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2023 (3) TMI 365 - AT - Income TaxAddition on account of provision for Solid Waste Dispsal Expenses - contingent liability or accrued liability - As per the AO, the assessee did not submit any documentary evidence clarifying whether the amount for which provision was made was based on actual incurrence of expenses and inquiry revealed that expenses actually incurred in subsequent years i.e. financial years 2015-16, 2016-17 2017-18 fell short of the amount provided for,the AO held that the provision related only to a contingent liability and disallowed the same - CIT-A deleted the addition - HELD THAT - We find that the ld.CIT(A) has held the provision created by the assessee to be allowable as an accrued liability taking note of the fact that income in relation to the solid waste disposal under taken by the assessee was already accounted for in the impugned year, and since the assessee could not carry out the disposal of solid waste on account of non-availability of proper site and had kept the waste at temporary site, it had booked the expenses for the disposal of the waste at the permanent site,commensurate to income accounted for by it ,on the basis of the actual estimation of expenditure which were required to be incurred. DR was unable to controvert these factual findings of the ld.CIT(A). CIT(A) has further noted that this accounting method followed by the assessee was in consonance with the prescribed Accounting Standard and policy in accordance with the Prudence norms. That it complied accordingly with section 145 of the Act requiring income to be computed in accordance with notified accounting standards. DR was unable to controvert the same. In view of the above, we find no infirmity in the findings of the Ld.CIT(A) that the provision made by the assessee was not a contingent liability but an accrued liability, and therefore was allowable claim of the assessee. The order of the ld.CIT(A) is accordingly upheld, and the appeal of the Revenue is dismissed.
Issues Involved:
1. Whether the provision for Solid Waste Disposal Expenses amounting to Rs. 7,77,73,600/- made by the assessee is an allowable expenditure or a contingent liability. Issue-wise Detailed Analysis: 1. Provision for Solid Waste Disposal Expenses: The Revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals)-3, Ahmedabad, which deleted the addition of Rs. 7,77,73,600/- made by the Assessing Officer (AO) on account of provision for Solid Waste Disposal Expenses. Facts and AO's Findings: During the assessment proceedings, the AO noted that the assessee had claimed Rs. 7,77,73,600/- as a provision for solid waste disposal expenses. This amount included transportation charges and expenses for dumping solid waste. The AO disallowed this provision, considering it a contingent liability, as the expenses actually incurred in subsequent years were less than the provision made. The AO's findings were based on the principle that only actual liabilities could be allowed as expenditure, not contingent ones. Assessee's Contentions: The assessee argued that it was engaged in disposing of solid waste generated by its member units and had to provide for the expenses incurred for this activity. The provision was made based on actual estimates and was in accordance with the mercantile system of accounting. The assessee also provided evidence of expenses incurred in subsequent years to support the provision made. Several case laws were cited to support the claim that the provision was an accrued liability and not a contingent one. CIT(A)'s Findings: The CIT(A) accepted the assessee's contentions and deleted the disallowance. It was noted that the assessee had booked income from solid waste disposal and had to provide for the corresponding expenses. The provision was made based on actual estimates and was in line with the prescribed accounting standards and principles of prudence. The CIT(A) also observed that the provision was justified by the actual expenses incurred in subsequent years. Tribunal's Analysis: The Tribunal upheld the CIT(A)'s order, agreeing that the provision for solid waste disposal expenses was an accrued liability and not a contingent one. The Tribunal noted that the income from solid waste disposal was already accounted for in the impugned year, and the provision for expenses was based on actual estimates required to be incurred. The accounting method followed by the assessee was in accordance with the prescribed accounting standards and section 145 of the Act. The Tribunal found no infirmity in the CIT(A)'s findings and dismissed the Revenue's appeal. Conclusion: The Tribunal concluded that the provision for solid waste disposal expenses made by the assessee was an allowable claim as an accrued liability. The appeal of the Revenue was dismissed. Order: The appeal of the Revenue is dismissed. The order was pronounced in the Court on 6th March 2023 at Ahmedabad.
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