TMI Blog2021 (1) TMI 822X X X X Extracts X X X X X X X X Extracts X X X X ..... oyees for the impugned assessment years the said liability is contingent liability. We find that the findings of the AO appears to be misplaced both facts and in law because liability of wage arrears is a real one for the services which have already been rendered and therefore, was definitely in the nature of arrears for such unpaid salary and had definitely arisen and therefore, in fact, it had a present obligation as a result of past events of the works or services already carried out by the employees entailing an outflow of resources to settle such obligation as per contractual agreement between employees and management. Liability has been provided in books of accounts when it was accrued for the impugned assessment years for the services rendered and hence the same cannot be considered as contingent in nature or unascertained liability, merely for the reason that the said liability was quantified and paid in subsequent financial years. The learned CIT(A) after considering the relevant facts has rightly deleted the addition made by the AO towards disallowance of provision for wage arrears. - Decided in favour of assessee. - I.T.A.Nos.79 And 80/Chny/2020 - - - Dated:- 9-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts for non-deduction of tax at source u/s. 40(a)(ia) of the Act. Subsequently, the Principal CIT vide his order dated 22.08.2017 u/s.263 of the Act set aside the assessment order and directed the Assessing Officer to examine the issue of provision for wage arrears. The assessee filed an appeal against 263 order passed by the PCIT before the Tribunal. The ITAT D Bench, Chennai vide order dated 15.05.2018 in ITA No.2167 2168/Chny/2017 dismissed the assessee s appeal. In pursuant to 263 order, the Assessing Officer had taken up the case for assessment and issued notice u/s.143(2) of the Act and called upon the assessee to file necessary details with regard to provision for wage arrears. In response, the assessee submitted before the Assessing Officer that the assessee bank, anticipating wage arrears to its employees had made ad-hoc provision for wage arrears in assessment year 2009- 10 and 2010-11 based on certain degree of estimation by knowing the fact that employees union have started negotiation with the management for revision of wages on the basis of recommendation of pay commission report for State Government employees with effect from 01.01.2006. The assessee further st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is unascertained liability and the same cannot be allowed as deduction u/s.37(1) of the Act. 5. Being aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the learned CIT(A), the assessee has reiterated its submissions in light of the evidences, including demand from employees union for wage revision and subsequent developments at the level of State Government for constitution of Committee to examine the demands of employees. The assessee further claimed that the liability provided for in the books of accounts towards provision for wage arrears is not contingent liability, but an ascertained liability because the same was accrued for the relevant assessment years, even though the same was quantified and paid in the subsequent financial years. The assessee has also relied upon various judicial precedents including the decision of the Hon ble Supreme Court in the case of Bharat Earth Movers Ltd. Vs.CIT (245 ITR 428). 6. The learned CIT(A), after considering the relevant submissions of the assessee and taking into consideration of various judicial precedents including the decision of Bharat Earth Movers Ltd(supra) held that the contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntingent liabilities do not constitute expenditure and cannot be the subject matter of deduction even under the mercantile system of accounting and further pending adjudication by way of appeal the liability would be contingent in nature and the liability to pay such compensation did not arise on event anticipated by the assessee. 6.1 The contentions of the AC appears to be misplaced both on the facts and circumstances of the case and in law insofar as on both issues relating to the contingent nature of the expenses as well as its certainty as the AC terms it there cannot be two Opinions that the business liability by way of wage arrears in the instant case being a real one had definitely arisen within the impugned accounting years and it was not contingent on any event / process happening in he future and therefore the incurring of the liability was clearly certain since the services rendered for which the wages had to be paid had already occurred and therefore there was nothing contingent about it to arise, and as held by Hon ble Supreme Court in the case of Bharat Earth Movers vs CIT 245 ITR 428 wherein it has been considerably ruled that that if a business liability has d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AO that the said provision had not actually not been disbursed in the subsequent year or that an exorbitant estimate had been made of the obligation in order to create a loss or reduce the incidence of taxation for the impugned years and it is an accepted principle that salary and wages generally accrued daily, weekly and monthly as per the contract of appointment and the liability of the Sank to pay salary / wages at the revised rates commencing from the date of the expiry of the existing agreement and the liability to compensate the employees for the services already rendered is very much an existing liability for the Bank for which there were every possibility of outflow and considering the fact that an amount of ₹ 11.65 crores was disbursed to the employees in the immediately following FY 2010-11 the provision made indisputably of ₹ 5 crores and 5.57 crores for FY 2008-09 and FY 2009-10 could certainly be called an almost accurate and most reliable estimate to begin with. 7.2 The Assessing Officer s reliance on the case laws mentioned in the assessment order is distinguishable from the facts of the instant case since in the cases referred to by the AG, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered is whether the liability is attributable to the previous year or not and it is immaterial if the actual liability was ascertained and settled only in the next year. By the time the accounts were finalized and returns were filed the assessee had ascertained the actual liability attributable to the previous year and therefore the actual amount payable only was claimed based on mercantile system of accounting followed by the assessee. Further in CIT vs Bharat Heavy Electricals Ltd 352 ITR 88 (DeIhi) it has been held that if a business liability has definitely arisen within the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. 10. Therefore when viewed in the totality of facts and circumstances obtaining in the case and also in the light of the ratio of judgements including that of the Hon ble SC) quoted supra the addition made by the AO on account of disallowance of provision for wage arrears for both the AYs being legally untenable, is directed to be deleted. This ground is therefore allowed. 7. The learned DR submitted that the learned CIT(A) has erred in directing the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not in dispute that the State Government has constituted a committee to examine the demands of employees union and accordingly, a committee has been constituted under the leadership of Registrar of Co-operative Societies, Government of Tamil Nadu. Further, after negotiations and deliberations with employees union, a settlement had been reached, as per which the assessee bank and employees unions have agreed to revise the wages w.e.f 01.01.2006, but monetary benefit arising out of revision shall be w.e.f 01.01.2007. Based on the above inputs, the assessee has anticipated liability in respect of wage arrears to its employees for the impugned assessment years and accordingly on the basis of certain degree of estimation provision was made for wage arrears in the books of account, although the said liability has been finally quantified and paid in subsequent financial years. In the light of the above factual background and on examining the contention of the Assessing Officer that the said liability is contingent liability, we find that the findings of the Assessing Officer appears to be misplaced both facts and in law because liability of wage arrears is a real one for the services wh ..... 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