Case Law Details
Knowledge Infrastructure Systems Pvt Ltd Vs DCIT (ITAT Delhi)
ITAT Delhi held that the expenditure not claimed cannot be disallowed while determining the taxable income. Hence, disallowance of contingent liability as expenditure unjustified as the same was never claimed as expenditure for the purpose of determining total income.
Facts- The assessee has challenged the adjustment of Rs.448,56,87,589/- on account of ‘contingent liabilities’ mainly in the nature of corporate guarantee (issued to the bank on behalf of the subsidiary), letter of credit and disputed indirect tax matter etc. resulting in tax demand of Rs. 195,53,40,510/-.
The assessee thus pointed out that the Tax Auditor committed inadvertent error in reporting the ‘contingent liabilities’ to have been debited in the P&L account which is factually incorrect. The assessee referred to the profit and loss account to assert that the liabilities were contingent in nature and therefore neither has been provided in the P&L account nor could have been provided and the CPC carried out the adjustment on account of inadvertently wrong reporting in the Tax Audit Report.
Conclusion- Held that the expenditure not claimed at the first instance cannot be disallowed while determining the taxable income. Besides, the rectification order under Section 154 is also not available before us and therefore, we are not in a position to ascertain the exact outcome of the rectification application. However, we find that the statement made on behalf of the assessee to assail the adjustments are quite convincing.
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