TMI Blog2012 (9) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... the liability was ascertainable for the year under appeal, therefore it is to be satisfied that it was not a contingent liability. In the result the findings of the authorities are reversed and direct to allow the claim - in favour of assessee. - I.T.A. No. 3289/Ahd/2010 - - - Dated:- 31-7-2012 - Mukul Kr . Shrawat And Anil Chaturvedi , JJ. Appellant by : Mehul K.Patel Respondent by : S. S. Jha, Sr. D.R. ORDER Per Shri Mukul Kr. Shrawat, Judicial Member : This is an appeal at the behest of the Assessee which has emanated from the order of the CIT(A)-V Baroda dated 16/09/2010 and the only ground raised is as under:- 1. The Ld. Commissioner of Income Tax (Appeals)-V, Baroda has erred in law and in facts in confirming the disallowance of the incurrence of the liability for payment of incentive to the drivers amounting to ₹ 47,60,000/-. The incentive payment was duly accounted as due to the drivers for the services rendered during the year and only the actual payment of such incentive is deferred. The expenditure on account of incentives being a liability for the year ought to have been allowed. Your appellant prays the al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for a shorter period, then the payment is subject to the discretion of the management. According to AO, when a credit note was given there was no certainty about the continuity of employment of the driver and secondly there was no certainty about the duration of period being not defined in the credit note. In the AO s opinion, the liability was an unascertained liability as also artificially created by the assessee. On the other hand, ld.AR has vehemently objected and informed that there was no uncertainty about the period and it was clearly mentioned on the cards itself that the payment shall be made upto 31/03/2009. The AO has referred AS-29 in support of his view that the liability was a contingent liability. In the transport business, drivers are hired on everyday basis having no consistency of employment, therefore the continuity of their employment is always doubtful, AO has commented. According to him, there was no justification of postponing the distribution of incentive when the same was received from Hero Honda Motors Ltd. and Bajaj Auto Ltd. amounting to ₹ 10,04,82,584 (sic.) [the correct figure is 1,07,85,370]. After placing reliance on Rajasthan State M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said incentive, the amount paid with date and signature of the recipient, i.e. driver. Ld.AR has also drawn our attention on certain specimen incentive card containing the photograph of the drivers, their driving licences and the terms on which the incentive was provided to those drivers. As per one of the terms, a driver was expected to work upto year 2008-09 with the assessee, refer pages 114 to 141 of the paper book. He has explained that the impugned amount of ₹ 47,60,000/- was provided in the books of accounts and corresponding entry of the provision was made in the balance-sheet. An amount of ₹ 1,07,85,370/- was received as incentive which was duly credited in the sales account and offered for tax for the year under consideration under the head lorry booking receipt . Ld.AR has therefore argued that the expenditure was in respect of the services rendered in the current financial year, therefore the corresponding expenditure ought to have been allowed in that very financial year. A complete detail of the incentive received along with the working of the incentive calculated on those vehicle by the manufacturing company has also been placed in the compilation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if the two-wheelers were to be delivered within that prescribed time-period, then the transporter/ assessee would be granted an incentive for efficient delivery of the vehicle. In this connection, the working of the incentive for each trip made by the vehicle has been placed on record. There was no denial of this fact that for the year under consideration, the assessee has received incentives from the said companies of ₹ 1,07,85,370/-. Further, there is no denial of this fact, as well, that out of the said amount of the incentive received, the assessee had made a provision for the purpose to pass over the said incentive to drivers, which amounted to ₹ 47,60,000/-. For the year under consideration this fact was duly corroborated by passing a corresponding entry in the Balance-sheet drawn as on 31.3 2007. As far as the actual disbursement is concerned, there were sufficient evidences on record to establish that the disbursement of the incentive had actually been made to drivers in the F.Y. 2008-09. Undisputedly the entire amount of ₹ 47,60,000/- was in fact paid to the drivers. On careful examination of the facts of the case, we have noticed that the AO has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly question left is that under the given facts and circumstances of the case, whether it was the contingent liability? This question has been elaborately dealt with by the Hon ble Supreme Court in the case of Bharat Earth Movers(supra) wherein the Metal Box Company of India Ltd.(supra) has also been referred and a verdict was given that if an assessee is maintaining accounts on mercantile system and a liability accrued, though discharged at a future date, held to be an allowable deduction while working out the profit and gains. The Hon ble Court has held that having regard to the accepted principle of commercial practice and accountancy such deduction is permissible, so the liability was held as not a contingent liability. As far as the decision of Rajasthan State Mines Minerals (supra), as referred by the AO, is concerned, we have noted that facts have revealed that the company derived income from mining and selling of gypsum. The assessee entered into an agreement with the Government for excavation of phosphate rock. In the agreement it was provided that the assessee had to be paid ₹ 46/- per ton of the ore despatched. The assessee made a provision of ₹ 82 lac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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