ACIT Vs Chennai Central Cooperative Bank Ltd. (ITAT Chennai)
The appeal filed by the Revenue pertains to Assessment Year 2017–18 and challenges the order of the Commissioner of Income Tax (Appeals), which deleted the disallowance made by the Assessing Officer in respect of provision for wage arrears. During assessment proceedings, the Assessing Officer observed that the assessee had debited an amount of Rs. 8,50,91,477 under the head “Contingencies and Provisions” in its Profit and Loss account, representing provision for wage arrears. Upon enquiry, the assessee explained that the provision was created following implementation of Pay Commission recommendations applicable to State Government employees. Directions had been issued by the State Government through the Registrar of Co-operative Societies requiring co-operative banks to negotiate wage revisions with employee unions, effective from 01.01.2016.
The assessee submitted that, pursuant to these directions, it created a provision for wage arrears based on revised pay scales. Although the revised pay scales were implemented and arrears were actually disbursed in Financial Year 2017–18, the liability had arisen with effect from 01.01.2016. It was further contended that the liability had crystallized in Financial Year 2015–16, though its quantification was pending due to ongoing negotiations with employee unions. The provision was made on a reasonable estimate of the accrued liability.
