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DCIT, Circle 10(1), New Delhi vs. M/s Dwarikadish Spinners Ltd., B-1/A-20, Mohan Cooperative Industrial Estate,New Delhi
December, 13th 2013
                                                          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.



                                     1
                                                        ITA NOS. 4782&4783/DEL/2012



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.

                                   2
                                                        ITA NOS. 4782&4783/DEL/2012



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




                                    3
                                                        ITA NOS. 4782&4783/DEL/2012



           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
                                     4
                                                         ITA NOS. 4782&4783/DEL/2012






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.




                                     5
    ITA NOS. 4782&4783/DEL/2012




6

 
 
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