2015 (8) TMI 1199 - AT - Income Tax

Contingent liability disallowed - Held that - Provision should be made for all known liabilities and losses even though the amount cannot be determined with certainty. In this case, the assessee is not disputing the liability at all. The assessee is disputing only quantification of demand raised by the electricity board. Therefore, in our view incurring of liability is certain and it is not contingent. Only quantification is to be made as to how much expenditure to be incurred on electricity charges. In the circumstances, we hold that expenditure is allowable expenditure. - Decided in favour of assessee. TDS on reimbursement of expenses - Held that - There is no categorical finding that expenses were all only reimbursements made by the assessee. No such categorical finding is coming out from the orders of the lower authorities. The alternative submission of the assessee that the provisions of section 40(a)(ia) have no application for the payments made within the accounting year in view of the decision of the hon ble Allahabad High Court in the case of CIT v. Vector Shipping Services Pvt. Ltd. 2013 (7) TMI 622 - ALLAHABAD HIGH COURT is accepted, as this Tribunal is consistently holding such view. Therefore, for limited purpose of examining as to whether all these payments were made within the accounting year, this issue is remitted back to the file of the Assessing Officer - Decided in favour of assessee for statistical purposes. Disallowing the bad debts written off - Held that - Following the decision of the hon ble Supreme Court in the case of T. R. F. Ltd. 2010 (2) TMI 211 - SUPREME COURT we direct the Assessing Officer to delete the disallowance of bad debts of ₹ 18,440 which was written off by the assessee in the books of account.- Decided in favour of assessee

Summary

Issues:
1. Whether the liability disputed by the assessee for electricity charges should be treated as a contingent liability?
2. Whether the disallowance of expenses due to non-deduction of TDS is justified?
3. Whether the bad debts written off should be allowed as a deduction?

Issue 1: Liability Disputed for Electricity Charges
The appeal pertains to the assessment years 2004-05 and 2008-09. The primary contention was that the liability for electricity charges, though disputed in terms of quantum, should not be treated as a contingent liability. The Assessing Officer disallowed the amount, considering it uncertain until quantified by the Electricity Board. The Commissioner of Income-tax (Appeals) upheld this decision. However, the assessee argued that as per the Central Government's notification under section 145(2) of the Act, liabilities should be recognized even if the exact amount is uncertain. The Tribunal agreed with the assessee, emphasizing that the liability itself was certain, with only the quantum in dispute. Therefore, the expenditure was deemed allowable.

Issue 2: Disallowance of Expenses for Non-Deduction of TDS
The Assessing Officer disallowed certain expenses for the assessment years 2004-05 and 2008-09 due to non-deduction of TDS, invoking section 40(a)(ia) of the Act. The assessee contended that these expenses were reimbursements and not subject to TDS provisions. The Commissioner of Income-tax (Appeals) upheld the disallowance without a clear finding on whether the expenses were indeed reimbursements. The Tribunal referred to the decision of the Allahabad High Court and remitted the issue back to the Assessing Officer to verify if the payments were made within the accounting year, as disallowance under section 40(a)(ia) would not apply in such cases.

Issue 3: Disallowance of Bad Debts Written Off
For the assessment year 2008-09, the Assessing Officer disallowed a portion of bad debts written off by the assessee, categorizing it as a capital loss. The Commissioner of Income-tax (Appeals) upheld this disallowance. The assessee argued that the bad debts written off should be allowed as a deduction, citing the decision of the Supreme Court. The Tribunal, in line with the Supreme Court's ruling, directed the Assessing Officer to delete the disallowance of bad debts written off, emphasizing that a simple write-off in the books suffices for claiming the deduction.

In conclusion, the Tribunal partly allowed the appeals of the assessee for statistical purposes, ruling in favor of the assessee on the issues related to the disputed liability for electricity charges and the bad debts written off. The issue of expenses disallowed for non-deduction of TDS was remitted back to the Assessing Officer for further examination.