Ascertained Liability Can't Be Added Back As Per Clause (C) Of Explanation-1 To Sec 115JB(2): Mumbai ITAT

The Bench of the ITAT comprising of Aby T. Varkey (Judicial Member) and S Rifaur Rahman (Accountant Member) observed that “in assessee's own case for AY 2016-17 this Tribunal had allowed the claim made by assessee on account of contribution made to the Core SGF u/s 37(1) of the Act as expenditure incurred exclusively in the course of carrying on its business and the Tribunal also held that the contribution made by the assessee stock exchange to Core SGF is not in the nature of any deposit/contingency/reserve. And therefore, the AO/Ld. CIT(A) erred in holding that contribution made by the assessee to Core SGF is an unascertained liability.” (Para 7)

As per the brief facts of the case, the assessee filed its return of income declaring a total income of Rs.416,34,29,186/- and claimed a refund of Rs.228,09,76,940/-. Later on, the case of the assessee was selected for scrutiny. The assessee filed a revised return of income of Rs.408,40,30,220/-. And thereafter, the AO disallowed lease premium amortized to the tune of Rs.1,29,52,158/- and disallowed on account of contribution to Core SGF amounting to Rs.761,52,00,000/-. Thus, the AO computed the total income at Rs.1171,21,82,378/- in place of the assessee's revised ITR. The assessee preferred appeals to the tribunal where the Tribunal ordered to restore the amortization of the lease premium to the file of AO and was pleased to allow the assessee's appeal in respect of the contribution made by the assessee to Core SGF to the tune of Rs.761,52,00,000/- as expenses allowable u/s 37(1) and deleted the addition.

The AO passed the rectification order u/s 154, wherein he noted that the assessee had claimed an expense of Rs.761.52 cr under the head 'Other Expenses' on account of its contribution to the Core SGF. According to the AO, in the original assessment u/s 143(3), the same was disallowed as expenses and held to be a contingency reserve to meet contingent liability. Therefore, according to the AO as per section 115JB, the said amount should have been added to the “book profit” while computing the MAT liability as well. According to the AO, the AO in the original assessment had omitted to add the same in the book profit which omission (in the original assessment) is a mistake apparent from the record.

Therefore, exercising his power u/s 154, after taking note of the objection raised by the assessee against exercising the power u/s 154 as well as its contention that contribution towards Core SGF was ascertained liability and hence, no adjustment is required, the AO rejected the same and thought that contribution made by the assessee towards Core SGF was an unascertained liability and therefore needs to be added while computing book profit u/s 115JB.

The Bench noted that the Tribunal in the assessee's case for AY. 2016-17 & AY 2017-18 (ITA. No.730 & 731/Mum/2023) had held that such a contribution is not like any deposit/contingency/reserve.

The Bench observed that the AO/CIT(A) erred in holding that the contribution made by the assessee to Core SGF was like contingent/unascertained liability.

The Bench further observed that statutory contributions made by the assessee to the Core SGF on which it had no control are allowable u/s 37(1) as the same has been incurred exclusively in the course of carrying on its business.

Therefore, ITAT allowed the assessee's appeal.

Counsel for Appellant/Taxpayer: Shailesh S. Shah

Counsel for Respondent/Department: S. Srinivasu

Case Title: National Stock Exchange of India verses DCIT

Case Number: I.T.A. No.3695/Mum/2023

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