2023 (3) TMI 365 - AT - Income Tax

Addition on account of provision for Solid Waste Dispsal Expenses - contingent liability or accrued liability - As per the AO, the assessee did not submit any documentary evidence clarifying whether the amount for which provision was made was based on actual incurrence of expenses and inquiry revealed that expenses actually incurred in subsequent years i.e. financial years 2015-16, 2016-17 & 2017-18 fell short of the amount provided for,the AO held that the provision related only to a contingent liability and disallowed the same - CIT-A deleted the addition - HELD THAT:- We find that the ld.CIT(A) has held the provision created by the assessee to be allowable as an accrued liability taking note of the fact that income in relation to the solid waste disposal under taken by the assessee was already accounted for in the impugned year, and since the assessee could not carry out the disposal of solid waste on account of non-availability of proper site and had kept the waste at temporary site, it had booked the expenses for the disposal of the waste at the permanent site,commensurate to income accounted for by it ,on the basis of the actual estimation of expenditure which were required to be incurred.

DR was unable to controvert these factual findings of the ld.CIT(A). CIT(A) has further noted that this accounting method followed by the assessee was in consonance with the prescribed Accounting Standard and policy in accordance with the Prudence norms. That it complied accordingly with section 145 of the Act requiring income to be computed in accordance with notified accounting standards. DR was unable to controvert the same.

In view of the above, we find no infirmity in the findings of the Ld.CIT(A) that the provision made by the assessee was not a contingent liability but an accrued liability, and therefore was allowable claim of the assessee. The order of the ld.CIT(A) is accordingly upheld, and the appeal of the Revenue is dismissed.