANT) /RESPONDENT/ / APPELLANT BY : MR. S.BHARATH, CIT /RESPONDENT BY : MR. Y.SRIDHAR, C.A /DATE OF HEARING : 02.12.2020 /DATE OF PRONOUNCEMENT : 09 .12.2020 / O R D E R PER BENCH: THESE TWO APPEALS FILED BY THE REVENUE ARE DIRECTE D AGAINST COMMON ORDER OF THE LEARNED CIT(APPEALS)-13 , CHENNAI DATED 09.10.2019 AND PERTAIN TO ASSESSMENT YEARS 20 10-11 AND 2009-10. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THEY WERE CLUBBED, HEARD T OGETHER AND DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 2 ITA NOS. 79 & 80/CHNY/2020 2. THE REVENUE HAS MORE OR LESS RAISED COMMON GROUNDS OF APPEAL FOR BOTH THE ASSESSMENT YEARS, THEREFORE, F OR THE SAKE OF BREVITY, GROUNDS OF APPEAL FILED FOR THE ASSESSMENT YEAR 2010-11 ARE REPRODUCED AS UNDER:- I. THE LD. CIT(A) ERRED IN DIRECTING THE AO TO DEL ETE THE DISALLOWANCE OF WAGE ARREARS AMOUNTING TO ` 5,57,77,696/- MADE U/S 40A(IA) OF THE ACT FOR AY 20 10-11 RESPECTIVELY. II. THE ID. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE ASSESSEE CREATED AN ADHOC PROVISION FOR WAGE ARREARS AMOUNTING TO ` 5,57,77,696/- IN THE FY 2009-10. HOWEVER, THE SAID AMOUNT HAD BEEN DISBURSED ONLY IN THE FY 2010-11. III. THE LD CIT(A) OUGHT TO HAVE CONSIDERED THE BOA RDS INSTRUCTION NO.17/2008 DATED 26.11-28 BEFORE ALLOWI NG THE APPEAL OF THE ASSESSEE. IV. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FA CT THAT THE RELIED UPON DECISION BY HIM ARE DISTINGUISHABLE FROM THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. V.THE LD. CIT(A) FAILED TO CONSIDER THE FACT THAT T HE LIABILITY TO PAY SALARY ARREARS DID NOT ARISE OR ACCRUE IN TH E FL 2009-10 RELEVANT TO AY 2010-11. VI. FOR THE ABOVE GROUNDS AND ANY OTHER GROUND THAT MAY BE ADDUCED DURING THE APPELLATE PROCEEDINGS, THE OR DER OF THE CIT(A) MAY BE SET ASIDE AND THE ASSESSMENT ORDER OF THE AU MAY BE RESTORED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE A C O-OPERATIVE BANK FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 AND 2010-11 DECLARING TOTAL INCOME OF ` 38,55,67,390/- AND ` 47,42,79,443/- RESPECTIVELY. THE ASSESSMENTS WERE C OMPLETED FOR 3 ITA NOS. 79 & 80/CHNY/2020 THE IMPUGNED ASSESSMENT YEARS U/S.143(3) BY MAKING CERTAIN ADDITIONS. SUBSEQUENTLY, THE ASSESSMENT HAS BEEN R EOPENED U/S.147 OF THE ACT AND THE ASSESSMENT HAS BEEN COM PLETED AFTER MAKING ADDITIONS TOWARDS DISALLOWANCE OF INTEREST P AID ON FIXED DEPOSITS FOR NON-DEDUCTION OF TAX AT SOURCE U/S. 40 (A)(IA) OF THE ACT. SUBSEQUENTLY, THE PRINCIPAL CIT VIDE HIS ORDER DATE D 22.08.2017 U/S.263 OF THE ACT SET ASIDE THE ASSESSMENT ORDER A ND DIRECTED THE ASSESSING OFFICER TO EXAMINE THE ISSUE OF PROVISION FOR WAGE ARREARS. THE ASSESSEE FILED AN APPEAL AGAINST 263 ORDER PASSED BY THE PCIT BEFORE THE TRIBUNAL. THE ITAT D BENCH, CHENNAI VIDE ORDER DATED 15.05.2018 IN ITA NO.2167 & 2168/CHNY/2 017 DISMISSED THE ASSESSEES APPEAL. IN PURSUANT TO 263 ORDER, THE ASSESSING OFFICER HAD TAKEN UP THE CASE FOR ASSESSM ENT AND ISSUED NOTICE U/S.143(2) OF THE ACT AND CALLED UPON THE AS SESSEE TO FILE NECESSARY DETAILS WITH REGARD TO PROVISION FOR WAGE ARREARS. IN RESPONSE, THE ASSESSEE SUBMITTED BEFORE THE ASSESSI NG OFFICER THAT THE ASSESSEE BANK, ANTICIPATING WAGE ARREARS TO IT S EMPLOYEES HAD MADE AD-HOC PROVISION FOR WAGE ARREARS IN ASSESSMEN T YEAR 2009- 10 AND 2010-11 BASED ON CERTAIN DEGREE OF ESTIMAT ION BY KNOWING THE FACT THAT EMPLOYEES UNION HAVE STARTED NEGOTIAT ION WITH THE MANAGEMENT FOR REVISION OF WAGES ON THE BASIS OF RE COMMENDATION 4 ITA NOS. 79 & 80/CHNY/2020 OF PAY COMMISSION REPORT FOR STATE GOVERNMENT EMPLO YEES WITH EFFECT FROM 01.01.2006. THE ASSESSEE FURTHER STATE D THAT BASED ON THE REQUEST OF VARIOUS UNIONS OF DCCBS, THE STATE G OVERNMENT HAS REQUESTED THE REGISTRAR OF CO-OPERATIVE SOCIETIES T O PURSUE ACTION BY HOLDING NEGOTIATION WITH EMPLOYEES UNION FOR A N EW WAGE SETTLEMENT. CONSEQUENT TO THE ABOVE, THE REGISTRAR OF CO-OPERATIVE SOCIETIES CONSTITUTED A COMMITTEE ON 02.12.2008 FOR HOLDING NEGOTIATION WITH EMPLOYEES UNION FOR A NEW WAGE SET TLEMENT. THE COMMITTEE, AFTER HOLDING NEGOTIATION WITH EMPLOYEES UNION, SUBMITTED ITS REPORT. THE REGISTRAR OF CO-OPERATIVE SOCIETIES ISSUED INSTRUCTIONS FOR WAGE REVISION UNDER RULE 149(1) OF TNSCS RULES, 1988 VIDE CIRCULAR NO.40/2009 DATED 16.11.2009 AND CIRCULAR NO.10/2010 DATED 23.03.2010. FURTHER, AFTER SEVERA L ROUNDS OF NEGOTIATIONS AND DELIBERATIONS WITH EMPLOYEES UNIO N, SETTLEMENT BETWEEN THE MANAGEMENT OF ASSESSEE BANK AND EMPLOYE ES UNION WAS ARRIVED AT IN THE PRESENCE OF COMMISSIONER OF L ABOUR ON 25.08.2010 .THE SAID SETTLEMENT WAS SIGNED BY THE M ANAGEMENT AND REPRESENTATIVES OF EMPLOYEES UNION ON 30.08.201 0 AND AS PER THE SAID SETTLEMENT, THE MONETARY BENEFITS ARISING OUT OF REVISION OF PAY SHALL BE W.E.F 01.01.2007. THEREFORE, THE ASSE SSEE BANK IN ANTICIPATION OF WAGE REVISION HAS MADE REASONABLE E STIMATION OF 5 ITA NOS. 79 & 80/CHNY/2020 LIABILITY FOR EACH ASSESSMENT YEAR AND THE SAME HA S BEEN PROVIDED FOR IN THE BOOKS OF ACCOUNT AND HENCE THE SAME CANN OT BE CONSIDERED AS CONTINGENT IN NATURE. 4. THE ASSESSING OFFICER WAS NOT CONVINCED WITH TH E EXPLANATION FURNISHED BY THE ASSESSEE AND ACCORDING TO HIM, LIA BILITY PROVIDED IN THE BOOKS OF ACCOUNT FOR WAGE ARREARS IS AN UNASCER TAINED LIABILITY WHICH CANNOT BE ALLOWED AS DEDUCTION. THE ASSESSING OFFICER OBSERVED THAT THE ESSENCE OF ACCRUAL IS REASONABLE CERTAINTY AND POSSIBLE QUANTIFICATION OF LIABILITY, IN THE EVENT OF AGREEMENT PENDING FINALIZATION, THE ASSESSEES CALCULATION FOR LIABIL ITY ACCRUING TO IT HAS NOT BEEN FINALIZED AND HENCE, THE LIABILITY HAS NO T BEEN CRYSTALLIZED AND THEREFORE, IT IS CONTINGENT LIABILITY WHICH IS NOT ALLOWABLE U/S.37(1) OF THE ACT. THE ASSESSING OFFICER HAS DISCUSSED THE ISSUE AT LENGTH IN LIGHT OF CERTAIN JUDICIAL PRECEDENTS AND BOARD I NSTRUCTION NO.17/2008 DATED 26.11.2008 TO COME TO THE CONCLUSI ON THAT ASSESSEE BANK HAS PROVIDED FOR LIABILITY MERELY BAS ED ON CERTAIN ESTIMATES WHERE THE FINAL QUANTUM OF LIABILITY INCU RRED HAS BEEN PAID IN SUBSEQUENT YEARS, THEREFORE OPINED THAT AMOUNT PROVIDED FOR WAGE ARREARS IS UNASCERTAINED LIABILITY AND THE SAM E CANNOT BE ALLOWED AS DEDUCTION U/S.37(1) OF THE ACT. 6 ITA NOS. 79 & 80/CHNY/2020 5. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE L EARNED CIT(A), THE ASSESSEE HAS REITERATED ITS SUBMISSIONS IN LIG HT OF THE EVIDENCES, INCLUDING DEMAND FROM EMPLOYEES UNION FO R WAGE REVISION AND SUBSEQUENT DEVELOPMENTS AT THE LEVEL OF STATE GOVERNMENT FOR CONSTITUTION OF COMMITTEE TO EXAMIN E THE DEMANDS OF EMPLOYEES. THE ASSESSEE FURTHER CLAIMED THAT THE LIABILITY PROVIDED FOR IN THE BOOKS OF ACCOUNTS TOWARDS PROVI SION FOR WAGE ARREARS IS NOT CONTINGENT LIABILITY, BUT AN ASCERTA INED LIABILITY BECAUSE THE SAME WAS ACCRUED FOR THE RELEVANT ASSESSMENT YE ARS, EVEN THOUGH THE SAME WAS QUANTIFIED AND PAID IN THE SUB SEQUENT FINANCIAL YEARS. THE ASSESSEE HAS ALSO RELIED UPON VARIOUS JUDICIAL PRECEDENTS INCLUDING THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF BHARAT EARTH MOVERS LTD. VS.CIT (245 IT R 428). 6. THE LEARNED CIT(A), AFTER CONSIDERING THE RELEVA NT SUBMISSIONS OF THE ASSESSEE AND TAKING INTO CONSIDERATION OF VARIOUS JUDICIAL PRECEDENTS INCLUDING THE DECISION OF BHARAT EARTH MOVERS LTD(SUPRA) HELD THAT THE CONTENTIONS OF THE ASSESS ING OFFICER APPEARS TO BE MISPLACED BOTH ON FACTS AND CIRCUMSTA NCES OF THE CASE AND IN LAW, INSOFAR AS ON BOTH ISSUES RELATIN G TO CONTINGENT 7 ITA NOS. 79 & 80/CHNY/2020 NATURE OF THE EXPENSES AS WELL AS ITS CERTAINTY, AS THE ASSESSING OFFICER TERMS IT THERE CANNOT BE TWO OPINIONS THAT BUSINESS LIABILITY BY WAY OF WAGE ARREARS IN THE INSTANT CASE BEING A REAL ONE HAS DEFINITELY ARISEN WITHIN THE IMPUGNED ACCOUNTING YE ARS AND IT WAS NOT CONTINGENT ON ANY EVENT /PROCESS HAPPENING IN FUTURE AND THEREFORE, INCURRING OF LIABILITY WAS CLEARLY CERT AIN SINCE SERVICES RENDERED FOR WHICH WAGES HAD TO BE PAID HAD ALR EADY OCCURRED AND THEREFORE, THERE WAS NOTHING CONTINGENT ABOUT IT. THE LEARNED CIT(A) FURTHER HELD THAT THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS LTD. VS.CIT HAS CLEARLY HELD TH AT EVEN IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE AC COUNTING YEAR , DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT FUTURE DATE . THEREF ORE, HE OPINED THAT AMOUNT PROVIDED FOR PROVISION FOR WAGE ARREARS IS A N ASCERTAINED LIABILITY WHICH IS ACCRUED TO IMPUGNED ASSESSMENT Y EARS, EVEN THOUGH THE SAME HAS BEEN QUANTIFIED AND PAID IN SU BSEQUENT FINANCIAL YEARS. ACCORDINGLY, LEARNED CIT(A) DELETE D THE ADDITIONS MADE FOR DISALLOWANCE OF PROVISIONS OF WAGE ARREA RS. THE RELEVANT FINDINGS OF THE LEARNED CIT(A) ARE AS UNDER:- 5. NOW, I HAVE CAREFULLY GONE THROUGH THE UNDISPUT ED / UNCONTROVERTED FACTS MARSHALLED AND PRESENTED BY TH E AO/AR AS ALSO THE RELEVANT AND SUPPORTING EVIDENCE BY THE RE SPECTIVE RIVAL PARTIES BUT ON A RELATIVE AND COMPARATIVE CONSIDERA TION OF THE SAME, I 8 ITA NOS. 79 & 80/CHNY/2020 AM PERSUADED BY THE MORE SUBSTANTIVE AND MERITORIOU S REASONING ADDUCED BY THE AR ON THE ISSUE AT HAND. 6. FROM THE ASSESSMENT ORDER IS CLEAR THAT THE MAIN REASON WHY THE AO HAS DISALLOWED THE AFORESAID PROVISION FOR WAGE ARREARS, IS THAT ACCORDING TO HIM, IT WAS A CONTINGENT LIABILITY AND ALSO THAT IT LACKED REASONABLE CERTAINTY AND POSSIBLE QUANTIFICATION. T O BUTTRESS THE ABOVE PROPOSITION THE AID HAS RELIED ON THE CASES O F (I) SHREE SAJJAN MILLS LD. V CIT 156 ITR 585 (II) INDIAN MOLASSESS CO. (P) LTD. V CIT 37 ITR 66 (III) ALEMBIC CHEMICAL WORKS V DCIT 120041 266 ITR 47 (IV) SESHASAYEE INDUSTRIES (2000)424 ITR 691 (V) INDIAN OVERSEAS BANK ITA NO1690 & 1866/MDS/2006 WHEREIN IT HAS BEEN STATED RESPECTIVELY, INTER AIM THAT CONTINGENT LIABILITIES DO NOT CONSTITUTE EXPENDITURE AND CANNO T BE THE SUBJECT MATTER OF DEDUCTION EVEN UNDER THE MERCANTILE SYSTE M OF ACCOUNTING AND FURTHER PENDING ADJUDICATION BY WAY OF APPEAL T HE LIABILITY WOULD BE CONTINGENT IN NATURE AND THE LIABILITY TO PAY SU CH COMPENSATION DID NOT ARISE ON EVENT ANTICIPATED BY THE ASSESSEE. 6.1 THE CONTENTIONS OF THE AC APPEARS TO BE MISPLAC ED BOTH ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW INSO FAR AS ON BOTH ISSUES RELATING TO THE CONTINGENT NATURE OF THE EXP ENSES AS WELL AS ITS CERTAINTY AS THE AC TERMS IT THERE CANNOT BE TWO OP INIONS THAT THE BUSINESS LIABILITY BY WAY OF WAGE ARREARS IN THE IN STANT CASE BEING A REAL ONE HAD DEFINITELY ARISEN WITHIN THE IMPUGNED ACCOUNTING YEARS AND IT WAS NOT CONTINGENT ON ANY EVENT / PROCESS HA PPENING IN HE FUTURE AND THEREFORE THE INCURRING OF THE LIABILITY WAS CLEARLY CERTAIN SINCE THE SERVICES RENDERED FOR WHICH THE WAGES HAD TO BE PAID HAD ALREADY OCCURRED AND THEREFORE THERE WAS NOTHING CO NTINGENT ABOUT IT TO ARISE, AND AS HELD BY HONBLE SUPREME COURT IN T HE CASE OF BHARAT EARTH MOVERS VS CIT 245 ITR 428 WHEREIN IT HAS BEEN CONSIDERABLY RULED THAT THAT IF A BUSINESS LIABILI TY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR THE DEDUCTION SHOULD BE ALLO WED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE AND WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY AND IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REAS ONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBL E AND IF THESE REQUIREMENTS WERE SATISFIED, THE LIABILITY COULD NO T BE A CONTINGENT ONE WHICH IS IN PRESENT THOUGH TO BE DISCHARGED AT A FUTURE DATE AND IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. THEREFO RE APPLYING THE ABOVE RATIO OR THE AFORESAID SUPREME COURT JUDGEMEN T SINCE THE BUSINESS LIABILITY IN THE FORM OF WAGE / SALARY ARR EARS HAD ARISEN FOR THE IMPUGNED YEARS FOR WORKS / SERVICES RENDERED BY THE EMPLOYEES LURING THE SAID YEARS AND WOULD THEREFORE BE ALLOWA BLE EVEN IF THE 9 ITA NOS. 79 & 80/CHNY/2020 NEGOTIATIONS WITH THE STATE GOVT. / REGISTRAR OF CO OPERATIVE SOCIETIES FOR REVISING THE PAY SCALE OF THE EMPLOYEES HAD NOT BEEN FINALIZED / QUALIFIED FULLY. 6.2 FURTHER ITAT KOLKATA IN THE CASE OF ALLAHABA D BANK VS ACIT 2175/KOL/2009 VIDE ORDER DATED 16.03.2016 HAS HELD THAT ACCORDING TO AS 29 ISSUED BY THE ICAI PROVISION IS A LIABILIT Y WHICH CAN BE MEASURED ONLY BY USING A SUBSTANTIAL DEGREE OF ESTI MATION AND A LIABILITY IS A PRESENT OBLIGATION OF THE ENTERPRISE ARISING FROM PAST EVENTS THE SETTLEMENT OF WHICH A EXPECTED TO RESULT IN AN OUTFLOW FROM THE ENTERPRISE OF RESOURCE EMBODYING ECONOMIC BENEFITS AND ACCORDING TO PARA 14 OF AS 29 PROVISION SHOULD BE R ECOGNIZED WHEN (A) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RES ULT OF PAST EVENTS. B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES EMBO DYING ECONOMIC BENEFITS WILL BE REQUIRED TO SETTLE THE OBLIGATION AND C) A RELIABLE ESTIMATE CAN BE MADE OR THE OBLIGATIO N 7. IT IS NOT THE CASE OF THE AO HERE, THAT THE LIAB ILITY OF WAGE ARREARS IS NOT A REAL ONE FOR SERVICES WHICH HAS ALREADY BEEN RENDERED AND THEREFORE DEFINITELY WAS IN THE NATURE OF ARREARS F OR SUCH UNPAID SALARY AND HAD DEFINITELY ARISEN AND THEREFORE IN F ACT IT HAD A PRESENT OBLIGATION AS A RESULT OF THE PAST EVENTS OF THE WO RKS / SERVICES ALREADY CARRIED OUT BY THE EMPLOYEES ENTAILING AN O UTFLOW OF RESOURCES TO SETTLE SUCH OBLIGATION AS PER THE CONT RACTUAL AGREEMENT BETWEEN THE EMPLOYEES AND THE MANAGEMENT. 7.1 NEITHER IT IS THE CASE OF THE AO THAT THE SAID PROVISION HAD NOT ACTUALLY NOT BEEN DISBURSED IN THE SUBSEQUENT YEAR OR THAT AN EXORBITANT ESTIMATE HAD BEEN MADE OF THE OBLIGATION IN ORDER TO CREATE A LOSS OR REDUCE THE INCIDENCE OF TAXATION F OR THE IMPUGNED YEARS AND IT IS AN ACCEPTED PRINCIPLE THAT SALARY A ND WAGES GENERALLY ACCRUED DAILY, WEEKLY AND MONTHLY AS PER THE CONTRA CT OF APPOINTMENT AND THE LIABILITY OF THE SANK TO PAY SALARY / WAGES AT THE REVISED RATES COMMENCING FROM THE DATE OF THE EXPIRY OF THE EXIST ING AGREEMENT AND THE LIABILITY TO COMPENSATE THE EMPLOYEES FOR T HE SERVICES ALREADY RENDERED IS VERY MUCH AN EXISTING LIABILITY FOR THE BANK FOR WHICH THERE WERE EVERY POSSIBILITY OF OUTFLOW AND C ONSIDERING THE FACT THAT AN AMOUNT OF RS. 11.65 CRORES WAS DISBURSED TO THE EMPLOYEES IN THE IMMEDIATELY FOLLOWING FY 2010-11 THE PROVISI ON MADE INDISPUTABLY OF RS.5 CRORES AND 5.57 CRORES FOR FY 2008-09 AND FY 2009-10 COULD CERTAINLY BE CALLED AN ALMOST ACCURAT E AND MOST RELIABLE ESTIMATE TO BEGIN WITH. 7.2 THE ASSESSING OFFICERS RELIANCE ON THE CASE LAWS MENTIONED IN THE ASSESSMENT ORDER IS DISTINGUISHABLE FROM THE FA CTS OF THE INSTANT CASE SINCE IN THE CASES REFERRED TO BY THE AG, THE LIABILITY OF PAYMENT OF COMPENSATION HAD NOT CLEARLY AND ENTIRELY ARISEN AND AN EVENT WAS 10 ITA NOS. 79 & 80/CHNY/2020 ANTICIPATED BY THE ASSESSEE FOR THE INCURRING OF SU CH EXPENDITURE WHEREAS IN THE CASE OF THE INSTANT ASESSEE IT HAS N OT EVEN BEEN DISPUTED BY THE AO THAT THE LIABILITY FOR WAGES HAD ACCRUED ON THE DATE OF THE BALANCE SHEET FOR SERVICES ALREADY REND ERED AS PER THE TERMS OF CONTRACT OF APPOINTMENT / EMPLOYMENT AND T HEREFORE THE LIABILITY TO COMPENSATE THE EMPLOYEES FOR THE SERVI CES ALREADY RENDERED BY WAY OF OUTFLOW OF RESOURCES WAS VERY MU CH AN EXISTING LIABILITY AND WAS NOT CONTINGENT ON THE HAPPENING O F ANY FUTURE EVENT OR AGREEMENT BUT ON THE RESULT OF PAST EVENTS / WOR K / SERVICES ALREADY RENDERED, AS STATED EARLIER AND THE NEGOTIA TIONS / AGREEMENT WITH THE STATE GOVT./ REGISTRAR OF COOPERATIVE SOCI ETIES AND THE LABOUR UNIONS WAS ONLY FOR THE INCREASE OF PAYMENT OF SUCH SALARY / WAGES IN KEEPING WITH THE PAY COMMISSION RECOMMENDA TIONS AND ITS IMPLEMENTATION TO THE STATE GOVT. EMPLOYEES ALSO AN D NOT ON THE BASIC FACT OF THE ARISEN PRESENT LIABILITY AND NOT CONTINGENT ON THE FINALIZATION ON THE SAID AGREEMENT AS ERRONEOUSLY H ELD BY THE AO. 8. NOW, IT HAS BEEN HELD IN THE CASE OF HARYANA AG RO INDUSTRIES CORPORATION LIMITED F2017) 82 TAXMANN.COM 220 THAT SINCE THE ASSESSEE FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNT ING AND THE PROVISION ON ACCOUNT OF ARREARS FOR SALARY PAYMENT WAS MADE IN THE ACCOUNTS ON THE ACCN1AL BASIS, THE DISALLOWANCE MAD E BY THE ASSESSING OFFICER WAS NOT JUSTIFIED 9. FURTHER PRUDENCE IS ONE OF THE BASIC ASSUMPTIONS ON WHICH ACCOUNTS ARE MAINTAINED. THE TERM PRUDENCE IS DEFIN ED AS: A CONCEPT OF CARE AND CAUTION USED IN ACCOUNTING A CCORDING TO WHICH (IN VIEW OF UNCERTAINTY ATTACHED TO FIGURE EV ENTS) PROFITS ARE NOT ANTICIPATED, BUT RECOGNIZED ONLY WHEN REALIZED, THOUGH NOT NECESSARILY IN CASH. UNDER THIS CONCEPT, PROVISION IS MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BES T ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION. AGAIN, THE APEX COURT IN THE CASE OF METAL BOX COMP ANY OF INDIA LTD. VS. THEIR WORKMEN 73 ITR 33 (1969) HAS HELD TH AT IF REASONABLE ESTIMATES CAN BE MADE OF THE LIABILITY, THEN IT WIL L BE ALLOWED IN THE YEAR OF THE PROVISION. IN CIT VS KERALA STATE FINANCIAL ENTERPRISES 219 CT R 147 WHEREIN IT HAS BEEN HELD THAT WHAT S TO BE CONSIDERED IS WHETH ER THE LIABILITY IS ATTRIBUTABLE TO THE PREVIOUS YEAR OR NOT AND IT IS IMMATERIAL IF THE ACTUAL LIABILITY WAS ASCERTAINED AND SETTLED ONLY I N THE NEXT YEAR. BY THE TIME THE ACCOUNTS WERE FINALIZED AND RETURNS WE RE FILED THE ASSESSEE HAD ASCERTAINED THE ACTUAL LIABILITY ATTRI BUTABLE TO THE PREVIOUS YEAR AND THEREFORE THE ACTUAL AMOUNT PAYAB LE ONLY WAS 11 ITA NOS. 79 & 80/CHNY/2020 CLAIMED BASED ON MERCANTILE SYSTEM OF ACCOUNTING FO LLOWED BY THE ASSESSEE. FURTHER IN CIT VS BHARAT HEAVY ELECTRICALS LTD 352 ITR 88 (DEIHI) IT HAS BEEN HELD THAT IF A BUSINESS LIABILITY HAS DEFI NITELY ARISEN WITHIN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWE D ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. 10. THEREFORE WHEN VIEWED IN THE TOTALITY OF FACTS AND CIRCUMSTANCES OBTAINING IN THE CASE AND ALSO IN THE LIGHT OF THE RATIO OF JUDGEMENTS INCLUDING THAT OF THE HONBLE SC) QUOTED SUPRA THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF PROVISION FOR WAGE ARREARS FOR BOTH THE AYS BEING LEGALLY UNTENABLE, IS DIRECTED T O BE DELETED. THIS GROUND IS THEREFORE ALLOWED. 7. THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A ) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISAL LOWANCE OF WAGE ARREARS MADE U/S.40(A)(IA) OF THE ACT FOR THE ASSES SMENT YEAR 2010- 11 WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE CREATED AD-HOC PROVISION FOR WAGE ARREARS FOR THE IMPUGNED ASSESSM ENT YEARS, EVEN THOUGH THE SAID LIABILITY HAS BEEN DISCHARGED IN SUBSEQUENT FINANCIAL YEARS. THE DR FURTHER SUBMITTED THAT THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE BOARD INSTRUCTIONS NO .17/2008, WHERE IT WAS CLEARLY SPECIFIED DEDUCTIBILITY OF EXPENSES INCLUDING PROVISION FOR EXPENSES U/S.37 OF THE ACT, AS PER WHICH THE A MOUNT DEBITED IN THE PROFIT AND LOSS ACCOUNT IN RESPECT OF ACCRUED O R ASCERTAINED LIABILITY IS ONLY ADMISSIBLE FOR DEDUCTION WHILE AN Y PROVISION IN RESPECT OF ANY UNASCERTAINED LIABILITY OR LIABILITY WHICH WAS NOT ACCRUED DO NOT QUALIFY FOR DEDUCTION. IN THIS CASE , THERE IS NO LIABILITY 12 ITA NOS. 79 & 80/CHNY/2020 ACCRUED FOR THE IMPUGNED ASSESSMENT YEARS BECAUSE N EGOTIATIONS BETWEEN THE ASSESSEE BANK AND EMPLOYEES UNIONS W ERE NOT FINALIZED AND CONSEQUENTLY, IT CANNOT BE SAID THAT LIABILITY ACCRUED FOR WAGE ARREARS FOR THE IMPUGNED ASSESSMENT YEARS . 8. THE LEARNED AR FOR THE ASSESSE, ON THE OTHER HAN D, STRONGLY SUPPORTING THE ORDER OF THE LEARNED CIT(A) SUBMITTE D THAT THE CASE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH M OVERS LTD. VS.CIT (SUPRA), WHERE IT WAS HELD THAT IF A BUSINES S LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUC TION SHOULD BE ALLOWED ALTHOUGH LIABILITY MAY HAVE TO BE QUANTIFIE D AND DISCHARGED AT FUTURE DATE. IN THIS CASE, LIABILITY HAS CERTAIN LY ARISEN FOR THE IMPUGNED ASSESSMENT YEARS BECAUSE WAGE ARREARS HAS TO BE PAID FOR THE SERVICES RENDERED BY THE EMPLOYEES, AS PER TERMS OF APPOINTMENT/ EMPLOYMENT AND THEREFORE, LIABILITY T O COMPENSATE THE SERVICES ALREADY RENDERED BY WAY OF RESOURCE WAS VERY MUCH EXISTING LIABILITY AND WAS NOT A CONTINGENT, EVEN THOUGH THE SAME WAS NOT FINALIZED DURING THE RELEVANT ASSESSMENT YE ARS. 9. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIE S BELOW ALONG 13 ITA NOS. 79 & 80/CHNY/2020 WITH CASE LAWS CITED BY BOTH PARTIES. THERE IS NO D ISPUTE WITH REGARD TO THE FACT THAT THERE WAS NEGOTIATIONS BETWEEN THE ASSESSEE BANK AND EMPLOYEES UNIONS FOR WAGE REVISION ON THE BASIS OF RECOMMENDATION OF 6 TH PAY COMMISSION OF STATE GOVERNMENT W.E.F. 01.01.2006. IT IS ALSO NOT IN DISPUTE THAT THE STAT E GOVERNMENT HAS CONSTITUTED A COMMITTEE TO EXAMINE THE DEMANDS OF E MPLOYEES UNION AND ACCORDINGLY, A COMMITTEE HAS BEEN CONSTI TUTED UNDER THE LEADERSHIP OF REGISTRAR OF CO-OPERATIVE SOCIETIES, GOVERNMENT OF TAMIL NADU. FURTHER, AFTER NEGOTIATIONS AND DELIBE RATIONS WITH EMPLOYEES UNION, A SETTLEMENT HAD BEEN REACHED, AS PER WHICH THE ASSESSEE BANK AND EMPLOYEES UNIONS HAVE AGREED TO R EVISE THE WAGES W.E.F 01.01.2006, BUT MONETARY BENEFIT ARISI NG OUT OF REVISION SHALL BE W.E.F 01.01.2007. BASED ON THE ABOVE INP UTS, THE ASSESSEE HAS ANTICIPATED LIABILITY IN RESPECT OF WA GE ARREARS TO ITS EMPLOYEES FOR THE IMPUGNED ASSESSMENT YEARS AND AC CORDINGLY ON THE BASIS OF CERTAIN DEGREE OF ESTIMATION PROVISION WAS MADE FOR WAGE ARREARS IN THE BOOKS OF ACCOUNT, ALTHOUGH THE SAID LIABILITY HAS BEEN FINALLY QUANTIFIED AND PAID IN SUBSEQUENT FINA NCIAL YEARS. IN THE LIGHT OF THE ABOVE FACTUAL BACKGROUND AND ON EXAMIN ING THE CONTENTION OF THE ASSESSING OFFICER THAT THE SAID L IABILITY IS CONTINGENT LIABILITY, WE FIND THAT THE FINDINGS OF THE ASSESSI NG OFFICER APPEARS TO 14 ITA NOS. 79 & 80/CHNY/2020 BE MISPLACED BOTH FACTS AND IN LAW BECAUSE LIABILI TY OF WAGE ARREARS IS A REAL ONE FOR THE SERVICES WHICH HAVE ALREADY BEEN RENDERED AND THEREFORE, WAS DEFINITELY IN THE NATURE OF ARREAR S FOR SUCH UNPAID SALARY AND HAD DEFINITELY ARISEN AND THEREFORE, IN FACT, IT HAD A PRESENT OBLIGATION AS A RESULT OF PAST EVENTS OF THE WORKS OR SERVICES ALREADY CARRIED OUT BY THE EMPLOYEES ENTAI LING AN OUTFLOW OF RESOURCES TO SETTLE SUCH OBLIGATION AS PER CONTRACT UAL AGREEMENT BETWEEN EMPLOYEES AND MANAGEMENT. NO DOUBT, THE LIA BILITY MAY NOT HAVE BEEN QUANTIFIED AND PAID IN THE IMPUGNED A SSESSMENT YEARS, BUT CERTAINLY LIABILITY HAS BEEN ESTIMATED ON REASONABLE DEGREE OF ESTIMATION BASED ON PAST EVENTS AND HE NCE, THE SAME CANNOT BE CONSIDERED AS UNASCERTAINED LIABILITY. FURTHER, LIABILITY FOR WAGES HAD ACCRUED ON THE DATE OF BALANCE SHEET F OR SERVICES ALREADY RENDERED HAS TO BE PAID AS PER TERMS OF APPOINTMENT/EMPLOYMENT AND THEREFORE, LIABILITY TO COMPENSATE THE EMPLOYEES FOR THE SERVICES ALREADY RENDERED WAS VERY MUCH EXISTING LIABILITY AND WAS NOT CONTINGENT ON THE HAPPENING OF ANY FUTURE EVENT OR AGREEMENT, BUT ON THE RESULT OF PAS T EVENTS/WORKS ALREADY RENDERED. THIS VIEW IS SUPPORTED BY THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH M OVERS LTD. VS.CIT (SUPRA), WHERE THE HONBLE COURT HELD THAT IF A BUSINESS 15 ITA NOS. 79 & 80/CHNY/2020 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 AND WHAT SHOULD BE CERTAIN IS INCURRING OF LIABILITY AND IT SHOULD ALSO BE CAPABL E OF BEING ESTIMATED WITH REASONABLE CERTAINTY, THOUGH THE ACTUAL QUANTI FICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED, THE LIABILITY COULD NOT BE CONTINGENT ONE WHICH IS PRESENT THOUGH TO BE DISCHARGED AT FUTURE DATE AND IT DOES NOT MAKE ANY DIFFERENCE I N FUTURE DATE ON WHICH LIABILITY SHALL HAVE TO BE DISCHARGED . 10. IN THIS CASE, ON PERUSAL OF FACTS, WE FIND THA T THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT WAGE ARREARS NEEDS TO BE PAID TO THE EMPLOYEES FOR THE SERVICES ALREADY RENDERED FOR TH E IMPUGNED ASSESSMENT YEARS. IT IS ALSO NOT IN DISPUTE THAT NE GOTIATIONS BETWEEN THE ASSESSEE BANK AND EMPLOYEES UNION WERE GOING ON AT THE TIME OF MAKING PROVISION FOR LIABILITY ON THE BASIS OF RECOMMENDATION OF 6 TH PAY COMMISSION OF STATE GOVERNMENT. THE ASSESSEE BANK HAD ALSO MADE PROVISION WITH CERTAIN DEGREE OF ESTIMAT ION, ALTHOUGH THE SAME IS NOT QUANTIFIED WITH ACCURACY. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT LIABILITY HAS BEEN PROVIDED I N BOOKS OF ACCOUNTS WHEN IT WAS ACCRUED FOR THE IMPUGNED ASSES SMENT YEARS 16 ITA NOS. 79 & 80/CHNY/2020 FOR THE SERVICES RENDERED AND HENCE THE SAME CA NNOT BE CONSIDERED AS CONTINGENT IN NATURE OR UNASCERTAI NED LIABILITY, MERELY FOR THE REASON THAT THE SAID LIABILITY WAS Q UANTIFIED AND PAID IN SUBSEQUENT FINANCIAL YEARS. THE LEARNED CIT(A) AFT ER CONSIDERING THE RELEVANT FACTS HAS RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCE OF PROVISI ON FOR WAGE ARREARS. WE DO NOT FIND ANY ERROR OR INFIRMITY IN T HE ORDER OF THE LEARNED CIT(A) AND HENCE, WE INCLINE TO UPHOLD THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE APPEAL FILED BY TH E REVENUE FOR BOTH THE ASSESSMENT YEARS. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE FOR BOTH THE ASSESSMENT YEARS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH DECEMBER, 2020 SD/- SD/- ( . ) ( . ) (V.DURGA RAO) (G.MANJUNATHA ) ! $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ! /CHENNAI, ' /DATED 9 TH DECEMBER, 2020 DS )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. * 1 /DR 6. /GF .