9911796707
|
Home
Issues:
Income tax assessment regarding contingency provisions and deduction eligibility. Detailed Analysis: The case involves an income tax reference application under section 256(2) of the Income Tax Act, 1961, arising from a dispute over the deduction of contingency provisions by a company. The company initially declared an income of Rs. 31,49,270, which was later revised to Rs. 3,45,842, with a claim of Rs. 19,92,263 for contingency provisions. The Inspecting Assistant Commissioner allowed a deduction of Rs. 5,97,867 but disallowed the remaining amount. The Commissioner of Income-tax (Appeals) observed that excess contingency provision was taxable in a previous year and allowed a deduction of Rs. 13,94,396. The Income-tax Appellate Tribunal set aside the Commissioner's order and directed the matter to be computed as in previous years, stating that the company's accounting method remained consistent. The Revenue argued that the excess amount should be taxed, with a deduction as per the Commissioner's order. The dispute centered on whether the Tribunal was justified in setting aside the Commissioner's order and directing the computation of income based on previous years' methods. The Tribunal rejected the reference application, considering it a question of fact rather than law. The petitioner contended that the company changed its contingency computation method annually and that the Tribunal failed to distinguish between concluded sales and work-in-progress. The Tribunal's decision was supported by the non-petitioners, emphasizing the consistency in the company's accounting method. Citing relevant case law, the court held that expenditure deductible for income tax must be towards an existing liability, distinguishing between actual and contingent liabilities. The court found a legal question arising from the Tribunal's order, requiring consideration. Consequently, the court accepted the reference application, directing the Tribunal to refer the question for the court's decision within three months. In conclusion, the court's judgment addressed the contentious issue of deduction eligibility for contingency provisions in income tax assessment, emphasizing the distinction between actual and contingent liabilities. The decision highlighted the need for a legal review of the Tribunal's directive, underscoring the importance of consistent accounting practices and adherence to legal principles in tax assessments.
|
