The ITO, Ward-2, Mehsana V. M/s. Mehsana Sales Agency, Mehsana

ITA 1198/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8963 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 24-02-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 19-03-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C PANDIT SENIOR
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Business income; Question of law; Corroborative evidences; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' (BEFORE S/SHRI N S SAINI AND MAHAVIR SINGH) ITA NO.1198/AHD/2007 (ASSESSMENT YEAR: 2003-04) THE INCOME-TAX OFFICER, WARD-2, MEHSANA V/S M/S MEHSANA SALES AGENCY, JAIL ROAD, MEHSANA (APPELLANT) (RESPONDENT) ITA NO.1506/AHD/2007 (ASSESSMENT YEAR: 2003-04) M/S MEHSANA SALES AGENCY, JAIL ROAD, MEHSANA V/S THE INCOME-TAX OFFICER, WARD-2, MEHSANA (APPELLANT) (RESPONDENT) DEPARTMENT BY :- SHRI M C PANDIT, SENIOR DR ASSESSEE BY:- SHRI SUNIL H TALATI, CA O R D E R PER N S SAINI (ACCOUNTANT MEMBER) : THESE CROSS APPEALS HAVE BEEN FILED AGAINST THE ORDER OF THE LEARNED CO MMISSIONER OF INCOME-TAX (APPEALS)-XXI, AHMEDABAD [THE CIT(A) ] DATED 30-01-2007 FOR ASSESSMENT YEAR 2003-04. 2 THE GROUNDS OF APPEAL TAKEN BY THE REVENUE ARE AS UNDER: 1 THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITIONS MADE BY THE AO ON ACCOUNT OF BAD DEBT WRITTEN OFF OF RS.88,924/-. 2 2 THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITIONS MADE BY THE AO OF RS.2,25 ,657/- BEING EXCESS INTEREST PAID TO PERSONS COVERED U/S 4 0A(2)(B) OF THE IT ACT. 3 THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITIONS MADE BY THE AO ON ACCOUNT OF SALES PROMOTION EXPENSES OF RS.2,08,820/-. 4 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO INVOLVING SUBSTANTIAL QUESTION OF LAW OF IMPORTANCE. 5 IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE AO BE RESTORED TO THE ABO VE EXTENT. 3 WE FIRST TAKE UP THE REVENUES APPEAL IN ITA NO.1198/AHD/2007. 4 AT THE OUTSET, THE LEARNED AUTHORISED REPRESENTAT IVE OF THE ASSESSEE FILED BEFORE US A COMPUTATION OF TAX E FFECT IN THE APPEAL AND STATED THAT AS THE TAX EFFECT WAS BELOW RS.2 LAKHS, THE APPEAL OF THE REVENUE WAS NOT MAINTAINABLE IN V IEW OF CBDT INSTRUCTION NO.2705, DATED 24-10-2005. THE SAI D COMPUTATION READS AS UNDER:- STATEMENT SHOWING CALCULATION OF TAX EFFECT ON ADDI TION MADE: PARTICULARS AMOUNT (RS.) REVENUES GROUNDS AGAINST RELIEF ON ACCOUNT OF (I). DISALLOWANCE ON ACCOUNT OF BAD DEBT WRITTEN OFF 88,924/- 3 (II). DISALLOWANCE ON ACCOUNT OF EXCESS INTEREST PAID TO PERSONS COVERED U/S 40A(2)(B) OF IT ACT 2,25,657/- (III). DISALLOWANCE ON ACCOUNT OF SALES PROMOTION EXPENSES 2,08,820/- ---------------- TOTAL 5,23,401/- TAX RATE 35 % TAX EFFECT 1,83,190/- 5 THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO AGRE ED WITH THE SUBMISSIONS OF THE LEARNED AUTHORISED REPR ESENTATIVE OF THE ASSESSEE. 6 AFTER HEARING BOTH THE PARTIES WHO HAVE AGREED TH AT THE TAX EFFECT IN THE REVENUES APPEAL BELOW RS.2 LAKHS , AND HENCE THE SAME IS NOT MAINTAINABLE IN VIEW OF THE C BDT INSTRUCTION NO.2705, DATED 24-10-2005 AND AS THERE IS NO SUBMISSION OF THE LEARNED DEPARTMENTAL REPRESENTATI VE THAT THE ISSUES INVOLVED IN THE APPEAL ARE COVERED BY TH E EXCEPTIONS PROVIDED IN THE CBDT INSTRUCTIONS, WE DISMISS THE A PPEAL OF THE REVENUE IN LIMINE. 7 WE NOW TAKE UP THE ASSESSEES APPEAL IN ITA NO.1506/AHD/2007. 8 GROUND NO.1 OF THE APPEAL READS AS UNDER:- 1 THE LEARNED CIT(A) ERRED BOTH IN LAW AND ON FACTS I N CONFIRMING DISALLOWANCE OF RS.12,286/- BEING EXPEND ITURE INCURRED TOWARDS CONFERENCE EXPENSES. THE EXPENSES TOTALING 4 TO RS.12,286/- CONSISTING OF RS.7,000/- BEING BUS-F ARE AND RS.5,286/- FOR SITE SEEING AT JAIPUR HAVING BEEN IN CURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OUGHT TO HAVE BEEN ALLOWED. IT IS SUBMITTED THAT DISALLOWANC E OF RS.12,286/- CONFIRMED BY LEARNED CIT(A) IS UNJUST A ND THE SAME MAY BE DIRECTED TO BE ALLOWED AS CLAIMED. 9 AS REGARDS GROUND NO.1, THE FACTS OF THE CASE ARE THAT IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAS DEBIT ED AN AMOUNT OF RS.60,493/- WHICH INCLUDES AN AMOUNT OF RS.36,953/- INCURRED ON THE CONFERENCE HELD AT UDAI PUR AND RS.23,540/- AT SILVASA. ON VERIFICATION OF THIS EXP ENDITURE, THE AO FOUND THAT THE ASSESSEE SUBMITTED ONLY SELF PREP ARED VOUCHERS FOR THE EXPENDITURE OF RS.12,286/- WHICH C ONSIST OF RS.7,000/- CLAIMED AS BUS-FARE AND RS.5,286/- INCUR RED FOR SITE SEEING AT JAIPUR. THE AO OBSERVED THAT THE ASSESSEE HAS FAILED TO FILE SUCH DOCUMENTARY EVIDENCE IN SUPPORT OF THE ABOVE EXPENSES AS ASKED BY THE AO. HE, THEREFORE, MADE DISALLOWANCE OF RS.12,286/-. 10 IN APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE BY OBSERVING AS UNDER:- DURING THE COURSE OF HEARING OF APPEAL, THE APPELL ANT FILED WRITTEN SUBMISSIONS. IN THIS, IT WAS STATED THAT THE APPELL ANT HAD PRODUCED BILLS OF THE HOTEL WHERE THEY HAD BOOKED ROOMS FOR SUCH DEALERS. IT WAS AGAIN CLAIMED THAT THE EXPENDITURE INCURRED WER E GENUINE. HOWEVER, IT WAS SEEN THAT IN SUPPORT OF THE CLAIM O F EXPENDITURE OF RS.5,286/- FOR SITE SEEING AT JAIPUR AND RS.7,000/- FOR SILVASA CONFERENCE, THE APPELLANT IS NOT ABLE TO PRODUCE AN Y DOCUMENTARY EVIDENCE TO PROVE THE GENUINENESS OF THE ABOVE EXPE NDITURE. IN VIEW OF THIS, THE DISALLOWANCE MADE BY THE AO IS CO NSIDERED JUSTIFIED AND HENCE DISALLOWANCE OF RS.12,286/- IS CONFIRMED. 5 11 BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A). 12 THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTE D THE ORDERS OF THE LOWER AUTHORITIES. 13 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS A VAILABLE ON RECORD. IN THE INSTANT CASE AMOUNT OF RS.12,286/- W AS DISALLOWED OUT OF CONFERENCE EXPENSES BY THE LOWER AUTHORITIES ON THE GROUND THAT NO SUPPORTING EVIDENCES WERE FIL ED FOR INCURRING OF THE EXPENSES. BEFORE US, THE LEARNED A UTHORISED REPRESENTATIVE OF THE ASSESSEE SIMPLY SUBMITTED THA T THE AMOUNTS WERE EXPENDED FOR BUSINESS PURPOSE BUT FAIL ED TO FILE ANY DOCUMENTARY EVIDENCE FOR THE SAME. WE, THEREFOR E, DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WHICH IS CONFI RMED AND THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 14 GROUND NO.2 OF THE ASSESSEES APPEAL READS AS UN DER:- 2 THE LEARNED CIT(A) FURTHER ERRED IN BOTH IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS.1,79,154/- OUT OF RS.3,87,974/- INCURRED BY THE APPELLANT TOWARDS SAL ES PROMOTION. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN V IEW OF THE DETAILED SUBMISSIONS MADE BEFORE THE LOWER AUTHORIT IES ENTIRE AMOUNT OF RS.3,87,974/- BEING INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSE OF BUSINESS AND BEING INCIDENTAL THERET O OUGHT TO HAVE BEEN ALLOWED IN FULL. IT IS SUBMITTED THAT THE SAME BE ALLOWED AS CLAIMED INSTEAD OF PART ALLOWANCE OF RS.2,08,820/-. THE DISALLOWANCE OF RS.1,79,154/- BEING UNJUST, THE SAM E BE DELETED. 15 THE FACTS ARE THAT IN THE PROFIT & LOSS ACCOUNT, THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.3,87,974/- ON ACCOUNT OF 6 SALES PROMOTION EXPENSES. IT IS STATED BY THE ASSES SEE THAT SUCH EXPENSES ARE RELATED TO SUBH LABH SCHEME WHICH IS L AUNCHED BY IT FOR SALE PROMOTION. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE ASSESSEE WAS REQUESTED TO FURNISH NECESSARY DETAILS ALONGWITH DOCUMENTARY PROOFS. SINCE, THE AS SESSEE FAILED TO SUBMIT ANY DOCUMENTARY PROOF / SUPPORTING EVIDENCES AND THEREFORE VIDE LETTER NO.MHN/WD-2/SCN/SAR/2005- 06 DATED 20-01-2006, THE ASSESSEE WAS REQUESTED TO SHO W CAUSE AS TO WHY THE ABOVE SALES PROMOTION EXPENSES OF RS.3,8 7,974/- SHOULD NOT BE DISALLOWED. IN RESPONSE, THE ASSESSEE , VIDE ITS LETTER DATED 27-01-2006 HAS SUBMITTED AS UNDER:- THE ASSESSEE HAS CARRIED OUT ONE SALE INCENTIVE SC HEME NAMED SUBH LABH SCHEME 538 MEMBERS HAVE BEEN REGISTERED. ALL THE MEMBERS HAS TO PURCHASE ONE PRODUCT OF THE FIRM AND MONTHLY INSTALLMENT OF RS.350/- FOR 36 MONTHS HAVE TO BE PA ID. DURING THE YEAR APPROX. RS.25,82,499/- HAVE BEEN RECEIVED FROM MEMBERS. FROM THESE FUND SALES OF RS.6,42,080/- HAVE TAKEN P LACE. HUGE FUND WAS MADE AVAILABLE TO THE FIRM FOR WHICH FOLLOWING EXPENDITURE HAS BEEN INCURRED BY THE FIRM AND DEBITED TO PROFIT & L OSS ACCOUNT: RS.179154/- CREDITED TO MEMBERS ACCOUNT TOWARDS INTEREST AND OTHER CHARGES ON THEIR BALANCES. RS.192420/- MONTHLY PRIZES AMOUNT GIVEN TO 12 MEMBERS RS. 48550/- DISCOUNTS AND COMMISSION GIVEN TO OTHER CUSTOMERS --------------- RS.421924/- LESS: RS. 33750/- RECEIVED FROM MEMBERS SERVICE CHARGE --------------- RS.387974/- ========== 7 DETAIL COPY OF ACCOUNT OF SALES OF RS.642080/-, SUC H LABH RECEIPT ACCOUNT OF RS.2582499/- ARE ENCLOSED HEREWITH FOR R EFERENCE. IT IS STATED THAT THE EXPENDITURE IS FOR PROMOTION AND BENEFIT AND IS REQUIRED TO BE ALLOWED. 16 HOWEVER, THE AO DISALLOWED THE SALES PROMOTION EXPENSES BY OBSERVING AS UNDER: BUT, THE ABOVE SUBMISSION OF THE ASSESSEE IS NOT S UPPORTED BY ANY DOCUMENTARY PROOFS AND SUPPORTING EVIDENCES. NO REL EVANT DETAILS IN RESPECT OF SO CALLED SUBH LABH SCHEME HAVE BEEN FILED BY THE ASSESSEE. THE ASSESSEE STATES THAT THE RECORD WITH REGARD TO NAME AND COMPLETE ADDRESSES OF 538 MEMBERS WHOSE NAMES A RE STATED TO HAVE BEEN REGISTERED IS NOT PRODUCED BEFORE ME. THE BROCHURES AND RELEVANT PAPERS / DOCUMENTS RELATED TO SUBH LABH SC HEME ARE ALSO NOT PRODUCED OR SUBMITTED BEFORE ME FOR MY VERIFICA TION. IN THE ABOVE SUBMISSION, THE ASSESSEE HAS STATED THAT RS.1 ,79,159/- HAVE BEEN CREDITED TO THE MEMBERS ACCOUNT TOWARDS INTERE ST AND OTHER CHARGES ON THEIR BALANCES. BUT, IN THIS REGARD, THE RELEVANT PORTION OF BOOKS OF ACCOUNTS SHOWING CREDITS TO MEMBERS ACCOU NTS TOWARDS INTEREST AND OTHER CHARGES ON THEIR BALANCES IS NOT PRODUCED. DETAILS REGARDING NAME AND COMPLETE ADDRESSES OF THE PERSON S, AMOUNTS CREDITED TO THEIR ACCOUNTS ARE ALSO NOT GIVEN. AN A MOUNT OF RS.1,92,420/- IS SHOWN TO HAVE BEEN INCURRED BY THE ASSESSEE ON ACCOUNT OF MONTHLY PRIZES AMOUNTS GIVEN TO MEMBERS. BUT, THE DETAILS OF ITEMS OF MONTHLY PRIZES ARE GIVEN ARE AL SO NOT FURNISHED. THE BASIS OR REASONS FOR GIVING THE MONTHLY PRIZES TO 12 PERSONS AND BENEFIT DERIVED ARE ALSO NOT EXPLAINED. WHEN AN D HOW THE ITEMS OF MONTHLY PRIZES WERE PURCHASED FOR GIVING TO 12 M EMBERS ARE ALSO NOT KNOWN AS SUCH DETAILS / INFORMATION ARE NO T PROVIDED BY THE ASSESSEE. AN AMOUNT OF RS.48,550/- HAS BEEN SHOWN B Y THE ASSESSEE AS DISCOUNTS AND COMMISSION GIVEN TO OTHER CUSTOMER S. BUT, NO DETAILS AS WELL AS SUPPORTING EVIDENCES FOR SUCH DI SCOUNTS AND COMMISSION ARE FILED BY THE ASSESSEE. NO DETAILS WI TH REGARD TO SERVICE CHARGES OF RS.33,750/- ARE ALSO FILED BY TH E ASSESSEE. TO SUM UP, THE CLAIM OF EXPENSES OF RS.3,87,974/- AS M ADE BY THE ASSESSEE ON ACCOUNT OF SALES PROMOTION EXPENSES IS NOT SUPPORTED BY PROPER DETAILS AND DOCUMENTARY PROOFS AND SUPPOR TING EVIDENCES. RELEVANT BOOKS OF ACCOUNTS WERE ALSO NOT PRODUCED BEFORE ME BY THE ASSESSEE TO SUBSTANTIATE ITS ABOVE CLAIM. IN VIEW OF THE FACTS AS DISCUSSED ABOVE, THE GENUINENESS AND C ORRECTNESS OF THE 8 AMOUNTS CLAIMED COULD NOT BE VERIFIED. HENCE, I HER EBY DISALLOW THE SALES PROMOTION EXPENSES OF RS.3,87,974/- FOR W ANT OF DOCUMENTARY PROOF AND FOR WANT OF DETAILS IN SUPPOR T OF ITS CORRECTNESS AND GENUINENESS. 17 IN APPEAL BEFORE THE CIT(A), IN THE WRITTEN SUBM ISSIONS, THE ASSESSEE RELIED UPON THE SUBMISSIONS MADE DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS AND FURTHER SUBMIT TED THAT THE ASSESSEE HAD FILED SO MANY DETAILS OF SUBH LABH SCHEME MENTIONED AS UNDER:- 1. DETAIL PRINTED PAMPHLET OF SUBH LABH SCHEME 2. COPY OF THE MEMBERS CARD SHOWING THEREIN CHART O F 36 INSTALLMENT AND CONDITIONS OF SUBH LABH SCHEME. 3. COPY OF ACCOUNT OF SALES PROMOTION EXPENSES OF RS.3,39,424/-. 4. COPY OF PURCHASE BILLS OF PRIZES DISTRIBUTED AMO UNTING TO RS.1,94,020/- DEBITED TO SALES PROMOTION EXPENSES. 5. DETAILS COPY OF ACCOUNT OF COMMISSION EXPENSES AMOUNTING TO RS.48,550/-. IT IS IMPORTANT TO NOTE THAT THE ABOVE SCHEME HAS A TTRACTED CROWD OF MORE THAN 350 MEMBERS AND EACH MONTH A/7 T HE MEMBERS MEETING WAS ARRANGED AND IN A DRAW LUCKY NU MBER WAS GIVEN PRIZE AS PER TERMS OF THE SCHEME. BECAUSE OF THE SCHEME ONLY THE APPELLANT HAS RECEIVED FUND OF RS.2 5 LAKHS AND BOOKED SALES TO 350 MEMBERS. THE MAIN INTENTION OF THE APPELLANT IS TO GIVE BOOST TO SALES OF THE FIRM AND THE EXPENDITURE INCURRED TOWARDS SALES PROMOTION EXPEND ITURE HAS YIELDED GOOD REVENUE DURING THE YEAR AND IT WILL GI VE GOOD PUBLICITY FOR YEARS TO COME. THE SCHEME OF THE APPE LLANT HAS BECOME SO FAMOUS THAT MANY OTHER DEALERS HAVE ALSO COMMENCED SUCH SCHEME IN THE TOWN. THE LD. ASSESSIN G OFFICER HAS FAILED TO APPRECIATE THE BEST EFFORTS O F SALES PROMOTION AND TAKEN A BIOS AND NEGATIVE VIEW AND MA DE ADDITION ONLY ON THE GROUND THAT DOCUMENTARY PROOF WAS NOT PRODUCED. IT IS PERTINENT TO NOTE THAT THE ASSESSIN G OFFICER HAS NOT CARRIED OUT ANY INDEPENDENT INQUIRY AND NOT GAT HERED ANY MATERIAL EVIDENCE TO THE FACTS SUBMITTED BY THE APP ELLANT.' 9 REGARDING THE AMOUNT OF RS.1,79,154/- CREDITED TO M EMBERS ACCOUNT TOWARDS INTEREST AND OTHER CHARGES, THE APP ELLANT STATED THAT ONE OF THE CONDITION OF THE SCHEME WAS TO PROV IDE EACH MEMBERS AND THOSE MEMBERS WHO ARE NOT LUCKY IN GETT ING MEMBERS IN A DRAW WERE GIVEN A RIGHT OF ONUS THE BO NUS WAS OFFERED AFTER THE LAST INSTALLMENT. THIS IS MENTION ED IN CALUSE 9 OF THE TERMS AND CONDITIONS OF THE SUBH LABH SCHEME . FURTHER, 'THE APPEIIANT SRM HAS CALCULATED EXPENSE AMOUNT ON THE AMOUNT RECEIVED DURING THE YEAR AS ADVANCE INSTALLM ENT TO COVER EXPENDITURE OF BONUS. DURING THE YEAR AN AMOU NT OF RS.1,79,154/- HAVE BEEN DEBITED TO SALES PROMOTION EXPENSES AS 1/3RD OF RS.1000/- I,E. 333 X 538. TOTAL EXPENSE OF BONUS WOULD BE RS.5,38,000/- AND TO COVER SUCH EXPENSES L /3RD AMOUNT WAS DEBITED TO EXPENSE ACCOUNT THE APPELLANT HAS DIVIDED THE TOTAL EXPENSES IN THREE YEARS IN LOGICA L MANNER. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE FACTS OF THE CASE. IT IS TRUE THAT THE APPELLANT HAD LAUNCHED A SUBH LABH SCHEME ON ACCOUNT OF WHICH THE APPELLANT IS ABLE TO RECEIVE RS.25,82,499/- FRO M THE MEMBERS MADE UNDER THIS SCHEME. THE APPELLANT HAS F ILED DETAILS OF DISCOUNTS AND COMMISSION GIVEN TO OTHER CUSTOMERS AND ALSO DETAILS OF MONTHLY PRIZES GIVEN TO 12 MEMBERS WHO WERE GIVEN ITEMS AS PER THE LUCKY DRAW IN THE PARTICULAR MONTH. I ALSO FIND THAT AS PER THE T ERMS AND CONDITIONS OF THE SUBH LABH SCHEME, THE MEMBERS MAD E UNDER THIS SCHEME WERE TO BE GIVEN RIGHT OF BONUS O F RS.1,000/- BUT THIS WAS ONLY AFTER THE LAST INSTALL MENT AND WITH THE CONDITION THAT SUCH MEMBER WAS NOT DEFAULT ER UNDER THIS SCHEME. IN VIEW OF S ABOVE FEET, THE DEB ITING OF EXPENDITURE OF RS.1,79,154/- CALCULATED AND TAKE N 1/3 RD THE AMOUNT OF BONUS OF RS.5,38,000/- WORKED OUT FOR THE LAST PERIOD OF 3 YEARS IS NOT JUSTIFIED AND NOT ACC EPTABLE. AS MENTIONED ABOVE, THE MEMBERS UNDER THIS SCHEME WOULD BE ENTITLED FOR BONUS OF RS.1,000/- ONLY AT T HE END OF PERIOD OF THIRD YEAR AND WITH THE CONDITION THAT THE CONCERNED MEMBER DID NOT DEFAULT FOR THE PAYMENT UN DER THIS SCHEME. THEREFORE, IT IS CLEAR THAT THE AMOUNT OF RS.1,79,154/- CREDITED TO MEMBERS ACCOUNT TOWARDS INTEREST AND OTHER CHARGES HAS NOT CRYSTALLIZED DUR ING THE YEAR UNDER CONSIDERATION, NEITHER THE APPELLANT IS LIABLE FOR THIS EXPENDITURE IN THIS FINANCIAL YEAR, THEREF ORE, IT IS 10 NOT AN ALLOWABLE EXPENDITURE. IN VIEW OF THIS, THE DISALLOWANCE MADE OF RS.1,79,154/- IS CONFIRMED OUT OF THE TOTAL DISALLOWANCE OF RS.3,87,974/- MADE BY THE AO OUT OF SALES PROMOTION EXPENSES. 18 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS A VAILABLE ON RECORD. THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) DISALLOWED THE CLAIM OF RS.1,79,154/- OUT OF TOTAL SALES PROMOTION EXPENSES OF RS.3,87,974/- ON THE GROUND THAT THE LIABILITY FOR THE SAID AMOUNT OF RS.1,79,154/- WAS NOT ACCRUED DURING THE YEAR UNDER CONSIDERATION. THE LEARNED AU THORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT AS TH E ASSESSEE WILL BE LIABLE TO PAY THE AMOUNT OF RS.5,38,000/- A FTER THE END OF THREE YEARS AND THEREFORE THE ASSESSEE IN VIEW O F THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY IT CLAI MED 1/3 RD THEREOF I.E. RS.1,79,154/- AS THE EXPENSES OF THE Y EAR UNDER CONSIDERATION. HE ALSO PLACED RELIANCE UPON THE DEC ISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SHREE SAJJAN M ILLS LTD. VS. CIT (1985) 156 ITR 585 (SC), WHEREIN IT WAS HEL D THAT DISCOUNTED VALUE OF ESTIMATED LIABILITY FOR GRATUIT Y IS DEDUCTIBLE IF IT CAN BE REASONABLY ASCERTAINED AND VALUED. WE FIND THAT THE DECISION RELIED UPON BY THE ASSESSEE IS DISTINGUISHABLE ON FACTS INASMUCH AS THE DECISION R ELATES TO THE LIABILITY OF GRATUITY AND IN THE INSTANT CASE THE A SSESSEE HAS CLAIMED DEDUCTION FOR BONUS FOR WHICH THERE IS NO P RESENT LIABILITY OF THE ASSESSEE AND LIABILITY MAY ACCRUE TO THE ASSESSEE ON A FUTURE DATE ON FULFILLMENT OF THE CON DITIONS OF THE SCHEME FLOATED BY THE ASSESSEE. IF THE PERSONS WHO ARE DEPOSITING MONEY UNDER THE SCHEME DOES NOT DEPOSIT CONTINUOUSLY FOR THE PERIOD OF THREE YEARS WHICH HA S NOT 11 EXPIRED TILL THE END OF THE RELEVANT PREVIOUS YEAR, THE ASSESSEE WILL NOT BE LIABLE TO PAY ANY BONUS. IN VIEW OF THE ABOVE FACTS, IN OUR CONSIDERED OPINION, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUSTIFIED IN OBSERVING THA T THE LIABILITY OF RS.1,79,154/- WAS NOT THE LIABILITY OF THE ASSESSEE OF THE YEAR UNDER CONSIDERATION. THE ASSESSEE COULD NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT THE LIABILITY O F RS.1,79,154/- WAS ESTIMATED ON ANY PAST EXPERIENCE OR ON ANY SCIENTIFIC BASIS BY DISCOUNTING THE FUTURE LIABILIT Y AND AFTER TAKING INTO CONSIDERATION THE PROBABILITY FACTOR OF SUCH LIABILITY. IN THESE CIRCUMSTANCES, WE DO NOT FIND A NY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED C OMMISSIONER OF INCOME-TAX (APPEALS). IT IS CONFIRMED AND THE GR OUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 19 IN THE RESULT, THE APPEAL OF THE REVENUE AS WELL AS OF THE ASSESSEE, BOTH ARE DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 26-02- 2010 SD/- SD/- (MAHAVIR SINGH JUDICIAL MEMBER (N S SAINI) ACCOUNTANT MEMBER DATE : 26-02-2010 COPY OF THE ORDER FORWARDED TO : 1. M/S MEHSANA SALES AGENCY, JAIL ROAD, MEHSANA 2. THE ITO, WARD-2, MEHSANA 3. THE CIT CONCERNED 4. THE CIT(A)-XXI, AHMEDABAD 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY.R/AR, ITAT, AHMEDABAD