Provision for Salary Revision Allowed as Accrued Liability | ITAT

Case Details: Haffkine Bio Pharmaceutical Corporation vs. ACIT [2026] 182 taxmann.com 695 (Mumbai-Trib.)

Judiciary and Counsel Details

• Anikesh Banerjee, Judicial Member & Prabhash Shankar, Accountant Member
• Mayur Makadia for the Appellant.
• Hemanshu Joshi, SR DR for the Respondent.

Facts of the Case

The assessee, a Government of Maharashtra undertaking, has consistently followed the same method of creating provisions for salary revisions since the financial year 1976-77. It was bound to implement the Pay Commission’s recommendations as and when sanctioned by the State Government.

During the relevant assessment year, the assessee created a provision for salary on account of the expected increase in annual personnel cost arising from the implementation of the Sixth Pay Commission. The matter reached the Mumbai Tribunal.

ITAT Held

The Tribunal held that the assessee consistently followed the same method of creating provisions towards salary revision since the financial year 1976-77, based on past experience and a reasonable estimation of the enhanced liability. The provision in question was created in respect of services already rendered by the employees during the relevant previous year, and only the quantification of the enhanced salary was deferred to a future date, subject to formal approval.

The liability, therefore, had accrued during the year under consideration and cannot be characterised as contingent in nature. The mere deferment of approval or payment does not render the liability contingent. In view of the consistent accounting practice followed by the assessee, the binding nature of the Pay Commission recommendations, and the settled legal position that a provision for an accrued but unquantified liability is allowable as a deduction, the disallowance of the provision was unjustified.

List of Cases Reviewed

• CIT v. Bharat Heavy Electrical Ltd. [2012] 26 taxmann.com 252/210 Taxman 155 (Mag)/[2013] 352 ITR 88 (Delhi)
• TATA Communications Ltd. v. Jt. CIT [2013] 32 taxmann.com 197/57 SOT 1 (Mum-Trib) (para 10) followed

List of Cases Referred to

• CIT v. Bharat Heavy Electrical Ltd. [2012] 26 taxmann.com 252/ 210 Taxman 155 (Mag)/[2013] 352 ITR 88 (Delhi) (para 7)
• TATA Communications Ltd. v. Jt. CIT [2013] 32 taxmann.com 197/57 SOT 1 (Mum-Trib) (para 8).