Salary allowable as Expenditure When Calculation Sheets on Pay Revision available: ITAT [Read Order]

The Cuttack Bench of the Income Tax Appellate Tribunal (ITAT)salary is allowable as expenditure when calculation sheets on Pay Revision are available.

The Orissa State Co-op.Milk Producers Federation Ltd., the assessee is a Co-operative Society doing the business of manufacturing, trading and distribution of milk, milk products and cattle feed.  The Assessing Officer had made an addition of Rs.49,25,896/- on account of non-payment of ‘entry tax’ within the due date of filing of return by invoking the provisions of section 43B of the Income Tax Act,1961. The CIT(A) deleted the addition by holding that he has verified the payment.

The assessee has charged the provision in the profit and loss account under “salary’ pending the finalization of the revision of the wage/salary of its employees as per the VIth pay commission.

The revenue challenged the action of the CIT(A) in deleting the addition of Rs.2,56,24,179/- made by the AO on account of the provision for salaryand contended that the CIT(A) is not justified in deleting the addition of Rs.49,25,896/- made by the AO adducing fresh evidence violating the provisions of Rule 46A of the IT Rules, 1962 on account of unpaid Entry Tax, when the assessee could not furnish any evidence in support of the payment made by the date of filing of return.

A Coram of Shri George Mathan, judicial member and Arun Khodpia, accountant member observed that the CIT(A) has not called for a remand report from the Assessing Officer in respect of payment of entry tax of Rs.49,25,896/- and restored the issue to the file of the AO. 

In the case of Bharat Earth Movers (supra), the Supreme Court has categorically held that “ 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.”.   

It was evident that the calculation sheets are available which show that the scientific method of calculation is done and the pay revision has also been approved. The bench held that the provision for the pay revision cannot be held as an unascertained liability nor the liability does not crystalise and upheld the order of CIT(A) which deletes the addition on account of the provision for salary.

Shri B.K.Mahapatra appeared for the assessee and Shri  M.K.Gautam appeared for the revenue.

To Read the full text of the Order CLICK HERE

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