ACIT, CIRCLE-1(1)(1), VADODARA vs. MAKARPURA INDUSTRIAL ESTATE CO OPERATIVE BANK LTD, VADODARA

PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:

“(i) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.2,69,96,801/- made by the AO on account of contingent liability debited in P&L Account as reported by the Auditor in tax audit report. (ii) The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.”

3. The Cross Objection filed by the assessee supports the order of the Ld. CIT(A), deleting the addition of Rs.2,69,96,801/- pertaining to DAE fund and guarantee, which were contingent liabilities.

4. Shri Sudhakar Verma, the Ld. Sr. DR appearing for the Revenue, explained that while processing the return of the assessee for the A.Y. 2021-22, an adjustment of Rs.2,69,96,801/- was made by the CPC in respect of contingent liability. He explained that the auditor had reported contingent liability of Rs.2,69,96,801/- at Sl. No.21(g) of the Tax Audit Report. As the expenditure claimed by the assessee was in the nature of contingent liability, the same was rightly disallowed by the CPC while processing the return u/s 143(1) of the Act.

5. Per contra, Shri Samir Parikh, the Ld. AR of the assessee, explained that the liability of contingent nature as reported at Sl. No.21(g) of Tax Audit Report was not debited to the Profit & Loss Account of the assessee. Therefore, the Ld. CIT(A) had rightly allowed the relief to the assessee.

i) DEA Fund Rs.1,11,15,466/- ii) Guarantee issued Rs.1,58,81,335/- 6.1 The CPC, while processing the return, added this contingent liability of Rs.2,69,96,801/- on the presumption that the same was debited to Profit & Loss Account. On our specific query, the Ld. Sr. DR could not clarify whether any opportunity was allowed to the assessee before making the disallowance while processing the return. It is found that the Ld. CIT(A) has allowed relief to the assessee for the reason that this contingent liability of Rs.2,69,96,801/- was not debited to Profit & Loss Account. The Revenue has been unable to bring on record any evidence to controvert this finding of the ld. CIT(A). From the Tax Audit Report, it is noted that the Auditor had nowhere stated that the contingent liability of Rs.2,69,96,801/- was debited to the Profit & Loss Account. Thus the adjustment made while processing the return was based on mere presumption that this amount was debited to P&L account. It was explained that the contingent liabilities represented unrealised interest on Cross Objection No.58/Ahd/2025 Assessment Year: 2021-22 Makarpura Industrial Estate Coop. Bank Ltd. vs. ACIT Page 4 of 5 NPAs and was reflected in the Balance Sheet only and not debited to the Profit & Loss Account. In view of this fact, we do not find any reason to interfere with the order of the Ld. CIT(A). He had rightly deleted the adjustment made while processing the return for the reason that the contingent liability of Rs.26,69,96,801/- was not debited to Profit & Loss Account and this fact has not been controverted by the Revenue. Therefore, the order of the Ld. CIT(A) is upheld and the appeal filed by the Revenue is dismissed.

Order pronounced in the open Court on this 22nd August, 2025.