ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), VADODARA, VADODARA V. BARODA GUJARAT GRAMIN BANK, VADODARA

ITA 1251/AHD/2025

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The case involves the Gujarat Gramin Bank Santalpur, Patan, which appealed against the adjustments made by the Centralized Processing Centre (CPC), Bangalore, under section 143(1) of the Income-tax Act, 1961. The CPC had made several adjustments to the bank's declared loss, resulting in a positive income assessment. The CIT(A) partially allowed the bank's appeal, deleting some additions but sustaining the disallowance of employees' contribution to Provident Fund. The Revenue challenged the CIT(A)'s decision regarding the deletion of the addition for contingent liabilities, which the Tribunal upheld based on the fact that these were not actual expenditures but mere disclosures.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 780465 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2021-2022
• Appeal Filed On: 29-05-2025
• Other Referred Cases: Checkmate Services Pvt. Ltd. v. CIT, Mahesh Mohanbhai Patel (HUF) v. CIT, Dwarkadish Spinners Ltd. v. CIT, Kay Bee Industrial Alloys Pvt. Ltd. v. CIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ALPESH PARMAR
• Assessee Lawyers: MUKUND RAO
• Keywords: Reasonable cause; Bad and doubtful debts; TDS
• Section: 234B; 37

Judgement Text

"आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण,अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ ‘A’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDAB ] BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER AND SHRI MAKARAND V.MAHADEOKAR, ACCOUNTANT MEMBER ITA No.1251/Ahd/2025 Asstt.Year : 2021-22 ACIT, Cir.-1(1)(1) Vadodara. Baroda Gujarat Gramin Bank Santalpur, Patan Vadodara. PAN : AAAJB 1674 R (Applicant) (Responent) Assessee by : Shri Mukund Rao, AR Revenue by : Shri Alpesh Parmar, CIT-DR सुनवाई क तारीख/Date of Hearing : 06/10/2025 घोषणा क तारीख /Date of Pronouncement: 09/10/2025 आदेश आदेश आदेश आदेश/O R D E R PER MAKARAND V.MAHADEOKAR, AM: This appeal by the Revenue is directed against the order of the Learned Additional / Joint Commissioner of Income Tax (Appeals) from the office of Commissioner of Income Tax (Appeals), Panchkula [hereinafter referred to as “CIT(A)”] dated 05.03.2025, passed under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year 2021-22, arising from the intimation issued by the Centralized Processing Centre (CPC), Bangalore, under section 143(1) of the Act dated 28.12.2022. 2. Facts of the Case 2.1 The brief facts of the case are that the assessee, a Regional Rural Bank, filed its return of income on 14.03.2022 declaring a total loss Printed from counselvise.com ITA No.1251/Ahd/2025 2 of Rs.14,88,55,097/-. The said return of income was processed by CPC under section 143(1) of the Act, and in the course of such processing, various adjustments were made resulting in determination of total income at Rs.33,24,14,410/- as against the returned loss. Consequently, the loss of the assessee to be carried forward was reduced from Rs.1,20,42,34,376/- as declared to Rs.1,05,53,79,278/- as computed by CPC. 2.2 As per the intimation issued under section 143(1), CPC made the following adjustments/additions: (i) Late payment of GST of Rs. 52,000/- was added back treating the same as inadmissible under section 37 of the Act. (ii) A sum of Rs.44,53,31,688/- representing contingent liabilities was treated as inadmissible expenditure under section 37 of the Act. The said figure consisted of claims against the Bank not acknowledged as debts of Rs.1,03,77,000/-, guarantees given on behalf of constituents of Rs.5,91,72,477/- and Depositor Education Awareness Fund with RBI of Rs. 37,57,82,211/- (iii) Recovery of bad debts amounting to Rs.3,27,39,639/- was added back under section 41(1) of the Act. (iv) Disallowance of Rs.31,46,177/- on account of late remittance of employees’ contribution to Provident Fund was also made under section 36(1)(va) of the Act. 2.3 CPC made aggregate additions of Rs.48,12,66,504/-, resulting in the assessment of positive income and determination of tax liability of Rs.14,50,21,633/- inclusive of tax and interest under sections 234B and 234C, after giving credit for TDS. 2.4 Being aggrieved, the assessee carried the matter in appeal before the CIT(A). Before the CIT(A), the assessee raised grounds challenging all the adjustments made by CPC. The assessee submitted that the late fee of GST of Rs. 52,000/- had already been suo motu disallowed Printed from counselvise.com ITA No.1251/Ahd/2025 3 under section 37 of the Act while computing income in the return, and therefore any further disallowance would amount to double addition. 2.5 Regarding the addition of Rs.44,53,31,688/-, it was contended that the amount represented only contingent liabilities disclosed in the balance sheet as per applicable accounting standards and had not been debited to the profit and loss account and therefore could not be regarded as expenditure incurred for the purposes of business. 2.6 On the issue of recovery of bad debts of Rs.3,27,39,639/-, the assessee submitted that the same was duly credited in Schedule 14 (Miscellaneous Income) of the audited accounts and had already been offered to tax, and therefore any further addition would result in double taxation. 2.7 With respect to employees’ contribution to Provident Fund of Rs.31,46,177/-, the assessee explained that the delay in remittance arose on account of transition directed by NABARD requiring the Regional Rural Banks to disassociate from EPFO and establish their own Provident Fund Trust, and accordingly the payment was made in June 2020; hence there was a reasonable cause and no disallowance was warranted. 2.8 The Learned CIT(A) considered the submissions and adjudicated on each of the issues. In so far as the disallowance of employees’ contribution to Provident Fund was concerned, the CIT(A) referred to the judgment of the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd. v. CIT (Civil Appeal No. 2833 of 2016), and held that the employees’ contribution to Provident Fund is required to be deposited within the due dates prescribed under the relevant labour law and any delay would attract disallowance under section 36(1)(va). Accordingly, the addition of Rs.31,46,177/- was sustained. Printed from counselvise.com ITA No.1251/Ahd/2025 4 2.9 In respect of GST late fee of Rs.52,000/-, the CIT(A) accepted the assessee’s contention that the same was already disallowed in the computation of income filed with the return and therefore deleted the addition holding that the same would amount to double disallowance. 2.10 As regards the contingent liability of Rs.44,53,31,688/-, the CIT(A) held that such amounts were merely shown in the balance sheet and not debited to the profit and loss account and therefore could not be added as disallowable expenditure. The addition on this account was thus deleted. 2.11 Lastly, with respect to recovery of bad debts of Rs.3,27,39,639/- , the CIT(A) found that the same was already credited in the income side of profit and loss account and offered to tax and therefore deleted the addition treating it as double taxation. In the result, the appeal was partly allowed by sustaining only the disallowance of employees’ contribution to Provident Fund and deleting the other additions. 3. The Revenue, being aggrieved by the relief granted by the CIT(A), is in appeal before us raising following grounds: (i) On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.44,53,31,688/- made by the AO on account of contingent liability debited in P&L account as reported by the Auditor in tax audit report. (ii) The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal. 4. During the course of hearing before us, the Learned Departmental Representative submitted that the CPC had made the adjustment of Rs.44,53,31,688/- in respect of contingent liabilities Printed from counselvise.com ITA No.1251/Ahd/2025 5 after due reference to the Tax Audit Report wherein the Auditor had reported such contingent liabilities. The DR submitted that the Learned CIT(A) has simply accepted the submission of the assessee that these liabilities were disclosed in the balance sheet and not debited to the profit and loss account, without undertaking any verification of the records. 5. In reply, the Learned Authorised Representative (AR) for the assessee supported the order of the CIT(A). He submitted that the impugned addition of Rs.44,53,31,688/- represents only contingent liabilities which are not debited to the profit and loss account but are merely disclosed in the notes forming part of the accounts, as per the applicable accounting standards. It was emphasised that contingent liabilities are off-balance sheet items and are shown in the schedules to the balance sheet only for disclosure purposes. In this regard, the AR drew our attention to page 6 of the paper book wherein Schedule 12 of the financial statements has been reproduced and further referred to page 12 of the paper book where detailed break-up of the said contingent liabilities is provided. 6. On a specific query by the Bench as to why these figures were also reflected in the Tax Audit Report in Form 3CD, the AR explained that as per clause 21(g) of the prescribed form, it is mandatory on the part of the tax auditor to disclose particulars of contingent liabilities of the assessee. It was thus submitted that there was no basis for CPC to treat such disclosure as expenditure and make addition under section 37 of the Act. The AR accordingly prayed that the order of the CIT(A) deleting the said addition be upheld. The AR also placed reliance on the decision of Co-ordinate Bench in case of Mahesh Mohanbhai Patel (HUF) , ITA No. 1147/Ahd/2024 dated Printed from counselvise.com ITA No.1251/Ahd/2025 6 08.05.2025, where the Bench, upheld the decision of CIT(A) while dismissing the appeal of revenue. 7. We have carefully considered the rival contentions, the material available on record, and the judicial precedents relied upon. At the outset, it is necessary to note the disclosure requirement under clause 21(g) of Form 3CD of the Tax Audit Report. Clause 21 primarily deals with “details of amounts debited to profit and loss account, being in the nature of capital, personal, advertisement expenditure, etc.”, and under sub-clause (g), particulars of any liability of a contingent nature are required to be disclosed. A plain reading of the clause indicates that the auditor is expected to report those sums which are actually debited to the profit and loss account and which partake the character of expenditure. In contrast, liabilities which are merely shown in the balance sheet as contingent liabilities, without being charged to the profit and loss account, do not impact the computation of income. Thus, the reporting in Form 3CD cannot by itself confer the character of expenditure upon such disclosures. 7.1 We find that the assessee had disclosed an amount of Rs.44,53,31,688/- as contingent liabilities in the schedules forming part of its balance sheet. It is an admitted position that the said amounts were not debited to the profit and loss account of the assessee, nor were they claimed as expenditure in computation of income. The Revenue has not brought on record any material to demonstrate that the said sums were ever charged to the profit and loss account or claimed as expenditure. The adjustment made by CPC under section 143(1), therefore, is without foundation. 7.2 We also note that the Co-ordinate Bench in case of Mahesh Mohanbhai Patel (HUF) (supra) had an occasion to deal with a similar Printed from counselvise.com ITA No.1251/Ahd/2025 7 adjustment made by CPC under section 143(1), wherein contingent liabilities reported under clause 21(g) of the tax audit report were treated as disallowable expenditure. In that case, after considering the revised tax audit report, auditor’s certificate, and audited financial statements, the Bench recorded a categorical finding that the disclosure under clause 21(g) was merely for informational purposes and that no actual debit had been made to the profit and loss account. The Bench further observed that an adjustment under section 143(1)(a) cannot travel beyond apparent mistakes and does not extend to issues requiring verification such as contingent liabilities. Relying on judicial precedents including Dwarkadish Spinners Ltd. (ITA No. 4782-83/Del/2012) and Kay Bee Industrial Alloys Pvt. Ltd. (ITA No.1032/Kol/2011), the Bench held that contingent liabilities which are not debited to the profit and loss account cannot be added merely because of their disclosure in the audit report. 7.3 Respectfully following the ratio laid down therein, we hold that the present issue is squarely covered in favour of the assessee, and no addition on account of contingent liabilities can be sustained in the hands of the assessee. The order of the Learned CIT(A) deleting the addition of Rs.44,53,31,688/- on account of contingent liabilities is upheld. 8. In the result, the appeal filed by the Revenue fails on the sole ground urged and is accordingly dismissed. Order pronounced in the Court on 9th October, 2025 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER Ahmedabad, dated 09/10/2025 Printed from counselvise.com "