TMI Blog2009 (6) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... prior period expenses which would also result into litigation and may disturb the finality of concluded assessment - It is also pertinent to note that such provision may be less or more and depending upon the criteria on the basis of which such provision is made, however, the excess expenditure provided can be written back in subsequent year and may be offered as income under s. 41(1) of the Act or the short provision can be claimed as expenditure in that year - It is also noted that making of such provision is also in consonance with the principle of matching of cost with the revenue - Appeal is allowed Regarding disallowance in respect of overloading charges, underloading charges and credit notes issued by the assessee to its customers for stones, shells, etc., contained in the consignment sent to them at various points of time - As far as underloading charges and credit notes are concerned, these expenses have been incurred by the assessee as a consequence of agreement with its customers and these have not been paid to railways like overloading charges, hence, at the very outset, these are not covered within the ambit of Explanation to s. 37(1) of the Act - Appeals are allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of facts, we are of the view that once the impugned entries have to be recognized as sales of the year under consideration, hence, the same are required to be deleted from the next year. Accordingly, we direct the AO to delete the same from the subsequent year. Thus, this ground of the assessee stands dismissed subject to the aforesaid directions. 7. Ground No. 2 reads as under: "2. On the facts and in the circumstances of the case, the learned CIT(A) has legally erred in confirming the disallowance of ascertained liability of Rs. 3,128.07 lakhs on account of the provisions made for incremental wages under National Coal Wage Agreement (NCWA). It is prayed that the learned AO be directed to allow deduction of Rs. 3,128.07 lakhs on account of provisions made for ascertained liability under NCWA." 8. The facts, in brief, are that the assessee is a subsidiary of Coal India Ltd., a Government of India Enterprises. The assessee company made provision for incremental wages on the basis of directions received from Coal India Ltd., the holding company in July, 2002 i.e., after the closure of the financial year however, before the finalization of audited account. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de which was disallowed by the AO, however, the learned CIT(A) had accepted the claim of the assessee and the Department in the appeal before the Tribunal, did not contest the same, hence, a differential treatment could not be given subsequently. It was also submitted that the assessment order for asst. yr. 2004-05 was subjected for an action under s. 263 of the IT Act, 1961 (for short "the Act") even then the learned CIT did not touch the issue of allowability of wages, had been allowed by the AO. Hence, both these facts reflected the attitude of the Department towards such claim and, accordingly, the principle of consistency was to be applied and, therefore, the claim of the assessee was liable to be accepted. Learned counsel for the assessee, thereafter, relied on various judicial decisions including following judicial decisions in support of its contention that when a liability had accrued in a particular accounting year, then, it was to be allowed although the same had to be quantified and discharged at a future date. Learned counsel for the assessee relied on the following judicial decisions: (i) Calcutta Co. Ltd. vs. CIT (1959) 37 ITR 1 (SC); (ii) Bharat Earth Movers vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was pending. The learned counsel for the assessee also relied on various judicial decisions for the application of rule of consistency. 12. Learned Departmental Representative, on the other hand, placed strong reliance on the order of the learned CIT(A). 13. We have considered rival submissions, orders of the authorities below and the materials available on record. It is noted that the assessee is a wholly-owned subsidiary of Coal India Ltd., a Government of India Enterprises. It is also noted that the wages for the employees are reviewed periodically as per agreement with the Coal Mines Officers Association of India. It is also noted that NCWA-VI expired in July, 2001. It is also noted that the said provision has been made by the assessee in accordance with the directions given by the holding company which have been received in July, 2002 prior to finalisation of balance sheet. At this stage, it is pertinent to note that in the year 1996-97, a similar provision was made in accordance with the directions of the Coal India Ltd. which were received before the closure of the financial year and the Department has accepted the said decision, hence, merely because the said direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very recent judgment, in the case of Rotork Controls India (P) Ltd., held that a provision to be termed as provision of liability had to be such which could be measured by using substantial degree of estimation and it was to be recognized only when: (i) the enterprise had a present obligation as a result of a past event; (ii) it was probable that an outflow of resource will be required to settle the obligation; and (iii) reliable estimate could be made of the amount of obligation then such provision was definitely to be recognized in the books of account and if these conditions were not made, no provision could be recognized. In the present case, it is not in dispute that the concerned employees/labourers have rendered the services and the assessee has also earned income because of their efforts which has been recognized in the books of account, hence, such rendering of services is an obligating event and which is independent of the future conduct of the business of the enterprises. Further, the basis for estimation as per past history and directions issued by the holding company are also available. Hence, we hold that such provision needs to be recognized in the year under consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notes issued by the assessee to its customers for stones, shells, etc., contained in the consignment sent to them at various points of time. 20. The facts, in brief, are that the assessee is a colliery company and transports coal to Electricity Boards in railway wagons. The freight for such transportation is payable by the customers and is dependent upon the carrying capacity of railway wagons. The AO found that underloading charges where the amount of reimbursement of excess freight paid by the customer due to loading of less quantity of coal as against the carrying capacity of the wagons reimbursed by the assessee company. The overloading charges are the case of reverse situation wherein railway charged from the customers for additional loading beyond the carrying capacity of the railway wagons. The AO examined the issue of allowability of these expenses. The assessee explained that these expenses had been incurred by the assessee during the course of its business, hence, fully allowable as expenditure. The AO was of the opinion that these were in the nature of penal charges and for this purpose, he examined various documents. The assessee replied that overloading and underloa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act as had been done by the Revenue authorities. As regards overloading charges, the assessee explained that the railways framed rules so as to protect its revenue which was generally six times of the normal freight and overloading in excess of carrying capacity of wagon resulted into levy of such charges which were shared by the customers and the assessee equally. It was further contended that these were incurred by the assessee in the normal course of its business activities. It was further contended that these charges were akin to excess bagages charged by the airlines for weight beyond free allowance. The learned counsel for the assessee further submitted that such excess load was neither unloaded nor any breach of safety regulations occurred and, therefore, no provisions for criminal action against the person from whom such overloading charges were recovered. The learned counsel for the assessee, thereafter, drew our attention to the Memorandum to the Finance Bill, 1998, to show us the purpose of introducing Explanation to s. 37(1) and contended that this Explanation was to be applied in respect of unlawful expenditure such as payment on account of protection money, extort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to s. 37(1) of the Act. The fact of incurrence of these expenses for the purpose of business is also not in doubt. Accordingly, we hold that these are allowable expenses as incurred for the purpose of business. Thus, ground Nos. 5 and 6 of assessee's appeal are accepted. 26. As regards overloading charges, we have to take into consideration the environment in which the companies are operating. Railway is the only mode of transportation if the person wishes to transport its product through railway. This fact is important because such activities of railways are commercial in nature and freights are fixed on commercial basis. If we look the issue in its perspective, then, what emerges is that if these were private carriers also and if the assessee would have paid identical charges to them, the same would have been allowed as a normal business expenditure especially when there is no dispute that these expenses have been incurred in the course of business operations and, therefore, merely because the railways is a Government owned institution and works under an Act of Parliament, the nature of overloading charges which are essentially of commercial nature cannot be characterized as of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, in brief, are that the assessee is a subsidiary of Coal India Ltd. and made provision of Rs. 40,08,97,000 towards wages payable which was accepted by the AO. Subsequently, the learned CIT formed an opinion that in the absence of any agreement/settlement such liability had not crystallized and, therefore, deduction of such provision had rendered the assessment erroneous as well as prejudicial to the interests of Revenue. 34. The learned counsel for the assessee contended that earlier NCWA expired on 13th June, 2001, hence as per the directions of its holding company, 10 per cent of basic pay was provided towards salary/wage of non-executive employees. The assessee also placed reliance on the judicial decision as well as ,CBDT Circular No. SO-69(E), dt. 25th Jan., 1996 which required the assessee to make provisions for liabilities known to exist at the balance sheet date. The assessee also pleaded that the AO had allowed this claim after applying his mind and relying on the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers. Hence, it was one of the possible views in law and, therefore, the order of the AO could not be considered as erroneous and prejudici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no control over the manner in which the AO writes the order. Learned counsel for the assessee also placed reliance on the various decisions cited before the learned CIT for various general propositions such as change of opinion and lack of inquiries. As regards the factual difference, noticed by the learned CIT with regard to asst. yr. 1996-97, the learned counsel for the assessee submitted that in sum and substance, there was no difference because as per the accepted commercial principles, business practices and prudence, the events occurring after balance sheet date but before the finalization of accounts had to be considered in preparing the financial statement of a particular year. Thus, according to the learned counsel for the assessee, the order of the learned CIT was not correct in law on all counts. 36. Learned Departmental Representative, however, placed strong reliance on the order of the learned CIT. 37. We have considered rival submissions, orders of the authorities below and the materials available on record. It is noted that during the course of assessment proceedings, the AO has made specific inquiries regarding this issue and the assessee has submitted detaile ..... X X X X Extracts X X X X X X X X Extracts X X X X
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