What did the Tribunal hold?

The Tribunal held that the rent equalization provision was not an ascertained liability as no material was produced to show it was required for any possible enhancement in rent. The reversal of the provision in the next year further supported this conclusion.

The assessee company made a provision for rent equalization amounting to Rs. 2,67,47,337/-. The Assessing Officer and CIT(A) disallowed this provision, considering it not an ascertained liability.

What were the issues?

Whether a provision for rent equalization, made in compliance with accounting standards, constitutes an ascertained liability for disallowance purposes.

M/S Carnation Auto India Pvt… vs DCIT | ITAT Delhi 2022

Income Tax Appellate Tribunal, DELHI

Before: SH. R.K.PANDA & SH. ANUBHAV SHARMA

Hearing: 21.04.2022Pronounced: 21.04.2022

The assessee has filed the appeal against order dated 15.09.2016 in appeal no. 151/16-17 passed by the Commissioner of Income Tax (Appeals)-35, new Delhi for the assessment year 2013-14 in appeal before him against order dated 13.01.2016 u/s. 143(3) of the Income Tax, 1961 passed by DCIT, Circle 5 (2) , New Delhi.

./2016 M/s. Carnation Auto India P. Ltd. 2. The brief facts are the assessee company had filed its return declaring loss of Rs. 65,10,56,199/-. Assessee had made provision of rent equalization amounting to Rs. 2,67,47, 337/-. Case was selected for scrutiny and amongst other grounds an addition on account of provision for rent equalization was made by the Ld. AO and same was sustained by the Ld. CIT(A).

Now before the Tribunal the assessee has raised following ground of appeal :-

On the facts and circumstances, the Learned CIT(A) is not justified in sustaining the disallowance of Rs. 2,67,47,337/-, being the amount of rent equalization, on the ground that it is not an ascertained liability even though liability to pay the rent is definitely an ascertained liability and equalization is done to comply with the Accounting Standards issued by the Institute of Chartered Accountants of India in accordance with the guidelines of the Central Government.

4. The case was called for hearing on 21.04.2022 but non-appeared for the assessee. The record shows that after presentation of the appeal, none has appeared for the assessee on eight occasions when the matter was listed for hearing. Notices have been repeatedly issued to the assessee. The record shows that there is an order dated 9.10.2019 on record in for Assessment Year 2013-14 wherein the department’s appeal against the order dated 15.09.2016 of the Ld. CIT(A) was dismissed for low tax effect. At that time also none has appeared for the assessee. It appears that assessee is not interested to prosecute the appeal. Accordingly arguments of Ld. Sr. DR were heard who supported the findings of Ld. Lower Tax Authorities.

Giving thoughtful consideration to the matter on record, the Bench is of considered opinion that record makes it appear that assessee had simply made provision on account of rent to the tune of Rs. 2,67,47,337/- but the same was not payable or ascertained at all in the relevant year. It can be observed from the ./2016 M/s. Carnation Auto India P. Ltd. matter on record that apart from making provision on the basis of accounting standards, no material was produced before the ld. Tax Authorities which would have shown that the rent equalization was required for any possible enhancement in the rent payable. Its reversal next year only goes to show that it was not based on any ascertainable liability.

The findings of Ld. Tax Authorities require no interference, the appeal is dismissed ex parte.

M/S CARNATION AUTO INDIA PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

What did the Tribunal hold?

What were the facts?

What were the issues?

Which sections of the Income-tax Act were involved?

Recent GST High Court judgments