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Facts
The assessee's e-return for AY 2020-21 was processed by the CPC under section 143(1), making an adjustment of INR 65,99,305/- (challenged as INR 64,07,005/-) for contingent liability, including prior year income tax demand under litigation and bank guarantee not debited to P&L. The assessee contended before the Ld.CIT(A) that no deduction for this contingent liability was claimed, and therefore, the adjustment under section 143(1) was not justified.
Held
The Tribunal noted the principle that expenditure cannot be disallowed if it has not been claimed by the assessee. Agreeing with the assessee's contention, the Tribunal decided to restore the entire issue back to the Ld.CIT(A) to provide the assessee with a proper opportunity to submit documentary evidence to justify its claim against the contingent liability adjustment.
Key Issues
Whether the Centralized Processing Center (CPC) correctly made an adjustment for contingent liability under section 143(1) when the assessee claims no deduction was sought for such liability, and whether the Ld.CIT(A) erred in not providing an adequate opportunity for the assessee to present evidence.
Sections Cited
143(1), 250, 37
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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL
Before: SHRI PRADIP KUMAR KEDIA & SHRI PRADIP KUMAR KEDIA & SHRI PRADIP KUMAR KEDIA & SHRI YOGESH KUMAR US YOGESH KUMAR US
The instant appeal has been filed at the instance of The instant appeal has been filed at the instance of the assessee seeking assessee seeking to assail the First Appellate order dated to assail the First Appellate order dated 21.07.2023 passed by Ld. .2023 passed by Ld. Commissioner of Income Tax (A), Commissioner of Income Tax (A), National Faceless Appeal Centre, National Faceless Appeal Centre, Delhi [“Ld.CIT(A)”] u/s 250 of the Income Tax Act, 1961 [“the Act”] pertaining to of the Income Tax Act, 1961 [“the Act”] pertaining to of the Income Tax Act, 1961 [“the Act”] pertaining to Assessment Year 2020-21. 1.
As per the grounds of appeal
, the assessee has challenged the As per the grounds of appeal, the assessee has challenged the As per the grounds of appeal, the assessee has challenged the adjustment/addition made by the Centralized adjustment/addition made by the Centralized Processing Center (“CPC”), Processing Center (“CPC”), Income Tax Department towards contingent liability of INR 64,07,005/ Income Tax Department towards contingent liability of INR 64,07,005/-. Income Tax Department towards contingent liability of INR 64,07,005/
3. When the matter was called for hearing, none appeared on behalf of the When the matter was called for hearing, none appeared on behalf of the When the matter was called for hearing, none appeared on behalf of the assessee. Therefore, the matter was accordingly, proceeded assessee. Therefore, the matter was accordingly, proceeded ex-parte parte.
4. On perusal of records, it is observed that e of records, it is observed that e-return filed by the assessee return filed by the assessee was processed u/s 143(1) of the Act by CPC on 18.12.2021 wherein adjustment was processed u/s 143(1) of the Act by CPC on 18.12.2021 wherein adjustment was processed u/s 143(1) of the Act by CPC on 18.12.2021 wherein adjustment of INR 65,99,305/- was made on account of contingent liability while was made on account of contingent liability while was made on account of contingent liability while processing the return of income of the assessee. processing the return of income of the assessee. It further appears from the It further appears from the records that the aforesaid amount of contingent liability break up of which is : records that the aforesaid amount of contingent liability break up of which is :- records that the aforesaid amount of contingent liability break up of which is : [a] income tax demand of earlier years under litigation INR income tax demand of earlier years under litigation INR income tax demand of earlier years under litigation INR 62,32,005/-; and ; and [b] bank guarantee of INR 1,75,000/ bank guarantee of INR 1,75,000/- was not debited to the Profit was not debited to the Profit & Loss Account at all. Loss Account at all.
5. The information on income tax demand and bank guarantee The information on income tax demand and bank guarantee were The information on income tax demand and bank guarantee provided in the Tax Audit Report. The assessee has contended before Ld.CIT(A) provided in the Tax Audit Report. The assessee has contended before Ld.CIT(A) provided in the Tax Audit Report. The assessee has contended before Ld.CIT(A) that when no deduction has been claimed towards such contingent liability, t when no deduction has been claimed towards such contingent liability, t when no deduction has been claimed towards such contingent liability, expenditure and same addition of such account is not justified while making addition of such account is not justified while making addition of such account is not justified while making prima-facie adjustments u/s 143(1) of the Act. adjustments u/s 143(1) of the Act.
6. It is observed that the CPC has made adjustment to the tune of INR It is observed that the CPC has made adjustment to the tune of INR It is observed that the CPC has made adjustment to the tune of INR 64,07,005/- to the income of the assessee u/s 37 of the Act on the basis of to the income of the assessee u/s 37 of the Act on the basis of to the income of the assessee u/s 37 of the Act on the basis of observations of the Auditor in Column No.21(g) of the Tax Audit Report wherein bservations of the Auditor in Column No.21(g) of the Tax Audit Report wherein bservations of the Auditor in Column No.21(g) of the Tax Audit Report wherein some wrong reporting has occurred. The assessee contends some wrong reporting has occurred. The assessee contends before Ld.CIT(A) before Ld.CIT(A) that it is a matter of fact that while the contingent liability has been duly that it is a matter of fact that while the contingent liability has been duly that it is a matter of fact that while the contingent liability has been duly reported in the Tax Audit it Report as well in the Audited balance balance sheet, such expenses/contingent liability have not been claimed at all to warrant any expenses/contingent liability have not been claimed at all to warrant any expenses/contingent liability have not been claimed at all to warrant any disallowance. The additions towards contingent liability not claimed as The additions towards contingent liability not claimed as The additions towards contingent liability not claimed as expenditure would result in double taxation. expenditure would result in double taxation.
7. As per para 7.4 of the first appellate order, Ld.CIT(A) has not entertained para 7.4 of the first appellate order, Ld.CIT(A) has not entertained para 7.4 of the first appellate order, Ld.CIT(A) has not entertained the objections raised on behalf of the assessee due to lack of documentary the objections raised on behalf of the assessee due to lack of documentary the objections raised on behalf of the assessee due to lack of documentary evidences in support of the contention that contingent liability disallowed by the contention that contingent liability disallowed by the contention that contingent liability disallowed by the CPC was not claimed as expend the CPC was not claimed as expenditure at all.
We have heard Ld. have heard Ld. Sr. DR for the Revenue and perused the material and perused the material available on record. In this matter, we observe that certain In this matter, we observe that certain Annexures Annexures were uploaded by the assessee as admitted by Ld.CIT(A) himself but uploaded by the assessee as admitted by Ld.CIT(A) himself but however however, were not found sufficient by Ld.CIT(A). The main contention of the assessee is that by Ld.CIT(A). The main contention of the assessee is that by Ld.CIT(A). The main contention of the assessee is that the expenditure cannot be disallowed unless such expenditure has been the expenditure cannot be disallowed unless such expenditure has been the expenditure cannot be disallowed unless such expenditure has been claimed while determining the taxable income of the assessee. We agree with claimed while determining the taxable income of the assessee. We agree with claimed while determining the taxable income of the assessee. We agree with such plea of the assessee on first principles. W such plea of the assessee on first principles. We thus, consider it expedient to e thus, consider it expedient to restore the issue back to the file of Ld.CIT(A) to restore the issue back to the file of Ld.CIT(A) to enable the assessee to submit nable the assessee to submit such documentary evidences as may be required such documentary evidences as may be required in justification of the justification of the grievances raised by the assessee on account of wrong adjustment toward grievances raised by the assessee on account of wrong adjustment towards grievances raised by the assessee on account of wrong adjustment toward contingent liability. Needless to say that proper opportunity shall be given to contingent liability. Needless to say that proper opportunity shall be given to contingent liability. Needless to say that proper opportunity shall be given to the assessee to corroborate its the assessee to corroborate its claim on the issue. It shall be open to the It shall be open to the assessee to adhere such evidences as deemed expedient to support the assessee to adhere such evidences as deemed expedient to support the assessee to adhere such evidences as deemed expedient to support the returned income. Ld.CIT(A) Ld.CIT(A) shall pass speaking order in accordance with law. shall pass speaking order in accordance with law.
Grounds raised
by the assessee are Grounds raised by the assessee are accordingly, allowed for statistical allowed for statistical purposes.
10. In the result, appeal of the assessee is In the result, appeal of the assessee is allowed for statistical allowed for statistical purposes. Order pronounced in the open Court on Order pronounced in the open Court on 30th October, 2024