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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI H.S. SIDHU & SHRI O.P. KANT
This appeal by the Revenue is directed against order dated 04/02/2016 passed by the Ld. Commissioner of Income-Tax (Appeals)-4, New Delhi [in short the Ld. CIT(A)] for assessment year 2009-10 raising following grounds: 1. “That on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 3,42,35,067/- made by AO on account of provision of paper cost debited in P&L account without appreciating the fact that the assessee company had made only the provisions for such expenditure and no actural expenditure has been incurred by the assessee during the year.”
At the outset, we may like to mention that despite notifying the date of hearing by registered post as well as by affixture at given addresses through the Departmental Representative, neither anyone attended on behalf of the assessee nor any adjournment was filed and thus were of the view that the assessee is not interested in pursuing the appeal. Accordingly, we heard the appeal ex parte qua the assessee .
The briefly stated facts of the case are that consequent to the filing of the return of income declaring loss of Rs. 61,96,795/-, the case of the assessee was selected for scrutiny and assessment under section 143(3) of the Income Tax Act, 1961 (in short the Act) was completed on 26/12/2011. Subsequently, the Ld. Commissioner of Income Tax found the assessment order dated 26/12/2011 passed by the Ld. Assessing Officer as erroneous in so far as prejudicial to the interest of the Revenue and vide his order dated 04/02/2014, he set aside the order of the Assessing Officer directing to pass a fresh assessment order after making requisite verification as directed by him. Consequently, the Assessing Officer passed a fresh assessment order dated 02/02/2015, wherein he made disallowance of provision of expenses of Rs. 3,42,35,067/-. According to the Assessing Officer, this was not an ascertained liability and thus it was not allowable under section 37(1) of the Act.
The Ld. CIT(A) however, deleted the addition/disallowances holding that the assessee has actually consumed paper worth Rs. 3, 38,44,173/-against the Revenue Recognition of Rs. 24,44,38,447/- and thus it cannot be said as an unascertained liability. Aggrieved with the finding of the Ld. CIT(A), the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.
Before us, the Ld. DR submitted that the assessee has claimed provision of the expenditure on estimate basis without incurring any expenses and, therefore, the same being unascertained liability, not allowable under the provisions of the Income Tax Act.
We have heard the submission of the Ld. DR and perused the relevant record including the impugned order of the Ld. CIT(A). The only issue in dispute is whether the provision of the paper expenses of Rs. 3,42,35,067/- was an ascertained liability or not. The Ld. CIT(A) has adjudicated the issue in dispute as under: “I have gone through the assessment orders, order u/s 263 and submissions of the appellant. It is noted that the appellant has duly disclosed the accounting practice of Revenue Recognition policy of the company in the notes to accounts to balance sheet and profit and loss account at (h) of schedule attached to the balance sheet, and is claimed to have been regularly followed in the past. It is noted that in its letter dated 6.1.2015 to the Assessing Officer the company had submitted statement showing details of paper provisioning and subsequent adjustments from which it is evident that against the provision of Rs.3,42,35,067/-, the appellant actually consumed paper worth Rs.3,38,44,173/- against revenue recognition of Rs.24,44,38,447/-. There was only excess provision of Rs.3,90,894/- for which adjustment was made in the next year. I fully agree with the appellant's contention that in order to show true profits of the company for the year under consideration, the costs and revenues are required to be booked in the same 3 financial year as per the matching principle of accounting. Accrued liability is an allowable expenditure when the corresponding income has already been offered to tax. Accrued liability and the estimated expenditure which would be incurred in discharging the same could be deducted from the profits and gains of the business, and the amount to be expended could be debited in accounts maintained in the mercantile system of accounting before it was actually disbursed. The difficulty in estimation thereof did not convert the accrued liability into a conditional one, as held by the Apex Court in the case of Calcutta Co. Ltd. The appellant's case is fully supported by the case laws mentioned supra and latest Rajasthan High Court decision In CIT V. Om Metals and Minerals Pvt. Ltd. (2015) 373 ITR 406(Raj). In view of the above facts, the appeal is allowed and the addition of Rs.3,42,35,067/- is deleted.”
We find that the Ld. CIT(A) has examined the claim of the assessee that expenses were actually incurred against the revenue recognised. No revenue can be earned without incurring any expenses, however it may be that those expenses have been paid in the subsequent year. In our opinion, in the case of the assessee , it may possible that expenses incurred were not quantified exactly but estimated to large extent. Thus, it cannot be said that no expenditure was incurred and the entire provision was not allowable. The Hon’ble Supreme Court in the case of Calcutta Company Limited Vs CIT (1959) 371 ITR 1 (SC) has observed that expression ‘profit or gains’ has to be considered in its commercial sense and there can be no computation of such profits and gains until the expenditure which is necessary for the purpose of earning the receipt is deducted there from whether the expenditure is actually incurred or the liability in respect thereof has accrued even though it may have to discharge at some future date . The Hon’ble Supreme Court has further held that the difficulty in estimation thereof did not convert the accrued liability into a conditional one.
The Ld. CIT(A) has noted that out of the provision of Rs. 3,42, 35,067/-, the assessee actually consumed paper worth Rs. 3,38,44,173/- and balance excess provision of Rs. 3,90,894/- was adjusted in the subsequent year. The Ld. CIT(A) relied on the decision of the Hon’ble Rajasthan High Court in the case of CIT versus Om Metals and Minerals Private Limited (2015) 373 ITR 406 (Raj.) for allowing the appeal of the assesee.
In view of the above discussion, we do not find any error in the order of the Ld. CIT(A) on the issue in dispute and accordingly, we uphold the same. The ground No. 1 of appeal of the Revenue is accordingly dismissed.
In the result, the appeal of the Revenue is dismissed. This decision was pronounced in the Open Court on 10th December, 2018.