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2016 (11) TMI 1612 - HC - Income TaxRevision u/s 263 by CIT - Revision of orders prejudicial to revenue - allowability of payment on revision of pay scales as prior period expenses u/s 37 - unabsorbed overhead on capital works under “Miscellaneous Expenses” - CIT decided these two claims on merits - AO had no option in light of direction of CIT - HELD THAT:- AO, decided the matter in accordance with the directions of the CIT as he was indeed bound to. CIT, therefore, decided these two claims on merits. Even the other issues were decided by the CIT on merits. However, they are not relevant for the reasons already stated. The Tribunal was, therefore, bound to consider the case on merits as well. We have come to the conclusion that the decision of the Tribunal on merits must be upheld. In view thereof, it was open to the Tribunal and it certainly is open to us to proceed on the basis that the proceedings under section 263 were valid. Once we proceed even on a demurer that the proceedings under section 263 are valid, we are entitled, indeed bound to consider the issues on merits. Allowability of payment on revision of pay scales as prior period expenses u/s 37 - when the liability to pay the arrears arose? - whether the liability to pay the entire arrears arose in the assessment year in question, namely, 2009-10 or whether the liability arose to the extent of 40% in the AY 2009-10 and to the extent of 60% in the following AY 2010-11? - HELD THAT:- 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. The liability, in the case before us, arose in the assessment year 2009-10. Sixty percent of it was liable to be discharged in the next assessment year. It is, undoubtedly, estimated with more than just reasonable certainty. The liability was, therefore, not a contingent one but one in praesenti. A part of it was to be discharged at a future date. The judgment supports the assessee’s case. - Decided in favour of assessee. Allowability of Misc. expenses - assessee has charged the administrative expenses incurred on construction staff at 14% to capital work and repair and maintenance as per accounting policy. The system was adopted from the PWD. The remaining expenses were charged to revenue expenditure as unabsorbed overhead on capital works under miscellaneous expenses in the profit and loss account - HELD THAT:- This was the first time that the Department had not accepted the assessee’s case. The Tribunal found on facts that the CIT (Appeals) had not pointed out any defect in the assessee’s accounting policy. This was disclosed in the return. It was not contended that the assessee had not disclosed the true and proper income. Thus, a substantial question of law in this regard does not arise. This question is, therefore, also answered against the Department/Revenue and in favour of the assessee. Perversity of Tribunal order - grossly overlooked the material evidence/information on record - HELD THAT:- It is apparent that the order of the Tribunal does not suffer from any perversity. Even on issue No.3, the Tribunal has taken a possible view. This question is, therefore, also answered in favour of the assessee
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