G. Krishnamurthy, President - (1.) THE assessee in this appeal is M/s. Jummu and Kashmir Industries Ltd., a State Government undertaking. THE limited issue in this appeal is whether the assessee is entitled for the deduction of the provision made for the audit fee of Rs. 86,000. THE Income-tax Officer disallowed the claim made before him on the ground that it was only a provision made. THE Commissioner (A) on appeal upheld the disallowance not only for that reason but also following an earlier order of his relating to the assessment year 1976-77, wherein a similar claim made by the assessee was disallowed.
(2.) The learned counsel for the assessee Shri M.A. Bakshi submitted that notwithstanding the fact that no appeal was filed against the order of the Commissioner (A) for the earlier year, it could not be held against the assessee and the assessee is entitled to re-agitate the matter in a subsequent year. This is perhaps based on the principle of non-applicability of rule of res judicata in income-tax proceedings. He also relied upon a decision of the Supreme Court in the case of Jwala Prasad Agarwal reported in 86 ITR 154. We find force in the submission and we would like to decide this issue on the merits of this case as they obtain in this assessment year and not guided by the earlier decision. It is then contended that under the Companies Act the accounts of every company must be got audited by a Chartered Accountant appointed either by the Board of Directors or the Company Law Board depending upon the circumstances and the payment of fees to the auditors for the work done is thus a liability and since the liability is certain and unambiguous, it has to be provided for in the accounts even though no audit had taken place and no fee had been fixed. It is now a settled law according to the learned Advocate that if a statutory liability accrues, it has to be allowed as a deduction by estimating the claim of liability. In support of this proposition strong reliance was placed upon a decision of the Calcutta Co. Ltd. v. C1T [1959] 37 ITR 1 in which the Supreme Court has clearly laid down that for the purpose of computing the income under mercantile system of accounting, a legal liability must be estimated and allowed as a deduction provided the liability is certain and ascertained but the quantum remains unspecified. This decision was applied by the Allahabad High Court in another decision in CIT v. Burhiwal Sugar Mills Co. Ltd. [1971] 82 ITR 784 (All.). Relying upon these two decisions, the argument on behalf of the assessee was that the liability to audit the accounts arose and along with it the liability to pay the fees also arose and what remains was only the ascertainment of the fees, that could be estimated and that estimated amount could be allowed as a deduction. The assessee-company estimated its liability on the basis of the fees paid in the past. Therefore the amount should be held to be reasonably estimated and allowed as a deduction.
(3.) THE Departmental Representative opposed these submissions and relying upon the orders of the authorities below submitted that in this case the auditors were not appointed at all in the accounting year and therefore the question of providing for any fees for them did not simply arise. THE disallowance was therefore proper and justified and should be upheld.;