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2020 (9) TMI 63 - AT - Income TaxAccrual of expenditure liability - correct year of assessment - Disallowance of expenses claimed through computation of total income though not accounted in this year but in preceding previous year - Whether expenditure incurred by the assessee has accrued as a liability in financial year 2011 12 or 2012 13? - HELD THAT - In the present case on reading of the agreement executed by the assessee, disclosure of notes as discussed above in the financial statements, clearly shows that provision of expenses made by the assessee for assessment year 2012 13 is in conformity with proper accounting principles, where according to the assessee itself, the above liability arose in that year, correctly shows that expenditure was incurred by the assessee is accrued liability for assessment year 2012 13 and not assessment year 13 14. On perusal of the order of AO who has given the detailed finding that why the above liability did not accrue in assessment year 13 14 but in assessment year 12 13, based on the appreciation of the agreement shown by the assessee cannot be found fault with. In view of this, we confirm the actions of the lower authorities in disallowing the expenditure of ₹ 33.92 crore is claimed by the assessee in this assessment year i.e. assessment year 2013 14 as it does not pertaining to this year. Accordingly, ground of the appeal is dismissed. Disallowance of utilization of the provisions for obsolescence - assessee has reduced in the computation of total income sum from its income on account of users of provision for obsolescence claimed to have been offered to tax in the prior years - HELD THAT - As before the AO the assessee has not furnished the details of treatment given to it to the provision of obsolescence created by the assessee and utilized by the assessee. Assessee also did not substantiate with adequate evidence about the disallowance of the provision made in the earlier years. Also not established that how the utilization of provision of the inventory is allowable as deduction in this year - provision has been made by the assessee for obsolescence of inventory applying the provisions of the accounting standard 29 related to the provisions, contingent liabilities and assets. It is also required to be appreciated that the order passed by the learned CIT A on the merits of the issue where the assessee could not represent its case before her. Whole issue has not been examined by any of the lower authorities in the right perspective. Even the assessing officer has stated that in note number 11 inventory being note to account for assessment year 2013 14 the assessee has used the entire provision in assessment year 2012 13 and nothing was left to be carried forward is completely erroneous. Differential interest income as per profit and loss account and amount as per Form No 26 AS for the subject year - HELD THAT - Interest income is chargeable to tax in the year in which it accrues. It cannot be an excuse that assessee has offered the income in subsequent assessment year. Therefore, as there is no clarity that what is the amount of interest income booked by the assessee with respect to all the parties from womb interest has been earned and which has disclosed in form number 26AS before the subject assessment year, we set aside the whole issue to the file of the learned assessing officer with a direction to the assessee to show with proper evidence that what is the amount of income that has been credited in the books of account for the subject assessment year and what is the amount of interest shown in form number 26AS for the subject AY. AO is directed to examine the same, after giving the proper opportunity of hearing to the assessee, decide the issue on the merits afresh. Accordingly, ground number three of the appeal is allowed with above direction.
Issues Involved:
1. Disallowance of payment to Vista Information Systems Pvt Ltd. 2. Deduction of Actual Usage of Provision for Obsolescence. 3. Enhancement of Interest Income. 4. Non-grant of TDS credit. 5. Levy of penalty under section 271(1)(c) of the Act. Detailed Analysis: 1. Disallowance of Payment to Vista Information Systems Pvt Ltd: The primary issue was whether the payment of ?33.92 crore to Vista Information Systems Pvt Ltd should be disallowed. The assessee, due to the global bankruptcy of the Nortel group, sold various businesses and had to transfer certain obligations to Vista. The liability was accounted for in the financial year ending 31.03.2012 but claimed in AY 2013-14. The AO and CIT(A) disallowed the claim for AY 2013-14, stating that the liability pertained to AY 2012-13. The Tribunal upheld this disallowance, noting that the liability accrued in AY 2012-13 as per the mercantile system of accounting followed by the assessee. The Tribunal also referenced the agreement and financial statements, confirming that the liability was correctly accounted for in AY 2012-13, and thus could not be claimed in AY 2013-14. 2. Deduction of Actual Usage of Provision for Obsolescence: The assessee claimed a deduction of ?25,851,322 on account of the actual usage of provision for obsolescence, which was offered to tax in prior years. The AO disallowed the deduction, stating that the assessee did not provide evidence that the amount was offered for taxation in earlier years. The CIT(A) upheld this disallowance. The Tribunal remanded the issue back to the AO for verification, directing the assessee to substantiate that the provision was indeed disallowed in prior years and that the utilization in the current year was legitimate. 3. Enhancement of Interest Income: The AO added ?8,208,537 to the assessee’s income due to a discrepancy between the interest income shown in the profit and loss account and Form 26AS. The CIT(A) upheld this addition. The Tribunal noted that the assessee provided a revised breakup of interest income and its reconciliation with Form 26AS during the assessment proceedings, which was not considered by the AO. The Tribunal remanded the issue back to the AO for fresh examination and reconciliation of the interest income as per the revised details provided by the assessee. 4. Non-grant of TDS Credit: The assessee claimed that the AO did not grant TDS credit amounting to ?27,349,580. This ground was not pressed during the hearing as the credit had already been granted. Consequently, this ground was dismissed. 5. Levy of Penalty under Section 271(1)(c) of the Act: The assessee contested the initiation of penalty proceedings under section 271(1)(c). The CIT(A) dismissed this ground, stating it was premature. The Tribunal upheld this view, noting that the initiation of penalty proceedings does not aggrieve the assessee as they will have the opportunity to contest the penalty during the penalty proceedings. Hence, this ground was dismissed as premature. Conclusion: The appeal was partly allowed with directions for fresh examination on the issues of the deduction for the provision for obsolescence and the enhancement of interest income. The disallowance of the payment to Vista was upheld, and the grounds regarding TDS credit and penalty initiation were dismissed.
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