TMI Blog2020 (9) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... as identifiable and the assessee has not pleaded that such obligation was a result of past events. We may further reiterate that in both the case law relied by ld. DR for the revenue a recipient was identifiable, however, in the case in hand, no such recipient were identifiable, moreover, the provisions were made for multiple purposes. The assessee made provision of ₹ 10.24 crore and ultimately made expenses of ₹ 10.46 crore, which clearly demonstrate that assessee made the provision after due diligence which cannot be said to be an adhoc provision. - Decided against revenue. - ITA No. 852/Mum/2019 - - - Dated:- 18-9-2020 - Shri Pawan Singh Judicial Member And Shri Rajesh Kumar, Accountant Member For the Assessee : Shri Niraj Sheth (AR) For the Revenue : Shri Nikhil Chaudhary (CIT-DR) ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by revenue is directed against the order of learned Commissioner of Income Tax (Appeals)-2 [ld. CIT(A)], Mumbai dated 18.12.2018 for Assessment Year (AY) 2015-16. 2. Brief facts of the case are that the assessee is a company engaged in the business of marketing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. On appeal before the ld. CIT(A), the assessee filed detailed written submission which has been recorded by ld. CIT(A) in para-5.2 of his order. In written submission, the assessee specifically contended that the provisions made by assessee do not represent an adhoc provision. The heads of expenses for which provisions were made are actual expenses incurred by assessee during the year and provisions were made for the expenses incurred for which full details were received and are available on record. The financial statement of assessee was finalized on 27.04.2015 just 27 days after the close of Financial Year. Keeping in view the nature of business and volume of transaction of the assessee, it is not practically possible to get all information relating to quantum of expenses incurred in the month of March in such a short span of time. The assessee also relied on various decisions of Tribunal and other Superior Courts in its written submissions. The ld CIT(A) after considering the submissions of the assessee granted relief to the assessee by taking view that the provisions made by the assessee cannot be held to be contingent expenditure as the expenditure have been made on a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Audit Report. The provisions are contingent in nature and liable to be disallowed. The ld. DR further submits that the item wise details of expenses for which the assessee made provision is recorded by ld. CIT(A) on page 8,9 10 of the impugned order. The ld. DR invited our attention on item no.1 wherein the assessee made provision for motor car expenses and reimbursement of fuel expenses of ₹ 7.84 lakhs each, however, actual expenses were only ₹ 1.64 lakhs. Similarly, the provision for brokerage and consultancy fees HSPL /HRL was shown at ₹ 1.12 lakhs and ₹ 14.10 lakhs, however, no actual expenses were incurred. The ld. DR also made similar submission with regard to item no.18, 20 21 wherein provisions were made for ₹ 55 lakhs on account of entertainment expenses and incurred only ₹ 58,000/-, on repair and maintenance provision was made for ₹ 10.18 lakhs and actual expenses were incurred ₹ 3.89 lakhs and for repair and maintenance of building provisions of ₹ 7,000/- was made and nothing was incurred. On the basis of aforesaid figures, the ld. DR submits that there was no scientific basis for making provision of the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer. The assessee made provision for ₹ 10.26 crore, however, actual expenses of ₹ 10.46 crore was incurred, which confirmed the fact that the provisions were made with due diligence and cannot be considered as adhoc. Though the provisions were made on estimation, which were based on consistency over the years keeping in view the expenses incurred on certain basis for each head of expenses. The ld. AR further explained that reversal of provision and is merely for administrative convenience and for insuring correct accounting as per Companies Act and in accordance with section 145 of the Act. The observation of Auditor in the Tax Audit Report is merely a disclosure in the said report which cannot be considered as qualification . The Auditor has not confirmed anything to give an impression that provision must be disallowed for computing the income under the Act. The Assessing Officer while issuing show-cause notice has not raised the issue that no TDS was made on the provision of expenses. The ld. AR for the assessee finally submits that when the assessee was regularly following the practice of making provision on account of various expenses in the month of March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of non-deduction of TDS, the ld. CIT(A) agreed with the submission of assessee that no disallowance can be made under section 40(a)(ia) as the scheme of TDS proceed on the assumption that the person whose liability is to pay income knows the identity of beneficiary or recipient of the income and that amount of payment should be exactly quantified. The operative part of the order of ld CIT(A) is extracted below; 6. Decision: I have considered the AO's order, the submissions of the appellant and the details filed. I find that the appellant is regularly following this practice of making provisions for various expenses for the month of March, which is then reversed on the 18t of April, next year and the expenses are considered on the basis of actual payment in the subsequent year. The provision has been made, for the expenses incurred for which invoices/full details were not received till the end of the month i.e. 318t of March, by considering the average one month expense. I am inclined to agree with the appellant's submission that these provisions cannot be held to be contingent expenditure since the expenditure have already been incurred and the provision has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sulted in deduction of profit and TDS should have been made on such expenses. The ld. CIT(A) confirmed the disallowance made by Assessing Officer. On appeal before the Tribunal, the disallowance was maintained. In the said case, the recipient of commission was identifiable. However, fact of the present case is quite different. The assessee made provision with regard to 31 different items. The Assessing Officer has not brought any fact on record that recipient were certain or identifiable. The assessee has made provision in the last month the Financial Year only on the basis of estimation of earlier month of the Financial Year. The Assessing Officer has not examined whether the provision made for the month of March 2015 was not a reliable estimate on account of past obligations. Similarly, in case of Abad Builders (P.) Ltd. (supra), the Assessing Officer made disallowance under section 40(a)(ia) as the assessee has not made TDS on provision of sundry creditor. The assessee claimed deduction of the same amount in subsequent AY. The ld. CIT(A) confirmed the disallowance by taking view that the assessee cannot claim double deduction of a very same amount on which assessee deducted and ..... 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