UP Rajya Nirman Sahkari Sangh Ltd Vs DCIT (ITAT Lucknow)
In UP Rajya Nirman Sahkari Sangh Ltd vs DCIT, the Lucknow Bench of the Income Tax Appellate Tribunal (ITAT) dealt with the disallowance of audit fee provisions and delayed EPF contributions for Assessment Year 2013–14. The assessee, a registered co-operative society, had its audit fee provision of ₹40,00,000 disallowed by the Assessing Officer, citing that the liability had not crystallized during the relevant year. The CIT(A), NFAC upheld the disallowance, asserting that the assessee did not provide sufficient evidence to prove accrual of liability in the concerned financial year. The assessee, maintaining its books under the mercantile system, argued that such provisions had been consistently recorded in the past, and audit services pertain to the year in question.
The ITAT considered both sides and concluded that while audit fees are generally allowable, such claims must be based on accrued liabilities. Since the audit for the financial year is conducted post year-end, no liability legally arises until services are rendered. Thus, the Tribunal held that the audit fee provision remains a contingent liability until it crystallizes and cannot be claimed on an estimated or historical basis alone. However, it acknowledged that audit fees related to prior years, if paid in the year under consideration and properly accounted for, may be claimed as prior period expenses, subject to re-casting of accounts. Accordingly, the Tribunal partly allowed the appeal on this issue.
