THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 19.09.2008
+ ITA 407/2007
CENTRAL GOVERNMENT EMPLOYEES
CONSUMER COOPERATIVE SOCIETY LTD ... Appellant
- versus -
THE COMMISSIONER OF INCOME
TAX ... Respondent
Advocates who appeared in this case:
For the Appellant : Mr Salil Aggarwal with Mr Prakash Kumar For the Respondent : Mr R. D. Jolly CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE RAJIV SHAKDHER
1. Whether Reporters of local papers may be allowed to
see the judgment ?
2. To be referred to the Reporter or not ?
3. Whether the judgment should be reported in Digest ?
BADAR DURREZ AHMED, J (ORAL)
1. This appeal is directed against the Tribunal’s order dated
20.01.2006 in ITA 2708/D/2002 pertaining to the assessment year
1998-1999. For the year ending 31.03.1998, the assessee had provided
for a sum of Rs 72 lacs under the head “salaries and wages”, pending
revision. The Assessing Officer found that this liability had been
provided for in relation to wage revision implemented with effect from
01.07.1997. But, the liability on account of wage revision had not been
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ascertained and had not accrued during the year which ended on
31.03.1998. Consequently, the Assessing Officer disallowed the
provision of the said sum of Rs 72 lacs for the assessment year 1998-
1999.
2. Being aggrieved by this disallowance, the assessee took the
matter in appeal before the Commissioner of Income Tax (Appeals),
who agreed with the assessee and allowed its appeal. The addition of
Rs 72 lacs was consequently deleted.
3. In the revenue’s appeal before the Tribunal it was urged on
behalf of the revenue that a decision had been taken by the Board that
the wages would be revised with effect from 01.07.1999. This was the
position as existing on the date of the balance sheet, i.e., 31.03.1998. It
was further contended that it was only subsequently that the Board of
Directors of the assessee decided to give effect to the pay revision from
01.07.1997. This decision was taken only in the Board meeting held on
28.09.1998.
4. On behalf of the assesee it was urged that there was enough
indication that the matter of revision of pay was under consideration
even on 31.03.1998. Consequently, it was urged that the accrual of the
liability had occurred during the financial year 1997-1998, that is, in
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the year ending 31.03.1998. According to the assessee, the liability had
accrued but it was only quantified later. The assessee also placed
reliance on Accounting Standard 4 issued by the Institute of Chartered
Accountants of India and submitted that note of significant events
occurring after the balance sheet date was required to be taken.
5. Considering the arguments advanced before it, the Tribunal
came to a conclusion that in the case of the assessee the Board of
Directors had taken a conscious decision that no revision of pay should
be made for the period prior to 01.07.1999, as indicated by the minutes
of 65th meeting of the Board of Directors held on 28.09.1998 under
agenda item No. 6. The said minutes have been placed before us in the
appeal paper book. We note that under agenda item No. 6, paragraph
6.1 of the said minutes clearly indicates that the Board considered the
matter in depth, particularly, the issue whether the pay scales should be
revised with effect from 01.07.1997 “in relaxation of the earlier Board
decision that there should be no wage revision before 01.07.1999.”
This makes it abundantly clear that as on 31.03.1998 the Board’s
decision was that there should be no wage revision before 01.07.1999.
It is only in the Board meeting held on 28.09.1998 that the Board
decided that the scales of pay be revised with effect from 01.07.1997
and not 01.07.1999 and that the next wage revision would be due on
01.07.2002. The Tribunal, therefore, returned a finding that the very
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decision to revise the pay scales came into existence only after
31.03.1998, that is, after the end of the previous year under assessment
before the Tribunal. The Tribunal concluded that there was no liability
to pay any extra amount by way of revised pay as on 31.03.1998 and
such liability accrued for the first time during the financial year 1998-
1999 when the decision was taken to revise the pay scales with effect
from 01.07.1997 instead of 01.07.1999 as per the earlier decision.
6. Although the Tribunal took the view that no notification had
been issued by the Central Government indicating the approval to
Accounting Standard 4 in terms of Section 145(2) of the Income Tax
Act, 1961, the Tribunal discussed the applicability of Accounting
Standard 4 itself and concluded that the same was not, in any event,
applicable in the facts of the present case. The Tribunal observed that
the events occurring after the balance sheet should be indicative of a
liability existing at the balance sheet date, but noticed subsequently, or
at least the same should be relating to conditions existing on the
balance sheet date. The Tribunal observed that in the case of the
assessee the condition existing on the balance sheet date, that is, on
31.03.1998 was, at best, the revision of pay being contemplated with
effect from 01.07.1999. The Tribunal observed that there was no
indication of any revision of the pay scales payable by the assessee for
the year 01.07.1997 to 31.03.1998. Consequently, the Tribunal
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returned a finding of fact that the liability itself had been incurred by
the assessee only during the financial year 1998-1999.
7. In view of these findings, the decision arrived at by the
Tribunal cannot be faulted. No substantial question of law arises for
our consideration. The appeal is dismissed.
BADAR DURREZ AHMED, J
RAJIV SHAKDHER, J
September 19, 2008
SR
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