Income Tax Appellate Tribunal - Mumbai
Mahindra Water Utilities Ltd, Mumbai vs Asstt Cit Rg 6(3), Mumbai on 7 May, 2017
आयकर अपील
य अ धकरण "B" यायपीठ मब
ंु ई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI
ी पी.एम. जगताप, लेखा सद य एवं ी संजय गग , या यक सद य के सम ।
BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, JM
आयकर अपील सं./I.T.A. No.1032 /Mum/2011
( नधा रण वष /
Assessment Year : 2007-2008
आयकर अपील सं./I.T.A. No.6429 /Mum/2011
( नधा रण वष / Assessment Year : 2008-2009
M/s Mahindra Water बनाम/ Asstt. Commissioner of
Utilities Limited, Vs. Income Tax -Rg.6(3),
5 t h floor, Mumbai 20.
Mahindra Towers,
Worli,
Mumbai - 400 018.
थायी ले खा सं . /PAN :AACCM4471A
(अपीलाथ /Appellant) .. (!"यथ / Respondent)
Assessee by Shri Prasad Bapat
Department by : Shri Ravi Prakash
ु वाई क' तार(ख / Date of Hearing
सन : 10-03-2014
घोषणा क' तार(ख /Date of Pronouncement : 07-05-2014
[
आदे श / O R D E R
PER P.M. JAGTAP, A.M. :
पी.एम. जगताप, लेखा सद य These two appeals filed by the assessee against two separate orders passed by the ld. CIT(A)- 12, Mumbai dtd. 26-11-2010 and 14-06-2011 for assessment years 2007-08 and 2008-09 respectively involve a common issue and the same therefore have been heard together and are being disposed of by this single consolidated order for the sake of convenience.
2. The solitary issue involved in the appeal of the assessee for A.Y. 2007- 08 relates to the addition of Rs. 25,27,070/- made by the A.O. and confirmed 2 ITA 1032/M/11 & 6429/M/11 by the ld. CIT(A) on account of disallowance of provisions made by the assessee treating the same as contingent liability.
3. The assessee in the present case is a company which is engaged in the business of operating and managing water and sewerage systems. The return of income for the year under consideration i.e. 2007-08 was filed by it on 29-10-2007 declaring total income of Rs. 8,66,97,180/-. During the course of assessment proceeding, it was noticed by the A.O. that out of the provisions debited by the assessee to the P&L account, the provisions to the extent of Rs. 5,34,000/- were reversed subsequently in the books of account while the provisions to the extent of Rs. 19,93,070/- had not been paid even upto the date of assessment i.e. for more than two years. He, therefore, required the assessee to explain as to why the provisions made by it to the extent of Rs. 25,27,070/- should not be disallowed treating the same as un-ascertained and contingent liability. As noted by the A.O. in the assessment order, no explanation in this regard was offered by the assessee except stating that the relevant provisions were made as per the agreement. The assessee also did not offer any explanation for the inordinate delay in settling these provisions. The A.O. therefore disallowed the provisions made by the assessee to the extent of Rs. 25,27,070/-.
4. The disallowance made by the A.O. on account of provisions of Rs. 25,27,070/- was disputed by the assessee in an appeal filed before the ld. CIT(A) and after considering the submissions made on behalf of the assessee as well as the material available on record, the ld. CIT(A) decided this issue for the following reasons given in para 3.2 of his impugned order:-
"1 have carefully considered the above issue and I find that I am in agreement with the action of the assessing officer wherein it has been observed that the appellant has not been able to give a plausible explanation to prove that the provisions made are not totally contingent in nature uncertain, undetermined or disputed. The appellants statement that these amounts are payable as per agreement will not 3 ITA 1032/M/11 & 6429/M/11 hold unless it can be proved by the appellant by way of primary documents. I find neither at the assessment stage nor at the appeal stage the appellant has filed any documents to justify its claim. The reason for these liabilities to still exist has not been explained. It is seen that regarding a certain portion of the liability claimed that is Rs. 5,34,00O/- the same stand reversed back by the appellant itself. The reason for this has been that these liabilities are estimated liabilities and not quantified liabilities. When questioned it was found that the above mentioned amount treated as liability was in excess of the expense incurred and therefore reversed. On the basis of this explanation the appellant was asked to prove that the liabilities now remaining and claimed as a deduction where quantified liabilities, This has not been done. In making the assessment of a particular year deductions can be permitted only in respect of expenses which are found to have been incurred in the relevant accounting period. In order to be entitled to deduction the expense must be incurred or the liability for the expense must have occurred in the year in question depending upon the system of accounting followed by the appellant. Thus in order that an item of expenditure should be entitled to deduction U/s 37 of the I.T. Act, it should have been an incurred expense for discharging a liability that actually existed during the accounting period. The mere setting apart of an amount to meet a liability not actually present or quantified but only contingent cannot bear the character of expenditure till the liability becomes real. If the accounts are maintained on Mercantile basis then the deduction has to be made in the year in which the liability accrues. On the other hand if the accounts are maintained on cash basis then the deduction has to be made in the year in which the liability is discharged and paid. Putting aside money on a liability that may become expenditure on the happening of an event is not an expenditure allowable under section 37 of the Income Tax Act. In this case it is seen that the appellant has created a provision/liability for an expenditure which has been claimed as a deduction which was not proved to be quantified at all. In fact regarding certain issues there has been a reversal of liabilities made since in the initial stage the liability was estimated and contingent. In view of this I find that the contention of the appellant cannot be upheld. The observation of the assessing officer along with' the action in making an addition regarding the said liability is upheld and confirmed. The appellant has stated that it has disallowed the said amount under section 40 (a) (ia) of the Income tax Act while computing its income. Therefore addition made by the assessing officer now is akin to a double addition. From the details submitted it is seen that expenses that have been disallowed under the above mentioned section i.e. 40(a)(ia) of the LT. Act by the appellant in his computation of income also include the said expenses claimed as liability. Under this section which the appellant has used to make the said disallowance, it stands that on certain future date when the TDS is effected the deduction claim can be made by the appellant in its computation of income. The question here is that whether the appellant is entitled to claim these 4 ITA 1032/M/11 & 6429/M/11 liabilities at any of time or not. As per the findings of the assessing officer the appellant is not allowed or entitled to this claim at all as these claims are neither proved nor quantified. It is true that a double addition of the same amount cannot be made in the computation of income and to this extent the contention of the appellant is to be accepted. As the appellant has itself included the said amount as income in its computation of income, a separate addition is not warranted. However it is clarified that the above addition would mainly stand in accordance to the observation of the assessing officer. The addition made by the appellant itself for the reasons mentioned would only follow. The AQ is therefore directed to verify he computation made by the appellant and to ensure that while making the said addition the same is not effected twice. The ground of appeal raised by the appellant is Partly Allowed."
Aggrieved by the order of the ld. CIT(A), the assessee has preferred this appeal before the Tribunal.
5. We have heard the arguments of both the sides and also perused relevant material available on record. The ld. Counsel for the assessee has submitted that the disallowance on account of provisions to the tune of Rs. 62,45,270/- was offered by the assessee u/s 40(a)(ia) of the Income Tax Act, 1961 including the provisions of Rs. 25,27,070/- disallowed by the A.O. He has submitted that when this matter of double disallowance was brought to the notice of the ld. CIT(A), he directed the A.O. not to make a separate addition of Rs. 25,27,070/-. He has contended that the disallowance on account of provisions thus stands finally confirmed by the ld. CIT(A) u/s 40(a)(ia) of the Act and the assessee will get deduction on account of the said provisions in the year when the tax is deducted from the corresponding payments made and paid to Government treasury. We are unable to agree with this contention of the ld. Counsel for the assessee. No doubt, it was noted by the ld. CIT(A) in his impugned order that the assessee having already included the amount of provision to the extent of Rs. 25,27,070/- in its income by disallowing the said provisions u/s 40(a)(ia) of the Act, no separate addition of the same amount was warranted. He, however, clarified that the addition of Rs. 25,27,070/- would mainly stand in accordance with 5 ITA 1032/M/11 & 6429/M/11 the observations of the A.O. and the addition made by the assessee company itself would only follow. It is thus clear that the addition of Rs. 25,27,070/- on account of provisions is confirmed by the ld. CVIT(A) vide his impugned order on the basis of observations made by the A.O. and it is not a case that the said addition is confirmed by the ld. CIT(A) u/s 40(a)(ia) of the Act as sought to be made out by the ld. Counsel for the assessee.
6. As regards the disallowance made by the A.O. on account of provisions of Rs. 25,27,070/- on merit, it is observed that the ld. Counsel for the assessee has not been able to offer any satisfactory explanation as to why there was inordinate delay in making the payment of provisions to the extent of Rs.19,93,070/- or reversing the provisions subsequently to the extent of Rs. 5,34,000/-. He has also not brought on record any evidence to show that any payment has been made till date against these provisions made in the previous year relevant to A.Y. 2007-08. Moreover, the mere fact that the said provisions were made as per the agreement without offering any further explanation in respect of delay in making the payment thereof or reversing such provisions subsequently to some extent, in our opinion, is not sufficient to allow the claim of the assessee for the deduction on account of the said provision. We, therefore, uphold the impugned order of the ld. CIT(A) confirming the disallowance of Rs. 25,27,070/- made by the A.O. on account of provisions made by the assessee treating the same as contingent liability and dismiss the appeal filed by the assessee for A.Y. 2007-08.
7. In ground No. 1 of assessee's appeal for A.Y. 2008-09, the assessee company has disputed the addition of Rs. 88,48,081/- made by the A.O. and confirmed by the ld. CIT(A) on account of disallowance of provisions made by the assessee treating the same as contingent liability.
6 ITA 1032/M/11 & 6429/M/11
8. In its P&L account filed along with the return of income for A.Y. 2008- 09, a sum of Rs. 88,48,081/- was debited by the assessee on account of provisions made for professional fees payable to People plus HR Consultants P. Ltd. According to the A.O., this provision made by the assessee was not for the liability towards expenses actually incurred during the year under consideration. Keeping in view the same and also having regard to the fact that certain provisions had been subsequently reversed by the assessee, he treated the provision of Rs. 88,48,041/- made by the assessee as un- ascertained contingent liability and the same was disallowed by him. The disallowance of Rs. 88,48,041/- made by the A.O. on account of provisions made was disputed by the assessee in an appeal filed before the ld. CIT(A) and after considering the submissions made on behalf of the assessee and the material available on record, the ld. CIT(A) upheld the order of the A.O. treating the provisions made by the assessee as unascertained/contingent liability for the following reasons given in para 6 of his impugned order:-
"6. I have carefully considered the order of the assessing officer and the submission of the appellant. I find that as far as Rs. 4,48,041/- is concerned, there seems to be no doubt that the amount stands reversed and is to be considered as the income of the appellant in the concerned year. Regarding the balance i.e. said to be due to United Utilities, it is seen that the appellant does have an Agreement dated 17/10/2002 with the said party for getting/obtaining technical support and technology transfer. The Agreement it is seen is a detailed Agreement which talks about the services that have to be provided by United Utilities to the appellant. However, regarding the compensation and the payment1 it is seen that the appellant is supposed to be paying the amount to United Utilities on the completion of various milestones. For this, the said concern will raise invoices and submit the same to the appellant. As per the Agreement, the payment has to be made within seven working days of the receipt of the invoice by the appellant. It has been stated in the Agreement that total compensation that shall be paid by the appellant to the said concern shall in no event exceed Rs. 42 Million and is inclusive of service-tax etc., if applicable. Regarding the fee for secondment of personals, it has been stated in the Agreement that the United Utilities shah raise invoices for each month to the appellant which the appellant shall pay. The amount that is to be paid to the operation director, technical person one and technical person two has also been provided as has been the rates for part-time 7 ITA 1032/M/11 & 6429/M/11 assigned staff. However, it is very clear from the Agreement that the payments have to be done only after the raising of invoices which indicates that the liability becomes ascertained only when invoices are raised by the said concern. I find that regarding Rs. 84 Lacs treated as provision to be paid to United Utilities, the appellant has not been able to produce any invoice that has been raised by the said concern for the services rendered. The full volume of services rendered along with the hours of manpower used is the very basis of raising the invoice on which the quantified payment has to be made as stated in the Agreement. Therefore, any amount set aside to payment without the support of the invoice can only be termed as a contingent liability and not as a ascertained liability even though there is an Agreement, which indicates that certain payments have to be made. In the case of the appellant, I find that the appellant has made a provision basing it on an Agreement that has been signed with United Utilities in spite of the fact that at the point of time of making of the provision the appellant did not have any primary documents like invoices to indicate the actual amount of payment that had to be made. At best, this provision made by the appellant was estimated one and can only be called contingent in nature."
9. For the reasons given above and relying on the order of his predecessor in assessee's own case for A.Y. 2007-08 on a similar issue, the ld. CIT(A) confirmed the disallowance of Rs. 88,48,041/- made by the A.O. on account of provisions made by the assessee treating the same as unascertained or contingent liability.
10. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that while confirming the disallowance made by the A.O. on account of provisions made by the assessee in the year under consideration i.e A.Y. 2008-09 vide his impugned order, the ld. CIT(A) has relied on the decision of his predecessor passed in assessee's own case on the similar issue for A.Y. 2007-08. The said appellate order of the ld. CIT(A) passed for A.Y. 2007-08 has already been upheld by us while disposing of the appeal of the assessee for A.Y. 2007-08. Moreover, as held by the ld. CIT(A) in his impugned order, the amount for the services rendered was payable by the assessee as per the relevant agreement only after raising the invoices by the other party. According to the ld. CIT(A), the liability for the 8 ITA 1032/M/11 & 6429/M/11 said amount thus could be said to be ascertained only when the invoices were raised by the said party and since the assessee was not able to produce any such invoices raised by the said party during the year under consideration for the services rendered, the ld. CIT(A) held that the liability was unascertained or contingent. Keeping in view these reasons given by the ld. CIT(A) as well as the conclusion drawn by us on the similar issue while disposing of the appeal of the assessee for A.Y. 2007-08, we uphold the impugned order of the ld. CIT(A) confirming the disallowance of Rs. 88,48,081/- made by the A.O. on account of provisions made by the assessee treating the same as unascertained or contingent liability. Ground No. 1 of assessee's appeal for A.Y. 2008-09 is accordingly dismissed.
11. Ground No. 2 of assessee's appeal for A.Y. 2008-09 relating to the disallowance of Rs. 44,109/- made by the A.O. and confirmed by the ld. CIT(A) u/s 14A of the Act has not pressed by the ld. Counsel for the assessee at the time of hearing before us. The same is accordingly dismissed as not pressed.
12. In the result, both the appeals of the assessee are dismissed.
Order pronounced in the open court on 07-05-2014 .
आदे श क' घोषणा खल ु े यायालय म. /दनांकः 07-05-2014 को क' गई ।
Sd/- Sd/-
(SANJAY GARG) (P.M. JAGTAP)
या यक सद य JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai; /दनांक Dated 07-05-2014
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व. न.स./ RK , Sr. PS
9 ITA 1032/M/11 & 6429/M/11
आदे श क" # त%ल&प अ'े&षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. !"यथ / The Respondent.
3. आयकर आयु2त(अपील) / The CIT(A)--12 Mumbai.
4. आयकर आयु2त / CIT --6, Mumbai
5. 5वभागीय ! त न7ध, आयकर अपील(य अ7धकरण, मुंबई / DR, ITAT, Mumbai B Bench
6. गाड फाईल / Guard file.
ु ार/ BY ORDER, आदे शानस स"या5पत ! त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai