Disallowance of Contingent Liability shall not be Entertained as it does not form part of P&L Account: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the disallowances of contingent liability shall not be entertained as it does not form part of the profit &loss account.

The counsel for the assessee submitted at the outset that the aforesaid adjustment is on account of ‘contingent liabilities’ stated to be debited to Profit & Loss account as per row No.21(g) of the Tax Audit Report e-filed by the assessee.

The counsel referred to the ‘audited financial statement’ which was also simultaneously uploaded to demonstrate that impugned ‘contingent liabilities’ were reported as separate items forming part of the ‘Notes to Accounts’ wherein it has been clearly reported that such liabilities are of contingent nature which has not been provided for, in the audited financial account.

The counsel thereafter submitted that while framing the intimation under Section 143(1) of the Income Tax Act, no opportunity has been given to the assessee for making adjustments towards such a staggering amount in departure with the statutory mandate of law as per Section 143(1) of the Income Tax Act.

The Departmental Representative submitted that no fault has been found with the impugned intimation drawn under Section 143(1) of the Income Tax Act which is in consonance with the Tax Audit Report filed and placed before the Revenue Authorities by the assessee himself.

The Two-member bench comprising of Chandra Mohan Garg (Judicial member) and Pradip Kumar Kedia (Accountant member) remitted the matter back to the file of the Assessing Officer for taking into account the submissions made on behalf of the assessee.

The contingent liability in question does not form part of the P/L account and has not been taken into account while determining the income chargeable to tax, it will be incumbent upon Assessing Officer to reverse the disallowance carried out in the intimation under Section 143(1) of the Income Tax Act.

Thus, the appeal of the assessee was allowed for statistical purposes.         

To Read the full text of the Order CLICK HERE

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