TaxTMI 
TaxTMI 
2011 (6) TMI 804
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....c. For the relevant year, the assessee has declared total income of ₹ 3,88,23,460/- in its return of income filed on 31.10.2005. Assessment order was passed u/s 143(3) on 29.12.2008. Against various additions made in the assessment order, the assessee preferred first appeal and the additions which are the subject matter of this appeal have been deleted by the ld. CIT(A), against which the Revenue is aggrieved. Following grounds have been raised: "1. The Order of the learned Commissioner of Income Tax(Appeals) is contrary to the Law and facts of the case. 2. The learned CIT(A) has erred in deleting the disallowance made in respect of "Provision for discount" of ₹ 18,38,40,583/-. 2.1 It is submitted that the CIT(....
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....the Assessing Officer be restored." 3. We have heard the rival submissions; perused the orders of the authorities below; and have also treaded through the paper book. The first issue, contained in Ground No.2 and 2.1, relates to deletion of addition of ₹ 18,38,30,583/- added on account of disallowance made in respect of 'provision for discount'. The facts apropos this issue are that during the year under appeal, assessee had debited to the Profit & Loss Account certain amounts under the head 'other expenses'. The Assessing Officer disallowed this amount of ₹ 18,38,40,583/- taking the view that it represented estimated 'provision for discount' and thus, it is an unascertained liability/contingent liability. The assessee filed a....
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....supplied the same at the reduced price. This is normally delayed as for real estate projects the consolidation of bills happens after a few months of actual execution. (iii) The scheme discount in the trade market is also settled only on receipt of proof from the distributors that they have passed on the additional discount to their customers. 4. The submission of the assessee, in nut shell, is that the assessee has made provision on scientific basis on the premise that all the distributors would achieve the target assigned to them and there would be further discounts. It was stated that the only reason for creating a provision and not charging the same as an expense is because of the fact that the exact quantification could not be don....
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....aim such a 'provision' only if it satisfies the following conditions: • An enterprise has a present obligation as a result of a past event; • It is probable that an outflow of resources will be required to settle the obligation; and • A reliable estimate can be made of the amount of the obligation. 7. In our opinion, these are general observations made by the Hon'ble Supreme Court in the case of Honda Siel Power Products Ltd (supra). If the decision is read in toto, these conditions could be given effective meaning. 8. In the case of Metal Box Company of India Ltd (supra), the Hon'ble Supreme Court has held as under: "Contingent liabilities discounted and valued as necessary, can be taken into account as t....
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....ar that when the liability is ascertained and not quantifiable during the year and is simply a contingent based on estimates, the same cannot be allowed as deduction. In the given case, the assessee's version, as put forth in para 6.4 of the appellate order, clearly states that the only reason for creating a provision and not charging the same as an expenses is because of the fact that the exact quantification could not be undertaken for the various reasons. In our opinion, the basis for the provision is simply adhoc and arbitrary. It depends on the facts of each and every case to come to a conclusion as to whether the liability is ascertained or unascertained one and it cannot be generalised. The discounts given to meet out a particular ta....