HMSHOST HOSPITALITY SERVICES BHARATH PRIVATE LIMITED,BANGALORE vs. DCIT, CIRCLE-3(1)(1), BANGALORE, BANGALORE

The contention of the assessee is that this amount was never claimed in the computation of taxable income and was only shown under Other Comprehensive Income (OCI).

The learned Authorised Representative submitted that the assessee had created a gratuity provision of ₹8,05,914 during the year. Out of this, an amount of ₹4,73,343 was debited to the profit and loss account under employee benefit expenses. The assessee had suo motu disallowed this amount in the return of income. The balance of ₹3,32,571 was debited under the head Other Comprehensive Income. This amount did not enter the profit and loss account before comprehensive income and was never considered in the computation of total income. It was argued that CPC wrongly assumed that the entire gratuity provision mentioned in the tax audit report was claimed as deduction, and made an adjustment under section 143(1) of the Act. The AR contended that such an adjustment is not permissible as the amount under OCI was never claimed, and further, debatable issues cannot be the subject matter of an adjustment under section 143(1) of the Act. The AR placed reliance on the principle that no disallowance can be made for expenditure which was never claimed.

The learned Departmental Representative supported the order of the CIT(A). It was submitted that in the tax audit report, the auditor had Page 3 of 7

We have considered the rival submissions and perused the records. The fact remains that the assessee created a total provision of ₹8,05,914. Out of this, the assessee had already disallowed ₹4,73,343 in the computation of income. The balance of ₹3,32,571 was reflected under Other Comprehensive Income. This amount was not routed through the profit and loss account before comprehensive income. The computation of total income was based on the loss before comprehensive income. Therefore, the balance provision of ₹3,32,571 was never claimed as deduction by the assessee. All these facts can be verified from pages 229 and 122 of the paper books where profit and loss account and computation of income are placed. Hence, the action of CPC in making an adjustment under section 143(1) is not sustainable. It is a settled position of law that no disallowance can be made of expenditure which was never claimed. By making this adjustment, CPC has in effect disallowed an amount which did not form part of the income computation. This has resulted in double disallowance of the gratuity provision. We find that the assessee’s computation was correct and the adjustment of ₹3,32,571 was not allowable. In view of the above discussion, we hold that the action of CPC in making the addition Page 4 of 7

This ground of the assessee is directed against the order of the learned Commissioner of Income Tax (Appeals) sustaining an adjustment made by CPC under section 143(1) of the Act, which was later confirmed in rectification proceedings under section 154 of the Act amounting to Rs. 99,73,014.00. 8. The facts of the case in brief are that the assessee filed its return of income for the relevant assessment year. While processing the return, CPC made an adjustment of ₹20,90,74,357 on the ground that there were inconsistencies between the ICDS adjustments disclosed in the ITR and those mentioned in the Tax Audit Report. Subsequently, in the rectification order dated 28.11.2023, CPC restricted the adjustment to ₹99,73,014. This sum was treated as excess depreciation claimed on tangible fixed assets under ICDS V.

Before the learned ld. CIT(A), the assessee submitted that the effect of ICDS V had already been considered in the return of income. The assessee had suo-moto disallowed depreciation as per the Companies Act amounting to ₹2,81,42,024 and claimed depreciation allowable under the Income Tax Act amounting to ₹1,81,69,010. The net effect of ₹99,73,014 was already reflected in the computation and shown in Schedule BP of the ITR. It was argued that CPC had taken into account only the increase in profit but ignored the decrease in profit Page 5 of 7

Being aggrieved by the order of learned CIT-A, the assessee is in appeal before us.

Before us, the learned Authorised Representative reiterated that the adjustment was mechanical and unwarranted. He pointed out that the reconciliation of depreciation was clearly shown in the return of income and the assessee had already disallowed Companies Act depreciation and claimed only Income Tax Act depreciation. He submitted that no further adjustment was necessary and sustaining the addition would amount to a double disallowance. He accordingly prayed for deletion of the impugned addition.

The learned Departmental Representative supported the orders of the authorities below. He contended that there was a mismatch between the ITR and the Tax Audit Report and, therefore, CPC was justified in making the adjustment. According to him, the assessee had failed to demonstrate proper reconciliation and the disallowance sustained by the CIT(A) was correct.

We have carefully considered the rival submissions and perused the records. It is evident that the assessee had already made the Page 6 of 7

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

The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file