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Facts
The assessee, Everest Blower Systems Pvt. Ltd., appealed against a disallowance of contingent liability expenses (Guaranty and Capital Commitments) totaling Rs. 3,07,75,963/- made by the CPC under Section 37 of the Income Tax Act for Assessment Year 2021-22. The assessee contended that these contingent liabilities were never claimed as expenditure in its Profit and Loss Account. The CIT(A) had dismissed the appeal without examining the records.
Held
The Tribunal, after verifying the records and confirmation from the Departmental Representative, found that the assessee had indeed not debited the contingent liability as an expenditure in its Profit and Loss Account. Consequently, the Tribunal concluded that there was no basis for disallowing an expense that was never claimed by the assessee.
Key Issues
Whether contingent liabilities, not claimed as expenditure in the Profit and Loss Account, can be disallowed under Section 37 of the Income Tax Act.
Sections Cited
Section 37, Section 143(1)
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Income Tax Appellate Tribunal, DELHI BENCH “B”, DELHI
(A.Y.2021-22) Everest Blower Systems Pvt. Ltd., 1st Floor, B-44, Mayapuri Industrial Area, Phase-I, Delhi 110064 ...... अपीलाथ�/Appellant PAN: AAPCS-0860-A बनाम Vs. Deputy Commissioner of Income Tax, ..... �ितवादी/Respondent Circle 7(1), New Delhi 110001 अपीलाथ� �ारा/ Appellant by : Shri Shailesh Gupta, Chartered Accountant �ितवादी�ारा/Respondent by : Shri Vivek Kumar Upadhyay, Sr. DR सुनवाई क� ितिथ/ Date of hearing : 18/11/2024 घोषणा क� ितिथ/ Date of pronouncement : : 19/11/2024 आदेश/ORDER
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)/Additional/Joint Commissioner of Income Tax (Appeals)-10, Mumbai (hereinafter referred to as 'the CIT(A)') dated 30.04.2024, for assessment year 2021-22.
The solitary issue in appeal is against disallowance of expenses u/s. 37 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act’) being the contingent liability of Rs. 3,07,75,963/- comprising of, Guaranty Rs.1,37,16,613/- and Capital Commitments Rs.1,70,59,350/-.
Shri Shailesh Gupta, appearing on behalf of the assessee submitted that the Centralized Processing Centre(CPC)/has erred in disallowing expenditure on account of contingent liability u/s. 37 of the Act, whereas the assessee has never claimed the contingent liability as expenditure in its books of accounts. He referred to Profit and Loss Statement for the year ended 31st March 2021 at page 33 of the paper book to support his contentions. He submitted that against the intimation u/s. 143(1) of the Act, the assessee filed appeal before the CIT(A). The CIT(A) without examining the records dismissed appeal of the assessee.
The ld. DR vehemently supported the impugned order. He stated that disallowance has been made on the basis of Tax Audit Report. However, the ld. DR sought time to verify from the records as to whether; the assessee has debited expenditure of contingent liability in P&L Account. The time sought by the ld. DR was allowed. The DR after verifying the records made a statement that as per the P&L Account for the year ended 31.03.2019 placed in the paper book, the assessee has not claimed contingent liability as expenditure.
Both sides heard. The short issue in appeal is with regard to disallowance of contingent liability u/s. 37 of the Act. The contention of assessee is that the assessee has not claimed contingent liability in the nature of Guaranty Rs.1,37,16,613/- and Capital Commitments Rs.1,70,59,350/- in the P&L Account. A perusal of Profit and Loss Account for the year ended 31st March 2021 relevant to the assessment year 2021-22 shows that such expenditure has not been debited by the assessee. This fact has been verified by ld. DR. Once the expenditure has not been claimed by the assessee in the P&L Account, there is no question of disallowance of the same.