TMI Blog2022 (9) TMI 724X X X X Extracts X X X X X X X X Extracts X X X X ..... 10) TMI 324 - SUPREME COURT] is equally misconceived. Decided against the Revenue. - ITA 264/2022 - - - Dated:- 29-8-2022 - HON'BLE MR JUSTICE RAJIV SHAKDHER AND HON'BLE MS JUSTICE TARA VITASTA GANJU Appellant Through: Mr. Sunil Agarwal, Sr Standing Counsel with Mr. Tushar Gupta and Mr. Utkarsh Tiwari, Advs. Respondent Through: Mr. Ved Kumar Jain with Mr Nischay Kantoor and Ms. Richa Mishra, Advs. [Physical Court Hearing/Hybrid Hearing (as per request] RAJIV SHAKDHER, J. (Oral): 1. This appeal is directed against the order dated 25.01.2021 passed by the Income Tax Appellate Tribunal [in short, the Tribunal ]. 2. The only issue, which according to Mr Sunil Agarwal, learned senior standing counsel for the respondent/revenue arises for consideration in the present appeal is: whether the disallowance of Rs.12,99,68,406/- was correctly ordered by the Assessing Officer [in short, AO ]? 3. To be noted, the AO vide order dated 29.03.2015 disallowed the aforesaid amount, on the ground that the liability qua the same had not arisen. 4. It may also be noted, that at the relevant point in time, the AO did not have the benefit of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in clause (i) above. 8.1 However, insofar as the other scenario is concerned i.e., when the respondent/assessee is not entitled to the availability bonus for the term of an AGP from the purchasers of the respondent/assessee s power, the respondent/assesseemay choose to either pay the bonus in cash to GE International Ltd., or credit the bonus amount as an offset against any future amount due from GE International Ltd. to the respondent/assessee under the CSA. 9. Furthermore, Mr Agarwal argues, that there is also power available under the CSA with the contractor to waive the receipt of bonus from the respondent/assessee at the time of settlement, which occurs when the contract is finally closed i.e., on 31.03.2025. In support of his submission, Mr Agarwal has relied upon the following judgments: (i) Indian Molasses Co. (P) Ltd. vs. CIT, West Bengal (1959) 37 ITR 66; (ii) Commissioner of Income Tax vs. Excel Industries Ltd. (2014) 13 SCC 459. 10. On the other hand, Mr Ved Kumar Jain, who appears on behalf of the respondent/assessee, has made the following broad submissions: 11. Although the respondent/assessee was remiss in producing the CSA before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to become liable to pay penalty. (vii) The payment of bonus or penalty accrues from year to year, and is finally settled on closure of the contract. (viii) The CSA, as noticed above, was not produced before the AO, but was produced before the CIT(A), who took into account its contents while passing the order. The methodology for calculating the available power is contained in Exhibit-A and B, appended to the CSA. (ix) In case the customers of the respondent/assessee were not to make payments to the respondent/assessee, the respondent / assessee has two options available to it under the contract. The first option is to pay the bonus to GE International Ltd. in cash. The second option is to claim an offset against any future amount due from GE International Ltd. to the respondent/assessee under the CSA. (x) The Tribunal, based on these facts, has ruled against the appellant/revenue and thus, reversed the order of the CIT(A). The rationale provided by the Tribunal is set forth in paragraph 7 of the impugned order. For the sake of convenience, the same is extracted hereafter: 7. We have heard both the parties and perused the material available on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount, and hence would convert the subsisting liability into a contingent liability is also an argument which, according to us, is misconceived. 17. The principles for ascertaining as to when a liability does not metamorphosize into a contingent liability are set forth in the judgment of the Supreme Court rendered in Bharat Earth Movers. The relevant extracts of the said judgment are set out hereafter: The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. In Metal Box Company of India Ltd. Vs. Their Workmen (1969) 73 ITR 53 the appellant company estimated its liability unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at would not convert the accrued liability into a conditional one; it was always open to the tax authorities concerned to arrive at a proper estimate of the liability having regard to all the circumstances of the case. Applying the above-said settled principles to the facts of the case at hand we are satisfied that provision made by the appellant company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary. 18. A careful perusal of the principles enunciated by the Supreme Court would show that both the arguments advanced by Mr Agarwal are answered. 19. As noted by the Supreme Court, in that case [as is the situation in the present case also], the respondent/assessee is following the mercantile system of accountancy. The liability to pa ..... 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