2021 (8) TMI 1100 - AT - Income Tax

ITAT directs deduction of compensation paid, aligning with court order & Accounting Standard-4

The ITAT allowed the appeal, directing the deduction of the compensation amount paid during the relevant assessment year and the balance amount in the ... Disallowance of claim of business loss - loss if not allowed in the year under consideration then it be allowed in A.Y. 2015-16 - HELD THAT:- It is an undisputed fact that the aforesaid amount which has been disallowed by the AO represents the compensation paid by the assessee to Ms Susan Beer on account of the decision of the Hon’ble Delhi High Court. It is also an undisputed fact that the payment of the aforesaid amount arose on account of the decision of Hon’ble Delhi High Court which was pronounced on 30.05.2014. It is also an undisputed fact that out of the total compensation amount of ₹ 5,28,80,795/- was deposited with the Registrar of High Court during the year under consideration and the balance amount of ₹ 2,40,56,079/- was deposited with the Registrar on 26.08.2014. The incurring of expenditure is not in doubt and genuineness of the claim is not in dispute - the amount that was paid during the year under consideration i.e. ₹ 5.28 crore (rounded off) be allowed as an expense in the year under consideration and the balance amount of ₹ 2.40 crore (rounded off) which was deposited with the Registrar High Court be allowed as deduction in A.Y. 2015-16. Thus the claim of the assessee is allowed. Issues:Disallowance of business loss claim under Accounting Standard-4 for Assessment Year 2014-15.Analysis:The appeal was against the order passed by the Commissioner of Income Tax (Appeals) for Assessment Year 2014-15. The assessee, a public sector company engaged in the hotel and restaurant business, filed its return declaring total income of Rs. 13,13,20,480. The assessment was framed under section 143(3) resulting in a total income of Rs. 23,74,57,000. The main issue was the disallowance of a business loss claim of Rs. 8,80,09,000, which was related to a compensation awarded by the Delhi High Court to an Australian lady. The AO disallowed the claim as the expenses were recognized in a subsequent financial year. The CIT(A) upheld the AO's decision, leading to the appeal before the ITAT.During the assessment proceedings, it was revealed that the compensation awarded by the Delhi High Court was based on a lawsuit filed by the Australian lady for injuries suffered at the hotel's pool. The AO noted that the expenses were recognized in the financial year 2014-15, not in the relevant assessment year. The assessee argued that the liability had crystallized as per the court order, and as per Accounting Standard-4, the liability should be recognized before finalizing the balance sheet. The genuineness of the claim was not disputed, and the entire sum was paid to the Registrar. The assessee relied on legal precedents to support its case.The ITAT considered the facts and ruled in favor of the assessee. It acknowledged that the compensation payment was genuine and that the liability had arisen due to the Delhi High Court's decision. The ITAT allowed the deduction for the amount paid during the relevant assessment year and directed the balance amount to be claimed in the subsequent year. The ITAT concluded that the claim of the assessee was valid and allowed the appeal.In conclusion, the ITAT allowed the appeal of the assessee, directing the deduction of the compensation amount paid during the relevant assessment year and the balance amount in the subsequent year. The decision was based on the recognition of the liability as per the court order and Accounting Standard-4, ensuring a fair resolution of the dispute.