2021 (6) TMI 151 - HC - Income Tax

Disallowance of deduction claimed in respect of transitional liability - scientific method adopted for ascertaining the transitional liability of Home Travel Concession (HTC) and Leave Fare Concession (LFC), Silver Jubilee Awards and Re settlement expenses - as per ITAT making the provision for transitional liability without uncertainty is not possible in respect of these expenses and, therefore, these transitional liabilities are rightly held as contingent liability - HELD THAT - Tribunal has not adverted to the submissions made on behalf of the assessee which is evident from the written submissions, a copy of which has been produced before us. The Tribunal has affirmed the findings of the Commissioner of Income Tax (Appeals) in a cryptic and cavalier manner. Therefore substantial question of law No.1 is answered in favour of the assessee.

Issues:
1. Disallowance of provision created by the assessee on the ground of contingency.
2. Upholding of lower authorities' orders without independent examination of facts.
3. Disregarding actuarial certificate and calculation.
4. Disallowance of deduction claimed for transitional liability.

Analysis:

Issue 1: Disallowance of provision created by the assessee on the ground of contingency
The appellant filed its return for Assessment Year 2008-09, and the Assessing Officer disallowed the provision created by the assessee, stating it was contingent in nature. The provision disallowed included transitional liability on leave fare concession, silver jubilee awards, and resettlement expenses. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal upheld the disallowance. The Tribunal held that the uncertainty in the provision-making process rendered the provision uncertain, making it rightly classified as a contingent liability. The Tribunal's decision was based on the fact that multiple variable factors impacted individual decisions, leading to collective uncertainty at the bank level for provisioning.

Issue 2: Upholding of lower authorities' orders without independent examination of facts
The appellant contended that the Tribunal failed to independently accept the submissions made on its behalf and merely affirmed the lower authorities' orders. The Tribunal's decision was criticized for being cryptic and cavalier in affirming the Commissioner of Income Tax (Appeals)'s order without a detailed independent examination of the facts and material. The High Court noted that the Tribunal, as the final fact-finding authority, should have recorded findings independently on the submissions made before it.

Issue 3: Disregarding actuarial certificate and calculation
The appellant argued that the actuarial certificate prepared by the actuarial valuer and the actuarial calculation based on reliable factors were disregarded by the lower authorities. However, the Tribunal upheld the lower authorities' decision without giving due consideration to the actuarial certificate and calculation. The High Court observed that the Tribunal's failure to address the submissions made on behalf of the assessee led to a lack of proper examination of the actuarial aspects of the case.

Issue 4: Disallowance of deduction claimed for transitional liability
The appellant claimed a deduction for transitional liability incurred for the business, under section 37(1) of the Income Tax Act. The Tribunal disallowed the deduction, despite the expenditure being incurred wholly and exclusively for the business. The High Court did not delve into this issue, as it found the need to remit the matter back to the Tribunal for a fresh decision based on a proper examination of all submissions and materials presented by both parties.

In conclusion, the High Court quashed the Tribunal's order and remitted the matter back to the Tribunal for a reevaluation, emphasizing the importance of a thorough and independent examination of all relevant facts and submissions before reaching a decision.

← Previous Next →