INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Provisions made on account of legal and professional charges - AO treated the same as uncertained liability on account of reversal of provision in succeeding year -

Assessee claimed deduction of provisions made on account of legal and professional charges, AO held that reversal of provision in the next financial year, showed that expenses were in the nature of unascertained liability and, therefore, no deduction could be allowed. Held: Assessee was a company and, therefore, it had to mandatorily maintain its books of accounts as per 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. AO failed to understand the concept of accounting on accrual basis and practice followed by the assessee. Thus, provision made by assessee on accrual basis was as per reasonable estimates and could not be treated as unascertained and contingent liability especially when reversal of provision was merely a control account and assessee also deducted tax at sources at the close of the year on such provisions.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2013-14

INCOME TAX ACT, 1961

Section 37(1)

SUBSCRIBE FOR FULL CONTENT