The DCITAnand Circle, Anand V. Emtici Engineering Ltd., Anand

ITA 1472/AHD/2011

• Counselvise Citation: 147220514 RSA 2011
• Duration Of Justice: 4 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 25-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 43B; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD , BEFORE SHRI G. D. AG RAWAL, VICE PRESIDEN T, AND SHRI S. S. GODAR A, JUDICIAL MEMBER . ITA. NO. 1472 /AHD/20 1 1 (ASSESSME NT YEAR: 2 00 7 - 0 8 ) ASSISTANT COMMISSIONER OF INCOME - TAX, ANAND CIRCLE, ANAND APPELLANT VS. EMTICI ENGINEERING LTD., ANAND SOJITRA ROAD, VALLABHVIDYANAGAR, ANAND RESPONDENT & ITA. NO. 1 4 7 3/AHD/201 1 (ASSESSMENT YEAR:200 7 - 0 8 ) EMTICI ENGINEERING LTD., ANAND SOJITRA ROAD, VALLABHVIDYANAGAR, ANAND APPELLANT VS. ASSISTANT COMMISSIONER OF INCOME - TAX, ANAND CIRCLE, ANAND RESPONDENT PAN: AA ACE4642F ITA NOS. 1472 & 1 4 7 3/AHD/1 1 FOR A.Y.0 7 - 0 8 ( AC IT VS. EMTICI ENGINEERING LTD. ) 2 / BY REVENUE : SHRI DINESH SINGH, SR. D.R. / BY ASSESSEE : SHRI M. R. PATEL , A.R / DATE OF HEARING : 1 2 .0 8 .2015 / DATE OF PRONO UNCEMENT : 26 . 0 8 .2015 ORDER PER G. D. AGRAWAL , VICE PRESIDENT THESE CROSS APPEALS BY R EVENUE AND ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - IV, BARODA , DATED 01 / 04 /2011 FOR A.Y. 2007 - 08. ITA NO. 1472/AHD/2011 (REVENUES APPEAL) 2. THE GROUND NO.1 OF THE REVENUES APPEAL READS AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN ALLOWING THE CLAIM OF RS.29,90,467/ - DISALLOWED U/S.40(A)(IA) OF THE ACT HOLDING THAT PROVISION S OF SECTION 194J IS NOT APPLICABLE. 3. GROUND NO.2 IS ONLY THE ARGUMENT IN SUPPORT OF ABOVE GROUND OF APPEAL. 4 . THE FACTS OF THE CASE ARE THAT THE ASSESSEE DEDUCTED THE TAX FROM THE PAYMENT MADE TO ELECON INFORMATION TECHNOLOGY LTD.(EITL) U/S.194C. A S PER ASSESSING OFFICER, DEDUCTION OF TAX AT SOURCE OUGHT TO HAVE BEEN MADE U/S.194J. THE TOTAL PAYMENT MADE BY THE ASSESSEE WAS RS.49,84,111/ - . SINCE, AS PER ASSESSING OFFICER, ASSESSEE DEDUCTED THE TAX AT A LOWER RATE , HE DISALLOWED 3/5 TH OF THE PAYME NT U/S.40(A)(IA). ON APPEAL, THE CIT(A) DELETED THE ADDITION ON THE GROUND THAT THE TAX HAS ITA NOS. 1472 & 1 4 7 3/AHD/1 1 FOR A.Y.0 7 - 0 8 ( AC IT VS. EMTICI ENGINEERING LTD. ) 3 ALREADY BEEN DEDUCTED U/S.194C AND IF IN THE OPINION OF ASSESSING OFFICER TAX DEDUCTION AT SOURCE WAS AT A LOWER RATE, THE ASSESSING OFFICER COULD HAVE TAKEN THE ACTION U/S.201 OF THE INCOME TAX ACT. IN THE OPINION OF CIT(A) FOR DEDUCTION OF TAX AT SOURCE AT A LOWER RATE DISALLOWANCE U/S. 40(A) (IA) CANNOT BE MADE. THE REVENUE AGGRIEVED WITH THE ORDER OF CIT(A) IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PA RTIES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT(A) VS. M/S. S. K. TEKRIWAL 361 ITR 432. IN THE SAID C ASE ALSO, THE ASSESSEE DEDUCTED TAX U/S. 194C OF THE INCOME TAX ACT. ACCORDING TO THE ASSESSING OFFICER, THE TAX SHOULD HAVE BEEN DEDUCTED U/S. 194I. HE, THEREFORE, MADE PROPORTIONATE DISALLOWANCE U/S.40(A)(IA). THE TRIBUNAL HELD THAT WHER E TAX HAS BEEN DEDUCTED BY ASSESSEE, THOUGH UNDER THE WRONG PROVISIONS, THE PROVISION OF SECTION 40(A)(IA) CANNOT BE INVOKED AND REVENUE CAN INITIATE PROCEEDINGS U/S .201 FOR SHORT FALL IN DEDUCTION OF TAX AT SOURCE. ON APPEAL, THE HONBLE CALCUTTA HIGH COURT UPHELD THE ORDER OF CIT(A) . WE FIND THAT FACTS IN THE CASE UNDER APPEAL ARE IDENTICAL. NO CONTRARY DECISION IS BROUGHT TO OUR KNOWLEDGE. WE, THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISION OF HONBLE CALCUTTA HIGH COURT UPHOLD THE ORDER OF CIT(A) ON THIS POI NT AND REJECTED THE GROUND NOS. 1 & 2 OF REVENUES APPEAL. 6. GROUND NO.3 OF THE REVENUES APPEAL READS AS UNDER: 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN ALLOWING THE CLAIM OF RS.11,11,534/ - REGARDING ITA NOS. 1472 & 1 4 7 3/AHD/1 1 FOR A.Y.0 7 - 0 8 ( AC IT VS. EMTICI ENGINEERING LTD. ) 4 N OTIFIED AREA TAX LIABILITY PAID AS PER PROVISIONS OF SECTION 43B OF THE ACT WITHOUT CONSIDERING THE FACT THAT ANY EXPENSE IN CONNECTION WITH CLOSED BUSINESS IS NOT AN ALLOWABLE DEDUCTION U/S. 43B OF THE ACT. 7 . THE FACTS OF THE CASE ARE THAT THE ASSESSIN G OFFICER DISALLOWED A SUM OF RS.11,11,534/ - OUT OF NOTIFIED AREA TAX LIABILITY PAID BY THE ASSESSEE ON THE GROUND THAT IT WAS PERTINENT TO THE BUSINESS OF KANISKA STTEL UNIT, WHICH WAS CLOSED DURING YEAR UNDER CONSIDERATION. ON APPEAL, THE CIT(A) RECORDE D THE FINDING THAT SUCH BUSINESS WAS NOT CLOSED BUT INSTEAD OF ASSESSEE CARRYING ON THIS BUSINESS ITSELF, LEASED OUT THE SAME AND THE RENTAL INCOME WAS ASSESSED UNDER THE HEAD INCOME FROM BUSINESS . THE REVENUE AGGRIEVED WITH THE ORDER OF CIT(A) IS IN AP PEAL BEFORE US. 8 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ONLY GROUND ON WHICH THE DISALLOWANCE OF THE PAYMENT OF TAX WAS MADE WAS THE PRESUMPTION OF THE ASSESSING OFFICER THAT THE BUSINESS WAS CLOSED. AFTER THE OR DER OF CIT(A), THERE REMAINS NO DISPUTE THAT THE BUSINESS WAS NOT CLOSED BUT SUCH BUSINESS WAS LEASED OUT BY THE ASSESSEE AND THE RENTAL INCOME WAS ASSESSED UNDER THE HEAD INCOME FROM BUSINESS. IN VIEW OF ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). THE SAME IS SUSTAINED AND GROUND NO.3 OF THE REVENUES APPEAL IS DISMISSED. ITA NO. 1473 /AHD/2011 ( ASSESSEE S APPEAL) 9. CONCISED G ROUND NO S .1 & 2 OF THE ASSESSEES APPEAL READ AS UNDER: ITA NOS. 1472 & 1 4 7 3/AHD/1 1 FOR A.Y.0 7 - 0 8 ( AC IT VS. EMTICI ENGINEERING LTD. ) 5 1. THAT, ON FACTS AND IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE DISALLOWANCE OF EGYPT TOUR EXPENSES OF RS.24,88,000/ - 2. ALTERNATIVELY, AND WITHOUT PREJUDICE TO ABOVE GROUND OF APPEAL, THE ENTIRE EXPENSE OF EGYPT TOUR BE DIRECTED TO THE ALLOWED IN SUBSEQUENT ASSESSMENT YEAR 2008 - 09. 10. AT THE TIME OF HEARING BEFORE US, IT IS SUBMITTED BY THE LEARNED COUNSEL THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ARRANGED A SALES PROMOTION SCHEME FOR ITS CLIEN T S , SUB - COMMISSION AGENTS AND ENGINEERS ETC. AS PER SUCH SCHEME, THE P ERSONS WHO ACHIEVED THE TARGET WERE ENTITLED TO EGYPT TOUR. THAT ON THE BASIS OF PERFORMANCE, DURING THE ACCOUNTING YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION TOUR WAS ARRANGED NEXT YEAR. THAT THE ASSESSING OFFICER DISALLOWED THE PROVISION MADE TOWARDS THE TOUR EXPENSES ON THE ONLY GROUND THAT THE LIABILITY HAS NOT BEEN ACCRUED BECAUSE THE TOUR WAS ACTUALLY ARRANGED IN THE NEXT YEAR. HE STATED THAT THE TOUR WAS ON THE BASIS OF PERFORMANCE OF THE ASSESSEES CLIENTS, SUB COMMISSION AGENTS, ENGINE ERS ETC. DURING THE YEAR UNDER CONSIDERATION. THEREFORE, THE LIABILITY OF THE ASSESSEE TO TAKE THEM ON TOUR HAS ACCRUED DURING THE YEAR UNDER CONSIDERATION. HE ALSO STATED THAT ASSESSING OFFICER HAS NEITHER DOUBTED THE GENUINENESS OF THE EXPENSES NOR THA T THE EXPENSES HAD BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THE SOLE REASON FOR DISALLOWANCE WAS THAT IT WAS NEITHER ACCRUED NO R INCURRED DURING YEAR UNDER CONSIDERATION. HE, THEREFORE, SUBMITTED THA T WHEN THE GENUINENESS OF EXPENDITURE AND THE FACT TH AT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS WAS NOT DISPUTED THEN NECESSARY DIRECTION BE GIVEN TO ASSESSING OFFICER TO ALLOW THE EXPENSES EITHER FOR THE YEAR UNDER CONSIDERATION OR IN THE NEXT ITA NOS. 1472 & 1 4 7 3/AHD/1 1 FOR A.Y.0 7 - 0 8 ( AC IT VS. EMTICI ENGINEERING LTD. ) 6 YEAR. LD. DR, ON THE OTHER HAND, RELIED UPON TH E ORDER OF AUTHORITIES BELOW AND HE STATED THAT NEITHER THE LIABILITY HAD AC CR UED DURING THE YEAR NOR THE EXPENDITURE WAS ACTUALLY INCURRED . THE ASSESSEE CLAIMED EXPENSES SIMPLY ON THE BASIS OF THE PROVISION MADE SIMPLY ON ESTIMATE. HE, THEREFORE, SUBMIT TED THAT THE ORDER OF THE CIT(A) ON THIS POINT SHOULD BE SUSTAINED. 11. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE RELEVANT FACTS AS RECORDED BY ASSESSING OFFICER IN THE ORDER READ AS UNDER: 3.2 IN RESPONSE THE ASSESSEE VIDE ITS LETTER DATED 8.12.2009 HAS FURNISHED THE JUSTIFICATION MAINLY IN THE FORM OF COMPARATIVE STATEMENT OF SALES PROMOTION BRANCH WISE. ON PERUSAL OF SALES PROMOTION OF V.V. NAGAR, IT WAS FOUND THAT IT HAS GONE TO RS. 26,9 0,730 / - COMPARED TO LAST YEAR'S FIGURE OF RS. 1,86,961. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE HAS ARRANGED ONE TOUR TO EGYPT FOR ITS VALUED CLIENTS, SUB COMMISSION AGENTS, AND ENGINEERS AND DUE TO WHICH THE SALE PROMOTION EXPENSES OF ALL THE BRANCHES TAKEN TOGETHER HAS INCREASED FROM 3.08 LAC TO 28.23 LACS. 3.3 THE ASSESSEE HAS ALSO FURNISHED THE PHOTOCOPY OF JOURNAL VOUCHERS. ON PERUSAL OF THE SAID VOUCHER IT IS FOUND THAT THE JOURNAL VOUCHER WAS CREATED ON 21.4.2007 I.E. AFTER THE END OF THE YEAR. E FFECTIVE DATE WAS SHOWN TO BE 31.3.2007. THE SALE PROMOTION ACCOUNTS WAS DEBITED BY RS. 24,88,000/ - AND OUTSTANDING LIABILITIES WAS CREDITED BY THE SAME AMOUNT. THE NARRATION FOR THE SAID JOURNAL ENTRY MENTIONS 'PROVISION FOR AGENT TOUR EGYPT'. 3.4 THE PA YMENT VOUCHER OF EGYPT TOUR SHOW S THAT PAYMENT OF RS. 41,37,815/ - WAS MADE ON 30.6.2007 TO ORBIT CORPORATE TOURS AND TRAVELS PVT. LTD. FOR EGYPT TOUR (6 DAYS AND 7 NIGHTS) . THE INVOICE OF ORBIT CORPORATE DATED 22.5.2007 REVEALS THAT IT WAS FOR AIR FARE TA XES, VISA CHARGES, ARRANGEMENT CHARGES, CLAIM CHARGES FOR 68 PERSONS. THUS THE INVOICE, THE PAYMENT, THE ACTUAL TRIP AND EVERYTHING TOOK PLACE IN THE SUBSEQUENT YEAR. 3.5 ON PERUSAL OF THE AFORESAID FACTS, IT IS FOUND THE AMOUNT OF RS. 24,88,000/ - REPRESE NTS MERELY A PROVISION AS ON 31.3.2007. THE TOUR WAS ARRANGED IN THE SUBSEQUENT YEAR. THE SAID PROVISION WAS MADE ON AD - HOC BASIS AND THE LIABILITY HAS NOT ACCRUED IN THE YEAR UNDER CONSIDERATION. THE PROVISION MADE HAD NO BASIS AND IT WAS TO DEPEND LARGEL Y ON CERTAIN FUTURE EVENTS. THE ASSESSEE HAS NOT EXPLAINED ANY BASIS FOR THE AMOUNT PROVIDED IN ITS BOOKS .THERE IS NO PAST TREND WHICH ITA NOS. 1472 & 1 4 7 3/AHD/1 1 FOR A.Y.0 7 - 0 8 ( AC IT VS. EMTICI ENGINEERING LTD. ) 7 CAN FORM THE BASIS OF SUCH PROVISION. THE AMOUNT TO BE SPENT CANNOT BE ASCERTAINED UNLESS THE WILLINGNESS AND AVAILABILI TY OF THE PERSONS ARE KNOWN, UNLESS THE TRIP DURATION IS KNOWN, UNLESS THE TRIP ORGANISER GIVES THE ESTIMATE. SO, THE AMOUNT ESTIMATED AND PROVIDED WAS NOTHING BUT MERELY A CONTINGENT LIABILITY AND THE SAME CANNOT BE ALLOWED. PENALTY PROCEEDING UNDER SECTI ON 271(L)(C) IS INITIATED SEPARATELY AS THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME BY CLAIMING A LIABILITY WHICH HAS NOT ACCRUED AND CRYSTALLIZED DURING THE YEAR. FROM THE ABOVE, IT IS EVIDENT THAT THE ASSESSING OFFICER HAS NOT DOUBT ED THAT TOUR WAS TO BE ARRANGED BY ASSESSEE AS A PART OF SALES PROMOTION EXPENSES. HE DISALLOWED THE EXPENSES MAINLY ON THE GROUND THAT THERE WAS NO BASIS FOR THE PROVISION AND THE TOUR WAS ACTUALLY CONDUCTED IN THE NEXT YEAR AND ALL THE EXPENDITURES WERE ACTUALLY INCURRED IN NEXT YEAR. IN OUR OPINION, WHEN THE ASSESSEE HAS PROMISED TO ARRANGE THE TOUR FOR ITS CLIENTS, SUB COMMISSION AGENTS AND ENGINEERS ON THE BASIS OF THEIR PERFORMANCE DURING THE YEAR UNDER CONSIDERATION, THEN PERSONS WHO ACHIEVED THE T ARGET GIVEN BY THE ASSESSEE HAVE ACQUIRED THE RIGHT TO GO ON TOUR AS PER THE SCHEME OF ASSESSEE. THEREFORE, ONCE THE ASSESSEES CLIENTS, COMMISSION AGENTS AND ENGINEERS FULFILL THE TARGET GIVEN TO THEM, THE ASSESSEE INCURS THE LIABILITY TO TAKE THEM ON TO UR TO EGYPT AS PER THE SCHEME. THEREFORE, THE PROVISION FOR EGYPT TOUR IS TO BE ALLOWED IN THE YEAR UNDER CONSIDERATION. NOW THE ONLY QUESTION IS WHETHER THE PROVISION MADE BY THE ASSESSEE IS REASONABLE OR NOT. FROM THE DETAILS RECORDED BY THE ASSESSING OFFICER IN PARA 3.3 AND 3.4 OF THE ORDER, WHICH IS REPRODUCED ABOVE, IT IS EVIDENT THAT THE ASSESSEE MADE THE PROVISION OF RS.24,88,000/ - WHILE THE ACTUAL PAYMENT MADE BY THE ASSESSEE IN THE NEXT YEAR WAS RS.41,37,880/ - . IN THE ABOVE SITUATION, THE PROVI SION MADE BY THE ASSESSEE CANNOT BE SAID TO BE UN REASONABLE OR EXCESSIVE. IN VIEW OF ABOVE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION FOR THE ITA NOS. 1472 & 1 4 7 3/AHD/1 1 FOR A.Y.0 7 - 0 8 ( AC IT VS. EMTICI ENGINEERING LTD. ) 8 PROVISION OF EGYPT TOUR EXPENSES AMOUNTING TO RS.24,88,000/ - . ACCORDINGLY, GROUND NO.1 OF THE ASSES SEES APPEAL IS ALLOWED AND CONSEQUENTIALLY GROUND NO.2 OF ASSESSEE S APPEAL HAS BECOME INFRUCTUOUS. SAME IS REJECTED. 1 1 . GROUND NO.3 OF THE ASSESSEE S APPEAL READS AS UNDER: (3) THAT ON FACTS, AND IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CON FIRMING THE DISALLOWANCE OF RS.2,63,904/ - IN RESPECT OF CLAIM OF ASSETS WRITTEN OFF. 12. NO ARGUMENT WAS ADVANCED WITH REGARDS TO THIS GROUND OF APPEAL AT THE TIME OF HEARING. ACCORDINGLY, THIS GROUND OF APPEAL IS TREATED AS NOT PRESSED AND WE REJECT AS SUCH. 13 . IN THE RESULT, REVENUES APPEAL IS DISMISSED WHILE ASSESSEES APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 26 TH DAY OF AUGUST , 201 5 . SD/ - SD/ - (S. S. GODARA) ( G. D. AG R A WAL) JUDICIAL MEMBER VICE PRESIDENT AHMEDABAD: DATED 26 /0 8 /2015 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO: - 1. / REVENUE 2. / ASSESSEE 3. / CONCERNED CIT 4. - / CIT (A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. BY ORDER / , / ,