Retrenchment compensation liability upheld as a real accrued obligation, so the tax addition was deleted.

Retrenchment compensation and related labour benefits recorded as an outstanding liability were treated as a real accrual-based obligation, supported by ledger accounts, muster rolls, worker-wise details and partial payments made when funds were received from the principal contractor. The material showed a continuing liability arising from retrenchment of labour rather than a fictitious or merely contingent claim, and the liability had not ceased to exist on the facts found by the first appellate authority. The addition was therefore not warranted and its deletion was upheld in favour of the assessee.

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Issues: Whether the deletion of the addition made on account of retrenchment compensation and other benefits shown as outstanding liability was justified.

Analysis: The liability was supported by ledger accounts, muster roll particulars, worker-wise details, and evidence showing that the compensation was accounted for on accrual basis and paid in part as and when funds were received from the principal contractor. The material on record showed a continuing liability arising from retrenchment of labour and not a fictitious or contingent claim. Since the liability had not ceased to exist, no addition was warranted on the facts found by the first appellate authority.

Conclusion: The deletion of the addition was upheld and the issue was decided in favour of the assessee.

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