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TMI Blog2023 (10) TMI 913X X X X Extracts X X X X X X X X Extracts X X X X ..... ear and allowing the same in the subsequent year is a revenue neutral exercise. Further, in the case of CIT vs. Triveni Engineering and Industries Ltd. [ 2010 (11) TMI 90 - DELHI HIGH COURT ] held that when admittedly, the expenditure incurred by the assessee on project was admissible deduction and only dispute was regarding the year of allowability of expenditure, considering that assessee was a company assessed at uniform rate of tax, entire exercise of seeking to disturb the year of allowability of expenditure would, in any case to a tax revenue neutral exercise. In our considered view, the Ld. CIT(A) has not erred in facts and in law in allowing the appeal of the assessee on this issue. Allowability u/s 40(a)(ia) - TDS provisions applicability when the recipient of such sum / income payable by the assessee is not identifiable - HELD THAT:- As in principle we agree with the aforesaid proposition laid down in the assessee s own case, however, we also observe that the assessee has taken a consistent position that such provision of expenses has been made by the assessee on the basis of actual services availed by the assessee during the year under consideration and such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia) for AY 2015-16, may lead to double deduction as the issue is still sub-judice before the ITAT. 4. The ld. CIT(A) has erred in law and facts in deleting the adjustment of Rs. 16,73,32,769/- being the addition made on account of provision of expenses while computing the income u/s. 115JB. 5. The appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary. 3. The assessee has taken the following grounds of appeal:- 1. In law and in the facts and circumstances of the appellant s case, the learned CIT(A) has grossly erred in treating Ground No. 1 of the appellant s appeal, as being general in nature and dismissing it. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming disallowance of Rs. 4,66,854/- being Employees contribution to ESIC made by the Assessing Officer on the ground that the aforesaid payment was made after the due date prescribed under the relevant ESI Act, even though the payment was made within the time prescribed under section 139(1) of the I.T. Act for filing the return of income. 3. On the facts and in the circumstances of the case, the learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and such method of accounting has been accepted by the Department. The CIT(A) allowed the appeal of the assessee with the following observations:- 5.4 On careful consideration of entire facts, it is observed that the Appellant has made provisions for various expenditure on consistent basis on year to year basis at year end. During the course of Assessment Proceedings as well as Appellate Proceedings the Appellant has provided details of provisions for expenses created during the year, reversal of such provisions in the subsequent year and actual expenses incurred before the date of filing Return of Income. The appellant has claimed that as bills pertaining to various services availed by it before finalization of accounts were not received, it has made provisions of such expenditure based upon actual service available it and such provision is made on scientific basis. It is not the case that appellant has made provision for such expenditure for very first time in annual accounts but same has been made consistently on year to year basis and even in subsequent years hence there cannot be any intention to reduce taxable income. The nature of expenditure as mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngent expenditure or unascertained expenditure. Similar finding is followed by my predecessor CIT(A) in his appellate order for AY 2015-16 and 2016-17. Consisting facts of year under consideration along with decisions referred supra, disallowance of provision for expenses made by AO for Rs. 16,73,32,769/- is deleted and this ground of appeal is allowed . 6. The Department is in appeal before us against the aforesaid relief granted by CIT(A). The Department submitted that the aforesaid expenses have been claimed on a purely provisional basis and the same have been reversed in the subsequent assessment year by the assessee which itself proves that the aforesaid provisional expenses are purely notional / contingent in nature and hence the same are not allowable. In response, the Counsel for the assessee submitted that the aforesaid expenses have been incurred on a scientific basis and the assessee have been claiming such expenses on a consistent basis for various assessment years and the Department has also accepted this consistent method followed by the assessee. 7. We have heard the rival submissions and perused the material on record. We are inclined to agree with the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of the product. In this case the warranty provisions had to be recognized because the assessee had a present obligation as a result of past events resulting in an outflow of resources and a reliable estimate could be made of the amount of the obligation. Therefore, the assessee had incurred a liability during the assessment year which was entitled to deduction under section 37 of the Income-tax Act, 1961. The present value of a contingent liability, like the warranty expense, if properly ascertained and discounted on accrual basis can be an item of deduction under section 37. The principle of estimation of the contingent liability is not the normal rule. It would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the assessee. It would also depend upon the historical trend and upon the number of articles produced. A provision is a liability which can be measured only by using a substantial degree of estimation. A provision is recognized when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 40(a)(ia) of the Act. 11. In appeal CIT(A) observed that the addition made by the Assessing Officer for Rs. 16,72,32,769/- on account of provision for expenses has already been deleted by CIT(A). So far as the alternate disallowance made by the Assessing Officer under Section 40(a)(ia) of the Act is concerned, the CIT(A) confirmed the order of the Assessing Officer and held that the assessee is liable for deducting TDS under Section 40(a)(ia) of the Act. However, CIT(A) observed that for the immediately preceding assessment year, i.e. A.Y. 2015-16, CIT(A) had upheld the disallowance of Rs. 13,58,03,489/-. The CIT(A) observed that since it is a policy of the assessee to make a reversal entry for provision in subsequent financial year, then if such amount is reversed by the assessee in current assessment year i.e. A.Y. 2016-17, then the same would be reduced from the taxable income. Accordingly, CIT(A) directed the Assessing Officer to verify the above accounting entries and if it is found that provision made in the earlier years is reversed in the current year, then income to that extent would be reduced. 12. Both the Department and the assessee are in appeal before us again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the amount payable to these recipients / payees cannot be determined and thereafter decide the issue in accordance with law, after giving due opportunity to the assessee of being heard. Accordingly, the matter is restored to the file of the Assessing with the aforesaid directions. 15. Accordingly, Ground Nos. 2 3 of the Department s appeal are dismissed and Ground No. 3 of the assessee s appeal is allowed for statistical purposes. Ground No. 4 of the Department s appeal:- CIT(A) erred in deleting the adjustment of Rs. 16,73,32,769/-, being the addition made on account of provision of expenses while computing the income under Section 115JB. 16. Since, in Ground No. 1 of the Department s appeal, we have held that CIT(A) has not erred in facts and in law in deleting the disallowance of Rs. 16,73,32,769/- being the addition made on account of provision of expenses, Ground No. 4 of Department s appeal, being consequential, is hereby dismissed. 17. In the result, Ground No. 4 of the Department s appeal is dismissed. 18. Ground No. 3 of Assessee s appeal has been allowed for statistical purposes in the preceding part of our ruling. 19. Before us, the Counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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