2020 (11) TMI 701 - AT - Income Tax

Disallowance of provision for unreconciled OD and CC loan - AO has made addition on the basis of provisional profit and loss account and the balance sheet - CIT-A deleted the addition - HELD THAT - On perusal of the financial statement no where it is appearing in the profit and loss account. Therefore, the AO was not justified to make addition on this account and the CIT(A) has rightly deleted the addition made by the AO. Provisions debited into profit and loss account without creating any liability is not allowable under the Income Tax Act but in the financial statements produced before us, we also do not find anywhere that the particular amount has been debited into the profit and loss account. The findings recorded by the CIT(A) in this regard are justified. Accordingly, we uphold the order of the CIT(A) with regard to deletion of addition made by the AO under the head provision for unreconciled OD and CC loan and dismiss the appeal of the Revenue.

Summary

Issues:
1. Disallowance of provision for unreconciled OD and CC loan.

Analysis:
The appeal was filed by the Revenue against the order of the CIT(A) concerning the disallowance of a provision for unreconciled OD and CC loan. The AO rejected the books of accounts under section 145(3) as the statutory audit was pending. The AO disallowed the provision amounting to ?1,91,32,790 debited in the profit and loss account, stating it was not an admissible deduction under the Income Tax Act. The CIT(A) deleted the addition, leading to the Revenue's appeal before the ITAT.

The CIT(A) observed that the provision was debited in the final accounts, not the provisional accounts used by the AO for determining the total income. As the provision was not part of the provisional accounts, the CIT(A) concluded that the addition made by the AO could not be sustained and ordered its deletion. The ITAT upheld the CIT(A)'s decision, noting that the provision was not reflected in the profit and loss account presented during the proceedings. Consequently, the ITAT dismissed the Revenue's appeal, affirming the deletion of the addition for the provision for unreconciled OD and CC loan.

In conclusion, the ITAT concurred with the CIT(A)'s findings, emphasizing that debiting provisions into the profit and loss account without creating a liability is not permissible under the Income Tax Act. As the provision was not included in the provisional accounts and was absent from the financial statements, the ITAT upheld the CIT(A)'s decision to delete the addition made by the AO. Thus, the Revenue's appeal was dismissed, affirming the deletion of the disallowed provision amount.