ITA NOS. 4782&4783/DEL/2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B" NEW DELHI
BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. Nos. 4782 & 4783/Del/2012
A.Yrs. : 2004-2005 & 2007-08
DCIT, Circle 10(1), vs. M/s Dwarikadish Spinners Ltd.,
New Delhi B-1/A-20, Mohan Cooperative
Industrial Estate,
New Delhi
(Appellant) (Respondent)
Assessee by : Sh. J.P. Chaturvedi, CA
Department by : Ms. Nidhi Srivastava, Sr. D.R.
ORDER
PER SHAMIM YAHYA : AM
These appeals by the Revenue emanate out of the orders of the
Ld. CIT(A) for the assessment years 2004-05 & 2007-08 respectively.
2. The issue raised is that Ld. CIT(A) erred in deleting the addition of
Rs. 3,29,54,482/- for asstt. year 2004-05 and addition of Rs.
15,11,000/- for asstt. year 2007-08 made by the Assessing Officer on
account of disallowance of contingent liability debited in profit and
loss account of the assessee.
3. Since the issue is common and appeals were heard together,
these appeals are being consolidated for the sake of convenience.
Since the facts are identical, we are adjudicating this issue with
reference to the figures from asstt. year 2004-05.
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4. In this case Assessing Officer noted that as per Audit Report filed
alongwith return of income, it was mentioned that in Col. 17 (amounts
debited to the profit and loss account) of Audit Report, in sub-column
(k) particulars of any liability of contingent nature, the auditor has
mentioned an amount of Rs. 3,29,54,482/-. Assessing Officer observed
that further perusal of computation of income sheet, it was seen that
the assessee has not deducted the same from the loss, as computed in
the profit and loss account, which shall actually be deducted from the
loss so worked out in the P&L account. In this regard, Assessing Officer
issued show cause notice to the assessee as under:-
"You have debited a sum of Rs. 329.54 lac in P&L
A/c as contingent liability which is not allowable
and the same should have been added back into
the income for the relevant assessment year in
which you failed.
Please show cause that why the above said
additions may not be made into your income."
5. Assessee submitted the response as under:-
"1. The above contingent liabilities of Rs.
329.54 lac is not debited to profit and loss
account.
2. It is only appearing in the notes forming
part of the accounts, which is required for
disclosure purpose only."
6. However, the Assessing Officer observed that the assessee did
not produce any documentary evidence in support of its contention.
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Hence, he rejected the reply of the assessee. He observed that
auditors himself has mentioned in the audit report an amount of Rs.
3,29,54,482/- as contingent liability. Since the liabilities which are
contingent in nature are not allowable as per I.T. Act. Assessing
Officer added the same to the total income of the assessee.
7. Upon assessee's appeal Ld. CIT(A) deleted the addition as under:-
"I have considered the submission of the appellant,
observation of the Assessing Officer and the paper book
filed by the appellant in the form of audit report. Ongoing
through the profit and loss account of the appellant for the
period 31st March 2004, it is seen that no such liability has
been debited by the appellant in its profit and loss account.
I have also examined the Schedule 13, 14 and 15 of the
balance sheet wherein detaiIs of the item wise expenses is
given. It is seen that no such liability is appearing in these
expenses debited to profit and loss account. The contingent
liability has been mentioned in the notes forming part of the
accounts which is required for disclosure purpose only. It is
further mentioned that in 3CD report at Column 17(K), the
auditor Sh. Kapil Agarwal has inadvertently mentioned Rs.
329.54 lacs as contingent liabilities vide his tax audit report
dated 20.10.2004. However, it is matter of record that this
liability has not been debited to the P&L account. The
Assessing Officer was not justified in adding the contingent
liability of Rs. 329.54 lacs without verifying the Profit & loss
account and balance sheet of the appellant company for the
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period 31st March 2004. Hence, the contingent liability
added by the Assessing Officer is deleted."
8. Against the above order the Revenue is in appeal before us.
9. We have heard both the counsel and perused the records. We
find that Ld. CIT(A) has given a finding that the impugned amount was
not shown as liability in the books of accounts of the assessee. No such
amount/liability has been debited by the assessee in its profit and
loss account. In such situation, there is no question of any
disallowance in this regard. The contingent liability has been
mentioned in the notes of accounts which is required only for
disclosure purposes.
9.1 Furthermore, it has been mentioned by the Ld. CIT(A) that
auditors has inadvertently mentioned as Rs. 329.54 lacs as contingent
liabilities in the Tax Audit Report dated 20.10.2004. However, it is a
matter of record that this liability has not been debited to the Profit
and loss account. Under such situation we agree with the Ld. CIT(A)
that Assessing Officer has not justified in adding the contingent liability
of Rs. 329.54 lacs without verifying the profit and loss account and
balance sheet of the assessee company for the concerned period.
Assessing Officer has failed to comprehend the Accounting treatment
in this regard. Under the circumstances, we do not find any infirmity in
the order of the Ld. CIT(A) that the contingent liability added by the
Assessing Officer is liable to be deleted.
10. As regards the ground by the Revenue that the Ld. CIT(A) was
not justified in admitting the additional evidence in the form of
clarification from the Auditors without seeking remand report from the
AO. We find that the same is not relevant. We find that the addition
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made by the AO is liable to be deleted simply on the basis of that fact
that amount involved was not debited in the profit and loss account.
The clarification by the Auditors only clarified the mistake on the part
of the auditors. Hence, in our considered opinion, there is no infirmity
in the order of the Ld. CIT(A) in deleting the addition. Hence, we
uphold the same.
11. In the result, both the Revenue's appeals stand dismissed.
Order pronounced in the Open Court on 06/12/2013.
Sd/- Sd/-
SUDHIR]
[I.C. SUDHIR] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date:- 06/12/2013
SRBHATNAGAR
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT TRUE COPY
Assistant Registrar, ITAT, Delhi.
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