Delhi HC affirms Assessee not entitled to Claim Deduction until Liability for which Deduction is Claimed has Accrued [Read Judgment]

The Delhi High Court in the case of Housing and Urban Development Corporation Ltd. vs. Additional Commissioner of Income Tax held that the assessee is not entitled to claim the deduction until the liability for which deduction is claimed is accrued.

The appellant was the Public Sector Undertaking  (PSU), who filed his income tax return for the Assessment Year 2007-08 on October 30, 2007. The same declared income was revised on October 24, 2008. The scrutiny made by the Assessing Officer (AO) in the assessment order made disallowances which included the disallowance pertaining to the provision of salary because of the change in the accounting policy which had an adverse financial impact. On an appeal made by the assessee to the Commissioner of Income Tax (Appeals), it upheld the order of the Assessing Officer (AO). And then the same was challenged in Income Tax Appellate Tribunal (ITAT) wherein the disallowance was again upheld on the grounds that it did not accrue and the same was merely a contingent liability without appreciating the legal proceedings.

The issue raised namely was whether the order of disallowance in the claim of the provision for salary by the Income Tax Appellate Tribunal (ITAT) is valid or not?

While allowing the appeal, the division bench comprising of Justice Vipin Sanghi and Justice Sanjeev Narula held that an assessee is not entitled to claim the deduction until the liability for which deduction is claimed has accrued by following the mercantile system of accounting. Further, the court after hearing the submissions held that the change in the accounting policy is a result of the audit objection bt CAG. Further, relying on the decision of the Supreme Court, the high court held that the change is revenue-neutral.