ACIT, CHENNAI V. V.S.L.India Private Limited, CHENNAI

ITA 1703/CHNY/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8115 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 05-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V VIVEKANANDAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Opportunity of being heard; Corroborative evidences; Commercial expediency
• Section: 43B; 143(3); 32; 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NOS. 1701, 1702 & 1703/MDS/2013 # % &% / ASSESSMENT YEARS : 2006-07, 2007-08 & 2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX COMPANY CIRCLE III(4) CHENNAI 600 034. VS. M/.S. V.S.L. INDIA PVT. LTD NO.36, ANNAI INDIRA NAGAR, OLD MAHABALIPURAM ROAD,M THURAIPAKKAM, CHENNAI 600 096. [PAN AAACV 9694E) ( / APPELLANT) ( /RESPONDENT) '( ) * / APPELLANT BY : SHRI. V. VIVEKANANDAN, CIT. DR +,'( ) * /RESPONDENT BY : SHRI. R. VIJAYARAGHAVAN, ADVOCATE ! ) - / DATE OF HEARING : 05-11-2015 ./& ) - / DATE OF PRONOUNCEMENT : 01-02-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST COMMON ORDERS OF THE COMMISSIONER OF INCOME-TAX (AP PEALS)-VI, ITA NOS.1701 TO 1703/2013. :- 2 -: CHENNAI IN ITA NOS 67, 65 & 66/11-12, DATED 28.03.2 013 FOR THE ASSESSMENT YEARS 2006-07, 2007-08 & 2008-2009, PAS SED U/S. 143(3) AND 250 OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). THE ISSUES IN THESE THREE APPEALS ARE COMMON IN NATURE, HENCE THESE APPEALS ARE COMBINED, HEARD TOGETHER, A ND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. WE TAKE UP APPEAL OF ASSESSMENT YEAR 2006-2007 FOR ADJUDICATION. THE ASSESSEE COMPANY IS IN THE BUSIN ESS OF CIVIL CONTRACT WORKS AND ENGINEERING WORKS AND RETURN OF INCOME WAS FILED ON 27.11.2006 WITH TOTAL LOSS OF =76,15,506/- AND T HE RETURN WAS PROCESSED U/S.143(1) OF THE ACT ON 26.03.2008. SUB SEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTIC E U/S.143(2) WAS ISSUED. IN COMPLIANCE TO THE NOTICE THE LD. AUTHO RISED REPRESENTATIVE APPEARED FROM TIME TO TIME AND PRODUCED BOOKS OF AC COUNTS FOR VERIFICATION. IN THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAD MADE DISALLOWANCE AND THE SAME IS DEALT AS UNDER. ON PERUSAL OF FINANCIAL STATEMENTS THE ASSESSEE HAS PROVIDED INFO RMATION ON MANAGEMENT FEES, DESIGN FEES AND ROYALTY FEES PAYAB LE TO NON RESIDENTS AND NO TDS WAS DEDUCTED. BUT THE LD. ASS ESSING OFFICER BY APPLYING PROVISIONS OF SEC.40(A) ADDED TO THE RETU RNED INCOME. THE ASSESSING OFFICER DEALT ON THE ISSUE OF DEDUCTION O F TDS ON ITA NOS.1701 TO 1703/2013. :- 3 -: REIMBURSEMENT ON COST OF INSURANCE AND BANK GUARANT EE. THE ASSESSEE HAS INCURRED =82,17,897/- AS INSURANCE PRE MIUM PAYABLE TO VSL SWITZERLAND DURING THE CURRENT YEAR AND CLAIMED AS DEDUCTION AND IT WAS SUBMITTED THAT IN CASES OF REIMBURSEMENT OF EXPENSES, THE PROVISIONS OF SEC.40(A) OF THE ACT ARE NOT APPLICAB LE AND IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 WAS ALLOWE D BY COMMISSIONER OF INCOME TAX (APPEALS) VIDE ITA NO290 /07-08, DATED 06.03.2008. BUT LD. ASSESSING OFFICER BY APPLYING THE DECISION OF ASHOK LEYLAND LTD, THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.1615/MDS/2006, DATED 3.1.2008 HELD THAT REIMBURS EMENT OF EXPENSES COME WITHIN PURVIEW OF SEC.195 OF THE ACT AND TDS IS REQUIRED TO BE DEDUCTED ON EXPENDITURE AND MADE AN ADDITION OF =82,17,897/-. SIMILARLY, THE ASSESSEE CLAIMED EXPE NDITURE OF =11,33,565/- AS BANK GUARANTEE COMMISSION PAYABLE T O NON RESIDENT COMPANY M/S. VSL INTERNATIONAL LTD AND NO TDS WAS D EDUCTED AND PAYMENT WAS TOWARDS REIMBURSEMENT OF EXPENSES. THE LD. ASSESSING OFFICER BASED ON DECISION OF ASHOK LEYLAND LTD (SU PRA) MADE AN ADDITION. AGGRIEVED BY THE ADDITIONS OF THE ASSESS ING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). ITA NOS.1701 TO 1703/2013. :- 4 -: 2.1 THE COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER AT PARA NO.4 GAVE DIRECTION TO THE ASSESSING OFFICER T O ALLOW THE PAYMENTS CLAIMED IN RESPECT OF MANAGEMENT FEES, DES IGN FEES AND ROYALTY FEES TO VSL, SINGAPORE WHERE TDS PAID IN SU BSEQUENT YEARS. ON THE ISSUE OF REIMBURSEMENT OF COST OF INSURANCE AND BANK GUARANTEE EXPENSES, THE COMPANY HAS CONTESTED THE ISSUE AS IT TAKES THE CHARACTERISTIC OF REIMBURSEMENT OF COST BY M/S .VSL INDIA LTD TO PARENT COMPANY AND THERE IS NO ELEMENT OF PROFIT OR INCOME WHICH ATTRACTS THE PROVISIONS OF TDS U/S.40(A)(I) OF THE ACT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE AD DITION. AGGRIEVED BY THE DELETION, THE REVENUE ASSAILED AN APPEAL BEFORE THE TRIBUNAL. 2.2. BEFORE US THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D ELETING THE DISALLOWANCE MADE U/S.40(A)(I) OF THE ACT ON REIMBU RSEMENT ON COST OF INSURANCE AND BANK GUARANTEE AND FURTHER ALLEGED TH AT TDS NEEDS TO BE DEDUCTED WHEN PAYMENTS MADE TO NON RESIDENT AND ALSO RELIED ON DECISION OF CO-ORDINATE BENCH. 2.3 THE LD. AUTHORISED REPRESENTATIVE CONTRA TO TH E SUBMISSIONS OF THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT THIS IS PURE CASE OF REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF THE COMPANY BY ITA NOS.1701 TO 1703/2013. :- 5 -: PARENT COMPANY AND WAS REIMBURSED ON THE BASIS OF PRINCIPLE TO PRINCIPLE AND THERE IS NO PROFIT OR INCOME INCLUDED FOR THE APPLICATION. 2.4 WE AFTER HEARING THE SUBMISSIONS OF BOTH THE PA RTIES ARE OF THE OPINION THAT SIMILAR ISSUE ON RE-IMBURSEMENT OF EXPENSES WAS DEALT BY THE CO-ORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1185/MDS/2008, DATED 24.06.2009 FOR THE ASSESSME NT YEAR 2004- 05 AND ALLOWED IN FAVOUR OF THE ASSESSEE. RESPECTFU LLY FOLLOWING THE ABOVE DECISION, WE UPHELD THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS GROUND. 3. THE SECOND GROUND RAISED BY THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOW ING PROFESSIONAL TAX OF =51,059/- AS DEDUCTION. THE ASSESSEE COMPANY SUBMITTED THAT PROFESSIONAL TAX PAID IS ALLOWABLE AS DEDUCTION VI DE CIRCULAR NO.16 AND 18/1969. BUT THE LD. AUTHORISED REPRESENTATIVE COULD NOT SUBSTANTIATE PAYMENTS WITH ANY EVIDENCE WHETHER EX PENDITURE IS INCURRED FOR THE BUSINESS AND THEREFORE, THE ASSESS ING OFFICER DISALLOWED THE CLAIM. 3.1 IN THE APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ALLOWED THE GROUND BASED ON THE A PPLICABILITY OF CIRCULAR AND CONSIDERED THAT SUCH PROFESSIONAL TAX IS NOT PERSONAL AND DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITI ON. ITA NOS.1701 TO 1703/2013. :- 6 -: 3.2 BEFORE THE TRIBUNAL, THE LD. DEPARTMENTAL REPRE SENTATIVE HAS CONTESTED THAT THE COMMISSIONER OF INCOME TAX ( APPEALS) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE ADDITION INSPITE OF ASSESSEE HAS NOT PRODUCED ANY DOCUMENTARY EVIDENCE AND NOT EXPLAINED THE NATURE OF EXPENDITURE. 3.3. CONTRA, THE LD. AUTHORISED REPRESENTATIVE SUBM ITTED THAT PROFESSIONAL TAX IS PERTAINING TO EMPLOYEE IS DEDUC TED AND PAID TO THE GOVERNMENT. HENCE IT IS WHOLLY AND EXCLUSIVELY INC URRED FOR THE PURPOSE OF BUSINESS AND COMMISSIONER OF INCOME TAX (APPEALS) HAS RIGHTLY ALLOWED THE DEDUCTION. 3.4 WE ARE OF THE OPINION THAT THE LD. AUTHORISED R EPRESENTATIVE SUBSTANTIVELY ARGUED THAT PROFESSIONAL TAX PAID PER TAINS TO EMPLOYEES BUT THERE IS NO SUPPORTING EVIDENCE FILED BEFORE LO WER AUTHORITIES OR BEFORE US. CONSIDERING THE FACTS WE ARE OF THE OPI NION THAT THE MATTER HAS TO BE VERIFIED BY THE ASSESSING OFFICER SUBJECT TO ASSESSEE PRODUCING REQUIRED DOCUMENTS AND PROOF IN HEARING P ROCEEDINGS AND WE REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSIN G OFFICER FOR ADJUDICATION. 4. THE THIRD GROUND RAISED BY THE DEPARTMENT WITH REG ARD TO INTEREST PAID ON DELAYED PAYMENTS OF SALES TAX AND SERVICE TAX. IN HEARING PROCEEDINGS, THE LD. AUTHORISED REPRESENTAT IVE SUBMITTED THAT ITA NOS.1701 TO 1703/2013. :- 7 -: =18,51,471/- WAS WRONGLY ADDED BACK AND THAT SHOULD BE ALLOWED IN VIEW OF SUPREME COURT DECISION IN THE CASE OF M/S. SWADESHI COTTON MILLS COMPANY LTD VS. CIT 223 ITR 1989 AND M/S. MAL WA VANASPATHI AND CHEMICAL COMPANY VS. CIT 225 ITR 383 AS INTEREST PAYMENT TAKES THE CHARACTER OF COMPENSATORY NATURE AND BE ALLOWED . THE LD. ASSESSING OFFICER FOUND THAT NO EVIDENCE WAS PRODUC ED AND THE INTEREST IS PENAL IN NATURE NOT COMPENSATORY CONSI DERING THE COLLECTION OF TAX FROM CLIENTS AND DEFAULTED ON PAYMENT OF T AXES TO GOVERNMENT NOT WITHIN THE SPECIFIED TIME IS VIOLATION AND MAD E AN ADDITION. 4.1 THE LD.CIT(A) BASED ON THE DECISIONS RELIED BY THE ASSESSEE IN THE ASSESSMENT PROCEEDINGS AND SUBMISSIONS CONSI DERED THAT INTEREST PAID ON DELAYED PAYMENT OF TAXES IS NOT PE NAL IN NATURE BUT ONLY COMPENSATORY FOR THE DEFAULT OF THE ASSESSEE I N NOT REMITTING THE TAXES COLLECTED IN TIME AND DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. 4.2 BEFORE THE TRIBUNAL, THE LD. DEPARTMENTAL REPRE SENTATIVE HAS RAISED GROUND THAT THE LD.CIT(A) HAS ERRED IN D ELETING THE INTEREST DISALLOWANCE AS COMPENSATORY IN NATURE AND ALSO NO OPPORTUNITY WAS PROVIDED TO THE ASSESSING OFFICER TO VERIFY THE PAY MENTS AND ARGUED FURTHER THAT THERE IS VIOLATION OF RULE 46A OF INCO ME TAX RULES. ITA NOS.1701 TO 1703/2013. :- 8 -: 4.3 ON THE OTHER HAND, THE LD.AR REITERATED IT IS AS COMPENSATORY IN NATURE AND RELIED ON COMMISSIONER O F INCOME TAX (APPEALS) ORDER. 4.4 WE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. WE ARE OF THE OPINION THAT ASSESSING OFFICE R WAS NOT PROVIDED WITH OPPORTUNITY FOR VERIFICATION OF DETAILS FILED BEFORE COMMISSIONER OF INCOME TAX (APPEALS) WHERTHER THE PAYMENTS ARE OF C OMPENSATORY IN NATURE. CONSIDERING THE CIRCUMSTANCES, OF VIOLATIO N OF RULE 46A OF INCOME TAX RULES, WE SET ASIDE THIS GROUND TO THE F ILE OF THE ASSESSING OFFICER FOR EXAMINATION AND ASSESSEE SHOULD PRODUCE DETAILS OF SALES TAX AND SERVICE TAX PAYMENTS WITH PROOFS BEFORE ASS ESSING OFFICER PASSING THE ORDER ON MERITS. 5. THE FOURTH GROUND RAISED BY THE DEPARTMENT IS WI TH REGARD TO CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEP RECATION AND FINANCE CHARGES OF MANAGING DIRECTORS VEHICLE. THE COMPANY HAS FILED FIXED ASSET SCHEDULE AND VEHICLES STOOD IN THE NAME OF MA NAGING DIRECTOR AND WAS UTILIZED FOR THE PURPOSE OF BUSINESS. IN THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER CALLED FOR EXPLA NATION HOW VEHICLES ARE IN THE NAME OF MANAGING DIRECTOR AND SAME CANNO T BE PART OF THE ASSET OF THE COMPANY THOUGH SHOWN IN THE FIXED ASSE T SCHEDULE. THE ASSESSEE COMPANY IS MAINTAINING THE VEHICLE AND CLA IMING FINANCE ITA NOS.1701 TO 1703/2013. :- 9 -: CHARGES AND DEPRECATION ON THE VEHICLES. THE LD. A UTHORISED REPRESENTATIVE SUBMITTED THAT COMMISSIONER OF INCOM E TAX (APPEALS) IN ASSESEES OWN CASE FOR THE ASSESSMENT YEAR 2004-0 5 HAS DELETED THE ADDITION. BUT THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE COMPANY IS NOT THE LEGAL OWNER OF THE VEHICLE AND T RANSFER WAS NOT BEEN EFFECTED AND DISALLOWED FINANCE CHARGES AND DE PRECATION OF =1,00,198/- 5.1 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BA SED ON THE RIGHT OF THE OWNERSHIP OF THE VEHICLES REFLECTED IN THE FIXED ASSET SCHEDULE OF THE COMPANY AND THE VEHICLES ARE USED F OR THE PURPOSE OF BUSINESS AND MAINTENANCE EXPENDITURE WAS DEBITED IN THE BOOKS OF ACCOUNTS OF THE APPELLANT COMPANY AND FURTHER RELIE D ON THE DECISION OF MYSORE MINERALS LTD 239 ITR 175(SC) AND PODDAR C EMENTS (1997) 227 ITR 625(SC) AND ALLOWED THE CLAIM. 5.2 BEFORE THE TRIBUNAL, THE LD. DEPARTMENTAL REPRE SENTATIVE AGITATED HIS GROUNDS ON USAGE OF VEHICLE THOUGH THE VEHICLE IS THE NAME OF MANAGING DIRECTOR, AND REFLECTED IN FIXED A SSETS SCHEDULE, THE ASSESSEE IS NOT A LEGAL OWNER OF THE ASSET AND NO COMPLIANCE OF NECESSARY CONDITIONS FOR CLAIMING DEPRECIATION U/S. 32 OF THE ACT. ITA NOS.1701 TO 1703/2013. :- 10 -: 5.3 ON THE OTHER HAND, THE LD. AUTHORISED REPRESENT ATIVE RELIED ON THE FINDINGS OF THE COMMISSIONER OF INCOME TAX ( APPEALS) AND SUBMITTED THAT VEHICLES ARE USED EXCLUSIVELY FOR T HE PURPOSE OF BUSINESS AND FALLS WITHIN COMMERCIAL EXPEDIENCY. 5.4 WE HEARD THE SUBMISSIONS OF BOTH THE PARTIES. THE ASSESSEE COMPANY CLAIMED DEPRECATION AND FIANCS CHARGES ON VEHICLE USED FOR BUSINESS, THOUGH IT WAS REGISTERED IN THE NAME OF T HE MANAGING DIRECTOR. SIMILAR ISSUE WAS DEALT IN ASSESSEES OW N CASE IN ITA NO.1185/MDS/2008, DATED 24.06.2009 FOR ASSESSMENT YEAR 2004-05. BUT BEFORE US NO INFORMATION WAS FILED WHETHER THE SAME VEHICLE BLOCK WAS CARRIED FORWARDED FROM EARLIER YEAR OR NEW VEHI CLES WAS PURCHASED IN FINANCIAL YEAR 2005-06. IN THE ABSENCE OF INFOR MATION, WE ARE OF THE OPINION THAT ISSUE SHOULD BE EXAMINED AND WE FOLLOW ING THE DECISION OF JURISDICTIONAL HIGH COURT M/S. TAMILNADU DIARY DEVELOPMENT CORPORATION LTD VS. CIT 239 ITR 142 REMIT THE ISSUE IN DISPUTE TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION. 6. THE LAST GROUND RAISED BY THE DEPARTMENT THAT T HE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE MADE TOWARDS PROVISION OF GRATUITY OF =4,54,497/- ITA NOS.1701 TO 1703/2013. :- 11 -: 6.1 THE ASSESSEE MADE A PROVISION FOR GRATUITY OF = 4,54,497/- IN THE HEARING PROCEEDINGS, THE LD. AUTHORISED REPRESE NTATIVE SUBMITTED THAT IT IS AN ACTUAL PAYMENT AND NOT A PROVISION AN D THE ASSESSING OFFICER CALLED FOR THE DETAILS OF NAME AND ADDRESS TO WHOM THE GRATUITY IS PAID. IN REPLY THE ASSESSEE SUBMITTED THAT SAID AMOUNT WAS PAID BY CHEQUE. THE ASSESSEE WAS ASKED TO SUBMIT P ROOF THAT GROUP GRATUITY SCHEME WAS RECOGNIZED BUT LD.AR RELIED O N THE SEC.36(1)(V) OF THE ACT WERE CONTRIBUTION TOWARDS APPROVED GRATU ITY FUND IS ALLOWED. CONSIDERING THE FACTS, THE ASSESSEE COMPA NY HAS NOT CREATED ANY TRUST FOR GRATUITY , THE ASSESSING OFFICER DISA LLOWED THE AMOUNT. 6.2 THE COMMISSIONER OF INCOME TAX (APPEALS) CONSID ERED THE RESIDUAL DEDUCTION U/S.37(1) OF THE ACT AND ALLOWED THE DEDUCTION. CONSIDERING THAT THE PAYMENT MADE FOR THE WELFARE O F EMPLOYEES THOUGH NOT CONTRIBUTED TO ANY APPROVED GRATUITY FUN D. SINCE GRATUITY PAYMENT IS ACTUAL, THE LD. COMMISSIONER OF INCOME T AX (APPEALS) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDIT ION. 6.3 BEFORE, THE TRIBUNAL THE LD.DR ARGUED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE DISAL LOWANCE MADE TOWARDS PROVISION OF GRATUITY TREATING IT AS ACTUAL PAYMENT TO THE EMPLOYEES BUT NOT CONTRIBUTION TO APPROVED GRATUIT Y FUND. ITA NOS.1701 TO 1703/2013. :- 12 -: 6.4 ON THE OTHER HAND, THE LD. AUTHORISED REPRESENT ATIVE SUBMITTED THAT AS ACTUAL PAYMENT MADE TO THE EMPLOY EES BY CHEQUE AND DETAILS ARE AVAILABLE. THOUGH THE FUND ARE NOT APPROVED, SUCH EXPENDITURE IS NOT OF PERSONAL NATURE AND TO BE ALL OWED AS DEDUCTION. 6.5 WE ARE OF THE OPINION THAT THE GRATUITY PAYMENT HAS TO BE CONSIDERED ON ACTUAL PAYMENT THE LD. AUTHORISED REP RESENTATIVE EMPHASIZED THAT IT IS AN ACTUAL PAYMENT BUT THE ASS ESSING OFFICER HAS NOT VERIFIED DUE TO NON AVAILABILITY OF INFORMATION . WE THEREFORE REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AND ALLOW THE DEDUCTION ON ACTUAL PAYMENT BASIS. 7. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IN I TA NO.1701/MDS/2013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 8. WE TAKE UP ITA NO.1702/MDS/2013, ASSESSMENT YEAR 2007- 2008 FOR ADJUDICATION:- THE ASSESSEE FILED RETURN OF INCOME ON 30.10.2007 ADMITTING LOSS OF =21,86,87,962/- AND TH E RETURN WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S.143 (2) WAS ISSUED ON 12.09.2008. IN RESPONSE TO THE NOTICE, THE LD. AUT HORISED REPRESENTATIVE APPEARED FROM TIME TO TIME AND PRODU CED BOOKS OF ACCOUNTS FOR VERIFICATION AND EXAMINATION. THE ASS ESSING OFFICER UPON ITA NOS.1701 TO 1703/2013. :- 13 -: VERIFICATION MADE DISALLOWANCE TO THE RETURNED INCO ME WITH OTHER DISALLOWANCES. 8.1 THE FIRST GROUND RAISED BY THE REVENUE THAT TH E COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE MADE TOWARDS FORESEEABLE LOSS OF =18, 49,199/-. 8.2 THE LD. ASSESSING OFFICER ON PERUSAL OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY FOU ND THAT THE ASSESSEE HAS CLAIMED FORESEEABLE LOSS OF =18,49,199 /- AND ASSESSEES AUTHORISED REPRESENTATIVE SUBMITTED THAT COMPANY IS FOLLOWING ACCOUNTING STANDARD 7 FOR ACCOUNTING ON CONSTRUCTIO N CONTRACT AND AS PER ACCOUNTING STANDARD EACH PROJECT IS EVALUATED A ND PROBABLE EXPECTED LOSSES HAS TO BE PROVIDED IN THE BOOKS OF ACCOUNTS IN RESPECT OF INCOMPLETE CONTRACTS. SIMILARLY APPLYING GUIDEL INE AND ACCOUNTING STANDARDS THE ASSESSEE COMPANY HAS SHOWN =18,49,199 /- AS FORESEEABLE LOSS. THE AUTHORISED REPRESENTATIVE RE LIED ON DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF JACOBS ENG. INDIA PVT. VS. ACIT (AIT 2009-285-ITAT) WHICH ALLOWED FORESEEABLE LOSS. THE ASSESSING OFFICER IS OF THE OPINION THAT FORESEEABL E LOSS DETERMINED IN RESPECT OF INCOMPLETE CONTRACT AS PER THE ACCOUNTIN G STANDARD 7 IS CONCLUSIVELY A PROVISION AND SAME CANNOT BE ALLOWED . FURTHER, THE ITA NOS.1701 TO 1703/2013. :- 14 -: DECISION OF MUMABI BENCH, HAS NOT REACHED FINALITY AND DISTINGUISHABLE AND MADE AN ADDITION. 8.3 IN THE APPELLATE PROCEEDINGS, THE COMMISSIONER OF INCOME TAX (APPEALS) RELIED ON THE SUBMISSION AND DECISION OF METAL BOX CO. INDIA LTD (73 ITR 83) (SC) AND MAZAGON DOCK LTD (29 SOT 356) MUMBAI WHICH HAS CONSIDERED THE CASE OF JACOB ENGINEERING INDIA (P) LTD (SUPRA) THE METHOD OF ARRIVING THE DEDUCTION WA S BASED UPON A BONAFIDE METHOD WITH THE CONSEQUENCE OF EFFECTING T HE PROFIT OF SUBSEQUENT YEARS. IN ASSESSEES CASE FORESEEABLE LO SS HAS BEEN ARRIVED AFTER EVALUATING THE WORK IN PROGRESS WHICH WILL R EDUCE AUTOMATICALLY IN SUBSEQUENT YEARS. WITH THE FINDINGS, THE COMMIS SIONER OF INCOME TAX (APPEALS) HAS DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE. 8.4 BEFORE THE TRIBUNAL, THE LD. DEPARTMENTAL REPRE SENTATIVE REITERATED HIS SUBMISSIONS ON THE GROUND THAT COMMI SSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE DEDUCTION OF F ORESEEABLE LOSS WITHOUT CONSIDERING UNCOMPLETED WORKS CONTRACT AND THE ASSESSEE DEFERRED INCOME BY CLAIMING NOTIONAL LOSS. THE LD . DEPARTMENTAL REPRESENTATIVE HAS SUBSTANTIATED HIS ARGUMENTS AND RELIED ON THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN TH E CASE OF EDAC ENGINEERING LTD. VS. DCIT (CHENNAI) 141 ITD 231 AND SHIVSHAHI ITA NOS.1701 TO 1703/2013. :- 15 -: PUNARVSAN PRAKALP LTD. VS. ITO (MUMBAI) 135 ITD 51 AND VEHEMENTLY ARGUED THAT ONLY ACTUAL EXPENDITURE HAS TO BE ALLOW ED BUT NOT THE PROVISIONS UNDER ACCOUNTING STANDARD 7. 8.5 CONTRA, THE LD. AUTHORISED REPRESENTATIVE HAS S UBSTANTIATED HIS ARGUMENTS WITH THE SUBMISSION ON DISALLOWANCE B Y GIVING DETAILS OF WORKING OF THE PROJECT OF THE COMPANY ALONGWITH WOR K STATUS AND ALSO FORESEEABLE LOSSES AND RELIED ON THE DECISIONS OF CIT VS. TRIVENI ENGINEERING INDUSTRIES LTD.: 336 ITR 374 AND CIT VS BILAHARI INVESTMENTS P. LTD. [2008] 299 ITR 1 (SC). 8.6 WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH T HE PARTIES AND PERUSED THE MATERIAL ON RECORD AND ALSO JUDICIA L DECISIONS CITED. THE ASSESSEE HAS CLAIMED FORESEEABLE LOSS OF =18,49 ,199/- BASED ON ACCOUNTING STANDARD 7 APPLICABLE TO CONSTRUCTION CO NTRACTS AND EVALUATED PROJECTS AND CALCULATED EXPECTED LOSS PRO VIDED IN THE BOOKS OF ACCOUNTS FOR UNCOMPLETED PROJECTS. THE QUESTION ARISES WHETHER THE CLAIM IS ASCERTAINED LIABILITY IF SO, SUCH LIABILIT Y IS DETERMINED DUE TO TERMS OF CONTRACT OR LAW AND CLAIMED IN THE BOOKS O F ACCOUNTS AND IF IT IS A CONTINGENT LIABILITY SUCH LIABILITY SHALL DEPE ND ENTIRELY ON THE OUTCOME OF COMPLETION OF PROJECTS IN FUTURE AND ALS O WHETHER SUCH CLAIM WAS OFFERED AS INCOME IN SUBSEQUENT ASSESSMEN T YEARS. IN OUR OPINION, IF IT IS ASCERTAINED LIABILITY, THE FOLLOW ING CONDITIONS SHALL BE ITA NOS.1701 TO 1703/2013. :- 16 -: FULFILLED. THE CONTRACT WORK SHALL HAVE BEEN COMPL ETED. THE ASSESSEE SHALL HAVE RECEIVED BILL FOR COMPLETED WORK FOR PAY MENT. THE ASSESSEE MUST HAVE ACCEPTED THE BILL FOR PAYMENT. THE ASSES SEE SHALL HAVE PROVIDED FOR PAYMENTS IN THE BOOKS OF ACCOUNTS. THE ASSESSEE SHALL HAVE DEDUCTED TDS AND PAID THE TDS TO THE GOVERNMEN T ACCOUNT. FOR THESE REASONS WE ARE OF THE OPINION THAT THE ISSUE IN DISPUTE NEEDS TO BE EXAMINED AND VERIFIED IN ACCORDANCE WITH THE TER MS OF CONTRACT AND CONDITIONS LAID DOWN AS ABOVE. WE THEREFORE, REMI T THE ISSUE FOR LIMITED PURPOSES TO THE FILE OF THE ASSESSING OFFIC ER AND PASS THE ORDER AFTER GIVING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND OF THE DEPARTMENT IS PARTLY ALLOWED FOR STAT ISTICAL PURPOSE. 9. THE SECOND GROUND BY THE REVENUE THAT THE COMMI SSIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE DISAL LOWANCE ON DEPRECATION ON INTANGIBLE ASSETS. 9.1 THE ASSESSEE COMPANY CLAIMED DEPRECATION ON INT ANGIBLE ASSETS @60% AS AGAINST 25% AND ASSESSING OFFICER DI SALLOWED THE EXCESS CLAIM. 9.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CO NSIDERING THE GROUNDS, THE INTANGIBLE ASSETS CONSISTS OF SOF TWARE RIGHTS AND IS PART OF COMPUTER AND REQUIRED FOR UTILIZATION OF CO MPUTER AND ITA NOS.1701 TO 1703/2013. :- 17 -: DEPRECATION IS ALLOWABLE @60% AND ACCORDINGLY, ALLO WED THE ASSESSEE CLAIM. 9.3 BEFORE THE TRIBUNAL, THE LD. DEPARTMENTAL REPRE SENTATIVE SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPE ALS) ERRED IN ALLOWING DEPRECATION @60% ON SOFTWARE RIGHTS AND SU CH SOFTWARE RIGHTS ARE ELIGIBLE FOR DEPRECATION @25% ONLY. 9.4 ON THE OTHER HAND, THE LD. AUTHORISED REPRESENT ATIVE ARGUED THAT SOFTWARE IS INTEGRAL PART OF COMPUTER AND THER EFORE HIGHER DEDUCTION IS ALLOWABLE. 9.5 WE AFTER CONSIDERING THE USAGE AND RELY ON THE DECISION OF TRIBUNAL OF DELHI BENCH IN THE CASE OF SONY INDIA ( P) LTD VS. ADDL. CIT 56 DTR 156 WHERE IT WAS HELD THAT LICENSE FOR USE O F COMPUTER SOFTWARE IS ELIGIBLE FOR DEPRECATION @25% ONLY. HE NCE, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) ON THIS ISSUE AND CONFIRM THE ASSESSING OFFICER ORDER. THE REVEN UE GROUND IN THIS APPEAL IS ALLOWED. 10. THE LAST GROUND RAISED BY THE REVENUE IN THIS A PPEAL IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE MADE U/S.40(A)(I) ON REIMBURSEMENT OF COST OF INSURANCE. ITA NOS.1701 TO 1703/2013. :- 18 -: 10.1 THE ASSESSEE COMPANY INCURRED AN EXPENSE OF =9 4,53,941/- AS INSURANCE PREMIUM PAID TO PARENT COMPANY (VSL, SWITZERLAND) DURING THE CURRENT YEAR. THE ASSESSING OFFICER NOTI CED THAT THE AMOUNT WAS NOT TAKEN INTO ACCOUNT WHILE COMPUTING THE DISA LLOWANCE U/S.40(A)(I) OF THE ACT. THE LD. AUTHORISED REPRESE NTATIVE ARGUED THAT THIS SUM SHOULD BE ALLOWED AS THE SIMILAR ISSUE FO R THE ASSESSMENT YEAR 2004-2005 WAS CONSIDERED BY THE TRIBUNAL IN AS SESSEE OWN CASE IN ITA NO.1185/MDS/2008, DATED 24.06.2009. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM STATING THAT THE ORDER OF THE TRIBUNAL HAS NOT REACHED FINALITY, AND ADDED A SUM OF =94,53,941 /-. 10.2 THE COMMISSIONER OF INCOME TAX (APPEALS) CON SIDERED THE REIMBURSEMENT OF COST OF INSURANCE AND THE COMPANY HAS CONTESTED THE ISSUE AS IT TAKES THE CHARACTERISTIC OF REIMBU RSEMENT OF COST FROM VSL INDIA TO PARENT COMPANY AND THERE IS NO ELEMENT OF PROFIT OR INCOME WHICH ATTRACTS THE PROVISIONS OF TDS U/S.40( A)(I) OF THE ACT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETE D THE ADDITION. AGGRIEVED BY THE DELETION, THE REVENUE ASSAILED AN APPEAL BEFORE THE TRIBUNAL. 10.3 BEFORE US THE LD. DEPARTMENTAL REPRESENTATIV E ARGUED THAT COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN D ELETING THE DISALLOWANCE MADE U/S.40(A)(I) OF THE ACT ON REIMBU RSEMENT ON COST OF ITA NOS.1701 TO 1703/2013. :- 19 -: INSURANCE AND ALLEGED THAT TDS NEEDS TO BE DEDUCTED WHEN PAYMENTS MADE TO NON RESIDENT AND ASSESSING OFFICER HAS CONS IDERED THE CO- ORDINATE BENCH DECISION AND DISTINGUISHED AND NOT F OLLOWED. 10.4 BEFORE US, LD. AUTHORISED REPRESENTATIVE CONTR A TO THE SUBMISSIONS OF THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT THIS IS PURE CASE OF REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF THE COMPANY BY PARENT COMPANY AND WAS REIMBURSED ON TH E BASIS OF PRINCIPLE TO PRINCIPLE AND THERE IS NO PROFIT OR IN COME INCLUDED FOR THE APPLICATION. 10.5 WE AFTER HEARING THE SUBMISSIONS OF BOTH THE P ARTIES ARE OF THE OPINION THAT SIMILAR ISSUE ON RE-IMBURSEMENT OF EXPENSES WAS DEALT BY THE CO-ORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1185/MDS/2008, DATED 24.06.2009 FOR THE ASSESSME NT YEAR 2004- 05 WHEREIN HELD AND ALLOWED IN FAVOUR OF THE ASSESS EE. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE UPHELD THE ORDER O F COMMISSIONER OF INCOME TAX (APPEALS) ON THIS GROUND. 11. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IN ITA NO.1702/MDS/2013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 12. WE TAKE UP ITA NO.1703/MDS/2013 FOR ASSESSMENT YEAR 2008-2009 FOR ADJUDICATION:- THE ASSESSEE COMPANY HAS FILED RETURN ITA NOS.1701 TO 1703/2013. :- 20 -: OF INCOME FOR THE ASSESSMENT YEAR 2008-2009 ADMITTI NG TOTAL INCOME OF =4,61,02,690/-. SUBSEQUENTLY, THE RETURN WAS PRO CESSED U/S.143(1) OF THE ACT AND AS PER SCRUTINY NORMS THE CASE WAS S ELECTED AND NOTICE U/S.143(2) WAS ISSUED ON 24.08.2009. THE LD. AUTHO RISED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND FILED DETAILS CALLED FOR. THE ASSESSING OFFICER UPON SUB MISSIONS OF INFORMATION FINALIZED ASSESSMENT AND FOUND THAT AS SESSEE HAS RECOGNIZED INCOME OF =1,32,00,44,321/- BUT AS PER T HE TDS CERTIFICATES THE INCOME CREDIT OF =1,34,71,22,295/-. WHEN THE MATTER WAS PUT TO LD. AUTHORISED REPRESENTATIVE, IT WAS EXPLAINED TH AT THE DIFFERENCE HAS ARISED DUE TO RECEIPT OF ADVANCE FROM CUSTOMERS AND TDS WAS DEDUCTED BY THE CUSTOMERS. THE CONTRACT INCOME HAS BEEN RECOGNIZED IN SUBSEQUENT FINANCIAL YEARS AND MISMATCH OF TDS CERTIFICATE AND CONTRACT INCOME HAS ARISED DUE TO DIFFERENCE OF ADV ANCE. THE ASSESSING OFFICER ON THE GROUND THAT AMOUNT HAS BEE N CREDITED TO ASSESEES ACCOUNT AND TAKES THE CHARACTERISTIC OF PROFESSIONAL SERVICES. THE ASSESSEE COULD NOT PRODUCE ANY PARTIES FROM WHO M ADVANCE WAS RECEIVED AND THERE WAS NO RECONCILIATION MADE WITH THE LEDGER ACCOUNTS. THE ASSESSEE COMPANY HAS CLAIMED TDS CRED IT BUT NOT OFFERED THE RECEIPTS AS INCOME AND THERE IS A SCOPE OF MISMATCH. THE LD. ASSESSING OFFICER TREATED THE DIFFERENCE AMOUNT IN TDS CERTIFICATE AS INCOME AND SUBJECTED TO TAX BY MAKING AN ADDITIO N. ITA NOS.1701 TO 1703/2013. :- 21 -: 12.1 IN THE APPELLATE PROCEEDINGS, THE COMMISSIONE R OF INCOME TAX (APPEALS) OBSERVED THAT THE ASSESSING OFFICER ERRED IN STATING THAT TDS CERTIFICATE HAS NOT MENTIONED THE PAYMENTS AS ADVANCE AND NO SUCH CATEGORIZATION WOULD BE MADE IN THE TDS CERTIFICATE. THE ASSESSING OFFICER SHOULD SEE WHETHER ANY WORK HAS BEEN CARRIED OUT AGAINST THESE MONIES RECEIVED, BY SUBMI TTING A BILL OR THESE MONIES WERE CARRIED INTO THE BALANCE SHEET AS ADVANCE RECEIVED. THE MONIES WOULD ATTAIN THE COLOUR OF THE INCOME ONLY WHEN ANY WORK IS CARRIED OUT. THE ASSESSEE HAS SHOWN THESE MONIES AS ADVANCE IN THE BALANCE SHEET AND IT IS NOT CORRECT FOR THE LD.AO TO ADD AS INCOME MERELY BECAUSE THE TDS H AS BEEN DEDUCTED IN THE SAME YEAR. EVEN THOUGH THE RECEIPTS AR E NOT OFFERED AS INCOME IN CURRENT YEAR, BASED ON THESE OB SERVATIONS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DIRECT ED THE ASSESSING OFFICER TO DELETE THE ADDITION. 12.2. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIV E ARGUED THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT M AKING A DISTINCTION AND ALSO PAYMENTS WERE MADE TO THE ASSE SSEE COMPANY ON ACCOUNT OF CONTRACT AND SUB-CONTRACT AND FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS) THAT THE ASSESSEE HAS CLAIM ED TDS CREDIT THOUGH THE INCOME IS NOT CONSIDERED IN THE BOOKS BU T DUE TO DIFFERENCE ITA NOS.1701 TO 1703/2013. :- 22 -: IN CONTRACT RECEIPTS, TDS CERTIFICATE, AND PROFIT A ND LOSS ACCOUNT, THE ASSESSING OFFICER CONSIDERED RECEIPTS AS UNACCOUNTE D RECEIPTS. THE ASSESSEE HAS NOT RECONCILED THE DIFFERENCE BEFORE T HE ASSESSING OFFICER OR COMMISSIONER OF INCOME TAX (APPEALS) AND NOT PRO DUCED ANY EVIDENCE, CERTIFICATE OR LETTER TO THE EXTENT OF AD VANCE RECEIVED DURING THE YEAR AND ALSO INVOICE COPY WAS NOT PRODUCED. O N VERIFICATION OF THE BALANCE SHEET THERE IS HUGE DIFFERENCE OF ADVAN CE RECEIVED AND ALSO CLAIM MADE BY THE ASSESSEE NEEDS RECONCILIATI ON AND ALSO TDS CREDIT TO BE CONSIDERED PROPORTIONATELY AND PRAYED FOR ALLOWING THE APPEAL. 12.3 ON THE OTHER HAND, THE LD. AUTHORISED REPRESEN TATIVE REITERATED HIS SUBMISSIONS MADE BEFORE THE ASSESSI NG OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) AND ARGUED TH AT DIFFERENCE IS A ADVANCE AMOUNT, TO BE ADJUSTED IN SUBSEQUENT ASSE SSMENT YEARS AND RELIED ON THE DECISIONS OF SADBHAV ENGINEERING LTD. VS. DCIT 161 TTJ 116 AHD AND ACIT VS. PEDDU SRINIVASA RAO 30 CC H 0651VISAKHPATNAM TRIB. 12.4 WE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PAR TIES, PERUSED THE MATERIAL ON RECORD AND ALSO JUDICIAL DECISIONS CITED. WE ARE OF THE OPINION THAT THE ASSESSEE COMPANY HAVING HUGE TURN OVER AND FOLLOWING CONTRACT METHOD FOR COMPLETED PROJECTS AN D TDS IS DEDUCTED ITA NOS.1701 TO 1703/2013. :- 23 -: ON ADVANCES RECEIVED. IT IS DUTY OF THE ASSESSEE C OMPANY TO FURNISH THE CONFIRMATION LETTER. THE ADVANCE RECEIVED IS N OT ACCOUNTED AS CONTRACT RECEIPTS THOUGH THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED AND DELETED THE ADDITION. THE FACT REMAIN S THAT THE ASSESSEE HAS NOT PROVIDED RECONCILIATION OF CONTRACT ACCOUN TS IN THE ASSESSMENT PROCEEDINGS OR BEFORE COMMISSIONER OF INCOME TAX (A PPEALS). IN THE APPELLATE PROCEEDINGS THE ASSESSEE NOT PROVIDED AN Y BILLS, SUPPORTING EXCEPT FINANCIAL STATEMENTS. EVEN BEFORE US, THE A SSESSEE COULD NOT SUBMIT ANY INFORMATION AS ALLEGED BY THE DEPARTMEN T. WE ARE OF THE OPINION THE MATTER NEEDS TO BE EXAMINED BY THE ASS ESSING OFFICER AND THE ASSESSEE SHOULD RECONCILE AND PROVIDE SUBSTANTI VE EVIDENCE FOR ADVANCES RECEIVED IN THE PREVIOUS YEAR ON WHICH THE TDS IS DEDUCTED AND HAS TO ESTABLISH WHETHER IT HAS OFFERED TO TAXA TION IN ANY SUBSEQUENT ASSESSMENT YEAR OR NOT AND THE ASSESSING OFFICER SHALL PROVIDE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSE SSEE AND ALLOW THE TDS CREDIT AFTER DUE VERIFICATION OF THE ACCOUNTS. ACCORDINGLY, THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER TO THE E XTENT IS SET ASIDE AND REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSI NG OFFICER FOR FRESH CONSIDERATION. ITA NOS.1701 TO 1703/2013. :- 24 -: 13. THE SECOND GROUND RAISED BY THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE U/S.43B TO THE EXTENT OF =99,17,583/- 13.1 THE ASSESSING OFFICER FOUND THAT ON VERIFICATI ON OF THE TAX AUDIT REPORT FORM 3CD THAT ASSESSEE HAS NOT PAID TH E SUMS BEFORE DUE DATE OF FILING OF RETURN U/S.139(1) OF THE AC T AND THE SAME WAS DISALLOWED U/S.43B OF THE ACT. 13.2 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) B ASED ON THE EXPLANATIONS BY THE LD. AUTHORISED REPRESENTATIVE T HAT THE ASSESSEE COMPANY PAYMENTS WERE NOT ROUTED THROUGH PROFIT AND LOSS ACCOUNT BUT DEALT VIA BALANCE SHEET. THEREFORE NO ALLOWANC E OR DEDUCTIONS WAS CLAIMED IN THE COMPUTATION OF INCOME AND RELIED ON THE DECISION IN THE CASE OF NOBLE AND HEWITT INDIA P. LTD 305 ITR 324 AND DISALLOWANCE U/SEC.43B CONSIST OF SERVICE TAX, R & D CESS AND SALES TAX PAYMENTS AND OBSERVED IN HIS ORDER AT PAGE NO.1 1 ON EACH DISALLOWANCE AS UNDER:- SEC 68 OF FINANCE ACT READ WITH RULE 6 OF THE SER VICE TAX RULES STIPULATE THAT SERVICE PROVIDER HAS TO MAKE P AYMENT ONLY ON THE BASIS OF RECEIPT OF CONSIDERATION. THUS SERVICE TAX LIABILITY IS REGULATED WITH REFERENCE TO RECEIP T OF CONSIDERATION FOR THE SERVICES RENDERED. SO LONG AS THE CONSIDERATION IS NOT 'RECEIVED, THE SERVICE PROVIDE R IS NOT LIABLE TO MAKE PAYMENT. ACCORDINGLY ASSESSEE HAS MADE MERE PROVISION FOR SERVICE TAX PAYABLE BUT IT IS NO T ACTUALLY DUE AS PER RELEVANT LAWS. THIS HAS BEEN UPHELD IN ACIT VS REAL IMAGE MEDIA TECHNOLOGIES (P) LTD 306 ITR 106. B) RESEARCH AND DEVELOPMENT CESS: RS.20,52,737/= . . ITA NOS.1701 TO 1703/2013. :- 25 -: THE COMPANY HAD PROVIDED 53,94,005/- . TOWARDS RESEARCH & DEVELOPMENT CESS DURING THE ASSESSMENT YEAR 2007-08 WHICH WAS DISALLOWED IN ASST YEAR 2007 -08. RESEARCH AND DEVELOPMENT CESS PERTAINS TO TECHNICAL CONSULTANCY FEES, AND MANAGEMENT FEES' PAYABLE TO PARENT/GROUP COMPANIES. CONSEQUENT TO WAIVER OF AMO UNT PAYABLE TO PARENT/GROUP COMPANIES UP TO 31.12.2007, THE PROVISION FOR R&D CESS OF RS.53,94,005/- WAS ALSO W RITTEN BACK. R&D CESS PAYABLE FOR THE MANAGEMENT FEES AND TECHNICAL FEES FOR THE PERIOD FROM 01.01.2008 TO 31.03.2008 HAS BEEN PROVIDED AT 20,52,737/-. THIS HAS BEEN DULY ADJUSTED AND NET FIGURE 53,94,005/- 20,52,737/- IS DEDUCTED FROM TOTAL INCOME. C) SALES TAX PAYMENTS 14,58,203/- UNDER SALES TAX ACT, WORKS CONTRACT TDS ARE BEING DEDUCTED AND ADJUSTED AGAINST THE AMOUNT PAYABLE TO CONTRACTOR. IN AS MUCH AS THE CONTRACTOR HAS DEDUC TED THE TDS AND DEPOSITED ON OR BEFORE THE DUE DATE SPE CIFIED UNDER RELEVANT LAW, THE SALES TAX PAYMENT NEEDS THE REQUIREMENT OF SEC.43B. AND LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETE D THE ADDITION. AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS), THE REVENUE HAS FILED AN APPEAL BEFORE THE TRIBUNAL . 13.3 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THAT DISALLOWANCE U/S.43B OF THE ACT SHOULD BE ALLOWED ONLY ON PAYMENT BASIS AND IT SHOULD BE TAKEN AS PART OF THE SALES A ND TO BE ROUTED THROUGH PROFIT AND LOSS ACCOUNT ONLY. THOUGH THE A SSESSEE MADE TRANSACTIONS THROUGH BALANCE SHEET AS DISCUSSED BY THE LD.COMMISSIONER OF INCOME TAX (APPEALS) BUT PAYMEN T HAS TO BE MADE BEFORE DUE DATE OF FILING OF RETURN U/S.139(1) OF THE ACT. THE ASSESSEE COMPANY HAS NOT SUBMITTED ANY DETAILS IN T HE ASSESSMENT ITA NOS.1701 TO 1703/2013. :- 26 -: PROCEEDINGS AND ALSO COMMISSIONER OF INCOME TAX (AP PEALS) HAS NOT CALLED FOR THE COMMENTS OR REMAND REPORT ON THIS IS SUE AND LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE DECISIO N OF BARTRONICS INDIA LTD VS.ACIT 2012-TIOL-412-ITAT-HYD AND PLEADED FOR SET ASIDE OF THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER. 13.4 ON THE OTHER HAND, THE LD. AUTHORISED REPRESEN TATIVE VEHEMENTLY ARGUED AND REITERATED HIS SUBMISSIONS MA DE BEFORE THE LOWER AUTHORITIES AND THE FINDINGS OF THE COMMISSIO NER OF INCOME TAX (APPEALS) ARE IN ACCORDANCE OF LAW FURTHER SUBMITTE D THAT THE STATUTORY PAYMENTS CAN ALSO BE ROUTED THROUGH BALANCE SHEET T HOUGH IT IS NOT CONSIDERED IN THE PROFIT AND LOSS ACCOUNT. WHEN TH E ASSESSEE ADOPTED FOR THIS SYSTEM, THE COLLECTION OF PAYMENTS ARE SE PARATELY CONSIDERED AND TAKEN INTO BALANCE SHEET. IN SUPPORT OF ARGUME NTS RELIED ON THE DECISION OF ACIT VS. REAL IMAGE MEDIA TECHNOLOGIES PVT. LTD., 3 06 ITR (AT) 106 AND PRAYED FOR CONFIRMING THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS). 13.5 WE ARE OF THE OPINION THAT CONSIDERING THE CI RCUMSTANCES AND EVIDENCE IN RESPECT OF STATUTORY LIABILITIES UN DER PROVISIONS OF SEC. 43B PAYMENTS MADE BEFORE FILING OF RETURN OF INCOME U/S.139(1) OF THE ACT SHOULD BE CONSIDERED ON ACTUAL PAYMENT. FROM T HE RECORDS, THE ASSESSING OFFICER COULD NOT VERIFY THE SYSTEM OF AC COUNTING ROUTING ITA NOS.1701 TO 1703/2013. :- 27 -: THROUGH BALANCE SHEET AND ASSESSEE CLAIMING THAT AC CEPTED THE ACCOUNTING SYSTEM. BUT THE FACT REMAINS THAT INFORM ATION HAS TO BE EXAMINED WITH EVIDENCE. CONSIDERING THE FACTS AND CIRCUMSTANCES, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE STATUTORY PAYMENTS AND ALLOW THE DEDUCTION. ACCORD INGLY, THE GROUND OF THE DEPARTMENT IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 14. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IN ITA NO.1703/MDS/2013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 15. IN THE RESULT, THE APPEALS OF THE DEPART MENT IN ITA NOS. 1701 TO 1703/MDS/2013 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON MONDAY, THE 1ST DAY OF FEB RUARY, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI 0 / DATED:01.02.2016 KV 1 ) +#-23 43&- / COPY TO: 1 . '( / APPELLANT 3. ! 5- () / CIT(A) 5. 3 89 +#-# / DR 2. +,'( / RESPONDENT 4. ! 5- / CIT 6. 9:% ; / GF