TaxTMI 
TaxTMI 
2023 (10) TMI 913
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....receding year is linked to the finality of main disallowance. 3. The ld. CIT(A) ought to have appreciated that reducing the taxable income of AY 2016-17 by Rs. 13,58,03,489/-, being the disallowance made u/s. 40(a)(ia) for AY 2015-16, may lead to double deduction as the issue is still sub-judice before the ITAT. 4. The ld. CIT(A) has erred in law and facts in deleting the adjustment of Rs. 16,73,32,769/- being the addition made on account of provision of expenses while computing the income u/s. 115JB. 5. The appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary." 3. The assessee has taken the following grounds of appeal:- "1. In law and in the facts and circumstances of the appellant's case, the learned CIT(A) has grossly erred in treating Ground No. 1 of the appellant's appeal, as being general in nature and dismissing it. 2. On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming disallowance of Rs. 4,66,854/- being Employees' contribution to ESIC made by the Assessing Officer on the ground that the aforesaid payment was made after the due date pr....
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.... the bills are not received till the end of the year, but the services are availed by it. The assessee submitted that the entire expenditure has been booked on scientific basis and similar expenditure has also been shown by the assessee in earlier years and such method of accounting has been accepted by the Department. The CIT(A) allowed the appeal of the assessee with the following observations:- "5.4 On careful consideration of entire facts, it is observed that the Appellant has made provisions for various expenditure on consistent basis on year to year basis at year end. During the course of Assessment Proceedings as well as Appellate Proceedings the Appellant has provided details of provisions for expenses created during the year, reversal of such provisions in the subsequent year and actual expenses incurred before the date of filing Return of Income. ...... The appellant has claimed that as bills pertaining to various services availed by it before finalization of accounts were not received, it has made provisions of such expenditure based upon actual service available it and such provision is made on scientific basis. It is not the case that appella....
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....nditure as contingent expenditure but my predecessor CIT(A) vide his order dated 30th August, 2017 in Appeal No. CIT(A)-1/DCIT, Cir-1(1)(1)/140/2016-17 has held such expenditure as genuine business expenditure and not accepted contention of AO for treating such expenditure as contingent expenditure or unascertained expenditure. Similar finding is followed by my predecessor CIT(A) in his appellate order for AY 2015-16 and 2016-17. Consisting facts of year under consideration along with decisions referred supra, disallowance of provision for expenses made by AO for Rs. 16,73,32,769/- is deleted and this ground of appeal is allowed." 6. The Department is in appeal before us against the aforesaid relief granted by CIT(A). The Department submitted that the aforesaid expenses have been claimed on a purely provisional basis and the same have been reversed in the subsequent assessment year by the assessee which itself proves that the aforesaid provisional expenses are purely notional / contingent in nature and hence the same are not allowable. In response, the Counsel for the assessee submitted that the aforesaid expenses have been incurred on a scientific basis and the assessee have be....
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....ar some of these were found defective: that valve actuator being a sophisticated item no customer was prepared to buy a valve actuator without a warranty. Therefore, the warranty became an integral part of the sale price; in other words, the warranty stood attached to the sale price of the product. In this case the warranty provisions had to be recognized because the assessee had a present obligation as a result of past events resulting in an outflow of resources and a reliable estimate could be made of the amount of the obligation. Therefore, the assessee had incurred a liability during the assessment year which was entitled to deduction under section 37 of the Income-tax Act, 1961. The present value of a contingent liability, like the warranty expense, if properly ascertained and discounted on accrual basis can be an item of deduction under section 37. The principle of estimation of the contingent liability is not the normal rule. It would depend on the nature of the business, the nature of sales, the nature of the product manufactured and sold and the scientific method of accounting adopted by the assessee. It would also depend upon the historical trend and upon the number of ar....
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....y, expenditure on which TDS was not deducted was worked out at Rs. 4,95,19,636/-. The Assessing Officer disallowed 30% of such expenditure on which TDS was not deducted and accordingly made alternate disallowance of Rs. 1,48,55,890/- to total income of the assessee under Section 40(a)(ia) of the Act. 11. In appeal CIT(A) observed that the addition made by the Assessing Officer for Rs. 16,72,32,769/- on account of provision for expenses has already been deleted by CIT(A). So far as the alternate disallowance made by the Assessing Officer under Section 40(a)(ia) of the Act is concerned, the CIT(A) confirmed the order of the Assessing Officer and held that the assessee is liable for deducting TDS under Section 40(a)(ia) of the Act. However, CIT(A) observed that for the immediately preceding assessment year, i.e. A.Y. 2015-16, CIT(A) had upheld the disallowance of Rs. 13,58,03,489/-. The CIT(A) observed that since it is a policy of the assessee to make a reversal entry for provision in subsequent financial year, then if such amount is reversed by the assessee in current assessment year i.e. A.Y. 2016-17, then the same would be reduced from the taxable income. Accordingly, CIT(A) dir....