TaxTMI 
TaxTMI 
2026 (1) TMI 1117
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..../- was made by disallowing the provision created towards salary on account of the expected increase in annual personnel cost arising from the implementation of the Sixth Pay Commission. Aggrieved by the said addition, the assessee preferred an appeal before the Ld. CIT(A). However, the Ld. CIT(A) rejected the assessee's appeal. 3. Thereafter, the assessee filed an appeal before the ITAT, Mumbai Bench, and the Tribunal, vide its order dated 06.04.2015, restored the matter to the file of the Ld. AO for verification of the said expenditure. During the reassessment proceedings, the assessee reiterated the same submissions and contended that the provision of Rs. 2,00,00,000/- was made on the basis of the expected increase in annual personnel cost consequent to the implementation of the Sixth Pay Commission. It was submitted that the assessee had computed the said provision by relying on the pattern and calculations of earlier years. The provision was created to account for an ascertained liability towards the anticipated increase in salaries pursuant to the recommendations of the Sixth Pay Commission. However, the Ld. CIT(A) once again rejected the assessee's appeal. Being aggrieved,....
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....essee is binding to implement the Sixth Pay Commission and accordingly revise the pay scale which will be applicable for the assessee. The assessee has submitted the list of employees and calculation the revised salary is duly enclosed in APB page 43 to 63. 7. The Ld. AR respectfully relied on the order of Hon'ble Delhi High Court which is squarely applicable in the assessee's case, CIT vs. Bharat Heavy Electricals Ltd. reported in 352 ITR 88 (Del.) the relevant paragraph 7 to 9 is reproduced as below: "7. In Bharat Earth Movers (supra) (decided by the Supreme Court), the question which the court had to consider was whether the provision for meeting earned-leave-encashment by the employee was an admissible deduction in the hands of the employer. The court reiterated and applied its previous decision in Metal Box case (supra) and held as follows (page 431 of 245 ITR): "If a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantify and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being esti-mated with rea....
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....As the assessee is a PSU, the pay revision depends upon the decision of the Government. As the personnel department of the assessee had knowledge of dealing with such pay hikes in the past, the assessee can estimate the quantum of such enhanced liability. The liability was certain and it was just a matter of time when it would arise. What was not certain is the quantum of pay hike. Assessee took the most prudent decision of making provision of salaries at Rs. 40.71 lakhs. It is also seen that what was provided by the assessee is only 40 per cent of the actual pay hike proposed by the DPE. It is also to be seen that the contract with the employees expired on 31st Dec., 1996 and the assessee has made a provision only for the period of January to March, 1998. The Revenue authorities have disallowed the claim only on the basis that the commission submitted its report in June, 1999. In our considerate view. what is important is not the date of signing the agreement nor the date of approval granted by the DPE, what is important is the effective date of commencement and on that note we find that the liability is accrued during the year under consideration. It is also to be noted that the ....
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....evant extract of the assessment order is hereunder "3.5 Further, the 6th pay commission was constituted on 24.03.2008 and revision in pay scale was effective from 1 January 2006 and the relevant financial year under consideration for which provision was made pertains to 01.04.2006 to 31.03.2007. The 6th pay commission was made effective from 01.01.2006 the relevant previous year under consideration falls within the dates when 6th CPC. But here the assessee is not a central government body it is a state government holding company and its pay scale is governed by the State of Maharastra which generally follows the revision in pay scale of the CPC. But till the time the revised pay of CPC is not sanctioned through notification, the revised pay do not come into existence for the assessee company. Here in this case the 6th CPC was effective from 01.01.2006 and was constituted on 24.03.2008,but the recommendation of the 6 CPC was sanctioned by the State of Maharashtra on 31.01.2011 vide Government of Maharashtra Resolution No HFN 2009/CR 169/09/Pharma- 01 dated 31.01.2011 and 31.01.2011 pertains to previous year 2010-11. The same has been followed in the 5th CPC, which was sanct....