P. C.-
This Appeal under Section 260A of the Income Tax Act, 1961 (the Act), takes exception to the order dated 6th May, 2013 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order dated 6th May, 2013 relates to the Assessment Year 2005-06.
2. Mr. Bajpayee, learned Counsel appearing for the Revenue, Revenue urges only the following question of law for our consideration:
"Whether on the facts and in the circumstance of the case and in law, the Tribunal was correct in holding that the CIT was not justified in invoking the provisions of section 263 on the issue of disallowance of provision made for contribution to Solatium Fund?".
3. The Respondent-Assessee is engaged in the business of General Insurance. For the subject Assessment Year, the Respondent-Assessee had filed its return of income, declaring an income of Rs. 83.34 Crores. During the assessment Proceedings, it was noted by the Assessing Officer that the Respondent-Assessee had debited an amount of Rs. 3.46 Crores being a provision made for its contribution to Solatium funds. The Assessing Officer called upon the Respondent-Assessee to explain its above claim. The Respondent-Assessee in response, by letter dated 15th September, 2008 explained that the Solatium fund, is a scheme framed by the Central Government to compensate the victims of hit and run motor accidents. The Motor Vehicle Act defines a hit and run motor accident as an accident arising on use of motor vehicle/ motor vehicles whose identity cannot be ascertained in spite of reasonable efforts. Therefore, Insurance Regulatory and Development Authority (IRDA) by a letter dated 18th March, 2003 directed all General Insurance Companies to contribute to the Solatium fund established by the Central Government at the rate of 1% of the gross premium earned on all motor policies during the year. In the above view, the Respondent-Assessee had made a provision of Rs. 3.46 Crores for the subject Assessment Year being its contribution to Solatium funds on the basis of the premium earned. This amount was excluded while arriving at its profits/ income for the subject Assessment Year. The Assessing Officer being satisfied, accepted the claim of the Respondent-Assessee in respect of provisions for contribution to Solatium funds. The Assessing Officer passed an order on 24th December, 2008 under Section 143(2) of the Act (the Act), determining the total income at Rs. 101.59 Crores.
4. The Commissioner of Income Tax (CIT) by an order dated 30th March, 2014 passed under Section 263 of the Act, revised the order dated 24th December, 2008, of the Assessing Officer. This Revision was inter alia, on the ground that the same is erroneous and prejudicial to the interest of the Revenue. This on the ground that a deduction was claimed by debiting a provision made not on any scientific basis. Further, the requirement of setting apart of 1% of premium received towards Solatium fund was scaled down in May, 2005 by the IRDA to only 0.1%. Therefore, the provision made for contribution to the Solatium fund in the subject Assessment Year was in the nature of contingent liability and cannot be allowed as expenditure. Therefore, the amount of Rs. 3.46 Crores being the expenditure provided for as contribution to the Solatium fund to the Central Government was disallowed.
5. Being aggrieved, the Respondent-Assessee carried the issue in appeal to the Tribunal. The Tribunal by the impugned order holds that the provision made for contribution to the Solatium fund as directed by the IRDA was an ascertained liability for the subject Assessment Year made in terms of directions dated 18th March, 2003. The impugned order holds that in the subsequent Assessment Year, the payment to be made to the fund was scaled down in May 2005 by IRDA to 0.1% of the premium and payment was made into the fund in September, 2005 would not make the liability in the subject Assessment Year a contingent liability. Moreover, it records that in cases where provision made has been allowed as an expenditure in the subject Assessment Year is in excess of what is finally paid in the next/ subsequent years, then Section 41(1) of the Act ensures that the excess amount allowed as expenditure in next/subsequent year, is brought to tax. The impugned order holds that for the purpose of invoking Section 263 of the Act, the order of the Assessing Officer must satisfy twin conditions viz: the order must be erroneous and it must be prejudicial to the Revenue. In the present case, the impugned order holds that the view by the Assessing Officer was a possible view which is not shown to be erroneous and/or perverse in law. Therefore, the Tribunal by the impugned order allowed the Respondent-Assessee's Appeal.
6. The only grievance urged on behalf of the Revenue before us is that the payment was made to the Solatium fund only in September 2005 at 0.1%. Therefore, during the subject Assessment Year, the provision could not be allowed as an expenditure as it was a contingent liability.
7. We note that the impugned order of the Tribunal has after elaborate discussion come to the conclusion that in facts of this case, the order passed by the Assessing Officer dated 24th December, 2008, cannot be said to be erroneous in law. The provision made for contribution to the Solatium fund during the subject Assessment Year were as per the scheme introduced by the Central Government and as directed by IRDA. This provision was to be made at the rate of 1% of the premium received during the subject Assessment Year as done in the earlier Assessment Year also. This was to provide for contribution to a fund to be formed to make payment to victims of hit and run accident. The Apex Court in Bharat Earth Movers Ltd., v/s. CIT 245 ITR 428 has observed as under:
"The law is settled: if a business liability has definitely arises in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a further 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."
In this case, the liability of making a contribution to the Solatium fund at 1% of premium received, is a certain liability in view of IRDA letter dated 13th May, 2004. Therefore, it is not a contingent liability during the subject Assessment Year. In fact, this Court in Shrikant Textiles v/s. CIT 81 ITR 222 has held that whether a liability is ascertained or contingent for a subject Assessment Year, cannot be decided/determined on the basis of the amounts paid in the subsequent/next Assessment Year.
8. Therefore, in the above view, the question as framed does not give rise to any substantial question of law. Thus not entertained.
9. Accordingly, Appeal dismissed. No order as to costs.