The Ahmedabad bench of Income Tax Appellate Tribunal (ITAT) upheld the decision of the Commissioner of Income Tax (Appeals)[CIT(A)] and deleted the addition made by the Assessing Officer (AO) of solid waste expenses of ₹7,73,73,600/-.
The ITAT concluded that the provision made by the assessee, The Green Environment Services Co-op Society Ltd., was an admissible claim because it was an accrued liability rather than a contingent liability.
The appeal was filed by the Revenue against order passed by the CIT(A) passed under section 250(6)of the Income Tax Act, 1961 for the Assessment Year 2015-16.
The succinct fact is that the AO noted throughout the assessment process that the assessee had claimed Rs. 7,77,73,600 as a provision for costs associated with disposing of solid waste.
As per the AO, the assessee did not submit any documentary evidence clarifying whether the amount for which provision was made was based on actual incurrence of expenses and inquiry revealed that expenses actually incurred in subsequent years i.e. financial years 2015-18 fell short of the amount provided for, the AO held that the provision related only to a contingent liability and disallowed the same.
Further the bench noticed the observation of the AO that the only actual liability could be allowed to be considered as expenditure.
The claim of the petitioner was allowed by the CIT(A). The revenue was aggrieved by the same and preferred an appeal before the appellate tribunal.
The bench of Sidhartha Nautiyal (Judicial Member) and Annapurna Gupta (Accountant Member) noted the observations of the CIT(A) that the provision created by the assessee to be allowable as an accrued liability taking note of the fact that income in relation to the solid waste disposal under taken by the assessee was already accounted for in the impugned year, and since the assessee could not carry out the disposal of solid waste on account of non-availability of proper site and had kept the waste at temporary site, it had booked the expenses for the disposal of the waste at the permanent site, commensurate to income accounted for by it ,on the basis of the actual estimation of expenditure which were required to be incurred.
The tribunal agreed with the findings of the CIT(A ) that the assessee’s accounting system and policy were compliant with the established Accounting Standard and Prudence rules. That section 145 of the Act, which mandates that income be calculated in line with notified accounting standards, was complied with.
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