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2015 (5) TMI 182 - AT - Income TaxDisallowance of deduction of expenses - Whether the CIT(A) is justified in deleting the addition of ₹ 1,14,63,360/- made by the AO on account of provision of expenses - Held that - CIT(A) has categorically held that the expenses, which are claimed amounting to ₹ 1,14,63,360/- are accrued and ascertained liability and the same was credited to the provision account instead of vendor s account, in the absence of the final bill/invoice being received from the vendor. The CIT(A) further held that these expenses are not claimed on ad hoc basis nor it a non-existing liability. The CIT(A) was of the view these expenses have accrued in the current year and same is to be allowed as deduction because the assessee admittedly has been following the mercantile system of accounting. The Revenue has not placed on record any material to dispel the categorical findings of the CIT(A). - Decided against Revenue.
Issues Involved:
1. Whether the CIT(A) was justified in deleting the addition of Rs. 1,14,63,360/- made by the AO on account of provision of expenses. 2. The validity of reopening the assessment by issuance of notice u/s 148 of the Act. Detailed Analysis: Issue 1: Whether the CIT(A) was justified in deleting the addition of Rs. 1,14,63,360/- made by the AO on account of provision of expenses. The appeal before the Appellate Tribunal ITAT DELHI involved the Revenue's appeal and the cross objection filed by the assessee arising from the CIT(A)'s order dated 05.03.2012 for the assessment year AY 2004-05. The Revenue challenged the deletion of the addition of Rs. 1,14,63,360/- made by the AO on account of provision of expenses, while the assessee raised a cross objection regarding the validity of reopening the assessment under section 148 of the Act. The Appellate Tribunal noted that the CIT(A) allowed the claim of the assessee by finding that the provision for expenses made by the assessee was for expenses that were actually incurred during the year and for which liabilities were ascertained. The CIT(A) observed that the provision for expenses included amounts such as royalty payable to a party, statutory audit fees, and bonus payable to employees, all of which were accrued and ascertained liabilities. The CIT(A) held that these expenses were not ad-hoc provisions for nonexistent liabilities but were actual expenses incurred during the year. The CIT(A) also noted that the assessee followed the mercantile system of accounting. The Appellate Tribunal upheld the CIT(A)'s order, stating that the expenses claimed were accrued and ascertained liabilities and should be allowed as deductions. The Revenue failed to provide any material to dispute the findings of the CIT(A), leading to the rejection of the Revenue's appeal. Therefore, the Appellate Tribunal concluded that the CIT(A) was justified in deleting the addition of Rs. 1,14,63,360/- made by the AO on account of provision of expenses, as the expenses were accrued, ascertained liabilities and were allowable deductions under the mercantile system of accounting. Issue 2: The validity of reopening the assessment by issuance of notice u/s 148 of the Act. Since the Appellate Tribunal decided the issue on merits in favor of the assessee regarding the provision of expenses, the validity of reopening the assessment raised in the cross objection was not adjudicated. The Appellate Tribunal dismissed the cross objection on the validity of reopening the assessment as infructuous. In conclusion, the appeal of the Revenue and the cross objection filed by the assessee were both dismissed by the Appellate Tribunal, upholding the CIT(A)'s order regarding the deletion of the addition of provision of expenses and not adjudicating the issue on the validity of reopening the assessment. This detailed analysis provides a comprehensive overview of the judgment delivered by the Appellate Tribunal ITAT DELHI in the cited case.
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