GKW LIMITED,KOLKATA vs. ACIT, CIR1(1), KOL, KOLKATA

This appeal of the assessee for the assessment year 2016-17 is directed against the order dated 24.02.2023 passed by the ld. Commissioner of Income-tax, Appeals, NFAC, Delhi [hereinafter referred to as ‘the ‘ld. CIT(A)’].

At the time of hearing, ld. AR stated before the bench that the instant issue involved in respect of disallowance of assessee’s claim for provision made amounting to Rs. 1,58,14,000/- while computing the total income of the assessee under the normal provisions as well as book profit calculated u/s 115JB of the Act. The ld. AR further stated that during the year under consideration, the assessee debited sum of Rs. 3,52,89,000/- in the statement of profit and loss account by making provision for claims. The claim was made in accordance with Accounting Standard (AS)-29 under the head of Provisions, Contingent Liabilities and Contingent Assets and out of the above, the GKW Limited assessee had suo-moto disallowed Rs. 1,94,75,000/- u/s 43B of the Act on account of liability being statutory in nature which was not paid before the due date of filing of return of income. The balance provisions of Rs. 1,58,14,000/- was claimed which pertained to the following: “(a) Disputed lease payment of Rs. 78,14,000/- (b) Disputed annual guaranteed minimum electricity charges of Rs. 80,00,000/-.”

The ld. AO while framing the assessment order disallowed the alleged provision made by assessee stating that since the provision relates to demand against disputed demands and is not based on any technical & systematic analysis.

Aggrieved by the above order, assessee went into appeal before the ld. CIT(A) confirming the disallowance on the following manner: “i. Liability for Lease Rentals: The date of ascertainment of the liability cannot be identified on account of the following: (a) The date of order of ld. IX Judge of Small Causes, Chennai fixing the fair rent is not mentioned nor copy of the order has been filed. (b) It is not mentioned whether any further appeal has been filed by the assessee against order of the Appellate Court. ii. Liability for AGMC: The liability is for quite old period and it is not explained why the said liability has become ascertained during the previous year.”

Dissatisfied with the above order, assessee is in appeal before the Tribunal stating that regarding provision for lease rent that assessee was a tenant of a building since 40 years with a monthly rent of Rs. 17,400/- and disputed arose between the GKW Limited landlord and tenant before the Court on 21.07.2010, the Court of Small Cases at Chennai determined the monthly fair rent of the property at Rs. 15,39,834/-. The matter was further travelled to the Judge Court where the monthly rent was determined at Rs. 2,01,540/- payable from the date of filing of petition by the landlord i.e. from 17.04.2008. Thereafter, the landlord had issued a letter dated 18.07.2014 through its Advocate to the assessee by claiming amount of Rs. 78,13,674/- as arrear rent. Accordingly, the assessee has created liability of Rs. 78,14,000/- in the financial statement for the assessment year under question. Similarly liability for annual guaranteed minimum contract (AGMC) to reduce the computed demand on the basis of 1400 KVA to 1100 KVA which was accepted by the Durgapur Projects Ltd.. Subsequently, the claim of the assessee was denied by the Durgapur Projects Ltd. and against the denial of such claim, the assessee had filed a writ petition before the Calcutta High Court challenging the view taken by Durgapur Projects Ltd. which was ultimately dismissed by the Hon’ble High Court on 24.12.2013. Accordingly, liability of Rs. 80,00,000/- was recorded in the financial statement for the year under consideration. Before the bench, the contention of the assessee is that the alleged disallowance sustained by ld. CIT(A) amounting to Rs. 1,58,14,000/- was not correct as and when assessee by complying all the provisions of law as per Accounting Standard (AS) guided by various authorities. Therefore, the claim of the assessee needs to be allowed by the authorities below.

We after hearing the rival submissions of the parties and perused the material available on record find force in the contention made by the assessee and interest of justice remand back whole issue to the file of AO with the direction to re-examine the issue afresh after affording reasonable opportunity of being heard to the assessee. It is needless to mention here that while passing the assessment order, the assessee will produce all necessary documents in order to substantiate its claim. In terms of the above, the appeal of the assessee is allowed for statistical purposes.

In the result, the appeal of the assessee is allowed for statistical purposes.