Everest Blower Systems Pvt. Ltd. Vs DCIT (ITAT Delhi)
The ITAT Delhi in Everest Blower Systems Pvt. Ltd. vs. DCIT addressed the issue of disallowance of expenses under Section 37 of the Income Tax Act, 1961. The appeal challenged the decision of the Commissioner of Income Tax (Appeals) [CIT(A)], which upheld the disallowance of a contingent liability of ₹3,07,75,963. This amount comprised a guarantee of ₹1,37,16,613 and capital commitments of ₹1,70,59,350. The Centralized Processing Centre (CPC) had earlier disallowed the expenditure based on the Tax Audit Report, alleging it was a contingent liability improperly claimed as an expense.
The assessee contended that no such contingent liability was claimed as an expense in its Profit and Loss Account for the assessment year 2021-22. Supporting evidence was provided, including the Profit and Loss Statement for the year ending March 31, 2021. Upon review, the department’s representative (DR) confirmed that the alleged contingent liability had not been debited as an expense in the books of accounts. The ITAT found merit in the assessee’s argument, ruling that since the contingent liability was not claimed as an expense, its disallowance under Section 37 of the Act was unwarranted. Accordingly, the appeal was allowed, and the earlier order of the CIT(A) was set aside.
