Haryana Agro Industries Corporation, Panchkula V. DCIT, Panchkula

ITA 164/CHANDI/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9912 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 04-04-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 14-02-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: B K NOHRIA
• Keywords: Corroborative evidences
• Section: 37(1); 145; 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 164/CHD/2014 ASSESSMENT YEAR: 2010-11 HARYANA AGRO INDUSTRIES CORPORATION VS. THE DCIT BAY NO. 15-20, SECTOR 4 PANCHKULA CIRCLE PANCHKULA PANCHKULA PAN NO. AAACH4686C (APPELLANT) (RESPONDENT) APPELLANT BY : SH. B.K. NOHRIA RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 04/04/2016 DATE OF PRONOUNCEMENT :14/06/2016 ORDER PER ANNAPURNA GUPTA A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A), PANCHKULA DT. 27/12/2013. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE THE LEARNED CIT(A) PNACHKULA HAS ERRED IN LAW AND FACTS IN UPHOLDING T HE ADDITION OF RS. 20,11,000/- ON ACCOUNT OF SERVICE CHARGES ON GUNNY BAGS PAYABLE TO FOOD AND SUPPLIES DEPARTMENT, GOVT. OF HARYANA WITHOUT QUOTING THE SE CTION OF THE INCOME TAX ACT, 1961 UNDER WHICH IT IS NOT ALLOWABLE . 3. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURIN G ASSESSMENT PROCEEDINGS THE AO FOUND ON PERUSAL OF THE NOTES TO THE ACCOUNTS AP PENDED TO THE AUDITED BALANCE SHEET OF THE COMPANY, AT PAGE NO. 48 ITEM N O. (VIII) & (IX), THAT THE COMPANY HAD MADE A PROVISION OF SERVICE CHARGE @ 1% ON THE PROCUREMENT OF GUNNY BAGS AMOUNTING TO RS. 20,11,000/- FOR THE IMP UGNED YEAR. ON BEING CONFRONTED ABOUT THE ALLOWABILITY OF THE SAME, THE ASSESSEE SUBMITTED THAT THE 2 SAME WAS PAYABLE TO THE FOOD & SUPPLIES DEPARTMENT, GOVERNMENT OF HARYANA AND HAD BEEN PROVIDED ON ACCRUAL BASIS. THE ASSESSE E FURTHER STATED THAT IN ASSESSMENT YEAR 2008-09 WHEN NO SUCH PROVISION HAD BEEN MADE, AN OBJECTION HAD BEEN MADE BY THE C&AG IN THEIR COMMENTS AND THE ASSESSING OFFICER HAD PROPOSED TO ADD THE EXPENSES ON THIS ISSUE SINCE TH E SAME WAS NOT PROVIDED ON ACCRUAL BASIS, WHILE NO SUCH ADVERSE OBSERVATION HA D BEEN MADE BY THE C&AG IN THEIR COMMENTS ON THIS ISSUE IN THE IMPUGNED YEA R. THUS THE ASSESSEE SUBMITTED THAT THE SERVICE CHARGES HAVING BEEN PROV IDED ON ACCRUAL BASIS BE ALLOWED. THE AO REJECTED THE CONTENTION OF THE ASSE SSEE AND HELD THAT PROVISION WAS NOT ALLOWABLE AS PER THE INCOME TAX ACT, 1961 A ND WAS TO BE ALLOWED IN THE YEAR OF PAYMENT IRRESPECTIVE OF METHOD OF ACCOU NTING FOLLOWED BY THE ASSESSEE. FURTHER THE AO HELD THAT NO LIABILITY HAD BEEN INCURRED IN THIS CASE. ACCORDINGLY THE PROVISION FOR SERVICE CHARGES ON GU NNY BAGS AMOUNTING TO RS. 20.11 LACS WERE DISALLOWED AND ADDED BACK TO THE IN COME OF THE ASSESSEE. 4. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT(A). THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE AO AND ST ATED THAT SINCE THE SAME HAD BEEN PROVIDED ON ACCRUAL BASIS THEY WERE ALLOWA BLE EXPENSES UNDER SECTION 37 OF THE ACT. LD. CIT(A) REJECTED THE CONT ENTION OF THE ASSESSEE AND REFERRING TO SECTION 145 A OF THE ACT HELD THAT FOR THE PURPOSE OF VALUATION OF GOODS ONLY THE ACTUAL AMOUNT OF TAX, DUTY, CESS OR FEE PAID BY THE ASSESSEE WAS TO BE INCLUDED. SINCE IN THE PRESENT CASE THE SERVI CE CHARGE HAVE NOT BEEN PAID THEY COULD NOT BE INCLUDED FOR THE PURPOSE OF VALUATION OF GOODS. LD. CIT(A) FURTHER HELD THAT MATTER OF TAXABILITY COULD NOT BE DECIDED ON THE BASIS OF ENTRIES WHICH THE ASSESSEE MAY CHOOSE TO MAKE IN HI S ACCOUNT BUT HAS TO BE DECIDED IN ACCORDANCE WITH THE PROVISIONS OF LAW AN D FURTHER HELD THAT THE DIRECTIONS OR COMMENTS MADE BY C&AG CANNOT OVER RID E THE APPLICABLE PROVISION OF INCOME TAX ACT, SINCE THE INCOME TAX A CT IS AN INDEPENDENT CODE IN ITSELF AND APPLICABLE INCOME OR LOSS HAS TO BE C OMPUTED IN ACCORDANCE WITH 3 THE PROVISION OF INCOME TAX ACT ONLY. THUS THE LD. CIT(A) HELD THAT IN VIEW OF THE APPLICABILITY OF THE PROVISION OF SECTION 145 A REG ARDING THE VALUATION OF GOODS AND THE VARIOUS JURISDICTIONAL PRONOUNCEMENTS RELAT ING TO OVERRIDING PROVISIONS OF INCOME TAX ACT, THE PROVISION FOR SERVICE CHARGES M ADE ON PROCUREMENT OF GUNNY BAGS AMOUNTING TO RS. 20.11 LACS WAS NOT ALLO WABLE. 5. AGGRIEVED BY THE SAME THE ASSESSEE FILED THE PRE SENT APPEAL BEFORE US. 6. BEFORE US LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND STATED THAT THE PROVISION FOR SERVI CE CHARGE ON GUNNY BAGS HAD BEEN MADE ON ACCRUAL BASIS ON THE AMOUNT OF GUNNY B AGS RECEIVED IN THE IMPUGNED ASSESSMENT YEAR. LD. AR DREW OUR ATTENTION TO THE VOUCHER DEPICTING THE ENTRY MADE IN THIS BEHALF PLACED AT PAPER BOOK PAGE NO. 17 AND THE SUPPORTING EVIDENCE ATTACHED WITH THE SAME WHICH ST ATED THAT THE PROVISION HAD BEEN CREATED ON ACCOUNT OF 7280 NUMBERS OF GUNN Y BALES AND 12910 HDPE BALES RECEIVED IN THE FY 2009-10 FROM DFS HARYANA. LD. AR STATED THAT IN ASSESSMENT YEAR 2008-09 THE C&AG HAD POINTED OUT T HAT THE PROVISION FOR SERVICE CHARGE HAD TO BE CREATED ON ACCRUAL BASIS AND AO HAD PROPOSED TO ADD THE EXPENSES ON THIS ISSUE AS THE SAME WAS NOT PROVIDED ON ACCRUAL BASIS. THEREFORE IN THE IMPUGNED ASSESSMENT YEAR THE ASSE SSEE HAD MADE PROVISION FOR THE SAME ON ACCRUAL BASIS WHICH IS EVIDENT FROM THE NOTES TO THE ACCOUNT AT ITEM NO. 9 WHICH HAS BEEN REFERRED TO BY THE AO ALS O IN HIS ASSESSMENT ORDER. LD. AR THEREFORE STATED THAT THE PROVISION CREATED WAS ALLOWABLE AS PER THE PROVISIONS OF SECTION 37(1) OF THE ACT. 7. DURING THE COURSE OF HEARING A SPECIFIC QUERY WA S RAISED BY THE BENCH REGARDING THE BASIS OF CREATING THE IMPUGNED PROVIS ION AND WHETHER THERE WAS ANY AGREEMENT OR OTHERWISE TO SUBSTANTIATE THE INCU RRING OF THE LIABILITY. IN RESPONSE TO THE SAME THE LD DR EXPRESSED HIS INABIL ITY TO PROVIDE ANY SUCH DOCUMENT. 4 8. LD. DR ON THE OTHER HAND RELIED UPON THE ORDER O F THE LD. CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF AUTHORITIES BELOW AND ALSO THE DOCUMENTS PLACED BEFORE US. 10. THE ISSUE ARISING IN THE PRESENT APPEAL IS THE ALLOWABILITY OF PROVISION CREATED IN THE BOOKS OF THE ASSESSEE FOR SERVICE CH ARGE PAYABLE ON GUNNY BAGS. IT IS IMPERATIVE AT THIS JUNCTURE TO UNDERSTAND THE POSITION OF LAW WITH REGARD TO ALLOWABILITY OF EXPENSES. DEDUCTIONS CAN BE PERMITTED ONLY IN RESPECT OF EXPE NSES WHICH ARE FOUND TO HAVE BEEN INCURRED IN THE RELEVANT ACCOUNTING PERIO D. THE DETERMINATION OF THE QUESTION WHETHER THE ASSESSEE HAD INCURRED THE EXPE NDITURE DURING THE RELEVANT ACCOUNTING PERIOD IS AN INDISPENSABLE PRELIMINARY S TEP. THE PRINCIPLES THAT SHOULD NORMALLY BE FOLLOWED ARE WELL SETTLED BY THE DECISION OF THE SUPREME COURT IN KEDAR NATH JUTE MANUFACTURING CO. LTD. VS. CIT (1971) 82 ITR 363(SC) NAMELY IN ORDER TO BE ENTITLED TO DEDUCTION, THE EX PENSE MUST BE INCURRED OR THE LIABILITY FOR EXPENSE MUST HAVE INCURRED IN THE YEAR IN QUESTION DEPENDING UPON THE SYSTEM OF ACCOUNTING FOLLOWED BEING MERCAN TILE OR CASH. THUS IN ORDER THAT AN ITEM OF EXPENDITURE SHOULD BE ENTITLED TO D EDUCTION U/S 37 IT MUST HAVE BEEN INCURRED FOR DISCHARGING A LIABILITY ACTUALLY EXISTING DURING THE ACCOUNTING PERIOD. THE MERE SETTING APART OF AN AMOUNT TO MEET A LIABILITY CANNOT BEAR THE CHARACTER OF EXPENDITURE TILL THE LIABILITY BECOMES REAL. 11. IN THE PRESENT CASE THE FACTS BEFORE US ARE TH AT THE PROVISION OF 1% ON ACCOUNT OF SERVICE CHARGES OF CERTAIN GUNNY BAGS PR OCURED FROM DFS HARYANA, HAS BEEN CREATED BY THE ASSESSEE AMOUNTING TO RS. 2 0.11 LACS WITH NO UNDERLYING AGREEMENT SUPPORTING THE CREATION OF THE CHARGE. NO SUCH DOCUMENT HAS BEEN PRODUCED BEFORE US, EVEN AFTER A SPECIFIC QUERY RAISED BY THE BENCH IN THIS REGARD. CLEARLY THEREFORE THE ASS ESSEE HAS NOT BEEN ABLE TO ESTABLISH INCURRING THE LIABILITY IN THE FIRST PLAC E. THEREFORE NO QUESTION ARISES OF 5 INCURRING THE EXPENSES WHAT TO SAY ABOUT CREATING A PROVISION OF THE SAME. THE PROVISION OF SECTION 37(1) ARE VERY CLEAR AND IT IS SETTLED LAW THAT ONUS IS ON THE ASSESSEE TO ESTABLISH HAVING INCURRED ANY EXPENDITU RE. HAVING FAILED ON THIS GROUND ALONE, WE THEREFORE HOLD THAT THE ASSESSEE I S NOT ENTITLED TO CLAIM ALLOWANCE OF EXPENDITURE ON ACCOUNT OF SERVICE CHAR GES. THE BASIS OF ARRIVING AT THE FIGURE OF 20.11 LACS HAS ALSO NOT BEEN PROVIDED BY THE ASSESSEE. THEREFORE WE HOLD THAT THE ASSESSEE IS NOT ENTITLED TO ANY AL LOWANCE ON ACCOUNT OF PROVISION CREATED FOR SERVICE CHARGE AND WE THEREFO RE UPHOLD THE ORDER OF LD. CIT(A) IN THIS BEHALF. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :14/06/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR