PR. COMMISSIONER OF INCOME TAX- 8 vs. M/S SAFE NET INFOTECH PVT. LIMITED

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ITA/371/2019HC DelhiDLHC01001990201810 April 2019Author: HON'BLE MR. JUSTICE S. RAVINDRA BHAT,HON'BLE MR. JUSTICE PRATEEK JALAN3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the impugned order of the ITAT could not be faulted. The Court noted that the ITAT had found the provision for LTA to be supported by a logical and scientific methodology. The assessee had provided sound reasons for changing its method of accounting and providing LTA on an actuarial basis, which was based on the valuation of perquisites offered to employees as part of their overall compensation package and accounted for as a short-term provision. The Court further observed that the AO had not made any inquiries regarding the nature of claims from employees, their terms of employment, or whether invoices were on record, which could have substantiated the liability. Therefore, the ITAT's findings were considered sound and unexceptionable. The appeal was dismissed.

What were the facts?

The Revenue is aggrieved by an order of the Income Tax Appellate Tribunal (ITAT) and has appealed to the High Court under Section 260A of the Income Tax Act. The appeal challenges the ITAT's deletion of amounts brought to tax by the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee, M/s Safe Net Infotech Pvt. Limited, claimed these amounts as Leave Travel Allowance (LTA) liability on an accrual basis. The AO and CIT(A) disallowed the claim, opining that the assessee had not adopted a scientific basis or applied accrual principles to justify the claim. The ITAT, however, allowed the assessee's appeal.

What were the issues?

1. Whether the Income Tax Appellate Tribunal erred in allowing the assessee's claim for LTA liability on an accrual basis, despite the Assessing Officer and CIT(A) finding no scientific basis or application of accrual principles by the assessee (turning on Section 2(13) and Section 37 of the Income Tax Act)? Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The Revenue, through its learned Standing Counsel, argued that the deletion of amounts brought to tax by the AO and CIT(A) was erroneous. It contended that the assessee had changed its method of accounting from cash-based to accrual-based for Assessment Year 2006-07 and claimed LTA liability on an accrual basis. The Revenue asserted that no scientific or actuarial principles were offered by the assessee to justify the LTA expenditure on an accrual basis.

Which sections of the Income-tax Act were involved?

Section 260A,Section 2(13),Section 37

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
$~73 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 371/2019 PR. COMMISSIONER OF INCOME TAX- 8 ..... Appellant Through: Mr.Zoheb Hossain, Sr.Std.Counsel versus M/S SAFE NET INFOTECH PVT. LIMITED ..... Respondent Through: None. CORAM: HON’BLE MR. JUSTICE S. RAVINDRA BHAT HON’BLE MR. JUSTICE PRATEEK JALAN

O R D E R %

10.04.

2019

CM APPL.16901/2019 (delay)

For the reasons stated in the application, delay in re-filing the appeal is condoned.

The application is disposed of.

1.

The Revenue is aggrieved by an order of the Income Tax Appellate Tribunal [hereinafter referred to as “ITAT”] and appeals against it under Section 260A of the Income Tax Act [hereinafter referred to “as the Act”].

2.

It contends that the deletion of amounts brought to tax by the AO and CIT(A), claimed by the assessee on the basis of LTA liability claimed on accrual basis, is erroneous. Learned Standing Counsel urges that assessee This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/06/2026 at 14:45:15

has changed its method of accounting from cash based to accrual based accounting for the relevant Assessment Year 2006-07 and claimed the amounts in question as LTA liability on accrual basis. The AO and CIT(A) were of the opinion that no scientific basis was adopted by the assessee nor did it apply any accrual principles in making the claim to justify the disallowance of the amounts. The ITAT in the present case allowed the assessee’s appeal holding as follows:

“9. We have given thoughtful consideration to the orders of the authorities below. We find that the provision for LTA is well supported by logical and scientific methodology which should have been looked into by the ld. CIT(A). The assessee has also given sound reasons for change in the method of accounting and providing LTA on actuarial basis which is based on the valuation of perquisites offered to the employees as part of overall packaging and accounted for as a short term provision since LTA has to be availed by the employee in every block of two years and has to be disbursed by the employer as taxable perquisites.

3.

Learned counsel submits that as a matter of fact no scientific or actuarial principles were offered by the assessee justifying LTA expenditure on accrual basis.

4.

This Court is of the opinion that the impugned order cannot be faulted. As noted by the ITAT, the assessee’s evaluation of the perquisites offered to its employees was part of the overall monetary package which was accounted as short term provision.

5.

This Court further notices that the AO did not make any enquires as to the nature of claims put forward by the assessee’s employees or even the This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/06/2026 at 14:45:15

terms of employment of some of them or even whether the invoices had been brought on record, which could have legitimately led one to conclude what such liability pertains to, or whether it had arisen at all.

6.

In these circumstances, the ITAT’s findings are sound and unexceptionable. The appeal is accordingly dismissed.

S. RAVINDRA BHAT, J

PRATEEK JALAN, J APRIL 10, 2019 „hkaur‟ This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 24/06/2026 at 14:45:15

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