Haffkine Bio Pharmaceutical Corporation Vs ACIT (ITAT Mumbai)
ITAT Mumbai Allows Provision for Sixth Pay Commission Salary Arrears as Ascertained Liability
The Mumbai Bench of the ITAT allowed the appeal of Haffkine Bio-Pharmaceutical Corporation for AY 2007-08, holding that the provision of ₹2 crore made towards anticipated salary revision under the Sixth Pay Commission was an allowable deduction
The Tribunal noted that the assessee, a Government of Maharashtra undertaking, was bound to implement Pay Commission recommendations and had consistently followed the practice of creating salary provisions since FY 1976-77, based on past experience and reasonable estimation. The provision related to services already rendered by employees during the relevant year; only the exact quantification and payment were deferred pending formal sanction.
Rejecting the Revenue’s contention that the liability crystallised only upon issuance of a Government notification, the ITAT held that the liability had accrued during the year and was capable of reasonable estimation, and therefore was not contingent in nature. Relying on the Supreme Court judgment in Bharat Earth Movers, the Delhi High Court decision in Bharat Heavy Electricals Ltd., and the Mumbai ITAT ruling in Tata Communications Ltd., the Tribunal reiterated that an accrued liability is deductible even if its precise quantification or discharge occurs later.
Accordingly, the ITAT set aside the order of the CIT(A) and directed the Assessing Officer to allow the deduction of ₹2 crore, allowing the assessee’s appeal in full.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
