Relief for Aditya Birla: ITAT Rules Disallowance u/s 40(a) Cannot Be Retaxed if Provision Reversed in Subsequent Year [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) ruled that disallowance under Section 40(a) for earlier years cannot be added back again when the entire provision has been reversed in a subsequent year to prevent double taxation.

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Aditya Birla Sun Life AMC Ltd had made a provision of Rs. 2,16,76,799 for year-end expenses in the financial year 2018-19 and had disallowed 30% of this amount, amounting to Rs. 65,03,040 under Section 40(a) in the assessment year 2019-20, due to non-payment of TDS within the due date.

In the following year, since no invoices were received from vendors, the company reversed the entire provision in its books and offered the entire amount to tax in the assessment year 2020-21.

During assessment, the Assessing Officer (AO) disallowed the claim of Rs. 65,03,040 again, arguing that there was no provision in the Income Tax Act to allow a reversal of disallowance made under Section 40(a) in a subsequent year and that the company’s claim was not allowable merely because it reversed the provision in its accounts. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision.

The assessee approached the ITAT arguing that taxing the disallowed amount again would result in double taxation, as the entire provision had already been offered to tax upon reversal. The assessee’s counsel argued that only the net amount of Rs. 1,51,73,759 (i.e., Rs. 2,16,76,799 minus Rs. 65,03,040) should be taxed in the assessment year 2020-21 to avoid double taxation.

The two-member bench comprising Narendra Kumar Billaiya (Accountant Member) and Sandeep Singh Karhail (Judicial Member) observed that since the entire provision had already been offered to tax when reversed, taxing the disallowed portion again would lead to double taxation.

The tribunal held that only the net amount of Rs. 1,51,73,759 should be brought to tax in the year under consideration instead of the entire provision. The tribunal allowed the assessee’s appeal for statistical purposes and directed the AO to recompute the taxable income accordingly.

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