2021 (3) TMI 981 - AT - Income Tax

Unascertained Liabilities u/s 41(1) - CIT(A) has surprisingly restricted the disallowance to 50% of the outstanding balance on an ad hoc basis - HELD THAT - This is not permitted in law. CIT(A) rejected the books of accounts. When the Assessing Officer has not rejected the books of accounts of the assessee, we find no proper reason recorded by the ld. CIT(A) for rejecting the books of accounts. No defects have been pointed out in the books of accounts. The company is a Government company and its accounts are audited both by the statutory auditors as well as C AG. Such audited books cannot be rejected in such a casual manner. Ad hoc disallowances are arbitrary and cannot be upheld. Under the circumstances, we are of the considered opinion that the entire disallowance made by the Assessing Officer on the ground of cessation of unascertained liability is hereby deleted. The ground of the revenue is dismissed and the ground no.1 to 6 of the assessee s appeal are allowed. Disallowance of Stale Cheque - AR has submitted that the assessee from time to time transfers the stale cheque money back to its accounts if the amount has not been claimed - also that if at all the addition was to be made it cannot be made in the current year but should be made in the year in which these liabilities have arisen - HELD THAT - As perused the assessment order. The assessee is a public sector company, audited by C AG. The assessee has been following regular system of crediting stale cheques back to the accounts as and when it thinks that the liability has ceased to exist. Therefore, in view of the consistent accounting system followed by the assessee and also due to judgment cited GOODRICKE GROUP LIMITED 2011 (5) TMI 127 - CALCUTTA HIGH COURT and M/S. DLF LIMITED 2016 (3) TMI 679 - ITAT DELHI the additions could not have been made in the current year. In view of the above, I agree with the contention of the A/R. Addition made in the assessment order of interest on income-tax refund - assessee s case is that the interest of income tax refund is reflected as income during the assessment year 2017-18 i.e. when the interest was received and hence an addition of the same amount in the assessment year 2014-15 would tantamount to double addition - HELD THAT - We restore this issue to the file of the Assessing Officer for verification. In case the interest to income tax refund has been considered as income of the assessee for the assessment year 2017-18, then no separate addition can be made in this year.

Issues Involved:
1. Unascertained Liabilities
2. Advances Received from Government Authorities
3. Other Long Term Liabilities
4. Stale Cheque Liability
5. Interest on Income Tax Refund

Issue-Wise Detailed Analysis:

1. Unascertained Liabilities:
The Revenue argued that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in partly allowing the appeal of the assessee regarding unascertained liabilities, despite acknowledging that most of these liabilities would never materialize. The CIT(A) had observed that some liabilities might materialize, leading to a self-contradictory decision. The Tribunal noted that the CIT(A) had concluded that no additions could be made under Section 41(1) of the Income Tax Act, as the law cited by the assessee was in its favor. However, the CIT(A) had restricted the disallowance to 50% of the outstanding balance on an ad hoc basis, which was not permissible by law. The Tribunal found no proper reason for the rejection of the assessee's books of accounts, which were audited by statutory auditors and the Comptroller and Auditor General (CAG). Consequently, the Tribunal deleted the entire disallowance of ?61,18,91,390/- made by the Assessing Officer (AO) on the ground of cessation of unascertained liability.

2. Advances Received from Government Authorities:
The Revenue contended that the CIT(A) erred in allowing 50% relief to the assessee regarding the addition of ?14,34,82,518/- related to advances received from government authorities, while rejecting the assessee's books of accounts. The CIT(A) observed that the advances were received from government authorities, and the AO's observation that the parties were non-existent was incorrect. However, since the advances were outstanding for over ten years, the CIT(A) opined that the assessee was not following proper accounting and estimated that 50% of these amounts should be added to the total income. The Tribunal found the ad hoc disallowance arbitrary and deleted the entire addition.

3. Other Long Term Liabilities:
The Revenue argued that the CIT(A) erred in allowing 50% relief to the assessee on the addition of ?46,84,08,872/- under the head "other long term liabilities." The CIT(A) noted that these liabilities had been outstanding since March 31, 2005, and the assessee was not following the correct accounting process. The CIT(A) rejected the assessee's books of accounts and added 50% of the outstanding amounts. The Tribunal found this ad hoc disallowance arbitrary and deleted the entire addition.

4. Stale Cheque Liability:
The Revenue contested the deletion of the addition made by the AO on the ground of stale cheques amounting to ?53,75,000/-. The AO had treated these liabilities as unascertained and ceased to exist. The CIT(A) observed that the assessee, a public sector company audited by CAG, followed a regular system of crediting stale cheques back to the accounts. The CIT(A) agreed with the assessee's contention that the addition could not be made in the current year but should be made in the year in which the liabilities arose. The Tribunal upheld the CIT(A)'s finding and dismissed the Revenue's ground.

5. Interest on Income Tax Refund:
The assessee argued that the addition of interest on income tax refund for Assessment Year (AY) 2009-10 amounting to ?83,44,069/- was incorrect, as the interest was reflected as income in AY 2017-18. The Tribunal remanded this issue to the AO for verification. If the interest had already been considered as income in AY 2017-18, no separate addition should be made for AY 2014-15.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal in part, deleting the entire disallowance related to unascertained liabilities, advances from government authorities, and other long-term liabilities. The issue of interest on income tax refund was remanded to the AO for verification.

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