Addition cannot be made merely on the facts that assesse had filed a petition to claim the same

Brief Facts of the Case and Question of Law

Brief Facts

The assessee faced winding up proceeding during which rehabilitation proposals were made. Subsequently, at the request of financial institutions who backed the rehabilitation plant, Hindustan Lever Ltd. (HLL) agreed to participate in the rehabilitation proposal and accordingly a scheme of compromise was drawn. In terms of this arrangement HLL had five nominees on the Board of Directors of the assessee; the promoter had one nominee and financial institutions had three nominees. HLL however decided not to continue with the operations of the company and withdraw from management at the end of the rehabilitation period and handed over the possession of the plant to the financial institution.

An amount i.e Rs.24,30,000/- was raised as a claim by the assessee from HLL as short-payment of processing charges when the latter was managing its affairs in terms of rehabilitation scheme. The AO sought to bring these amounts to tax on the basis that according to the mercantile system the assessee ought to have included these in P & L account.

Question of Law

Whether addition can be made merely on the grounds that the assesse is contesting a petition to receive certain amount?

Contention of the Assessee

The assessee submitted that with respect to the addition of ₹24.3 crores, both the CIT(Appeals) and the ITAT had noticed that the matter with respect to this liability was sub-judice and pending adjudication in the Company Court which since by its interim judgment dated 25.4.2013 in Company Petition No.5/1985 CA No.714/2006, rejected the plea made on behalf of the original promoter director of the assessee Sh. Choudhrie that the sum of ₹24.3 crores was payable

 Contention of the Revenue

The AO noted that the company had filed a petition based mainly against HLL demanding these amounts as short-payments on account of processing charges. The AO sought to bring these amounts to tax on the basis that according to the mercantile system the assessee ought to have included these in P & L account.

 Held by the High Court

As stated earlier both the CIT and the ITAT took note of the fact that these amounts were disputed and were mere claims. The Company Court rejected it in its judgment dated 25.4.2013.

In these circumstances, the Court finds no reason to interfere with the impugned judgment and the question of law is accordingly answered in affirmity and against the revenue.