2014 (12) TMI 1170 - AT - Income Tax

Disallowance of provisions for expenses - Held that - It is to be seen that provision was made looking to the nature and quantity of expenses on a bona fide estimate. Had the assessee was having exact details of expenses then it could have quantified the expenses. It has made the provision because it was difficult to quantify the expense with supporting details. Thus n our opinion the assessee made the provision on a bona fide belief, while setting off the provision with the actual, certain amounts resulted to be excess. The moment such excess amount resulted assessee has returned it back and offered it for taxation. If this amount is disallowed here then it will be taxed twice, once in this assessment year and again in the year in which assessee has offered it. Whenever any provision is made for the expenses some plus and minus is possible because provision cannot be made with exactness. As far as the other aspect is concerned that assessee has offered it for the next year, we are of the view that after adjusting the account when assessee realized the real facts it offered the excess provision for taxation immediately in the subsequent year. Thus, looking into the entire facts and circumstances we are of the view that the disallowance does not call for and we delete the same. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of provisions for expenses amounting to Rs. 10,37,000.
2. Disallowance under section 14A.

Analysis:

Issue 1: Disallowance of provisions for expenses
The appeal was filed against the order of CIT(A) for the assessment year 2009-10 regarding the disallowance of provisions for expenses amounting to Rs. 10,37,000. The assessee had made provisions for various expenses without actual quantification due to the absence of bills. However, in the subsequent year, the assessee paid a portion of the provisions and accounted for the balance in its income. The Tribunal noted that the provisions were made based on the actual crystallization of expenses and found no justifiable reason to disallow them. Reference was made to a previous Tribunal order in the assessee's own case where a similar disallowance was deleted. The Tribunal emphasized that the provisions were made on a bona fide estimate and any excess amount was returned and offered for taxation in the subsequent year. Therefore, the Tribunal held that there was no merit in disallowing the claim of expenses at Rs. 10,37,000 for the current year.

Issue 2: Disallowance under section 14A
The next ground of disallowance under section 14A was not pressed by the learned AR and was accordingly dismissed as not pressed. As a result, the appeal of the assessee was allowed in part, with the order pronounced on 31st December 2014 by the Appellate Tribunal ITAT Mumbai.