The Tax Publishers2020 TaxPub(DT) 4602 (Ctk-Trib)

INCOME TAX ACT, 1961

Section 37(1)

Where assessee made provision for arrear of salary as per pay revision of 6th pay commission implemented by Government of Odisha, as liability calculated by the assessee company was a fixed liability which was to be paid to its employees towards arrears of salary which could not be also taken back from the employees, therefore, assessee rightly made provision for the same and it could not be held to be in the nature of contingent liability.

Business expenditure - Allowability - Assessee made provision for arrears of salary as per pay revision of 6th Pay Commission implemented by Government of Odisha -

Assessee (Orissa Power Transmission Corporation Ltd)(OPTCL) made provision for arrears of salary as per pay revision of 6th Pay Commission implemented by Government of Odisha. AO passed order on the direction of CIT in respect of claim of provisions made by assessee company towards arrears, salary and allowances, holding the same to be in the nature of contingent liability. Held: Assessee company calculated liability and made provision in books of account and claimed as expenditure, which were placed in the record. The liability calculated by the assessee company was a fixed liability which was to be paid to its employees towards arrears of salary which could not be also taken back from the employees. As for a certain liability for the relevant assessment year, assessee company could make provision for certain liability which was certainly to be paid, therefore, assessee company rightly made provision for the arrears of salary in his books of account. This was a necessary expenditure, which was required to be deducted from the profit of the assessee company for relevant assessment year while calculating the taxable profit because the liability was imposed by the State Government of Odisha.

Distinguished:Molasses Company Private Limited v. CIT (1959) 37 ITR 66 (SC) : 1959 TaxPub(DT) 170 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :



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