PCIT Vs LTI Mindtree Ltd (Supreme Court of India)
For Assessment Year 2014-15, the assessee, a company engaged in software development and consultancy, filed its return declaring income of Rs.33,22,30,58,230/- under the Income-tax Act and Rs.5,63,74,68,310/- under Section 115JB. The assessment was completed under Section 143(3), with, among other adjustments, disallowance of Rs.29 crore claimed as provision for discount. The Assessing Officer treated the provision as contingent in nature, notwithstanding the assessee’s reliance on favourable decisions for earlier assessment years.
Read HC Judgemnt in this case: Provision for discount was an allowable expenditure if based on a scientific method & consistently discharged in subsequent years
The CIT(A) deleted the disallowance, noting that the assessee’s claim on identical facts had been accepted for Assessment Year 2004-05 and that the ITAT had dismissed the Revenue’s appeal on that issue. The Revenue challenged the CIT(A)’s order before the ITAT. The ITAT, relying upon its decision in the assessee’s own case for Assessment Year 2004-05, upheld the allowability of the provision. It noted that the assessee provided discounts to customers based upon sales volume and achievement of specified targets, and that the provisions had been fully discharged in subsequent years. According to the ITAT, this demonstrated that the provision was made on a scientific and specific basis. The ITAT also noted that, following the matching principle, expenses relating to discounts accruing during the relevant year were required to be provided for in that year.
