| The Tax Publishers2019 TaxPub(DT) 0288 (Mad-HC) INCOME TAX ACT, 1961
Section 37(1)
Where assessee had made provision towards payments to be made for enhanced compensation to land owners, and thereafter effected payment out of the provision made and reduced the provision, the said amount could not be treated as income of assessee if the same was never claimed as a deduction. Matter was remanded back to AO to verify as to whether or not the said amount was claimed as deduction.
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Business expenditure - Provision made towards payment to be made for enhanced compensation - Disallowance of a balance sheet item not claimed in profit and loss account -
Assessee was established as a wholly owned enterprise State Government for promoting and developing industries. During the relevant assessment year certain land was acquired by Government and was handed over to assessee and the land was, in turn, leased out to a construction-firm. Assessee paid enhanced compensation as per the order of the Reference Court. It provided for enhanced compensation by debiting the profit and loss account and crediting provision for enhanced compensation account (liability item in the balance sheet) in the books of account. AO had disallowed the provision and matter travelled to Tribunal, who allowed the provision to assessee. Assessee thereafter effected payment out of the provision made and consequently the provision got reduced. Thereafter, AO made an addition of the balance sheet item which, according to assessee, was not claimed in the profit and loss account of the relevant assessment year. Held: Assessee was right in contending that if the amount was never claimed as a deduction, then obviously the said amount could not be treated as income of assessee. On account of two orders passed by Tribunal, which granted relief to assessee by allowing the provision, confusion had arisen, as a result of which, AO passed the order under section 154 alleging that the amount was wrongly deleted. AO could not be blamed because the confusion had arisen on account of order passed by the Tribunal, in which, the issue though raised by assessee contending that the said amount was never claimed as a deduction, was not dealt with by Tribunal. Therefore, the matter was remanded back to AO to verify as to whether the amount was not claimed and if it was not, the same cannot be added to the income of assessee.
REFERRED : Tamilnadu Industrial Development Corporation Ltd. v. Asstt. CIT [I.T.A. Nos. 691 and 692/Mds/2017, dt. 12-7-2017]
FAVOUR : In assessee's favour
A.Y. :
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