TaxTMI 
TaxTMI 
2016 (11) TMI 1612
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....ssment order passed by the Assessing Officer was erroneous in so far as prejudicial to the interests of the revenue? (ii) Whether on the facts and in the circumstances of the case, the order passed by the Ld. Income Tax Appellate Tribunal was right in law in allowing the appeal of the Respondent-Assessee on the issue on account of revision of pay scales as prior period expenses and not allowable under Section 37 of the Income Tax Act, 1961? (iii) Whether on the facts and in the circumstances of the case, the order passed by the Ld. Income Tax Appellate Tribunal was right in law in allowing the appeal of the Respondent-Assessee on the issue on account of Misc. expenses of Rs. 50,16,675/- being capital in nature? (iv) Whether on the facts and in the circumstances of the case, the order passed by the Ld. Income Tax Appellate Tribunal was perverse in nature and against law as it grossly overlooked the material evidence/information on record? (v) Whether on the facts and in the circumstances of the case, the Ld. Income Tax Appellate Tribunal was right in law in partly accepting the order passed by the Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961 a....
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....section 167B of the Act. The assessee was treated as an AOP. We are concerned in this appeal only with regard to the first two items, namely, the provision of revision of pay scales and the unabsorbed overhead on capital work under miscellaneous expense as the department had succeeded on a demurer in respect of the other two claims. 5. Accordingly, a notice dated 12.01.2014 was served upon the assessee calling upon it to show cause why the assessment order be not set aside/cancelled under section 263 and the Assessing Officer be not directed to make a fresh assessment. In view of the above observations, an order dated 06.03.2014 was passed by the CIT under section 263(1). 6. The Assessing Officer thereafter passed a fresh assessment order dated 23.03.2015 under section 143(3) read with section 263. As regards the provision for revision of pay scales, the Assessing Officer allowed only 40% in the year in question. The expenditure of about Rs. 50 lacs on construction, repair and maintenance of ware-houses claimed at 14% of the project cost was held to be capital expenditure in nature and was, therefore, added back to the returned income. As we mentioned earlier, by the im....
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....0 to 36 is deductible provided it is incurred during the previous year and is not in the nature of personal or capital expenses and is incurred wholly and exclusively for business purposes. Thus far the order only records the facts. What follows is important. The CIT expressly held that in view of this omission, the income was under assessed to the extent of about Rs. 12.88 crores and that the Assessing Officer had been negligent in not making proper enquiries and in not examining the expenses claimed by the assessee. The doubt, if any, that the CIT had decided the matter on merits is set at rest by the following observations:- "The claim of the assessee has been considered and noted that the as per the copy of minutes of meeting dated 25.03.2009 of the Board Directors furnished by the assessee, the revision of pay scale of Haryana Warehousing Corporation has been approved vide agenda item No.26 in which it has been proposed to adopt Finance Department Letter No.1/83/2008/1PR (FD) dated 7/1/2009 for revision of pay scales of the employees of Haryana Warehousing Corporation w.e.f. 1.1.2006. As per the Govt. Policy 40% arrear will be given in the current financial year and 60% in ....
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....eed bound to consider the issues on merits. Re: Question (ii): 12. The Haryana State had notified the revision of pay scales of its employees with effect from 01.01.2006. This was probably in view of the sixth pay commission. The Financial Commissioner & Principal Secretary to Government Haryana, Finance Department, addressed a letter dated 07.01.2009 to this Court, all heads of departments in Haryana, all Divisional Commissioners in Haryana, all Deputy Commissioners in Haryana and all Sub Divisional Officers (Civil) in Haryana. The letter, though not specifically addressed to the assessee, appears to have been forwarded to the assessee as well. The subject of the letter was "Revised pay package formulation and implementation thereof-Documents regarding". The letter forwarded certain documents for information and action. The letter required action to be taken in the light of the rules and notifications referred to therein immediately to ensure payment of salary to government servants who had elected to be governed by the said rules. Paragraph 4 of the letter reads as under:- "4. The undersigned is further directed to impress upon you that the arrears should be drawn in two....
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....the extent of 40% in the assessment year 2009-10 and to the extent of 60% in the following assessment year 2010-11. This required an interpretation of the decision of the assessee's Board of Directors dated 25.03.2009. The CIT, in the order under section 263, held that the assessee should have made provision to the extent of only 40% in the current financial year i.e. 2008-09 corresponding to assessment year 2009-10. 15. In our view, however, the Tribunal rightly held that the entire liability was incurred in the assessment year in question; had been estimated with reasonable certainty and that it was not a contingent liability. The assessee was, however, liable to discharge a part of that liability at a future date. What is relevant is when the assessee's decision that the amount was payable was taken. The provision for the payment of the salary including arrears was not a contingent liability. It arose on account of the sixth pay commission which was approved by the Haryana Government and adopted by the assessee. We are in agreement with this finding of the Tribunal. 16. The concluding part of the Minutes adopted the letter dated 07.01.2009. The Minutes also referred to the....
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.... down by this Court, the relevant of which for our purpose are extracted and reproduced as under: (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 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 fulfillment 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 deduct not only the payments actually made to his employees but also the present value of any payments in respect of their services in that year to be....