TaxTMI 
TaxTMI 
2018 (1) TMI 904
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....e question of law sought to be urged by the assessee is that the ITAT was correct in remitting the issues with respect to the claim for accrued for ascertain liability of interest on overdue deposits claimed by it. 4. The assessee - a scheduled bank had in its return claimed an ascertained liability of Rs. 17 crores towards the interest on overdue deposits. The AO was of the opinion that the liability was not in present time and had not crystallized or arisen and therefore, had to be disallowed. The CIT(A) allowed the appeal filed in the light of the previous year's observations which are extracted below : "5.5.4 There is no dispute that interest is liable to be paid by the appellant to the depositors on these time deposits. Therefore, it is clear that above liabilities are definite liabilities. The appellant submitted that it has accounted for interest on overdue deposits at the rate of savings bank deposits and the balance overdue interest is accounted for at the time of renewal as per the RBI Circular. Therefore, it is clear that the above liabilities at the rate of savings bank deposits are ascertained liabilities crystallized during the relevant previous year as on the clos....
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....ture was unascertained and the liability, uncrystalized. The ITAT without recording its own conclusions on this aspect, remitted the matter to the AO. The assessee is therefore, aggrieved. 6. The assessee relies upon the decision of the Supreme Court in Bharat Earth Movers Ltd. Vs CIT, (2000) 245 ITR 428 (SC); Calcutta Co. Ltd. Vs CIT (1959) 37 ITR 1; and, Kedarnath Jute Mfg. Co. Ltd Vs Addl. Commissioner Of Income Tax,(1971) 82 ITR 363. It is submitted that an identical question was urged and the assessee's contention accepted by this court in Aggarwal and Modi Enterprise (Cinema Project) Co. (P) Ltd. Vs. CIT, (2016) 381 ITR 469 (Del.). 7. Ms. Vibhooti Malhotra, learned counsel for Revenue urges that order impugned is merely one of remission and in no case, acts prejudicially against the appellant. It is argued that besides circumstances that the assessee is aware of the likely liability and is able to crystallize, it per se would not mean that it is an ascertained one having regard to the fact that further payments would have to be made and the likelihood of the depositors renewing fixed deposits. 8. This Court is of the opinion that the questions urged in this case, need to b....
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....ed expenditure towards development of plots purchased by it even before actually incurring the expenditure. This was not a statutory liability but a contractual one. The Assessee in that case was a developer dealing in land and property. The Supreme Court noted that the relevant clauses of the sale deed spelt out the undertaking of the Assessee "to carry out the developments 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 MANU/SC/0038/1953 : (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 ha....
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....ofits" in relation to any trade or business. Unless and until you have ascertained that there is such a balance, nothing exists to which the name 'profits' can properly be applied." 43. In Bharat Earth Movers v. Commission of Income Tax (supra), the Supreme Court had an occasion to explain the distinction between accrued and contingent liability. There 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 Ass....
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....at the provision made by the Assessee for meeting its liability under the leave encashment scheme would entitle it to deduction since it was not a contingent liability. 46. The above dictum was followed by this Court in R.C. Gupta v. Commissioner of Income Tax (supra). In that case the AO on scrutiny of the Assessee's trading account noticed that 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 A.Y. 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 w....