GLOBE TRANSPORT CORPORATION,MUMBAI vs. INCOME TAX OFFICER 17(3)(1)MUMBAI, MUMBAI

The assessee has raised the following grounds of appeal: 1. Under the facts and circumstances of the case the learned Addl/J CIT (A) erred in dismissing the appeal treating delayed filed, calculating the days from the Intimation u/s 143 (1) dt 12.10.2021 passed by CPC. Whereas the appeal is filed against the order u/s 154 passed by ITO IT (3) (1) Mumbai on 16.07.2025 received on 05.08.2025, without considering the case on merit. 2. Where the appellant firm did not claim contingent liability as on expense, neither in Profit and Loss Account nor in return as deduction while computing its total income and amount was only reported in its financial statements as part of its disclosure requirements, while processing the return of income by C.P.C disallowed a sum of Rs.40,00,000/- as stating “Amount debited to the Profit & Loss Account to the extent disallowable under section 37 i.e. amount of any liability of a contingent nature”. 3. The Appellant crave leave to add, amend, alter, and delete the grounds of appeal at or before the hearing of appeal. 3. Facts of the case are such that the assessee is a partnership firm engaged in the business of transportation of goods by trucks. For assessment year 2022-23, it filed its original return of income on 22.10.2022 declaring nil total income. The return was processed by the Centralized Processing Centre, Bengaluru (“CPC”), under section 143(1) on 17.02.2023. In the computation accompanying the intimation, business income of Rs.1,10,562/- reported by the assessee was computed at Rs.43,51,405/-. After allowing set-off of brought forward losses of Rs.1,10,562/-, the gross total income was computed at Rs.42,40,843/- and the total income was shown at Rs.42,40,840/-. The intimation recorded a net demand of Rs.5,37,580/-. While processing the return under section 143(1), CPC made an adjustment of Rs.40,00,000/- under section 37 towards a contingent liability, although the assessee had reported

The assessee sought rectification under section 154 by a letter dated 02.07.2025, filed on 10.07.2025, contending that the disallowances made by CPC were mistakes apparent from the record. By order dated 16.07.2025, the Assessing Officer rejected the request, holding that the disallowances were not mistakes apparent from the record capable of rectification under section 154. Consequently, the assessed income remained unchanged.

Before the learned CIT(A), the assessee challenged the adjustment of Rs.40,00,000/- made by CPC under section 37 towards a contingent liability. It submitted that the amount represented the disputed income-tax demand for assessment year 2015-16, disclosed by the auditor in Form No.3CD, and had neither been debited to the profit and loss account nor claimed as a deduction in computing its income. According to the assessee, the disclosure was informational and could not justify disallowance of an amount which had never been claimed as expenditure.

In support of its request for condonation of delay, the assessee explained that the adjustment came to its notice during verification of records while pursuing rectification and refunds relating to earlier assessment years. It stated that a refund of Rs.4,74,396/- for assessment year 2020-21 had been adjusted against the disputed demand for assessment year 2015-16. Upon noticing the adjustment of Rs.40,00,000/-, it filed the rectification application on 10.07.2025. The assessee maintained that the delay was neither deliberate nor intentional.

The learned CIT(A) treated the appeal as having been filed against an intimation under section 143(1) dated 12.10.2021, stated to have been served on the same date. He consequently held that the appeal ought to have been filed by 11.11.2021 under section 249(2). Taking the filing date as 25.12.2025, he recorded a delay of 1,505 days. Holding that the assessee’s explanation did not establish sufficient cause, the learned CIT(A) rejected the condonation request under section 249(3) and dismissed the appeal as inadmissible without adjudicating the merits of the adjustment.

Aggrieved, the assessee has preferred the present appeal. In ground No.1, it challenges the calculation of delay with reference to the intimation dated 12.10.2021, contending that the first appeal was against the rectification order dated 16.07.2025, received on 05.08.2025. In ground No.2, it challenges the adjustment of Rs.40,00,000/- on the ground that the disclosed contingent liability had neither been charged to the profit and loss account nor claimed as a deduction.

During the course of hearing before us, the learned Authorised Representative (AR) submitted that the assessee was initially unaware of the adjustment of Rs.40,00,000/- made by CPC. The adjustment came to its notice during verification of records while pursuing rectification and refunds relating to earlier assessment years, after the refund of Rs.4,74,396/- for assessment year 2020-21 had been adjusted against the disputed demand for assessment year 2015-16. Upon noticing the adjustment, the assessee filed an application under section 154 on 10.07.2025, which its explanation reproduced in the appellate order described as remaining unattended or undecided. The assessee maintained

On the merits of the adjustment of Rs.40,00,000/-, the learned AR submitted that the assessee had neither debited the amount to its profit and loss account nor claimed it as expenditure while computing its total income. Drawing attention to the tax audit report, he pointed out that, under the heading “Particulars of any liability of a contingent nature”, the auditor had reported Rs.40,00,000/- with the description “Incometax demand for Asyr.2015-16 143(3) ORDER contested in Appeal and pending”. He explained that the entry represented disclosure of the disputed income-tax demand for assessment year 2015-16, in respect of which the appeal was pending, and did not represent expenditure charged to the profit and loss account.

The learned AR further referred to the profit and loss account for the year ended 31.03.2022 and the balance sheet as at that date. He submitted that no amount of Rs.40,00,000/- towards the disputed income-tax demand had been debited under any expenditure head in the profit and loss account or recognised as a liability in the balance sheet. According to him, the amount appeared only in the auditor’s disclosure of the contingent liability. He accordingly contended that the adjustment under section 37 had been made merely on the basis of that disclosure, although no corresponding deduction had been claimed by the assessee, and sought deletion of the adjustment of Rs.40,00,000/-.

The learned AR further relied upon the decision of the coordinate Bench in Assistant Commissioner of Income Tax- 32(1), Mumbai v. Fitrite Packers, ITA No.4035/Mum/2024, for assessment year 2020-21, dated 09.01.2025. He submitted that the

The learned Departmental Representative relied upon the orders of the lower authorities. He further submitted that the matter might be restored to the file of the Assessing Officer for verification of the assessee’s contention that the amount of Rs.40,00,000/- had neither been debited to the profit and loss account nor claimed as a deduction.

We have considered the rival submissions and examined the material placed on record. Two questions arise for consideration. The first concerns the dismissal of the assessee’s first appeal on limitation by calculating the delay with reference to an intimation dated 12.10.2021. The second concerns the refusal to rectify the adjustment of Rs.40,00,000/- representing the contingent liability disclosed in the tax audit report.

On the first question, the impugned appellate order proceeds upon materially incorrect particulars. Its opening portion expressly identifies the order appealed against as the order under section 154 dated 16.07.2025 passed by ITO-17(3)(1), Mumbai. The rectification order now placed on record confirms that the Assessing Officer disposed of the assessee’s application filed on 10.07.2025 and declined to rectify the disallowances made while processing the return under section 143(1) on 17.02.2023. Nevertheless, the learned CIT(A) calculated limitation from 12.10.2021, treating the

An order refusing the assessee’s claim under section 154 is separately appealable. Limitation for an appeal against that refusal must be examined with reference to service of the relevant order or its intimation, as applicable under section 249(2), and cannot be calculated by substituting the date of an earlier processing intimation. The rectification order bears the date 16.07.2025, while the accompanying intimation letter is dated 05.08.2025. The assessee states in ground No.1 that the order was received on 05.08.2025. Further, the impugned appellate order records institution of the appeal on 01.10.2025 in its opening portion, filing on 25.12.2025 in its subsequent narration, and transfer on 02.10.2025. These conflicting entries cannot sustain the conclusion that the appeal against the rectification order was delayed by 1,505 days. We accordingly set aside that finding.

We have also considered the assessee’s request for condonation and its explanation concerning the discovery of the adjustment upon verification of records and its recourse to rectification before the jurisdictional Assessing Officer. The explanation must be considered in the context of the appeal against the refusal of rectification in 2025, rather than against the unrelated date adopted by the learned CIT(A). Having regard to the explanation furnished, the assessee’s pursuit of correction of the disputed adjustment and the materially confused chronology recorded in the impugned order, we consider it appropriate to condone such delay as arises in presenting the first appeal when

Turning to the substantive issue, the tax audit report describes the amount of Rs.40,00,000/- under the heading “Particulars of any liability of a contingent nature”. The nature of the liability is expressly stated as “Incometax demand for Asyr.2015-16 143(3) ORDER contested in Appeal and pending”. The disclosure, therefore, concerns a disputed income-tax demand for an earlier assessment year. It does not, by itself, establish that expenditure of that amount was charged to the profit and loss account or deducted in computing the income for assessment year 2022-23.

We have examined the profit and loss account for the year ended 31.03.2022 and the balance sheet as at that date furnished in support of the assessee’s submission. These statements do not disclose a debit of Rs.40,00,000/- towards the disputed income-tax demand or a corresponding separately recognised liability of that amount. Significantly, the processing intimation itself records nil in the assessee’s column against “Amount of any liability of a contingent nature”, whereas CPC introduced Rs.40,00,000/- in the corresponding computation column. The material thus supports the assessee’s contention that the amount was disclosed as a contingent liability without being claimed as expenditure. No particular entry demonstrating a contrary claim for deduction has been identified by the Revenue.

A disclosure of a contingent liability and a claim for deduction are distinct matters. Section 37 governs the allowance of expenditure in computing business income. Where the disputed amount has not entered the computation as expenditure or as a

The coordinate Bench considered the same substantive distinction in ACIT v. Fitrite Packers (supra). In paragraph 9.1 it held: “On the second issue in respect of liability of contingent nature, assessee has evidently demonstrated that this amount has been reported in its financial statements as part of its disclosure requirements and does not have any bearing on the profit and loss account to arrive at total income for the year and reported in its return. We find that ld. CIT(A) has taken note of the inadvertent error made by the tax auditor while reporting it in column 21(g) of the tax audit report. Based on his examination of the records, he has noted that assessee did not claim the contingent liability as an expense, neither in the profit and loss account nor in the return of income as a deduction while computing its total income. This is a verifiable fact from the records which were already available with the Department when the assessee filed its return of income on its portal. Considering the facts and the material on record, we do not find any infirmity in the fact based findings arrived at by ld. CIT(A) in granting relief to the assessee. Accordingly, grounds raised by the Revenue are dismissed.” 22. The principle emerging from that decision applies to the present adjustment. We do not consider it necessary to characterise the auditor’s disclosure in the present case as erroneous. The relevant consideration is that reporting a contingent liability does not establish a claim for deduction. The coordinate Bench’s decision concerned an appeal arising from processing under section 143(1); it did not independently decide the scope of section 154. Accordingly, the rectification issue requires examination on the present record.

Section 154 expressly permits amendment of an intimation under section 143(1) to correct a mistake apparent from the record. Here, the error consists of increasing income by an amount disclosed as a contingent liability, although no corresponding expenditure or deduction was claimed. Its identification requires comparison of the tax audit disclosure, the financial statements and the computation appearing in the intimation. It does not require adjudication of the disputed demand for assessment year 2015-16 or determination of whether that demand is ultimately payable. The Assessing Officer’s general observation that the disallowances were not mistakes apparent from the record does not address this distinction or identify any debit or deduction of Rs.40,00,000/-. In these circumstances, the refusal to rectify this particular adjustment cannot be sustained.

We have considered the learned departmental representative’s request for restoration to the Assessing Officer. Both parties have addressed the substantive issue, and the relevant audit disclosure, financial statements, processing intimation and rectification order are available for examination. The Revenue has not identified any specific contradictory entry or further factual enquiry necessary to determine whether the disputed amount was claimed as expenditure. A further remand for general verification would therefore serve no useful purpose. On the material before us, we hold that the adjustment of Rs.40,00,000/- requires deletion.

Accordingly, the impugned appellate order is set aside, and the Assessing Officer is directed to rectify the intimation under section 143(1) by deleting the adjustment of Rs.40,00,000/- relating to the contingent liability and to re-compute the income, tax and consequential interest accordingly. Ground No.2 is allowed.

In the result, the appeal of the assessee is allowed.