Punjab & Haryana H.C : The assessee’s case regarding the discounted value of a contingent liability raised for the first time before the Tribunal could not be entertained since it was not put forward before the lower authorities

B.S. Gupta & Sanjay Bansal, for the Assessee : Ashok Bhan & Ajay Mittal, for the Revenue

S.P. GOYAL, J.:

The assessee, a limited company, which was engaged in the manufacture of worsted yarn, woollen yarn, shoddy yarn and textile goods, during its accounting period ending on March 31, 1972, made a provision for leave with wages and claimed a deduction of Rs. 48,368 as business expense. The ITO, holding that it was a contingent liability, disallowed the claim. The contention of the assessee was rejected by the AAC as well as the Tribunal. However, before the Tribunal, the assessee, relying on the Supreme Court decision in Metal Box Co. of India Ltd. vs. Their Workmen (1969) 73 ITR 53 (SC), contended that contingent liabilities discounted and valued as necessary, can be taken into account as trading expenses if they are sufficiently certain to be capable of valuation and if profits cannot be properly estimated without taking them into consideration. The Tribunal refused to take into consideration the contention on the ground that it was not raised before either of the two authorities below.

The assessee then moved a petition under s. 256(1) of the IT Act which was allowed and the following two questions of law have been referred to this Court for opinion : ” (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the disallowance of Rs. 47,209 on account of the assessee’s claim under the head ‘Leave with wages’ made for the asst. yr. 1972-73 ? (2) If the answer to question No. 1 is in the affirmative, whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee’s case regarding the discounted value of a contingent liability raised for the first time before the Tribunal could not be entertained since it was not put forward before the lower authorities ?”

So far as question No. (2) is concerned, it stands covered by four decisions of this Court in CIT vs. Ram Sanehi Gian Chand (1972) 86 ITR 724 (P & H), Oswal Cotton Spinning & Weaving Mills vs. CIT (1979) 10 CTR (P & H) 114:(1981) 129 ITR 761 (P & H), CIT vs. Oswal Woollen Mills Ltd. (1980) 14 CTR (P & H) 126:(1981) 132 ITR 197 (P & H) and Atlas Cycle Industries Ltd. vs. CIT (1981) 21 CTR (P & H) 109:(1982) 133 ITR 231 (P & H), wherein it was held that the Tribunal was not justified in rejecting the additional plea simply on the ground that it was not raised before the AAC. It was further observed that the Tribunal was bound to give reasons for rejecting the application and unless it was found that the failure to raise the plea earlier was either wilful or intentional, the assessee should have been allowed to raise the plea. Nothing substantial was urged by learned counsel for the Revenue to controvert the rule laid down in the authorities cited above. Question No. (2) is, accordingly, answered in the negative, i.e., in favour of the assessee and against the Revenue.

So far as question No. (1) is concerned, it is not disputed even by learned counsel for the assessee that the whole of the amount of Rs. 47,209 could not be claimed under the head “Leave with wages” and that the assessee could only claim its discounted value. The claim of the assessee regarding the discounted value of the contingent liability would be determined by the Tribunal under question No. (2). So question No. (1), as framed, is answered in the affirmative, i.e., in favour of the Revenue and against the assessee. The case would now go back to the Tribunal for

fresh decision on the claim of the assessee regarding the amount deducted under the head “Leave with wages” in the light of the answer to question No. (2).

No costs.

[Citation : 174 ITR 354]