Meena Circuits Pvt. Ltd, Vadodara V. ACIT, Circle-2(1)(2), Vadodara

ITA 203/AHD/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 6014 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 11-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 37; 143(3); 142(1); 143(2)

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘बी’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD (through web-based video conferencing platform) ] ] BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ITA No. 203/Ahd/2019 Assessment Years : 2015-16 Meena Circuits Private Limited, Survey No.99/1, Village-Vadadala, Savli, Vadodara-391 520 PAN : AABCM 3160 D Vs Asst. Commissioner of Income-tax, Circle-2(1)(2), Vadodara / (Appellant) / (Respondent) Assessee by : Smt. Arti Shah, AR Revenue by : Smt. Jyoti Shah, Sr DR /Date of Hearing : 21/12/2021 /Date of Pronouncement: 21/12/2021 आदेश/O R D E R PER P.M. JAGTAP, VICE-PRESIDENT : This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax (Appeals)-2, Vadodara [“CIT(A)” in short] dated 25.01.2019 passed for Assessment Year 2015-16. 2. The issue involved in Ground No.1 relates to the disallowance of Rs.32,25,523/- made by the Assessing Officer and confirmed by the learned CIT(A) on account of prior period expenses. 3. The assessee, in the present case, is a company which is engaged in the business of manufacturing of printed circuit boards. The return of income for the year under consideration was filed on 30.11.2015 declaring total income at Rs. Nil. The said return was selected for scrutiny through CASS and a notice under Section 143(2) of the Income-tax Act, 1961 (“the Act” in short) along with notice under Section 142(1) of the Act was issued by the Assessing Officer to ITA No. 203/Ahd/2019 Meena Circuits P. Ltd. Vs. ACIT AY : 2015-16 2 the assessee. During the course of assessment proceedings, it was noticed by the Assessing Officer, on verification of the relevant expenses claimed by the assessee, that a sum to the extent of Rs.32,25,523/- was related to the earlier year. The findings recorded by the Assessing Officer, while arriving at this conclusion, were as under:- “i) The assessee had paid Rs.91,875/- towards AMC for the year 2013-14. It was also seen that the assessee had made payment of Rs.1,90,000/- (01/01/2014 to 30/06/2014) and Rs.2,00,000/- (01/01/2015 to 30/06/2015) out of which an amount of Rs.85,000/- and Rs.1,00,000/-, respectively, did not pertain to the year under consideration. ii) It was noticed that the assessee had made payment of Rs. 1,24,550/- towards professional fees. On going through the details submitted by the assessee, it was noticed that out of above profession fees paid, an amount of Rs. 72,000/- had been paid for the year 2012-13 and 2013-14 and thus did not pertain to the year under consideration. iii) The assessee had claimed expenses of Rs. 39,402/- on 30/09/2014 in respect of visit of 03/01/2014 pertaining to year. iv) The assessee had debited sales promotion expenses of Rs.37,68,046/- out of which an amount of Rs.24,86,600/- in the name of IBO and Rs.3,50,646/- in the name of Swift Electrocamp Solutions Pvt. Ltd. pertained to commission on sales of earlier years.” 4. The assessee, therefore, was called upon by the Assessing Officer to explain as to why the expenses, as pointed out by him as related to the earlier year, should not be disallowed. In reply, the assessee made its submission in writing as under:- “In respect of commission payment made by us to IBO Gmbh and Swift Electrocomp Solution Pvt Ltd amounting to Rs.24,87,600/- and Rs.3,12,073/- respectively you have asked to explain why the same be no disallowed considering the same as expenditure of previous year in this regard we would like to submit that it is the policy of the company since its inception that commission to the agent is to be paid after realization of sales effected through them. Sometime it also happen when amount of sales is not received, no commission is being paid to the agent. In view of this agents raise debit note in respect of commission due to them after sale is realized which was effected ITA No. 203/Ahd/2019 Meena Circuits P. Ltd. Vs. ACIT AY : 2015-16 3 through them and on receipt of that debit note the same is accounted for. Under the circumstances by no stretch of imagination the expenditure incurred for commission cannot be considered as of previous year. This method is regularly followed by the company and the auditor also has not pointed out these expenditures as previous year. In earlier years also scrutiny assessments has been carried in our case and no such disallowance has been made. In view of this, we request you no to make any disallowance in respect of commission paid to aforesaid persons. 3. Similarly, in respect of following AMC contract bills, you have proposed to disallow proportionate expenditure pertaining to earlier or subsequent year: Sr. No Name of Party Invoice period Date of invoice Amount (Rs.) 1 Carrier Airconditioning & Refrigeration Ltd. 01/01/2014 to 30/06/2014 25/06/2014 1,90,000/- 2 Carrier Airconditioning & Refrigeration Ltd. 01/01/2014 to 31/12/2014 25/06/2014 74,100/- 3 Carrier Airconditioning & Refrigeration Ltd. 01/01/2015 to 30/06/2015 24/02/2015 2,00,000/- 4 SS Technical Services AMC for 2013-14 10/06/2014 91,875/- In respect of AMC contract also the expenditure is booked when the year in which the bill is received and this practice has been following consistently by the company thus such expenditure booked in the year practically for 12 months only and such expenditure cannot be proportionately considered that of earlier or subsequent year. 4. In respect of professional fees of Rs.1,24,550/- paid to Anish Kharidia, Company Secretary, as per there bill date 31/03/2015 which comprise of secretarial work for FYs 2012-13, 2013-14 & 2014-15. In respect of professional fees also the company is accounting the expenditure as and when the bills is received and the same cannot be disallowed on the ground that it pertains to earlier year. Similarly, visit fees of Rs.39,402/- in respect of quality check of machines in earlier year and annual maintenance fees of Rs.60,379/- for period 01/01/2014 to 31/12/2014 by M/s. UL India Pvt Ltd, the bills in respect thereof received during the year be cannot be considered as previous year expenditure.” ITA No. 203/Ahd/2019 Meena Circuits P. Ltd. Vs. ACIT AY : 2015-16 4 5. The Assessing Officer did not find merit in the submissions made by the assessee. According to him, the assessee-company was following the mercantile system of accounting; and, since the relevant expenses aggregating to Rs.32,25,523/- were related to the earlier year and not to the year under consideration, the same were not allowable as deduction in computing the income of the assessee for the year under consideration. He accordingly made disallowance of Rs.32,25,523/- on account of prior period expenses in the assessment completed under Section 143(3) of the Act vide order dated 27.12.2017. 6. The disallowance made by the Assessing Officer on account of prior period expenses was challenged by the assessee in appeal before the learned CIT(A); and, since the submissions made by the assessee-company in support of its case were not found acceptable by him, the learned CIT(A) proceeded to confirm the disallowance made by the Assessing Officer on account of prior period expenses for the following reasons given by him in his impugned order:- “3.3 I have considered the order of the Assessing Officer and the written submission of the appellant, as stated in earlier paragraph of this appeal order. The Assessing Officer has considered the expenses on proportionate basis for the year amounting to expenses of Rs.74,100/- and Rs.60,379/-. The assessee company follows mercantile system of accounting. Considering this, the Assessing Officer disallowed expenses aggregating to Rs.32,25,523/- not relating to the year under consideration as the assessee follow mercantile system of accounting. Therefore, I find that such expenses are not to be claimed in the year under consideration i.e. AY 2015-16 because the same expenses have already been accounted in earlier year prior to AY 2015-16. Hence, the prior period expenses of Rs.32,25,523/- is not allowed in AY 2015-16. This ground of appeal is dismissed.” 7. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. The learned Counsel for the assessee has submitted that the bills for relevant expenses on account of AMC, ITA No. 203/Ahd/2019 Meena Circuits P. Ltd. Vs. ACIT AY : 2015-16 5 professional fees and quality check expenses, although related to the earlier year, were raised by the concerned parties only in the year under consideration. To substantiate this submission, learned Counsel for the assessee has invited our attention to the following details furnished before the authorities below:- Sr. No. Particulars of Invoice Date of Invoice Amount (Rs.) 1. SS Technical Service – AMC for AY 2013-14 10.06.2014 91,872 2. Carrier Airconditioning & Refrigeration Ltd – AMC from 01.01.2014 to 30.06.2014-Total Invoice amounting to Rs.1,90,000 25.02.2015 85,000 (for 3 months) 3. Carrier Airconditioning & Refrigeration Ltd – AMC from 01.01.2015 to 30.06.2015 from 01.01.2014 to 30.06.2014 – Total Invoice amounting to Rs.2,00,000 24.02.2015 1,00,000 (for 3 months) 4. Anish Kharidia, Company Secretary – Professional work for FY 2012-13, 2013-14 and 2014-15 – Total Invoice from 01.01.2014 to 30.06.2014 – Total invoice amounting to rs.1,24,550 31.03.2015 72,000 (for FY 2012- 13 & 2013- 14) 5. UL India Private Limited – Quality check Expenses – Date of visit for Check is 03.01.2014 04.04.2014 39,402 8. As is clearly evident from the above details furnished by the learned Counsel for the assessee, the liability for the relevant expenses on account of AMC, professional fees and quality check expenses had arisen and crystallized in the year under consideration when the bills for the same by the concerned parties were raised on the assessee. We, therefore, find merit in the contention of the assessee that, even though the said expenses pertained to the earlier year, the assessee was entitled to claim deduction for the same in the year under consideration when the liability on account of said expenses had arisen and crystallized as a result of the bills/invoices raised by the concerned parties. ITA No. 203/Ahd/2019 Meena Circuits P. Ltd. Vs. ACIT AY : 2015-16 6 9. Insofar as the sale promotion expenses of Rs.24,86,600/- and commission expenses of Rs.3,50,646/- are concerned, it is observed that the corresponding sales in respect of which the said commission was payable had been made and accounted for by the assessee in the earlier year and the commission payable in respect of the said sales was claimed as deduction in the year under consideration on the basis that the proceeds of the said sale were realized in the year under consideration. In this regard, the learned Counsel for the assessee contended that the said commission actually became payable only when the proceeds in respect of the corresponding sales were actually realized in the year under consideration. She, however, has not been able to produce any documentary evidence either in the form of written agreement with the concerned agents or even in the form of any correspondence to establish that the commission was payable only on realization of corresponding sale proceeds. As rightly contended by the learned Sr. DR, when the assessee was following the mercantile system of accounting, the commission payable on the corresponding sales made in the earlier year at an agreed rate could have been and should have been provided by the assessee-company in that year itself as the liability for the same was ascertainable with greater certainty. Moreover, when the corresponding sales were duly accounted for in the earlier year and recognized as income, the commission payable in respect of the said sales at an agreed rate should have been claimed as deduction by the assessee in that year itself going by matching principle. There is also nothing brought on record to establish that the liability for the said commission pertaining to the earlier year had arisen and crystallized in the year under consideration. We are, therefore, of the view that the sale promotion and sale commission expenses pertaining to the earlier were not allowable in the year under consideration being prior period expenses and the deduction claimed by the assessee for the same is not allowable either in law or even in the facts of the case. We accordingly restrict the disallowance of Rs.32,25,523/- made by the Assessing Officer and ITA No. 203/Ahd/2019 Meena Circuits P. Ltd. Vs. ACIT AY : 2015-16 7 confirmed by the learned CIT(A) on account of prior period expenses to Rs.28,37,246/-. This ground of appeal of the assessee is thus partly allowed. 10. Ground No.2 taken by the assessee in this appeal involves the issue relating to addition of Rs.3,90,431/- made by the Assessing Officer and confirmed by the learned CIT(A) on account of unutilized CENVAT and Service Tax credit written off. 11. During the course of assessment proceedings, the claim of the assessee for bad debts written off amounting to Rs.3,90,431/- was examined by the Assessing Officer. On such examination, he found that the unutilized CENVAT amounting to Rs.3,75,787/- and Service Tax credit of Rs.14,644/- were written off by the assessee and the same was claimed as bad debts written off. Since these two amounts did not represent trade debts of the assessee, the Assessing Officer held that the same was not allowable as deduction under Section 36(1)(vii) r.w. Section 36(2) of the Act. He also did not accept the alternate contention of the assessee-company that the said claim be allowed under Section 37 of the Act being the business loss on the ground that it did not pertain to the year under consideration. On appeal, the learned CIT(A) confirmed the disallowance made by the Assessing Officer on this issue. 12. We have heard the rival submission and also perused the relevant material available on record. As rightly held by the authorities below, the amounts in question representing the unutilized CENVAT and Service Tax credit cannot be considered as trade debts of the assessee and deduction for the same on being written off cannot be allowed under Section 36(1)(vii) r.w. Section 36(2) of the Act. Even the learned Counsel for the assessee has not been able to dispute this position. She, however, has contended that these two amounts having become irrecoverable, the same should be allowed as deduction under Section 37 of the Act being the business loss. She, however, has not been able to bring anything on record to establish that the unutilized CENVAT and Service Tax credit amount in question had become irrecoverable ITA No. 203/Ahd/2019 Meena Circuits P. Ltd. Vs. ACIT AY : 2015-16 8 during the year under consideration so that the same can be allowed as business loss in that year. We, therefore, find no infirmity in the impugned order of the learned CIT(A) confirming the disallowance made by the Assessing Officer on this issue and upholding the same. We dismiss Ground No.2 of the assessee’s appeal. 13. In the result, the appeal of the assessee is partly allowed. Order pronounced in the Court on 21 st December 2021 at Ahmedabad. Sd/- Sd/- (MAHAVIR PRASAD) (P.M. JAGTAP) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad, Dated 21/12/2021 *Bt /Copy of the Order forwarded to : 1. ! / The Appellant 2. "# ! / The Respondent. 3. $%$&' # # ( / Concerned CIT 4. # # ( ) (/ The CIT(A)- 5. + , # &' , # # &' /DR,ITAT, Ahmedabad, 6. , ./ 0 /Guard file. / BY ORDER, TRUE COPY ह # $ज (Asstt. Registrar) # # &' ITAT, Ahmedabad 1. Date of dictation- ...21.12.2021...- ... 2. Date on which the typed draft is placed before the Dictating Member ...21.12.2021......... Other member ...21.12.2021.................. 3. Date on which the approved draft comes to the Sr.P.S./P.S. - ......21.12.2021............ 4. Date on which the fair order is placed before the Dictating Member for Pronouncement .... 21.12.2021... 5. Date on which the file goes to the Bench Clerk...21.12.2021......... 6. Date on which the file goes to the Head Clerk.................................. 7. The date on which the file goes to the Assistant Registrar for signature on the order..................... 8. Date of Despatch of the Order..................xx..