2016 (6) TMI 1357 - AT - Income Tax

Accrual of expenses - Addition on account of financial assistance u/s 43B - Whether it is not a statutory liability and a voluntary liability agreed by the assessee to be paid to the families of the deceased employees of the assessee? - HELD THAT - The assessee was liable to provide financial assistance to the family of deceased employees, the calculation of the quantum being also specified in the notification. So far there is no dispute. But we find that theAR has not been able to demonstrate before us with the help of evidence that such liability arose during the year. It has not been shown as to why liability on account of aforesaid four persons was created during the year. If the persons were deceased employees, no evidence to that effect was brought on record. No basis of the calculation of the financial assistance provided to the four employees was brought on record. During the course of hearing before us, a specific query was raised by the Bench regarding the allowability of the claim of the impugned provision and the basis of the same in response to which the Ld. AR referred to the notification reproduced above and the voucher place at Paper Book page no. 21-24 and 14 respectively detailing the employees on account of whom the provision was created. This, we find, does not establish that the impugned provision of expense had accrued during the year and pertained to the year under appeal. Since the basic ingredient for allowability of an expense / claim, has not been satisfied by the assessee, the onus for which undoubtedly lies on the assessee, we hold that the provision created for financial assistance is not allowable - Decided against assessee. Addition on account of service charges on gunny bags payable to Food and Supplies Department, Govt. of Haryana being payable for procurement of gunny bags by the said department - HELD THAT - The facts in the present case, we find, are identical to that in the preceding year 2016 (6) TMI 1356 - ITAT CHANDIGARH no document evidencing the creation of the charge was produced before us in the present case also, despite a specific query raised by the bench in this regard. The issue is covered by the order of the Hon ble ITAT Bench Chandigarh in the preceding year and therefore respectfully following the same we hold that the provision for service charge is not allowable. - Decided against assessee.

Summary

Issues Involved:

1. Addition of ?39,21,960/- on account of financial assistance under Section 43B of the IT Act, 1961.
2. Addition of ?80,18,000/- on account of service charges on gunny bags payable to the Food and Supplies Department, Government of Haryana.

Issue-wise Detailed Analysis:

1. Addition of ?39,21,960/- on account of financial assistance under Section 43B of the IT Act, 1961:

The assessee contested the addition of ?39,21,960/- made by the AO, which was upheld by the CIT(A). The assessee argued that the amount was not covered under Section 43B as it was a voluntary liability agreed to be paid to the families of deceased employees, not a statutory liability.

During assessment proceedings, the AO noted that the assessee had made a provision of ?39.22 lacs for financial assistance payable to dependents of deceased employees but failed to produce documentary proof of the payments made. Consequently, the AO disallowed the claim.

On appeal, the CIT(A) corrected the AO's order to the extent that the disallowance was not covered by Section 43B but upheld it on the grounds that the provision was made for a future liability, which had not arisen during the year under consideration.

Before the Tribunal, the assessee reiterated the arguments and presented a voucher for the provision created and details of the financial assistance paid. The Tribunal found that while the assessee was liable to provide financial assistance as per a Haryana Government notification, it failed to demonstrate with evidence that such liability arose during the year. The Tribunal noted the absence of proof regarding the death of the employees and the basis for the calculation of the financial assistance. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the assessee's appeal on this ground.

2. Addition of ?80,18,000/- on account of service charges on gunny bags payable to the Food and Supplies Department, Government of Haryana:

The assessee challenged the addition of ?80,18,000/- made by the AO for the provision of service charges on gunny bags. The AO disallowed the provision, stating that no liability had been incurred by the assessee and that the expenditure was allowable only in the year of payment, irrespective of the accounting method followed.

The CIT(A) upheld the AO's decision, relying on a previous order in the assessee's case for AY 2010-11, where it was held that the provision for service charges on gunny bags was not allowable as it did not give a true picture of taxable profit. The CIT(A) emphasized that the provision was not allowable under Section 145A, which mandates the inclusion of amounts of tax, duty, fee, etc., actually paid for the valuation of goods.

Before the Tribunal, the assessee reiterated its contentions, while the Revenue relied on the CIT(A)'s order. The Tribunal reviewed the facts and noted that the issue had already been dealt with in the assessee's case for AY 2010-11, where the provision was disallowed due to the absence of an underlying agreement supporting the creation of the charge. The Tribunal found no new evidence to support the assessee's claim and upheld the CIT(A)'s decision, dismissing the appeal on this ground as well.

Conclusion:

The Tribunal dismissed the appeal, upholding the CIT(A)'s decisions on both grounds. The provision for financial assistance of ?39,21,960/- was disallowed due to the lack of evidence that the liability arose during the year. Similarly, the provision for service charges on gunny bags amounting to ?80,18,000/- was disallowed as it did not meet the requirements under Section 145A and lacked supporting documentation.