TMI Blog2020 (7) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... maintain its books of accounts of Accrual basis of accounting. Accrual means Revenues and costs are accrued, that is, recognized as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the periods to which they relate. The lower authorities have failed to understand the concept of accounting on accrual basis and practice followed by the assessee. Provision made by the assessee on accrual basis was on basis of reasonable estimates. It cannot be an unascertained and contingent liability. Similar is the fact of disallowance of legal and professional expense, miscellaneous expense and travelling expenses. Disallowance confirmed by the ld CIT (A) deserves to be deleted. Accordingly, we reverse the orders of the lower authorities and direct the ld AO to delete the disallowance of professional and legal expense, miscellaneous expenditure and travelling expenses. Nature of stamp duty paid in relation to the leased business premises - Revenue or capital expenditure - lease was for a period of 10 years - HELD THAT:- The issue is squarely covered in favour of the assessee by the decision of the Honourable Bombay High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture under Section 37(1) of the Income Tax Act, 1961 (the Act ) is not doubted, albeit only the year of allowability is questionable. 2. That the CIT (Appeals) erred on facts and in law in confirming the disallowance of ₹ 68,00,000/- made by the AO on account of stamp duty paid in relation to leased business premises holding the same to be in the nature of capital expenditure merely on the ground that lease is for a period of 10 years. 2.1 That the CIT(Appeals) failed to appreciate that incurrence of the above stamp duty neither created any new asset in the capital field nor conferred any enduring benefit to the Appellant, so as to treat such stamp duty as capital expenditure. 3. That the CIT(A) erred on facts and in law in confirming the action of the AO in charging interest under section 234B of the Act. 2. The brief facts of the case shows that assessee is a company engaged in the business of providing software development and maintenance services to Fiserv Global Services Inc USA. Assessee filed its return of income on 29/11/2013 declaring total income of ₹ 52,65,19,530/ . This return was revised on 20/11/2014 where the income of the assessee r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions are allocated towards probable, but not certain expenses, He held that it is just like a future obligations/expenses and any provision of expenses are treated as unascertained liability and the same cannot be allowed to be debited to the profit and loss account. Further, he held that, if the assessee has made any provisions during the year, then at first, it should have offered the above provision for taxation and therefore it could have claimed the same as per the actual expenses. According to him, assessee has also not deducted tax at source on the aforesaid payment. He therefore held that any provisions of expenses are treated as an unascertained liability and the same cannot be allowed to be debited to the profit and loss account. Since the assessee according to him has failed to justify the above provision expenses, it is to be disallowed. Such a liability to be incurred at a future date is a contingent liability, which could not be allowed u/s 37 (1) of the Act. Therefore, he disallowed the same u/s 37(1) of the act. 7. On appeal before the learned CIT A, appellant submitted that it has furnished the breakup of legal and professional expenses along with the copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis and are found to be related to the expenditure claimed by the appellant. Based on this, the learned CIT A held that the contention of the assessee is not accepted as assessee admitted that the provision for legal and professional expenses are charged to the profit and loss account for the month of March 2013 subsequently reversed in the month of April 2013 by crediting to the profit and loss account. On receipt of the invoices, actual amount of expenditure is debited to the profit and loss account for financial year 2013 14, i.e. subsequent year to the assessment Year. He also perused the details of the expenses filed by the assessee about the accrual for legal and professional expenses and observed that the posting date of booking of expenditure is the next financial year 2013 14. He therefore held that the appellant has debited provisions in the profit and loss account and did not offer the same for income during the year. Thus according to him, assessee reduced the income/profit during the year under consideration. As assessee has reversed the provision in the next financial year, it shows that the expenses are in the nature of unascertained liability and contingent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned assessing officer on account of stamp duty charges are also included in the above sum of accrued miscellaneous expenditure of ₹ 1,45,87,018/- and therefore there is a double disallowance. The learned and CIT A obtained the remand report of the assessing officer who checked the evidence submitted by the assessee in the form of invoices and Ledger account on sample basis and found to be related expenditure claimed by the assessee. However, The learned CIT A did not accept the explanation of the assessee that the invoices pertain to the services availed/expenses incurred by the appellant during financial year 2012 13 relevant to the assessment year 2013 14 and liability related to the accrued miscellaneous expenses pertain to financial year 2012 13 was an ascertained liability, as appellant itself has admitted that it has debited the expenses in the profit and loss account during the year under consideration and subsequently reversed in the month of April 2013 by crediting to profit and loss account. He held that it shows that the expenses debited in the profit and loss account are merely provisions and appellant has not reversed the expenses during the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses to be debited in the year for which they pertained so that the correct income could be determined. He further noted that expenses debited on account of accrued travel expenses are contingent in nature as expenses to the extent of ₹ 36,073,963/- was reversed by the appellant in the next financial year. Therefore he held that the above expenditure are contingent in nature and not allowable as per the provisions of section 37 (1) of the act. 10. The learned authorised representative submitted that these are the expenses, which have been disallowed by the lower authorities for the only reason that the provisions are made in the year on the basis of the estimated liability accrued during the year for which the bills have not been received. Such liability is debited to the profit and loss account as expenditure and credited as expenses payable at the end of the year. At the beginning of the year the above amount of provision is reversed by crediting it to the profit and loss account and as an when the bills are received the expenses are debited to the profit and loss account. Therefore, he submitted that this is an acceptable method of maintaining its books of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant expense account and crediting the expenses payable account. The relevant expenses account naturally is debited in the profit and loss account of that particular year. The provision of expenses payable account is naturally shown under the head sundry creditors/ expenses payable/ liabilities etc in the balance sheet at the close of the year. On the first day of next year, this account of Expenses payable is credited to the respective Expenses account of the next year. As and when those bills are received for, which provision was made in the last year, for which provision of Expenses payable reversed by crediting expenses account of next year, assessee debits the amount of invoices to that respective expenditure account. Thus, there is no impact on the profit and loss account of the next year. Reversal of the provision is merely a control account. Assessee also deducts tax at sources at the close of the year on such provisions, If it is not deducted same is disallowed u/s 40 (a) (ia) of the act. Assessee is a company and therefore it has to mandatorily maintain its books of accounts of Accrual basis of accounting. Accrual means Revenues and costs are accrued, that is, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that this issue is now covered by the decision of the honourable Bombay High Court in case of Commissioner Of Income Tax III Versus Reliance Industrial Infrastructure Ltd in 61 taxmann.com 407-[234 taxman 256] wherein the assessee had taken a land of lease for a period of 30 years and stamp duty was paid in respect of the deed of lease executed by the assessee with the lessor. The assessee treated it as revenue expenditure as the expenditure was incurred for carrying on the business. The AO on the identical facts held it to be deferred revenue expenditure. The honourable High Court held that it is revenue expenditure. He therefore submitted that issue is squarely covered in favour of the assessee. 16. The learned departmental representative supported the orders of the lower authorities and submitted that the assessee has obtained a benefit of enduring nature and therefore the stamp duty paid on lease, which is for 10 years is a capital expenditure. 17. We have carefully considered the rival contentions and perused the orders of the lower authorities. In the present case the facts says that stamp duty was payable for the lease of a business premises at sector 62, Noida wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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