TaxTMI 
TaxTMI 
2015 (4) TMI 478
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.... job-work and transportation. The assessee made a provision for contingency amounting to Rs. 87,224/- on total amount of Rs. 13,40,070/- of work executed @ 6 ½ % . It was contended on behalf of the assessee that the work of dam at Right Bank Dam Division, Hidkal Dam had not been completed and therefore, a provision was made only on the supplies. However, the Assessing Officer (for short, 'AO') was of the view that the said amount is nothing but a provision made for future contingency not ascertained and accordingly held that the said amount, relatable to the subsequent year, cannot be allowed and thus disallowed the said amount. 3. The disallowance was assailed by the assessee before the Commissioner of Income Tax (Appeals), [for short, 'CIT(A)']. The CIT(A), who in view of an order of the ITAT in the case of Instrumentation Limited, allowed the claim. 4. The revenue preferred an appeal before the ITAT and it was argued on behalf of the revenue that the facts in the case of Instrumentation Limited vis-a-vis the present assessee are entirely distinguishable and thus the order of the ITAT in the case of M/s Instrumentation Limited cannot be applie....
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....laim when the reference was sought by this Court in Reference Application no.170 of 1982 and the ITAT was aware of the order of this Court and further that in DB Income Tax Reference No.30/1995 and DB Income Tax Reference No.87/1995, this very question was forwarded by the ITAT for decision of this Court. Thus he contended that the question has not yet been decided. 6. He further contended that it is merely a contingent liability without any assessment or quantification of a future liability and has been created only on estimated basis @ 6 ½ % amounting to .Rs.87,224/-. He contended that by no stretch of imagination, the assessee could have estimated the liability @ 6 ½ % and thus, the assessee was not sure of any ascertained liability. He relied upon judgment of Hon'ble Apex Court in the case of Shri Sajjan Mills Ltd. Vs. CIT: (1985) 156 ITR 585 (SC); India Molasses Co. Ltd. Vs. CIT: (1959) 37 ITR 66 (SC) and judgment of this Court in the case of Rajasthan State Mines & Minerals Ltd. Vs. CIT: (1994) 208 ITR 1010 (Raj). While relying upon the said judgments, he contended that the Hon'ble Apex Court, in the cases (supra) has held that contingent liability do n....
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....ajjan Mills Ltd. (supra) and India Molasses Co. Ltd. (supra). The Hon'ble Apex Court, after considering the judgment rendered in the case of Metal Box Company of India Ltd. Vs. Their Workmen: (1969) 73 ITR 53 (SC) culled out following principles for a claim like this:- "(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 permissible only in case of amounts actually expended or paid; (ii) Just as receipts, though not actual receipts but accrued due are brought in for the 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 fulfilment 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; and (iv) A trader computing his taxable profits for a particular year may properly de....
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...., the case of Metal Box Company of India Ltd. (supra) pertained to an army of employees who were due to retire in future. In that case the company had estimated its liability under two gratuity schemes and the amount of liability was deducted from the gross receipts in the profit and loss account. The company had worked out its estimated liability on actuarial valuation. It had made provision for such liability spread over to a number of years. In such a case it was held by this Court that the provision made by the assessee-company for meeting the liability incurred by it under the gratuity scheme would be entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The same principle is laid down in the judgment of this Court in the case of Bharat Earth Movers (supra). In that case the assessee-company had formulated leave encashment scheme. It was held, following the judgment in Metal Box Company of India Ltd.'s case (supra), that the provision made by the assessee for meeting the liability incurred under leave encashment scheme proportionate with the entitlement earned by the employees, was entitled to deductio....