What did the Tribunal hold?

The Tribunal followed its own earlier order for a different assessment year concerning the same issue. It set aside the matter to the Assessing Officer to re-determine the liability based on a court order.

The assessee claimed a provision for liability of Rs. 5 lakhs related to a sub-tenancy dispute for hotel premises. The Assessing Officer disallowed this claim, citing a similar disallowance in a previous assessment year.

What were the issues?

Whether a provision for liability made by the assessee in a sub-tenancy dispute is allowable. The reasonableness of the provision in light of ongoing litigation and court directives.

V. Narayana Iyer & Sons vs ITO | ITAT Mumbai 2016

Income Tax Appellate Tribunal, “SMC” Bench, Mumbai

Before: Shri B.R. Baskaran (AM)

For Appellant: Shri Aditya R. Ajgaonkar

For Respondent: Shri Manoj Kumar

Hearing: 27.6.2016Pronounced: 27.6.2016

The appeal filed by the assessee is directed against the order dated 24.12.2014 passed by learned CIT(A)-28, Mumbai and it relates to A.Y. 2005- 06.

The assessee is aggrieved by the decision of learned CIT(A) in confirming the disallowance of ` 5 lakhs claimed as “provision for liability”.

Learned counsel appearing for the assessee submitted that the assessee is running a hotel in the name and style “National Hindu Hotel” in a premises belonging to M/s. Bombay Port Trust. The assessee had taken possession of the premises through a sub-tenancy agreement. Agreement of the original tenant with M/s. Bombay Port Trust had expired long back in 1985. However the assessee did not vacate the premises and hence legal dispute was going on between the original lessee and Bombay Port Trust. It is stated that the assessee was also impleaded in the litigation. In A.Y. 2007-08, the assessee had created a provision of ` 10 lakhs towards the amount payable to Bombay Port Trust. The said claim was disallowed by the AO while computing income for AY 2007-08. During the year under consideration also the assessee had created provision of ` 5 lakhs and hence the Assessing Officer disallowed the same on identical reasoning.

Learned Counsel submitted that the addition of Rs.10.00 lakhs made in AY 2007-08 was disputed upto the level of the Tribunal and the division bench of the Tribunal has restored the matter to the file of the Assessing Officer with certain directions. He further submitted that the Assessing Officer has also given effect to the order of the Tribunal on 28.8.2014. Accordingly, learned AR submitted that the order passed by the division bench of the Tribunal in 2007- 08 may be followed in the current year also.

I have heard learned Departmental Representative and perused the record. I noticed that the division bench of the Tribunal has disposed of the identical issue in assessee’s own case in relating to A.Y. 2007-08, vide its order dated 31.1.2014. For the sake of convenience, I extract below operative portion of the order of the division bench:-

“Having considered the rival submissions as well as relevant material on record we note that the provisions of Rs. 10,00,000/- made by the assessee towards the liability to be paid to the BPT for occupation of the property in question is not based on any reasonable basis. Since, the dispute was pending before the Court of Small Causes and as per the order dated 16.10.2012 the Hon'ble Court of Small Causes has determined the arrears of compensation up to 30.9.2012 at Rs. 25,72,413.91 to be deposited by the assessee in the installments of Rs. 2,50,000/- further the assessee has been directed to deposit the monthly compensation of Rs. 25,000/- towards the use and occupation of the suit premises during the pendency of the appeal. Thus, the monthly compensation as directed by the Court of Small Causes is Rs. 25000/- which can be a reasonable basis for determining the liability of the assessee towards use and occupation of the premises to be paid to the BPT. Accordingly, in the facts and circumstances of the case we set aside this issue to the record of the Assessing Officer to determine the liability of the assessee for use and occupation of the premises by considering the said order dated 16.10.2012 of the Court of Small Causes Bombay. Needless to say the assessee be given an appropriate opportunity of hearing before deciding the issue afresh”.

Consistent with the view taken by the division bench referred above, I set aside this matter to the file of Assessing Officer with similar direction. Accordingly, the order passed by learned CIT(A) on this issue stands set aside.

In the result, the appeal filed by the assessee is treated as allowed for statistical purposes. Order has been pronounced in the Open Court on 27.6.2016.

V. NARAYANA IYER & SONS,MUMBAI vs. ITO WD 12(1)(1), MUMBAI

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