Whether the provision for professional is not allowable for the reasons that it as contingent liability?
Whether the disallowance would be there even if assessee has been adopting consistent accounting principle on year to year basis?
The issue was decided in favor of the revenue by the ITAT in the case of Bain And Company India Pvt Ltd Vs DCIT, ITA No. 3541/Del/2016
The issue before ITAT was framed as under :
Whether CIT(A) is justified in denying the provision for professional costs holding it as contingent liability when the assessee has been adopting consistent accounting principle on year to year basis.
Assessee’s appeal ws dismissed by Delhi ITAT and issue stands decided in favour of the revenue.
Short overview of the case:
Assessee company filed its return of income declaring loss.
During the course of assessment proceedings the AO noted that the assessee had made provision for professional cost which has been debited to P&L account.
No basis for making the said provision was furnished. AO, noted that the assessee has failed to establish that provision for professional support cost was an ascertained liability and therefore, it has to be treated as a contingent liability.
Referring to the decisions in the case of Sree Sajjan Mills Ltd v CIT and Indian Molasses Co Ltd v CIT AO held that contingent liabilities are to be disallowed.
AO accordingly added back the amount being provision for professional cost.
In appeal, Tribunal held that,
CIT(A) is justified in denying the provision for professional costs holding it as contingent liability when the assessee has been adopting consistent accounting principle on year to year basis.
It further observed as under:
++perusal of the audited account of the company shows that the assessee had a huge loss in the immediately preceding assessment year and probably for this reason the assessee had not made any provision for professional cost.
However during the current year such loss has substantially reduced and in the subsequent years assessee has started showing income.
It is pertinent to mention here that the accounts of the company are audited by reputed CA firm and therefore it cannot be said that it is an inadvertent error.
Even if the same is considered as an inadvertent error, the assessee has not taken any step to revise the return of income.
Therefore, the findings of the CIT(A) are concurred that assessee has not adopted consistent accounting principle on year to year basis and it is not open to the assessee to claim the expense on provision basis in one year and on accrual basis in the other year.
No infirmity in the order of the CIT(A) confirming the disallowance made by the AO
