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14. Re : Question No. (2) :

This question relates to a provision of Rs. 75,51,000 made and debited by the assessee, under the head 'salaries and wages' in respect of unutilised leave by its employees as on 31st December, 1975. During the earlier years, the assessee had not made any such provision, as it used to debit only the actual payments made in the accounting year, towards unutilised leave.

14.1 The assessee contended that the provision of Rs. 75,51,000 was made by evaluating the number of days of leave standing to the credit of the individual employees, with reference to their salary, as at the end of the accounting year; that a systematic and regular record of leave earned and utilised by its employees was maintained and the liability had been quantified with reference to the individual rate of salary, as at the end of December, 1975. It was stated that the leave entitlement was as per the provisions of the Factories Act, 1948 read with Memoranda of Settlement entered between the assessee and the Employees Association from governing the matter.

14.2 The ITO held that the provision made was only to meet a contingent liability and not an ascertained liability and, therefore, disallowed the expenditure relying on the decision of the Madhya Pradesh High Court in Chhaganlal Textile Mills Ltd. vs. CIT (1966) 62 ITR 274 (MP) : TC 16R.1513 and the decision of the Bombay High Court in CIT vs. Raj Kumar Mills Ltd. (1971) 80 ITR 244 (Bom) : TC 15R.803.

14.3 In an appeal by the assessee, the CIT(A) found that the assessee had got regular leave records for all its employees in conformity with the Factories Act, 1948 and had given full details in regard to the provision made; that apart from annual leave, the employees were also entitled to premium leave depending on the length of their service as also sick leave; that the assessee had a systematic and regular record of leave earned and utilised during the year in respect of each employee and the liability of Rs. 75,51,000 had been quantified from such records. He, therefore, held that the provision of Rs. 75,51,000 was not a contingent liability, but an expenditure that was allowable. He purported to follow two decisions of the Supreme Court in Calcutta Co. Ltd. vs. CIT and Metal Box Co. of India Ltd. vs. Their Workmen . The Revenue filed a second appeal before the Tribunal. The Tribunal upheld the decision of CIT(A) holding that the assessee was entitled to claim the said provision as an expenditure. Feeling aggrieved, the Revenue has sought this reference.