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2017 (12) TMI 1009 - HC - Income TaxAddition u/s 41 - provision made by the assessee on account of claim by the principal contractor due to deficiency in contract work - a contingent liability or an ascertained liability so as to entitle the assessee to claim deduction - Held that - As the appellant-Revenue has not placed on record a copy of the agreement between the respondent-assessee and BAPL as also correspondence extensively referred to by the Commissioner of Income Tax (Appeals), thus in the absence of the said documents and papers, it would be hazardous and difficult for us to answer the question framed above without examining the contents of the agreement and correspondence exchanged between the parties. Noticeably, the exchange of correspondence itself between the respondent-assessee and BAPL, and BAPL and BMC remained undisputed and was not under challenge. We decline and do not answer the question of law as the appellant-Revenue has not placed on record the said letters including the agreements mentioned above. Without the said documents, it will not be possible to answer the question. The case of the respondent-assessee as accepted by the first appellate authority and the Tribunal is that they had accepted and admitted their liability to pay ₹ 62.99 lacs to BAPL. That facet cannot, in absence of documents, be rejected and upset by us without the said documents on record. Accordingly, we decline to answer the question of law raised by the appellant-Revenue in the absence of documents and papers on record.
Issues Involved:
1. Whether the amount of ?62,99,100/- claimed by the assessee as a provision due to a claim by the principal contractor is a contingent liability or an ascertained liability eligible for deduction. Issue-wise Detailed Analysis: 1. Nature of Liability - Contingent or Ascertained: The core issue in this case is whether the amount of ?62,99,100/- claimed by the assessee as a provision due to a claim by the principal contractor is a contingent liability or an ascertained liability eligible for deduction. The respondent-assessee, a proprietor of M/s. N.J. Design Build, was assigned work as a sub-contractor by M/s. Bhasin Associates (P) Limited (BAPL) for the construction of an influent pumping station. The contract work was completed in the assessment year (AY) 1997-98, and the respondent-assessee opted for the "completed contract method" for taxation purposes. The Assessing Officer (AO) disallowed the deduction of ?62,99,100/- claimed by the assessee, arguing that it was a contingent liability and not an ascertained or accrued liability. This amount was part of a larger claim of ?54.10 crores raised by the Municipal Corporation of Greater Bombay (BMC) against BAPL in arbitration proceedings. The AO observed that the respondent-assessee's acceptance of liability was self-contradictory and unclear. 2. First Appellate Authority's Decision: The Commissioner of Income Tax (Appeals) allowed the deduction, distinguishing between the larger claim of ?54.10 crores and the specific claim of ?62,99,100/-. The appellate authority noted that the ?62.99 lacs liability was accepted by the respondent-assessee and did not depend on any future event, thus making it an ascertained liability. The authority cited legal precedents, including the Supreme Court's decision in Calcutta Co. Ltd. Vs. CIT and the Kerala High Court's decision in CIT Vs. Kerala Transportation Co., to support the view that the difficulty in ascertaining the quantum of liability does not prevent its accrual. 3. Tribunal's Decision: The Income Tax Appellate Tribunal upheld the first appellate authority's decision, affirming that the liability was accepted by the assessee and was not contingent. The Tribunal concluded that there was no dispute between the assessee and BAPL, and the liability was to be allowed as a deduction for the relevant year. 4. High Court's Observations: The High Court noted that the Revenue had not placed on record the agreement between the respondent-assessee and BAPL or the correspondence extensively referred to by the Commissioner of Income Tax (Appeals). The Court found it challenging to answer the question of whether the liability was contingent or ascertained without examining these documents. The Court highlighted that the correspondence between the respondent-assessee, BAPL, and BMC was undisputed and not under challenge. 5. Conclusion: In the absence of the relevant documents and papers, the High Court declined to answer the question of law raised by the appellant-Revenue. The Court emphasized that without the said documents, it would be hazardous and difficult to determine the nature of the liability. Consequently, the Court upheld the decisions of the first appellate authority and the Tribunal, which accepted the respondent-assessee's liability to pay ?62.99 lacs to BAPL as an ascertained liability. There was no order as to costs.
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