2020 (2) TMI 981 - AT - Income Tax

Claim of provisions made towards contingent and unascertained expenditure disallowance - admissibility of provisions created for unforeseen and unascertained expenditure - liabilities to pay arrear salary to the employees as per the recommendation of 6th Pay Commission - CIT-A deleted the addition - HELD THAT - CIT(A) while dealing with the issue has observed that the Board of Directors of assessee company on 323rd meeting held on 23.12.2008 has constituted a committee to examine and recommend the revision of sale of pay of the employees of IKIWL and IFCAL w.e.f.01.01.2006 in the line with State Government employees. The committee has mentioned that the corporation is in a position to bear the additional financial burden and the amount payable in F.Y.2008-2009 is crystallized when the Board of Directors of assessee company and the committees of the Board had taken the decision on 11.02.2009 16.02.2009 on the basis of ascertained liabilities to pay arrear salary to the employees as per the recommendation of 6th Pay Commission w.e.f. 01.06.2006. CIT(A) has rightly allowed the deduction towards pay revision debited to the profit and loss account holding the same as ascertained liability crystallized during the year under consideration. No good reason to interfere with the observations of the CIT(A) in deleting the addition so made by the AO on account of admissibility of provisions created for unforeseen and unascertained expenditure. Disallowance of write off of doubtful loans and advance to subsidiary - proper accounting treatment has not been given in the books of account for write off of advance - vehemently argued by ld. AR that in the said additional information the 1st column contains Opening Balance; 2nd column contains advance Released; 3rd column contains Advance refunded; 4th column contains Advance written off and 5th column contains closing Balance. Hence, the position of opening balance and closing balance is now clear - HELD THAT - We set aside the impugned order passed by CIT(A) and remit the matter to the file of CIT(A) to pass a fresh order after considering the submissions of the assessee as well as the documents filed by the assessee in the form of paper book before us. Needless to say, the assessee shall be given due opportunity of hearing. The assessee is also directed to cooperate the CIT(A) in early disposal of the case.

Summary

Issues Involved:
1. Deletion of addition made by AO disallowing the claim of provisions towards contingent and unascertained expenditure.
2. Disallowance of write-off of doubtful loans and advances to a subsidiary amounting to ?50 crores.

Issue-Wise Detailed Analysis:

1. Deletion of Addition Made by AO Disallowing the Claim of Provisions Towards Contingent and Unascertained Expenditure:

The Revenue appealed against the deletion of an addition of ?2,82,00,000/- made by the AO, who disallowed the provision for salary liability pending pay revision, considering it as contingent and unascertained. The AO argued that the business liability had not definitely arisen during the financial year 2008-09, citing specific comments by the Statutory Auditor. However, the CIT(A) deleted the addition, relying on judicial pronouncements, including the case of Haryana Agro Industries Corporation Ltd. and Bharat Heavy Electrical Ltd., and held that the provision towards pay revision was an ascertained liability crystallized in the year under appeal.

The Tribunal upheld the CIT(A)'s decision, noting that the Board of Directors of the assessee company had constituted a committee to examine and recommend the revision of pay scales, and the decision was made based on ascertained liabilities to pay arrear salary as per the recommendation of the 6th Pay Commission. The Tribunal found that the CIT(A) had rightly allowed the deduction towards pay revision debited to the profit and loss account, holding it as an ascertained liability crystallized during the year under consideration. The Revenue's appeal was dismissed.

2. Disallowance of Write-Off of Doubtful Loans and Advances to a Subsidiary Amounting to ?50 Crores:

The assessee appealed against the disallowance of ?50 crores written off as doubtful loans and advances to its subsidiary, IKIWL. The AO disallowed the claim, stating that proper accounting treatment had not been given in the books of account. The CIT(A) upheld the AO's decision, noting discrepancies in the accounting entries and concluding that the alleged sum had not been written off in conformity with the audited accounts.

The Tribunal, after considering the submissions and documents provided by the assessee, found that there was no accounting mistake in the write-off of advances given to IKIWL. The Tribunal noted that the CIT(A) had not properly understood the accounting entries and had made conclusions based on surmise and presumption. The Tribunal set aside the CIT(A)'s order and remitted the matter back to the CIT(A) for fresh consideration, directing the CIT(A) to pass a new order after considering the submissions and documents provided by the assessee. The assessee was also directed to cooperate with the CIT(A) in the early disposal of the case. The assessee's appeal was allowed for statistical purposes.

Conclusion:
- The Revenue's appeal regarding the deletion of addition for contingent and unascertained expenditure was dismissed.
- The assessee's appeal regarding the disallowance of write-off of doubtful loans and advances was allowed for statistical purposes, with the matter remitted back to the CIT(A) for fresh consideration.