INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Sales tax demand - Assessee shown the amount paid as advance -

Assessee-company paid demand raised by Commercial Tax Department pursuant to directions of Court. The said amount was shown as 'advance for others'. AO disallowed the said sum holding it to be contingent liability. Further, CIT (A) upheld such addition. Assessee pointed out that the said amount was only shown as advance under the head 'Current Assets, Loans and Advances' in the Annual Report and the same was not debited to Profit and Loss Account, hence no addition could be made on that account. Held: AO made addition on account of demand paid by assessee pursuant to directions of Court. However, it was found that the said amount was not debited to Profit and Loss Account and was only claimed as 'advance for others' under main head 'Current Assets, Loans and Advance' of the Annual Report. It is settled law that the amount, which is not claimed as expenditure by the assessee while preparing Profit and Loss Account, then no addition can be made on such an entry. Therefore, as the amount in question was only shown as advance and not claimed as expenditure, no addition was called out on that count. Further, even if the said amount was contingent liability, but in view of the provision of section 43B, such amount are duly allowable as expenditure in the year of payment. However, the same was not the case of the assessee and accordingly, the AO was directed to delete the addition.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2006-07

INCOME TAX ACT, 1961

Section 36(1)(iii)

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