TMI Blog2005 (11) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 1991 to May, 1993. Clause X of the Agreement provided for arbitration. The arbitration award was made on 4-4-1997. The award was referred to the District Court of Jaipur who upheld the award in the month of December, 1999. The assessee-company moved a petition against the District Court order before the Rajasthan High Court which was pending at the time of completion of assessment order under section 143(3) on 18-12-2000. 3. During the course of assessment proceedings, the assessee argued that the liability claimed by the RSRTC was contingent and it accrued for the first time when the arbitration award was made on 4-4-1997. The assessee had, therefore, rightly claimed the deduction of a sum of Rs. 1.7 crores for assessment year 1998-99. Prior to arbitration award, it was a unilateral claim of RSRTC not accepted by the assessee. In support of these contentions, the assessee relied on the judgments in CIT v. Bharat Fire Bricks Pottery Works (P.) Ltd. [1993] 202 ITR 821 (Cal.); CIT v. Ratlam Strawboard (P.) Ltd. [1985] 152 ITR 425 (MP) and CIT v. Roberts Mclean Co. Ltd. [1978] 111 ITR 489 (Cal.). The ld. Assessing Officer held that the case law relied upon by the assessee sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the assessee relied upon the judgment of Hon'ble Supreme Court in the case of Central India Electric Supply Co. Ltd. v. CIT [2001] 247 ITR 54. According to the assessee, in that judgment, Hon'ble Supreme Court had held that where the arbitration was not with the intervention of the Court it might be contended that passing of the award itself made the amount due. Hence, as in the case of the assessee, the arbitrator was appointed on the terms of agreement without intervention of the Court, the liability arose on the date of passing of the award by the arbitrator. 5. The assessee argued before the ld. CIT(A) that another facet of the case was the relevance and applicability of use of "hindsight". Under this concept, relevant circumstances falling beyond the previous year but having taken place up to the date of the assessment order should be taken into account by the Assessing Officer while passing the assessment order. As per the judgment of the Hon'ble M.P. High Court in Trikam Lal v. CIT [1982] 134 ITR 450, certain amount of hindsight was not only logical but also permissible. In the case of the assessee, the arbitrator award dated 4-4-1997 was made the rule of the Court by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decisions in Dy. CIT v. Esquire Video Film Services (P.) Ltd. [2000] 74 ITD 57 (Bom.); Thermax Babcock Wilcox Ltd. v. Dy. CIT [2001] 79 ITD 63 (Pune) (TM) and Dy. CIT v. Aggarwal Modi Enterprises (Cinema Project) Co. P. Ltd. [2003] 86 ITD 214 (Delhi). The ld. DR also relied upon the judgment of Hon'ble Allahabad High Court in A.P.S. Cold Storage Ice Factory v. CIT [1979] 119 ITR 709. 8. The ld. Departmental Representative argued that the ld. CIT(A) had gone by her personal views and not by any settled legal principles. According to her, it would be reasonable and fair to say that the liability quantified and awarded by the arbitrator should be considered to have become due on 4-4-1997. She had not gone by any settled legal principle. In support of his contentions, the ld. DR referred to the judgments in Bharat Fire Bricks Pottery Works (P.) Ltd.'s case and Central India Electric Supply Co. Ltd.'s case. The ld. DR argued that in view of the judgment of Hon'ble Delhi High Court in Fazilka Electric Supply Co. Ltd. v. CIT [1983] 143 ITR 551, the liability did not accrue till the award was made the rule of the Court. 9. Shri G.N. Gupta, ld. counsel for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the Department is that till the date the assessment order was made by the Assessing Officer, the assessee had not admitted the liability and the assessee's petition against the order of District Judge before Hon'ble High Court was pending. 12. We would begin with the case law relied upon by the ld. counsel for the assessee. The assessee has heavily relied upon the judgments of Hon'ble Kerala High Court in the cases of Asuma Cashew Co. and Grand Cashew Corpn. The issue in those two cases was whether the assessee is entitled to claim deduction of expenditure in the year in which arbitrator's award was given even though the liability pertained to an earlier year. The Hon'ble Kerala High Court found that it was not a case where the quantum of damages alone was referred to the arbitrator, but it was a case where the very question as to whether the assessee was liable to pay damages was referred to arbitration. Therefore, the liability of the assessee to pay damages accrued only on the passing of the award by the arbitrator and not on the date of the breach of the contract. In the case of Grand Cashew Corpn., the Hon'ble Kerala High Court held that an enforceable liability would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to defend the assessment in his hands for assessment year 1970-71 on the ground that the award passed by the District Judge was the subject-matter of further litigation in appeal before the High Court. Hon'ble Supreme Court observed at page 62: "The fact that the judgment and the decree of the civil court passed on the award was pending consideration in appeal before the High Court is also not a good ground to contend that the price was not due till the litigation with regard to the award was over. We have no doubt that in law the money payable under a decree becomes due for payment on the date of passing of the decree and nonetheless it is so even if the decree is appealed against and there is likelihood of the decree being set aside, modified or confirmed in appeal." 15. The ld. DR has relied heavily on the decision of the Hon'ble Allahabad High Court and Delhi High Court in the cases of A.P.S. Cold Storages Ice Factory and Fazilka Electric Supply Co. Ltd. Relying on these two judgments, the ld. DR argued that an award of an arbitrator has no force or validity until it is made the rule of the Court. The ld. DR pointed out that, in the instant case, the arbitration award b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The amount was retained by way of provision for the low recovery of sugar. The assessee retained the amount at the rate of 2 annas per maund. Subsequently, it transpired that the assessee was entitled to retain by way of rebate a sum at the rate of anna 1 per maund only. The balance was actually paid. On these facts, Hon'ble High Court held that the assessee was entitled to claim deduction of the quantified amount alone since the liability was quantified during the pendency of the assessment proceedings. On consideration, we find that this judgment is not of much help to the assessee because it relates to the quantum of deduction and not the year of deduction. Secondly, the controversy of an award not having been made the rule of the Court is not present in that case. 18. The second decision relied upon by the ld. counsel for the assessee is Trikam Lal's case. In that case, the assessee was short supplied bales of cloth during the period 1-6-1944 to 31-8-1944. Subsequently, by a compromise the assessee received from the supplier a sum of Rs. 24,000 on 10-9-1962, in full and final settlement of the decretal amount. The assessee claimed that receipt pertained to the period 1944 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n filed in the Court is liable to be confirmed, remitted for reconsideration or set aside, under the provisions of the Act. Where the arbitration is not with the intervention of the Court, it may be contended that passing of the award itself makes the amount awarded due. The facts of this case, therefore, distinguish the case of Sheshappa Hegde [1984] 150 ITR 164 (Kar.), on which strong reliance has been placed by the assessee. In the instant case, the umpire, by his award resolved the dispute of difference of price and quantified the price, but it did not become due for payment soon after the passing of the award. The award was filed in the Court and the price became due for payment only when the decree in terms of the award came to be passed." 21. As against the various authorities relied upon by the ld. counsel for the assessee in support of his contention that in his case, it is the date of arbitrator's award and not the date on which the award is made the rule of the Court that is material, ld. DR has strongly relied upon the judgment of Hon'ble Allahabad High Court in A.P.S. Cold Storage Ice Factory's case and Fazilka Electric Supply Co., Ltd.'s case. In the latter judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is "it may be contended". Thus, Hon'ble Supreme Court has not put their seal on the argument and merely pointed out the possibility of there being a contention. As against this, the judgment of Hon'ble Delhi High Court in the case of Fazilka Electric Supply Co. Ltd., is unequivocal that the material date is the date on which the award is made the rule of the Court in every case where the award is filed in the Court and a decree on its term sought. 23. In the instant case, RSRTC by various letters during 1993 addressed to the assessee asked the assessee to indemnify the losses incurred by the RSRTC. Certain further correspondence ensued and thereafter RSRTC invoked clause X of the Agreement dated 24-7-1991 that envisaged that in the case of a dispute between the parties, the matter would be referred to the Chairman, RSRTC and the decision of the arbitrator would be final and binding upon the parties. Vide order dated 25-11-1993, the Managing Director, RSRTC appointed Principal Secretary (Home Department) to the Government of Rajasthan, Jaipur, as the arbitrator in place of Chairman, RSRTC. The arbitrator passed his award on 4-4-1997 and presented the award before the District Judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, set aside the impugned order of the ld. CIT(A) on this point and restore the assessment order as originally made by the Assessing Officer. 26. Second ground in this appeal is directed against deletion of the addition of Rs. 3,37,254 relating to prior period expenses. The assessee claimed the prior period expenses to the tune of Rs. 8,01,950 crystallized during the financial year 1997-98 only. The assessee, inter alia, claimed that it had settled the claims of two parties during the financial year 1997-98 for the sum of Rs. 2,11,895. The ld. Assessing Officer did not accept this contention for want of documentary evidence. Secondly, for the same reasons, the ld. Assessing Officer did not accept the assessee's claim of deduction on settlement of account of a Bhubaneswar party amounting to Rs. 1,25,359. On assessee's appeal, the ld. CIT(A) held that there was considerable correspondence amongst the parties and the deduction claimed by the assessee could be correlated to the claims of non-receipt of material raised by the parties. The ld. CIT(A) was satisfied that the expenditure crystallized in the year under consideration. She, therefore, allowed the assessed deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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