2005 (11) TMI 200 - AT - Income Tax

Tribunal decision on revenue appeal: liability to RSRTC set aside, interest charge clarified

The Tribunal partly allowed the Revenue's appeal by setting aside the CIT(A)'s decision on the Rs. 1,70,74,000 liability claimed as payable to RSRTC, ... Business Loss Or Deduction Issues Involved:1. Deletion of the disallowance of Rs. 1,70,74,000 claimed as liability payable to Rajasthan State Road Transport Corporation (RSRTC).2. Deletion of the addition of Rs. 3,37,254 relating to prior period expenses.3. Deletion of interest charged under sections 234A, 234B, and 234C of the Income Tax Act.Issue-wise Detailed Analysis:1. Deletion of the disallowance of Rs. 1,70,74,000 claimed as liability payable to RSRTC:The primary issue was whether the liability claimed by the assessee accrued in the financial year 1997-98. The assessee argued that the liability was contingent until the arbitration award was made on 4-4-1997 and thus, the deduction was rightly claimed for the assessment year 1998-99. The Assessing Officer disallowed the claim, stating that the liability could only be recognized when admitted by the debtor or finally adjudicated upon, citing various judgments including CIT v. Phalton Sugar Works Ltd. and CIT v. Car Co. (P.) Ltd. The CIT(A) allowed the deduction, reasoning that the arbitrator's award created an enforceable liability, further supported by the CBDT Circular and the judgment in Central India Electric Supply Co. Ltd. The Revenue contended that the liability was still contingent as the assessee had not accepted the award and had filed a petition before the High Court. The Tribunal concluded that the liability did not accrue in the assessment year 1998-99, as the award was not yet made the rule of the Court, aligning with the judgment in Fazilka Electric Supply Co. Ltd. Thus, the Tribunal set aside the CIT(A)'s order and restored the Assessing Officer's decision.2. Deletion of the addition of Rs. 3,37,254 relating to prior period expenses:The assessee claimed prior period expenses amounting to Rs. 8,01,950, which included settlements of Rs. 2,11,895 and Rs. 1,25,359. The Assessing Officer disallowed these expenses due to lack of documentary evidence. However, the CIT(A) allowed the deduction, stating that the expenses were substantiated through internal documents and correspondence, which were part of the regular books of account. The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) had provided specific assertions and there was no contrary material brought on record by the Assessing Officer.3. Deletion of interest charged under sections 234A, 234B, and 234C of the Income Tax Act:The Assessing Officer had initially indicated that interest should be charged under section 234B, but sections 234A and 234C were struck out before signing the assessment order. Due to a clerical error, the assessee's copy did not reflect this correction, leading to a misunderstanding. The CIT(A) allowed the assessee's appeal based on this misunderstanding. The Tribunal clarified the clerical mistake and upheld the Assessing Officer's order to levy interest under section 234B.Conclusion:The Tribunal partly allowed the Revenue's appeal, specifically setting aside the CIT(A)'s order regarding the Rs. 1,70,74,000 liability and restoring the original assessment order, while upholding the CIT(A)'s decisions on prior period expenses and clarifying the interest charge under section 234B.