Case Law Details

Case Name : M/s.Ambica Foundary Vs ACIT (ITAT Ahmedabad)
Appeal Number : ITA No.2415/Ahd/2010
Date of Judgement/Order : 19/06/2015
Related Assessment Year :

Brief Facts of the Case

The assessee during the year under consideration had shown sales of Rs.3,76,70,648/- and has declared gross profit of Rs.25,75,650/- and net profit of Rs.8,28,918/-. The AO, from the balance sheet of the assessee found that the assessee has made provision for unpaid expenses. The AO observed that due to this provision, the income of the assessee was reduced. According to the AO, almost entire expenditure debited to the Trading and Profit & Loss account is appearing as outstanding expenses in the balance sheet. Therefore, he held that only expenses shown for electric power, ESIC, FBT, telephone, sales tax, TDS and tax on contractor were reasonable, and therefore, he made disallowance of Rs.1,12,36,305/- out of total expenses shown in the balance sheet as outstanding payment.

Question of Law

Whether any provision or unpaid expenses relating to business duly accounted for can be disallowed by treating them as unverified and unproved?

Contention of the Assessee

The expenses in question, part of which remained unpaid and appearing in the balance sheet as provision relate to the business of the assessee and liability on account of such expenditure had accrued and arisen during the year under appeal, and the expenditure being genuine and not of capital in nature are fully allowable.

The assesse also submitted that the expenses which were shown as outstanding and payable has been paid in the subsequent year.

Contention of the Revenue

The AO disallowed the expenses as they were unproved and unverified and were unpaid till the balance sheet date. According to the AO, these liabilities are shown to reduce the profit by the assessee. The AO submitted that these expenses are unproved, un-genuine and bogus sham expenditure.

Held by the ITAT

Liability shown for the expenses in the balance sheet was related to the business of the assessee, and the liability on account of such expenses had accrued and arisen during the year under appeal, and the expense were genuine, and not of capital in nature, and therefore, fully allowable. No material has also been brought on record by the DR to show that the liability shown by the assessee in the balance sheet is bogus. Simply because outstanding liability at the end of the year is comparatively higher, considering the amount of expenditure incurred during the year, does not empower the AO to disallow the actual outstanding liability unless it is found that the liability shown was not genuine.

In the result, the appeal of the Revenue is dismissed.

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