|The Tax Publishers2020 TaxPub(DT) 5389 (Bang-Trib)
INCOME TAX ACT, 1961
Amount of year-end provisions made on estimated basis in preceding assessment year but the same were reversed and credited to the expenditure account/P&L A/c on the first day of the next year, i.e., succeeding year resulting in offering the same as income, however, the amount cannot be subjected to tax in succeeding year, since the assessee had not claimed the spends out of provisions as deduction in an earlier year, i.e., preceding assessment year.
Business disallowance under section 40(a)(i)/(ia) - Reversal of year-end provisions for expenses in succeeding year - Assessee voluntarily offered expense as disallowance and then claimed it in actual year of payment, whether a case of tax planning -
Disallowance of Rs. 5.54 crores made by the AO forms part of provision for expenses amount of Rs. 9.71 crores created on 31-3-2006 relevant to assessment year 2006-07. It was submitted that the above said amount of Rs. 9.71 crores represented year-end provision for expenses created as per accounting principles. The above said amount of Rs. 9.71 crores (included in the amount of Rs. 24.77 crores) was disallowed by the assessee voluntarily in assessment year 2006-07, meaning thereby, the assessee did not claim Rs. 9.71 crores as deduction at all in assessment year 2006-07. Held: As per the provisions of the Act, if the assessee has got any benefit from an amount, which was claimed as deduction in an earlier year, then such benefit is taxable. However, when the assessee has not claimed the amount as deduction at all in an earlier year, any benefit obtained from it cannot be subjected to tax under the Act. In the instant case, the assessee has disallowed the provision amount of Rs. 9.71 crores while computing total income for assessment year 2006-07, meaning thereby, the assessee has not claimed the amount of Rs. 9.71 crores as deduction in assessment year 2006-07. The assessee has reversed the entire amount of Rs. 9.71 crores in the year relevant to assessment year 2007-08 by crediting the same to expenditure account/Profit & Loss account. Out of the amount so reversed, the assessee has incurred expenses to the tune of Rs. 4.17 crores. The assessee has not incurred expenses for the balance amount of Rs. 5.54 crores and hence, it has increased the profit/total income of the assessee. Since it was not claimed as deduction in assessment year 2006-07, the same cannot be subjected to tax during the year under consideration.
FAVOUR : In assessee favour.
A.Y. : 2007-08
IN THE ITAT, BANGALORE 'C'' BENCH
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