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2005 (7) TMI 303 - AT - Income TaxBusiness Expenditure - Wages and salaries - Allowability of Ad hoc Provision made towards Wages Revision in respect of employees covered under IDA pattern of pay scale - HELD THAT:- In the present case, the right to receive compensation for the services rendered by the employees arise out of the contract of employment. The contract of employment in the instant case is not in dispute. What is in dispute is quantification of compensation. In this case the charter of demands by the employees covered under IDA scheme of salary was available as early as 1-1-1997. For these employees the revised wages/salary was to be given with effect from 1-1-1997. Thus, it can be said that the appellant was reasonably certain of its increased liability on this account. As the Personnel Department of the appellant had knowledge of dealing with such Pay hikes in the past, the assessee could estimate the quantum of such enhanced liability. The liability was certain. What was not certain is the quantum of such liability. Also, the entries taken in the books of account towards provision of enhanced salary/wages cannot be said to be unilateral entry made by the appellant. The appellant accepted its liability to the extent provision was made in the books of account based on the demands from its employees. It may also be noted that the accounting standards were also made part of the Act. Taking into account principle of prudence and the definition of accrual as given therein, as also the principle of real income, we are of the opinion that in the facts of the present case, the provision made towards additional liability on account of enhanced wages and salary are allowable in the year of making such provision. In this view of the matter, this ground of the assessee is allowed. In the result, the appeals of the assessee are partly allowed.
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