ITAT upheld provisions in statement of accounts under 31 heads of expenses for one month made by HDFC Sales [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench while upholding the provisions in statement of accounts under 31 heads of expenses for one month made by HDFC Sales.

The assessee, M/s HDFC Sales Pvt. Ltd. is a company engaged in the business of marketing and selling of home loans and other financial products, carrying out operations of HDFC Realty Limited, providing Corporate Agency services to HDFC Standard Life Insurance Company Limited. The assessee is part of HDFC group.

The assessee while filing its return of income declared loss of Rs. 6.21 crore. The case was selected for scrutiny. The assessing officer during the assessment noted that the assessee in the statement of accounts has made a provision of Rs.10.24 crore for under 31 heads of expenses for the month of March 2015 expenses.

The assessee has made provision in respect of expenditure pertaining to the previous year ending 31 March 2015. The Assessing Officer issued show-cause notice, if any tax was deducted (TDS) on such provisions or such provisions are disallowed for computation of income under the normal provision as well as under the provision of section 115JB.

The Assessing Officer concluded that the provisions are contingent in nature and therefore, disallowed the entire provisions of expenses in the assessment order passed under section 143(3).

On appeal before the CIT(A) wherein the relief was granted to the assessee by taking view that the provisions made by the assessee cannot be held to be contingent expenditure as the expenditure have been made on a certain basis for each head of expenses so the accounts adopted by the assessee represent the true and fair view of assessee’s business, which is consistent with accounting standards.

The CIT(A) further held that no disallowances can be made under section 40(a)(ia) of the Act since the scheme of TDS proceeds on the assumption that the person whose liability is to pay an income knows the identity of the beneficiary or the recipient of the income. Further, the amount of payment should also be exactly quantified.

The two-member bench of Accountant Member Rajesh Kumar and Judicial Member Pawan Singh upheld the observation made by CIT(A) and noted that The assessee made provision of Rs. 10.24 crore and ultimately made expenses of Rs. 10.46 crore, which clearly demonstrate that assessee made the provision after due diligence which cannot be said to be an ad hoc provision.