Allowability of year end provisions as business
expenditure
Facts:
Assessee was granted benefit of year end expense provisions
on estimated basis by the CIT(A) which was not in consonance with the revenue.
On higher appeal by the revenue -
Held against the revenue that year end expense provisions
were an allowable expenditure.
Applied:
Novartis India Ltd. v. ACIT (ITAT Mumbai in ITA No.
7644/Mum/2017, dt. 28-9-2022) : 2022 TaxPub(DT) 8066 (Mum-Trib)
CIT v. Triveni Engineering and Industries Ltd. (2011) 196
taxmann 94 (Delhi) : 2011 TaxPub(DT) 0667 (Del-HC)
Ed. Note: One of the
fine prints on this decision was the issue of neutrality - last year provisions
disallowed ought to be allowed this year on actual spend basis and the
disallowing of current year provisions once again will result in a neutral
impact or minimal impact and unless the tax rate was different in both years
the aspect becomes more academic in nature but for the fact of
assessing the correct profits for a financial year and nothing beyond. In the
same verdict the issue of disallowing provisions for non-deduction of TDS is
also discussed where the case has been remanded to the AO to examine if the
parties were identifiable out of the provisions so as to have triggered TDS
obligations. There also the case is revenue neutral as once TDS is paid the
expenditure is allowed in the year of the payment. AO's taking a stand that the
expenditure did not pertain to that financial year and still warrants
disallowance even upon TDS deduction in subsequent year ought to remember the
fact that the disallowance was triggered by the same law under the same section
which allows it upon TDS obligations being met in the year of TDS payment.
Case: Dy. CIT v.
Arvind Lifestyle Brands Ltd. 2023 TaxPub(DT) 5567 (Ahd-Trib)