U.P. RAJYA NIRMAN SAHKARI SANGH LIMITED,LUCKNOW V. DY. COMMISSIONER OF INCOME TAX, RANGE-2, LUCKNOW

ITA 120/LKW/2023

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The case involves UP Rajya Nirman Sahkari Sangh Ltd, a cooperative society, appealing against the order of the Commissioner of Income-tax (Appeals), which confirmed various additions to the assessee's income for the assessment year 2013-14. The primary issues in the appeal were the disallowance of a provision for audit fees amounting to Rs. 40,00,000 and the disallowance of EPF contributions amounting to Rs. 68,44,058. The Tribunal examined whether these expenses were allowable under the Income Tax Act, 1961, considering the principles of accrual accounting and the timing of the liabilities' crystallization.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471448 (ITAT-LUCKNOW)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Other Referred Cases: Sagun Foundry Private Limited Vs. CIT, Checkmate Services Pvt. Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJEEV KRISHNA SHARMA
• Assessee Lawyers: P.K. KAPOOR
• Keywords: Period of limitation; Principle of natural justice
• Section: 143(2); 43B; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “A”, LUCKNOW BEFORE SHRI KUL BHARAT, VICE PRESIDENT AND SHRI NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.120/LKW/2023 Assessment Year: 2013-14 UP Rajya Nirman Sahkari Sangh Ltd B-4/5, Gomti Nagar, Vistar, Lucknow-226010. v. DCIT Range-2 Lucknow, Uttar Pradesh 226001. PAN:AAAAU2337D (Appellant) (Respondent) Appellant by: Shri P. K. Kapoor, C.A. Respondent by: Shri Sanjeev Krishna Sharma, Addl. CIT(DR) Date of hearing: 20 03 2025 Date of pronouncement: 03 04 2025 O R D E R PER KUL BHARAT, VICE PRESIDENT.: This appeal, by the assessee, is directed against the order of the Learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 20.02.2023 pertaining to the assessment year 2013-14. The assessee has raised the following grounds of appeal: - “1. BECAUSE the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Center, (NFAC), Delhi has erred in law and on facts in confirming the addition of Rs. 40,00,000/- on account of disallowance of provision for audit fees. 2. BECAUSE the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Center, (NFAC), Delhi is not correct in confirming the addition of Rs. 40,00,000/- on account of provision for audit fee by taking an erroneous view that the assessee should have claimed it in the year in which the liability got crystallized and that the assessee had not been able to provide any evidence to prove that the liability for payment of audit fees crystalized in the relevant previous year. ITA No.120/LKW/2023 Page 2 of 7 3. BECAUSE the authorities below have failed to appreciate that the assessee has been maintaining its accounts on accrual basis and as such the provision for audit fees was allowable on the basis of provision made in the books of account respective of facts whether the payment of the same has been made within the due date of filing of return of income or not. 4. BECAUSE the view taken by the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Center, (NFAC), Delhi in confirming the disallowance of provision for audit fee is fully misconceived, against the facts of the se and contrary to the provisions of law. 5. BECAUSE the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Center, (NFAC), Delhi was not correct in confirming the addition of Rs.68,44,058/- made by the Assessing Officer u/s 36(1)(va) on account ‘of alleged late deposit of EPF contributions received from the employees. 6. BECAUSE the allowability of employees’ contribution to EPF amounting to Rs. 68,44,058/- u/s 36(1)(va) of the .T. Act, 1961 was duly covered in favour of the assessee by the judgment of the Hon'ble Jurisdictional High Court in the case of Sagun Foundry Private Limited Vs. CIT reported in 78 Taxman.com 47 and reliance by the Ld. CIT(A), NFAC on the decision of Apex Court in Checkmate Services Pvt. Ltd. vs. CIT is wholly misplaced. 7. BECAUSE the order appealed against is contrary to facts, law and principles of natural justice. 8. BECAUSE the appellant craves leave to alter, amend or withdraw all or any of the grounds of appeal on or before the hearing of appeal.” 2. The assessee has also taken an additional ground that reads as under: - “Ground no. 9 Because, without prejudice to the grounds hereinfore, the authorities below have grossly erred in computing/confirming the quantum of dis-allowance u/s 36(1)(va) of the Income-Tax Act, 1961 at Rs.68,44,058/-, whereas, on a correct computation, the amount of disallowance could not have exceeded Rs.48,42,418/- and consequently the disallowance deserves to be restricted to Rs.48,42,418/-.” 3. The facts giving rise to the present appeal are that in this case the assessee is a co-operative society duly registered under the U.P. Co-operative Societies Act, 1965, vide certificate dated 25.11.1974. The assessee filed its return of income on 30.09.2013, declaring a total income of Rs.36,34,97,880/-. Thereafter, the case was selected for scrutiny through Computer Assisted Scrutiny Selection (CASS) and a statutory notice u/s 143(2) of the Income Tax Act, 1961 (“Act”, for short) was issued. ITA No.120/LKW/2023 Page 3 of 7 In response to the statutory notices, the Ld. Authorized Representative of the assessee on behalf of the assessee attended the assessment proceedings. While framing the assessment, the Assessing Officer made various disallowances namely provisions for audit fee of Rs.40,00,000/-, payment of liability of trade tax u/s 43B of the Act amounting to Rs.17,15,259/-, the Employee’s Gratuity Fund Scheme of Rs.22,66,340/- and further disallowance u/s 36(1)(va) of the Act related to EPF of Rs.68,44,058/- and out of the other expenses a sum of Rs.1,01,164/- was disallowed and added back to the income of the assessee. Thus, the Assessing Officer computed and assessed the total income of assessee at Rs.37,84,24,701/- against the returned income in sum of Rs.36,34,97,880/-. Aggrieved against this, the assessee preferred an appeal before the Ld. CIT(A) who after considering the material available on record and submissions of the assessee partly allowed the appeal of the assessee. Thereby, he deleted the addition of Rs.1,01,164/- made on account of the disallowance of miscellaneous expenses and a sum of Rs.22,66,340/- as made towards gratuity fund scheme. However, the expenses claimed in respect of the provisions for audit fee and the EPF expenses was sustained and other liability of Rs.17,15,259/- was also deleted. Aggrieved against this, the assessee is in appeal before this Tribunal. 4. Grounds No. 1 to 4 are against sustaining an addition of Rs.40,00,000/- being claimed as provisions for audit fee. Grounds no. 5, 6 and 9 are against sustaining an addition in respect of EPF contributions amounting to Rs.68,44,058/-. Rest of the grounds namely i.e. 7 & 8 are general in nature and require no separate adjudication. Apropos to the grounds no. 1 to ITA No.120/LKW/2023 Page 4 of 7 4, Ld Authorized Representative of the assessee reiterated the submissions as made before the Ld. CIT(A) and submitted that the Ld. CIT(A) failed to appreciate the facts of the case in right perspective. The assessee has been adopting the same method and practice with regard to the audit fee. He further submitted that such expenses are allowable and has been claimed having considered the past history of the expenditure. Thus, he prayed that the impugned additions may be deleted. On the other hand, the Ld. Sr. DR opposed the submissions of the Ld. Counsel for the assessee and reiterated the submissions as made in the written submissions. The crux of arguments of the Revenue is that the amount was not paid during the year and no service was rendered during the relevant period. Hence, no liability for payment accrued during the assessment year under consideration. It is merely a contingent liability would be crystallized when the audit is actually conducted. 5. We have heard the rival contentions and perused the material available on record. The Ld. Counsel for the assessee vehemently argued that the expenditure is allowable as the assessee has been making such provision for audit fee in past as well. He contended that during the year, the assessee has paid a sum of Rs.34,23,563/- audit fee related to earlier year. And same method has been adopted in the earlier years as well. Thus, the AO erred in making addition. The revenue has opposed the claim of the assessee stating that the liability though pertaining to the previous year is said to be accrued when it actually crystallized and is ascertainable would legally be enforceable. The assessee is following Mercantile System of Accounting and therefore the assessee should have claimed the same in the year it crystallized. ITA No.120/LKW/2023 Page 5 of 7 The assessee has not been able to furnish any evidence regarding the fact that it crystallized during the relevant year. During the course of hearing, the Ld. Counsel for the assessee conceded the fact that the services were not rendered in the year under consideration. In fact the audit is related to the year under consideration. Therefore, looking to the past history such provision has been made and is allowable. Undisputedly, such practice the assessee making provision for audit fee has been made and earlier year also such provision was disallowed. The audit fee related to earlier year has been paid during the year under consideration amounting to Rs.34,23,563/-. There is no quarrel that the audit fee is an allowable expenditure. The assessee is under statutory obligation to get its account audited for the relevant assessment year and such audited would be made only after completion of the financial year. Therefore, the audit otherwise relating to the financial year is carried out in subsequent year. It is admitted position that without conducting of audit no liability would accrue. Hence, until that time such liability would be contingent in nature. Such contingent liability would be allowable only in the year when it is crystallized. It is well settled law if any expenditure is allowable, the assessee should not be denied the benefit. In the case in hand, it appears that the assessee failed to cast its account properly, thereby it has caused confusion on this issue. In our view, the assessee ought to have re-casted its accounts accordingly. The expenditure for conducting audit fee is an allowable expenditure but without accrual of liability no provision can be allowed as it would remain merely a contingent liability, we hold accordingly. So far allowability of expenditure prior period during this year would be allowable subject to assessee recast its accounts. The ITA No.120/LKW/2023 Page 6 of 7 assessee needs to recast its account accordingly. The AO would allow the claim of the assessee treating the same as prior period expenses. The ground is partly allowed. 6. Grounds no. 5, 6 & 9 are related to disallowance of belated EPF contribution the Ld. Counsel for the assessee, at the outset, contended that the lower authorities have failed to verify the correct figure and made disallowance without considering it in right perspective. He drew our attention to the EPF contributions deposit details which is enclosed with paper books for the financial year 2012-13, relevant to assessment year under consideration. As per this, the total delayed amount is stated to be Rs.48,42,418/- only. 7. On the other hand, the Ld. Departmental Representative (“DR”) has no objection, if, the matter is restored to the Assessing Officer with regard to the verifying the correct figure and decide the issue accordingly. 8. We have heard the rival submissions and perused the material available on record. In view of the submissions made by the Ld. Authorized Representative of the parties, we deem it fit and proper and to sub-serve the interest of principles of natural justice and restore this issue to the file of the Assessing Officer to verify the correct figure of the contributions which was paid within the period of limitation and if it is found that the contention of the assessee is correct that the belated payments of EPF are not in excess of Rs.48,42,418/-, he would restrict the addition to that extent. Grounds raised in this appeal are partly allowed for statistical purpose ITA No.120/LKW/2023 Page 7 of 7 9. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 03/04/2025. Sd/- Sd/- [NIKHIL CHOUDHARY] [KUL BHARAT] ACCOUNTANT MEMBER VICE PRESIDENT DATED: 03/04/2025 Vijay Pal Singh, (Sr. PS) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. DR 5. Guard File By order // True Copy// Assistant Registrar "