ITAT Mumbai Allows ₹978 Cr Provision for Credit Guarantee Fund Based on Actuarial Valuation

Credit Guarantee Fund For Micro Units Vs NFAC (ITAT Mumbai)

ITAT Mumbai Allows ₹978 Cr Provision for Credit Guarantee Fund Based on Actuarial Valuation; Provision for claim payout made on the basis of actuary report is allowable expenditure

Mumbai ITAT allows provision for claim payout of Rs. 978 crores claimed by the assessee, M/s Credit Guarantee Fund for Micro Units formed by Government of India under The Ministry of Finance. While deleting the addition, ITAT observes that the provision is created on the basis of actuarial valuation report and is therefore an ascertained liability. ITAT while reversing the observations of AO that the assessee is following hybrid system of accounting, holds that the assessee follows mercantile system of accounting as the income from guarantee fees is received and accrued at the same time and the guarantee cover starts from the date of receipt of guarantee fees which is akin to insurance premium which is payable at the start of the period covered. Further, dismisses the observation of the CIT(A) who had observed that the actuary has used the words, ‘ad-hoc’ rates in his report and hence the provision created is not on scientific basis. ITAT observes that the actuary has computed the value of provision after application of mind to the attendant facts and circumstances and hence it cannot be said that provision is derived on adhoc basis. Thus, the actuarial valuation report cannot be disputed moreso when the bonafides of the actuarial valuation is not doubted by revenue. ITAT also highlights the principles of consistency as similar claim has been allowed in preceding and subsequent years in case of assessee in regular assessment proceedings.