Provision for interest on overdue fixed deposits was ascertained liability as it was identified when return filed-High Court

Provision for interest on overdue fixed deposits was ascertained liability as the assessee was able to identify it when it filed returns-High Court

ABCAUS Case Law Citation:
ABCAUS 2168 (2018) (01) HC

Important Case Laws Cited/relied upon by the parties:
Bharat Earth Movers Ltd. Vs CIT, (2000) 245 ITR 428 (SC)
Calcutta Co. Ltd. Vs CIT (1959) 37 ITR 1
Kedarnath Jute Mfg. Co. Ltd Vs Addl. Commissioner Of Income Tax,(1971) 82 ITR 363
Aggarwal and Modi Enterprise (Cinema Project) Co. (P) Ltd. Vs. CIT, (2016) 381 ITR 469 (Del.).

Brief Facts of the Case:
The appellant assessee was a scheduled bank which, in its return had claimed an ascertained liability towards the interest on overdue deposits. The AO was of the opinion that the liability was not in present time and had not crystallized or arisen and therefore. Therefore the AO disallowed the claim. The CIT(A) allowed the appeal filed in the light of the assessment of the previous years.

The ITAT was of the opinion that the expenditure was unascertained and the liability was uncrystalized. The ITAT without recording its own conclusions on this aspect, remitted the matter to the AO.

Contention made on behalf of the Appellant Assessee:
It was submitted that the Hon’ble High Court in a case, had decided an identical question in favour of the assessee

Contentions made on behalf of the Respondent Revenue:
The Revenue urged that ITAT merely remanded the case which was not prejudicial against the appellant. It was argued that the assessee was aware of the likely liability and was able to crystallize, it per se would not mean that it was an ascertained one having regard to the fact that further payments would have to be made and the likelihood of the depositors renewing fixed deposits.

Observations made by the High Court:

The Hon’ble High Court opined that In the instant case, there can be no doubt that the bank was not only aware of its liability on the particular aspect, but, in fact, was able to crystallize it and set it out expeditiously in its returns.

The Hon’ble High Court observed that the Hon’ble Supreme Court had explained that the law is settled, i.e.  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. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in present though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain.

In another case, earlier also, the Hon’ble Supreme Court had laid down that for an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid.

The Hon’ble High Court noted that it itself, following the said dictum had held that a conspectus of the above decisions reveals that whether a liability is ascertained or contingent is dependent on the facts of each case. Merely because a liability may be contractual or non-statutory would not make it incapable of being ascertained. Where an Assessee follows the mercantile system of accounting it is not necessary that the liability must have actually been incurred during the A.Y. in question to enable the Assessee to claim it as an expense or deduction as the case may be. The crux of the matter is the reasonable certainty with which the liability can be ascertained.

According to the Hon’ble High Court, in the instant case, the possibility of likelihood of the depositor renewing the overdue deposit or for that matter, the payment being made later, in no way deflected from the reality that the assessee was able to identify its liability at the time, when it filed its returns. In that sense-for the reasons spelt out in the case relied by the assessee, the liability was ascertained and not unascertained.

Decision/ Conclusion/Held:
The question of law was answered in favour of the assessee and against the Revenue. The appeal of the assessee was allowed.