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2016 (6) TMI 1356 - AT - Income TaxAllowability of provision for service charge payable on gunny bags. - assessee created provision in the books for service charges on gunny bags payable to Food and Supplies Department Govt. of Haryana - based on objection of C AG - allowability u/s 37 - HELD THAT - An item of expenditure should be entitled to deduction u/s 37 it must have been incurred for discharging a liability actually existing during the accounting period. The mere setting apart of an amount to meet a liability cannot bear the character of expenditure till the liability becomes real. The provision of 1% on account of service charges of certain gunny bags procured from DFS Haryana has been created by the assessee amounting to Rs. 20.11 lacs with no underlying agreement supporting the creation of the charge. No such document has been produced before us even after a specific query raised by the Bench in this regard. Clearly the assessee has not been able to establish incurring the liability in the first place. Therefore no question arises of incurring the expenses what to say about creating a provision of the same. The provision of section 37(1) are very clear and it is settled law that onus is on the assessee to establish having incurred any expenditure. Having failed on this ground alone we therefore hold that the assessee is not entitled to claim allowance of expenditure on account of service charges. The basis of arriving at the figure of 20.11 lacs has also not been provided by the assessee. Therefore we hold that the assessee is not entitled to any allowance on account of provision created for service charge and we therefore uphold the order of CIT(A) in this behalf. - Decided against assessee.
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