State Undertaking Denied Deduction for Audit Fee Provision

The Tribunal held that the assessee, a State Government undertaking, was not entitled to a deduction for a provision made for an audit fee as auditors were not appointed and the audit was not conducted during the relevant accounting year. While the assessee argued for the deduction based on statutory liability and past fees paid, the Tribunal emphasized that the liability to pay fees only arises when auditors are appointed and the audit is conducted. The Tribunal allowed the deduction of fees when paid, rejecting the assessee's claim for a provision made in advance.

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Issues:
- Entitlement to deduction of provision made for audit fee

Analysis:
The case involved the limited issue of whether the assessee, a State Government undertaking, was entitled to a deduction for the provision made for an audit fee of Rs. 86,000. The Income-tax Officer disallowed the claim, which was upheld by the Commissioner (A) based on an earlier order related to a similar claim. The assessee argued that the principle of non-applicability of res judicata in income-tax proceedings allowed them to re-agitate the matter. Additionally, they contended that under the Companies Act, the liability to pay audit fees is certain and unambiguous, even if no audit had taken place. They relied on legal precedents to support their claim that a statutory liability must be estimated and allowed as a deduction if certain and ascertained. The assessee estimated the liability based on past fees paid to auditors.

The Departmental Representative opposed the submissions, stating that since auditors were not appointed in the accounting year, no provision for fees should be made. During the appeal hearing, it was revealed that the auditors were appointed by the Company Law Board after the end of the accounting year and the fees were paid much later. The Tribunal noted that without the appointment of auditors and the conduct of the audit, the liability to pay fees did not arise in the accounting year. The Tribunal agreed with the Commissioner (A) that the provision for audit fees was not justified. However, they allowed the deduction of fees when paid, emphasizing that the liability to pay fees only arises when auditors are appointed and the audit is conducted. The Tribunal declined the assessee's appeal, stating that the deduction could be claimed in the year the fees were paid.

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