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TMI Blog2020 (7) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... penses to the extent of Rs. 17,21,805/-. (b) Miscellaneous expenses to the extent of Rs. 77,87,018/-. (c) Travel expenses to the extent of Rs. 4,87,24,855/-. 1.1 That the CIT(Appeals) erred in holding that since the above provision of expenses are reversed in subsequent year and actual invoice amount is booked, the provision is to be treated as contingent/unascertained liability for the year under consideration. 1.2 Without prejudice, the CIT(A) erred in upholding the disallowance without appreciating that claim for above expenses is 'revenue neutral' since per-se allowability of the above expenditure as 'business expenditure' under Section 37(1) of the Income Tax Act, 1961 (the "Act") is not doubted, albeit only the year of allowability is questionable. 2. That the CIT (Appeals) erred on facts and in law in confirming the disallowance of Rs. 68,00,000/- made by the AO on account of stamp duty paid in relation to leased business premises holding the same to be in the nature of capital expenditure merely on the ground that lease is for a period of 10 years. 2.1 That the CIT(Appeals) failed to appreciate that incurrence of the above stamp duty neither created any new asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 87,24,855/-. 6. The brief facts with respect to the disallowance of the provisions made on account of legal and professional charges shows that the learned assessing officer asked assessee to furnish the complete details and breakup of the legal and professional expenses. The assessee vide letter dated 27/12/2016 furnished the details. On perusal of the above details, the learned AO noted that assessee has made a provision of Rs. 519,586/- and Rs. 1,906,899 under the head legal and professional expenses. The AO held that the provisions are allocated towards probable, but not certain expenses, He held that it is just like a future obligations/expenses and any provision of expenses are treated as unascertained liability and the same cannot be allowed to be debited to the profit and loss account. Further, he held that, if the assessee has made any provisions during the year, then at first, it should have offered the above provision for taxation and therefore it could have claimed the same as per the actual expenses. According to him, assessee has also not deducted tax at source on the aforesaid payment. He therefore held that any provisions of expenses are treated as an unascertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es been given by the assessee about when the provisions were created and subsequently offered for taxation. No evidences was also filed before the learned CIT (A) as to when this provisions were created and the detailed calculation of how the expenditure has been accrued and taken as an expenditure under the head legal and professional expenditure for the year under consideration. The ld AO further submitted that invoices under the tax deduction at source certificate submitted by the appellant were checked on simple basis and are found to be related to the expenditure claimed by the appellant. Based on this, the learned CIT - A held that the contention of the assessee is not accepted as assessee admitted that the provision for legal and professional expenses are charged to the profit and loss account for the month of March 2013 subsequently reversed in the month of April 2013 by crediting to the profit and loss account. On receipt of the invoices, actual amount of expenditure is debited to the profit and loss account for financial year 2013 - 14, i.e. subsequent year to the assessment Year. He also perused the details of the expenses filed by the assessee about the accrual for lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained liability. Appellant also submitted that the accrued miscellaneous expenditure is charged to the profit and loss account for the month of March 2013 and if invoices are not received, it is subsequently reversed in the month of April 2013 by crediting the profit and loss account. On receipt of invoices, actual amount of expenditure was debited to the profit and loss account for financial year 2013 - 14. The assessee further submitted that sum of Rs. 68 lakhs was disallowed by the learned assessing officer on account of stamp duty charges are also included in the above sum of accrued miscellaneous expenditure of Rs. 1,45,87,018/- and therefore there is a double disallowance. The learned and CIT - A obtained the remand report of the assessing officer who checked the evidence submitted by the assessee in the form of invoices and Ledger account on sample basis and found to be related expenditure claimed by the assessee. However, The learned CIT - A did not accept the explanation of the assessee that the invoices pertain to the services availed/expenses incurred by the appellant during financial year 2012 - 13 relevant to the assessment year 2013 - 14 and liability related to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the actual expenses in the next financial year, assessee has reduced the profit/income during the year by debiting the accrued travel expenses in the profit and loss account. He further held that assessee has not given any justification for reversing the expenses in the next financial year on the plea that revenue should not dispute the deductibility in one year or the other if the deduction is per se allowable. He rejected this contention of the appellant as the expenses to be debited in the year for which they pertained so that the correct income could be determined. He further noted that expenses debited on account of accrued travel expenses are contingent in nature as expenses to the extent of Rs. 36,073,963/- was reversed by the appellant in the next financial year. Therefore he held that the above expenditure are contingent in nature and not allowable as per the provisions of section 37 (1) of the act. 10. The learned authorised representative submitted that these are the expenses, which have been disallowed by the lower authorities for the only reason that the provisions are made in the year on the basis of the estimated liability accrued during the year for which the bill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ival contentions and perused the orders of the lower authorities. Looking to the facts of the case, the assessee, at the close of the year i.e. on 31 st March makes provision of various expenses. It may happen that the invoices of the parties at that time while finalizing the accounts of the assessee are not received. In such cases, assessee makes estimated provisions of the expenses based on mandate/ agreement etc. Such provision is made by debiting the relevant expense account and crediting the expenses payable account. The relevant expenses account naturally is debited in the profit and loss account of that particular year. The provision of expenses payable account is naturally shown under the head sundry creditors/ expenses payable/ liabilities etc in the balance sheet at the close of the year. On the first day of next year, this account of Expenses payable is credited to the respective Expenses account of the next year. As and when those bills are received for, which provision was made in the last year, for which provision of Expenses payable reversed by crediting expenses account of next year, assessee debits the amount of invoices to that respective expenditure account. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the appellant has taken premises on lease from 1 April 2013 to 31st of March 2023 for which it has paid stamp duty charges of Rs. 68 lakhs. The lease is for the long period and is of enduring benefit to the appellant hence the learned assessing officer has correctly treated the expenses incurred on stamp duty as capital in nature. Thus, he confirmed the disallowance. 15. The learned authorised representative submitted that this issue is now covered by the decision of the honourable Bombay High Court in case of Commissioner Of Income Tax - III Versus Reliance Industrial Infrastructure Ltd in 61 taxmann.com 407-[234 taxman 256] wherein the assessee had taken a land of lease for a period of 30 years and stamp duty was paid in respect of the deed of lease executed by the assessee with the lessor. The assessee treated it as revenue expenditure as the expenditure was incurred for carrying on the business. The AO on the identical facts held it to be deferred revenue expenditure. The honourable High Court held that it is revenue expenditure. He therefore submitted that issue is squarely covered in favour of the assessee. 16. The learned departmental representative supported the order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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