The Delhi Bench of Income Tax Appellate Tribunal(ITAT)quashed the disallowance of ₹3.07 Crores for contingent liabilities, including ₹1.37 Crores for Guaranty and ₹1.71 Crores for Capital Commitments, as the expenses were not claimed in the Profit and Loss (P&L) account for the year ending 31st March 2021.
Everest Blower Systems Pvt. Ltd.,appellant-assessee,challenged the order dated 30.04.2024, for assessment year 2021-22 passed by Commissioner of Income Tax(Appeals)[CIT(A)]. The primary issue in the appeal was the disallowance of ₹3.07 Crores under Section 37 for contingent liabilities, including ₹1.37 Crores for Guaranty and ₹1.71 Crores for Capital Commitments.
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The assessee’s counsel argued that the Centralized Processing Centre (CPC) wrongly disallowed the contingent liability under Section 37, as it was never claimed as an expense in the books. He referred to the Profit and Loss Statement for the year ending 31st March 2021 to support this. He also mentioned that the assessee appealed to the CIT(A) against the intimation under Section 143(1), but the CIT(A) dismissed the appeal without reviewing the records.
In response, the revenue counsel supported the disallowance, stating it was based on the Tax Audit Report. However, the counsel requested time to check if the assessee had included the contingent liability as an expense in the P&L account. After reviewing the records, the counsel confirmed that the contingent liability was not claimed as an expense in the P&L account for the year ending 31st March 2019.
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The two member bench comprising Vikas Awasthy(Judicial Member) and S Rifaur Rahman(Accountant Member) considered the issue of disallowing the contingent liability under Section 37. The assessee stated that the liabilities of ₹1,37,16,613 for Guaranty and ₹1,70,59,350 for Capital Commitments were not claimed in the P&L account. A review of the P&L account for the year ending 31st March 2021 confirmed this, and the revenue counsel also verified it. Since the expenses were not claimed, disallowance was not warranted.
In short the appeal filed by the assessee was allowed.
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