Deduction towards contingent liability allowed by AO: No revision U/s 263 permissible if AO had conducted proper inquiry and verification – ITAT Mumbai

 

Mumbai Tribunal in the case of National Stock Exchange of India Ltd (ITA No 642/Mum/2020) hashled that the AO had conducted proper inquiry and verification while allowing the claim of the assessee and set aside the revisionary order passed by the PCIT .

Let us have a Short Overview of the case:

Background and Issues:
The assessee filed its return of income for AY 2015-16 on 01.09.2015, declaring a total income of Rs. 968,20,00,970/-. The return was selected for scrutiny, and the assessment was completed under section 143(3) of the Act, on 29.12.2017, assessing the total income at Rs. 968,33,68,600/-.
The PCIT initiated revision proceedings under section 263 of the Act, alleging that the AO failed to carry out inquiries as warranted by the facts and circumstances of the case.
The main issue was the disallowance of Rs. 170 crores contributed by the assessee to the NSCCL Core Settlement Guarantee Fund (Core SGF), which was debited under the head “Office Expenses”.
The PCIT held that the contribution to the Core SGF was a contingent liability and not an allowable deduction under section 37 of the Act.
Assessee’s Arguments:
The assessee argued that the AO had examined the issue of deduction of contribution to the Core SGF during the assessment proceedings and allowed the deduction after proper application of mind.
The assessee provided all necessary documents and evidence to support the claim of deduction.
PCIT’s Observations:
The PCIT disagreed with the assessee’s submission and held that the AO should have conducted further inquiry and verified the true nature of the Core SGF.
The PCIT directed the AO to disallow the contribution of Rs. 170 crores to the Core SGF and to conduct further inquiry to find out the actual payment made from the Core SGF during the year to meet any default of clearing members.
Tribunal’s decisions:
The Tribunal noted that the issue of the claim of contribution to the Core SGF was specifically raised during the scrutiny assessment proceedings, and the same was duly replied to by the assessee.
The Tribunal found that the AO had conducted proper inquiry and verification while allowing the claim of the assessee.
Also on merits, the Tribunal referred to the decision of the Co-ordinate Bench of the Tribunal in the assessee’s own case for the assessment years 2016-17 and 2017-18, which held that the statutory contribution made by the assessee to the Core SGF is allowable under section 37(1) of the Act.
The Tribunal concluded that the PCIT erred in invoking the provisions of section 263 of the Act and set aside the impugned order.
The views expressed in this summary are entirely personal and do not reflect those of any professional firm.

The copy of the order is as under: