TaxTMI 
TaxTMI 
2017 (8) TMI 734
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....04-05, and 2009-10. In the appeals by the Revenue, cross-objections (C.O.) have been filed by the Assessee, i.e. Shri Jagdish Prasad Gupta, the proprietor of Pradeep Oil Corporation. 2. By an order dated 12th December, 2012, this Court had directed that the ITA No. 711 of 2011 pertaining to AY 1997-98 should be treated as the lead case. There is a common order of the ITAT dated 31st July, 2009 in the appeals filed by the Revenue for AYs 1997-98 to 2002-03. The Revenue's appeals for these AYs are ITA Nos. 711/2011, 787/2011, 936/2011, 934/2011, 933/2011 and 935/2011 respectively. For AY 2003-04, no appeal was filed by the Revenue. As regards AY 2004-05, the Revenue has filed ITA No. 1535/2010 and the Assessee has filed ITA No. 695/2010 against the order of the ITAT dated 22nd January, 2010. There is another appeal, being ITA No. 424/2016, filed by the Revenue against the order dated 1st February, 2016 passed by the ITAT for AY 2009-10. The details in a tabular form of the relevant AY and the corresponding C.O./appeal by the Assessee and appeal by the Revenue are as under: AY Assessee's C.O. (CM) and Appeal Revenue's ITA No. 1997-98 CM 6768/2012 711/2011 19....
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....nd. 6. On 23rd March 1988, the Northern Railway further enhanced the licence fee to Rs. 15.60 per sq.ft. i.e. Rs. 14,14,130 p.a. The Northern Railway further terminated the licence for use of the land on the ground that the Assessee had failed to deposit the licence fees. It directed the Assessee to remove the unauthorised structure erected on the Railway land and deliver vacant possession of the land to the Assistant Engineer, Northern Railway, Delhi. The letter stipulated that, upon failing to vacate the land within the stipulated time, action under the Public Premises (Eviction of Unauthorised Persons) Act, 1971 ('PP Act') would be initiated apart from recovering damages at Rs. 14,14,130/- p.a. up to the date of vacation of the land. The letter further noted that the outstanding balance up to 31st March, 1986 stood at Rs. 18,11,036/- whilst Rs. 14,14,130/- was due as licence fee for the period from 1st April, 1986 to 31st March, 1988. Proceedings before the Estate Officer 7. The Northern Railway applied to the Estate Officer (EO) under the PP Act praying for eviction of the Assessee from the land in question. The said application was disposed of by the EO by an order da....
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....ncees." Proceedings in this Court 9. An appeal against the above order was filed by the Northern Railway before the Additional District Judge (ADJ) which ultimately came to be dismissed on 18th December 2007 on the ground of maintainability. The writ petition filed by the Northern Railway in this Court challenging the above order, being W.P. (C) No. 8071 of 2008, was dismissed by a learned Single Judge on 25th November 2010. However, liberty was granted to the Northern Railway to initiate fresh proceedings against the assessee in accordance with law. 10. This was followed by the Northern Railway terminating the licence agreements by a letter dated 27th December 2010. The Assessee states that the Northern Railway thereafter demolished the installations, tanks warehouse etc. on 6th July 2011 and took forcible possession of the lands in question thereby causing huge losses to the Assessee. After the dismissal by this Court of the Assessee's writ petition challenging the above action and consequent appeal, the Assessee filed a SLP in the Supreme Court. The Assessee also filed a petition under Section 11 (6) of the Arbitration and Conciliation Act 1996 in this Court seeking....
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....he AYs i.e. AYs 1989-90, 1990-91 and 1993-94, the deduction was allowed after scrutiny under Section 143 (3) of the Act. For AYs 1995-96 to 1999-2000, the Assessee claimed deduction of Rs. 35,37,300/-p.a. as licence fee. In fact, for AY 1995-96 the Assessee also claimed, as a deduction, arrears of Rs. 1,63,83,337/- for the period from 1st April, 1984 to 31st March, 1994 after reducing the amount already claimed in those years. The AO, however, allowed the claim only the extent of Rs. 20,78,600/-. 15. In appeal, the Commissioner of Income Tax (Appeals) ['CIT(A)'], for AY 1995-96, allowed Rs. 14,58,497/- as licence fee and the arrears of Rs. 1,63,83,337/-. In a further appeal by the Assessee, the ITAT by order dated 22nd November 2004, allowed Rs. 14,58,497/- for the AY 1995-96 and directed the arrears to be allowed in the sum of Rs. 95,60,650/- in AYs 1987-88 to 1994-95 and Rs. 68,22,900/- in AY 1996-97. This order of the ITAT, for AY 1995-96, was given appeal effect by the AO by an order dated 22nd August, 2006. As a result, thereof, Rs. 11,95,055/- was allowed to be claimed as arrears for AYs 1987-88 to 1995-96 and Rs. 68,22,900 was allowed for AY 1996-97. 16. For AYs 1996-9....
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....e has been construed to be an accrued liability and, therefore, allowable as an expenditure in the year of accrual. Unfortunately, the Tribunal has not returned any finding on this aspect of the matter. 2. Consequently, we feel that the impugned order requires to be set aside and the matters to be remanded to the Tribunal for a consideration on this aspect of the matter. According to the learned counsel for the appellant / assessee the matter stood concluded by virtue of the decision of the Tribunal in respect of the assessment year 1995-1996 and, therefore, there was no occasion for re-entering into the dispute of whether the licence fee payable was a contingent liability or an accrued liability. The learned counsel for the appellant/ assessee submits that the Tribunal ought to have followed its decision in respect of the assessment year 1995-1996 particularly when no appeal therefrom had been preferred by the revenue and the issue had become final. 3. Mr Jolly, who appears on behalf of the revenue, submits that he does not have any instructions whether any appeal has been preferred from the order of the Tribunal pertaining to the assessment year 19951996. In any event, sinc....
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....ous notices from the Northern Railway and to avoid controversy, he claimed licence fee as per subsequent notices in AYs 2006-07 onwards. 24. For AY 2004-05, the CIT (A) allowed the claim of Rs. 35,37,300 made by the Assessee. As for the claim of Rs. 2,82,03,985/- made by the Assessee towards arrears, the CIT(A) rejected this claim on the basis that the claim only arose on 14th September, 2006, when the demand notice was issued by the Northern Railway. Thus the liability in that regard had not crystallized in the AY in question. After this order was confirmed by the ITAT, both the Revenue and the Assessee filed ITA Nos. 1535/2010 and 695/2010 respectively in this Court. 25. For AY 2009-10, the Assessee made a revised claim of Rs. 2,77,27,252/- as deduction in terms of the demand by the Northern Railway. The AO allowed only Rs. 1,05,570 as deduction towards licence fee. In appeal, the CIT (A) allowed the entire amount as claimed and this was upheld by the ITAT by the order dated 1st February, 2016, following its order dated 31st July 2009 for the earlier AYs. Aggrieved by this order the Revenue has filed ITA No. 424/2016. Questions of law 26. The central question in all t....
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....e Revenue's appeal: "Whether the order dated 31st July, 2009 of the Income Tax Appellate Tribunal is in conformity with and decides all aspects/issues remitted to them vide order dated 11th December, 2008 passed by the High Court and whether the tribunal was right in holding that the licence fee is an accrued liability?" 6. The above question is in fact in two parts and can be re-cast as under: (i) Whether the order dated 31st July 2009 is in conformity with and decides all aspects/issues remitted to them vide order dated 11th December, 2008 passed by the High Court (ii) Whether the ITAT was right in treating the licence fee as an accrued liability? 7. As far as, question (i) above is concerned, a further question that would arise is: what should be the consequence, if the said question is answered in the negative i.e., if the Court holds that the ITAT's impugned order dated 31st July 2009 does not decide all the aspects/issues remitted to it by the order 11th December 2008 passed by this Court? 8. One obvious answer is that the matters would then have to be remanded to the ITAT to decide the issue that has been omitted to be decided viz.,....
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....5 of 2011. Both these appeals are, as already noted, directed against the common order dated 22nd January 2010 of the ITAT by which, both the Revenue's appeal as well as the Assessee's cross-objection against an order dated 5th February 2008 of the CIT (A) were dismissed. The CIT (A) had set aside the AO's order permitting a deduction of only Rs. 1,05, 570 towards licence fee and allowed a deduction of Rs. 35,37,300. The CIT (A) also rejected the Assessee's enhanced claim of deduction of Rs. 2,82,03,985 by holding that since the notice of the Northern Railway making that demand was served on the Assessee only on 14th September 2006 the liability had not crystallised during the AY in question i.e. 2004-05. 30. Although in ITA 695 of 2010 this Court had by an order dated 11th January 2012 framed a question, the question is required to be re-framed for both ITA 695 of 2010 and 1535 of 2011 as under: "Was the ITAT right in upholding the CIT (A) 's order whereby the deduction of Rs. 35,37,300 towards licence fee was allowed?" 31. ITA No. 424/2016, filed by the Revenue is against the order dated 1st February, 2016 passed by the ITAT for AY 2009-10. Whil....
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....75 (SC); Shree Sajjan Mills Ltd. v. Commissioner of Income Tax, M.P. [1985] 156 ITR 585 (SC); CIT v. Indian Smelting & Refinery Co. Ltd. [1998] 230 ITR 194 (Bom.) as affirmed in Indian Smelting & Refinery v. CIT [2001] 116 TAXMANN 606 (SC); Indian Molasses Co. (Private) Ltd. v. CIT [1959] 37 ITR 66 (SC); CIT v. Swadeshi Cotton & Flour Mills Pvt. Ltd. [1964] 53 ITR 134 (SC). (v) The demand for enhanced licence fees was raised on the Assessee by the Northern Railway on 20th January, 1999 which fell in the accounting year relevant to AY 1999-00. Although the Assessee could have claimed this additional amount, as he did in the return for AY 1995-96 after receiving the letter dated 25th July 1995, the Assessee, in fact, did not claim either the enhanced licence fee of Rs. 1,75,12,416/- for AY 1999-00 or further arrears of about Rs. 4.25 crore for earlier years. Instead, the Assessee only claimed Rs. 35,37,300/- for AY 1999-2000. Thus, the Assessee himself was not following a consistent policy of claiming licence fee. If indeed the claim was based on accrual basis with the Assessee following the mercantile system, the Assessee would hardly forfeit the right to claim the said enhanced ....
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....see, pointed out that the order of the ITAT for AY 1995-96 disallowed the claim for that AY but directed it to be allowed to the year to which it pertained. This order became final with the Revenue not preferring an appeal against it. Even in the past, similar claims of deduction as an accrued and ascertained liability had been allowed in AYs 1990-91 to 1994-95. The claim of Rs. 13,32,286/-, representing ascertained liability for AYs 1991-92 and 1993-94 had been allowed under Section 143(3) of the Act by orders dated 31st August, 1992 and 29th November, 1995 respectively. He submitted that, on the rule of consistency as explained in several decisions, the Revenue could not possibly deny the claim by terming it as a contingent liability. 34. Mr. Agarwal stressed that the Assessee was not denying its liability but only questioning the quantification of the enhanced licence fees. The Assessee was following the mercantile system. Therefore, the liability is not contingent but an accrued one. In support of his submissions, he placed reliance on, inter alia, the decisions in Aggarwal and Modi Enterprises (Cinema Project) Co. Pvt. Ltd. v. CIT (2016) 381 ITR 469 (Del) and Agya Ram v. CI....
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.... ITR 500 (SC). Mr. Aggarwal maintained that the impugned order dated 31st July 2009, of the ITAT, does not decide all the aspects remitted to it by the Court by the order dated 11th December, 2008. In particular, the validity of the reopening of the assessments under Section 147 of the Act was not examined. Accrued or contingent liability? 39. The Court proposes to first examine the central issue that arises in the present appeal viz., is the liability of the Assessee to pay enhanced licence fee an accrued or a contingent liability? 40. To begin with, it is necessary to examine the basic concepts of 'accrued liability' and 'contingent liability'. This Court, in Aggarwal and Modi Enterprises (Cinema Project) Co. Pvt. Ltd. v. CIT (supra), had occasion to examine, in depth, the said concept. Since the said decision does not appear to have been challenged further by the Revenue, the following passages in the said decision maybe usefully referred to for the purpose: "Ascertained or accrued liability 39. The question as to when a liability can be said to be ascertained one has arisen in the context of both a statutory liability and a contractual liability. An example of a ....
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....ts within six months from the date of the sale." It was noted that although the entire sale consideration was not received during the relevant AY, the Assessee had nevertheless entered it into the credit side of its books of accounts. Likewise it debited the estimated sum of expenditure towards development although "no part of that amount represented any expenditure actually made during that year." Explaining the mercantile system of accounting, the Court referred to an earlier decision in Keshav Mills Ltd. v. Commissioner of Income Tax, Bombay (1953) 23 ITR 230 (SC) in which it was described as under: "That system brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed." 41. The Supreme Court in Calcutta Co. Ltd. v. Commissioner of Income Tax, West Bengal (supra) proceeded to hold as under: "Inasmuch as the liability which had thus accrued during the accounting year was to be discharged at a future date the amount to be expended in the discharge of that liability would have to be estimated in orde....
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....re the Assessee Company had two sets of employees - one covered by the Employees State Insurance Scheme (described as 'staff') and the other not so covered (termed as 'officers'). The Assessee had floated beneficial schemes for its employees for encashment of leave in terms of which the officers were entitled to thirty days earned leave whereas the staff were entitled to eighteen days vacation leave. While the earned leave could be accumulated up to 240 days, the vacation leave could be accumulated up to 126 days. Either leave could be encashed subject to the ceiling on accumulation. There was an option to avail the accumulated leave or in lieu thereof to apply for encashment whereupon the staff or the officer concerned would be paid salary for the period of leave earned but not availed. A fund was created by the Assessee for meeting this liability and during the AY 1978-79, a sum of Rs. 62,25,483/- was set apart for the purpose of encashment of the leave. Although the ITAT held the Assessee to be entitled to claim the said sum as deduction, the High Court was of the view that it was not. The Supreme Court explained as under: "The law is settled: if a business liabi....
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....at a sum of Rs. 50,761/- stood debited to the raw material account. The Assessee explained that this was payable to Hindustan Steel Limited (HSL) for purchases made on 22nd October, 1975 but in respect of which the Assessee had disputed its liability. A suit for recovery had been filed by the HSL against the Assessee. The AO disallowed the claim on the ground that the amount did not relate to any purchases made during the previous year relevant to the AY in question. While the CIT(A) allowed the Assessee's appeal holding that the liability had accrued during the accounting year ending 31st March, 1979, the ITAT reversed the CIT(A). Allowing the Assessee's appeal this Court explained that the liability was capable of being estimated with reasonable certainty where a recovery suit was filed by HSL. "Merely because the liability was not a statutory one it could not be said that the liability that was not an ascertained one but a contingent one." 47. A conspectus of the above decisions reveals that whether a liability is ascertained or contingent is dependent on the facts of each case. Merely because a liability may be contractual or non-statutory would not make it incapable of bein....
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.... with the provisions of law and as per terms of agreement." 44. The order of the EO read in the correct perspective, requires the Northern Railway to follow the due process of law by giving a hearing to those adversely affected by the upward enhancement of liability before a decision is taken. Mr. Manchanda's characterisation of the said order, as negating the liability to pay the enhanced licence fee for all times to come does not flow on the above reading of the said order. On the other hand, it is more consistent with the plea of the Assessee that while he is not denying the liability to pay the licence fee he is only questioning the procedure involved in its revision which, according to him, is not in accordance with law. Consequently, the Court is also not able to agree with Mr. Manchanda that the Assessee has sought to mislead this Court by contending that he is not questioning the liability to pay licence fee but is only questioning the quantification or the quantum of the licence fee. 45. The facts of the present case are more or less similar to the facts in Aggarwal and Modi Enterprises (Cinema Project) Co. Pvt. Ltd. v. CIT (supra) where it was held that the f....
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....#39;. As rightly held by the CIT (A), and concurred with by the ITAT in its order dated 31st July 2009, the mere characterisation by the Northern Railway of the amount claimed by it from the Assessee as 'damages' will not, in the context of the present case, make it any less an accrued liability. It is an expenditure incurred by the Assessee corresponding to the income he derives from using the land for the purposes of his business. 49. The Court is also not able to agree that the ITAT made a grievous error, in the order passed by it on 22nd November 2004, regarding the claim for enhanced licence fee as a deduction being allowable not in AY 1995-96 but in AY 1996-97. The argument that the ITAT may have exceeded its jurisdiction done not hold since the Revenue has, apart from not challenging the said order, implemented it fully by the consequent appeal effect order. 50. Mr Manchanda is not right in contending that the said order dated 22nd November 2004 of the ITAT for AY 1995-96 is in favour of the Revenue. A careful reading of the said order in fact indicates to the contrary. The order dated 22nd July 2008 of the ITAT also does not help the Revenue any more since it ....
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...., therefore, no hesitation in coming to the conclusion that the assumption of jurisdiction under Section 147 of the Act seeking to reopen the assessment for the aforementioned AYs was not legally sustainable. Conclusions 56.1 The questions framed by the Court by its order dated 27th November, 2015 in ITA Nos. ITA Nos. 711/2011, 787/2011, 936/2011, 934/2011, and 935/2011 for AYs 1997-98 to 2000-01 and 2002-03 are answered thus: 56.2 Question (i) is answered in the negative by holding that the order dated 31st July 2009 of the ITAT is in not conformity with and does not and decide all the aspects/issues remitted to it by order dated 11th December 2008 passed by this Court. 56.3 Question (ii) is answered in the negative i.e. in favour of the Assessee and against the Revenue by holding that the assumption of jurisdiction under Section 147 of the Act for the AYs 1997-98 to 2000-01 and 2002-03 was not valid. 56.4 Question (iii) is answered in the affirmative i.e. in favour of the Assessee and against the Revenue by holding that the ITAT was right in holding the enhanced licence fee payable to the Northern Railway was an accrued liability. 56.5. The Revenue's appeals ITA....