The DCIT, Circle-1(1), Baroda V. Bil Metal Industries Ltd., Baroda

ITA 2715/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 89547 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-05-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 03-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C MISHRA
• Assessee Lawyers: S R SHAH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD BEFORE S/SHRI N. S. SAINI, A.M. AND S. S. GODARA, J.M. ITA NO. 2715/AHD/2011 ASST. YEAR 2004-05 DY. C.I.T., CIRCLE-1(1), BARODA. VS M/S BIL METAL INDUSTRIES LTD., OPP. BHAILI RAILWAY STATION, BHAILI, BARODA-391410 (APPELLANT) (RESPONDENT) PA NO. AAACB8085H APPELLANT BY SHRI D. C. MISHRA, SR. D.R. RESPONDENT BY SHRI S. R. SHAH, AR DATE OF HEARING: 8/5/2015 DATE OF PRONOUNCEMENT: 9/6/2015 O R D E R PER SHRI S. S. GODARA, JUDICIAL MEMBER. THIS REVENUES APPEAL FOR AY 2004-05 ARISES FROM T HE ORDER OF CIT(A)-I, BARODA DATED 17.8.2011 PASSED IN CASE NO. CAB-I/329/06- 07 DELETING PRIOR PERIOD EXPENSES DISALLOWANCE/ADDI TION OF RS.16,65,118/-, IN PROCEEDINGS UNDER SECTION 143(3 ) OF THE INCOME- TAX ACT 1961(IN SHORT THE ACT). 2. THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING OF SHEET METAL HEAVY PRESSED AUTOMOBILE COMPONENTS, TOOLS & ACCESSORIES ETC. IT HAD CLAIMED A SUM OF RS.16,65,118/- AS PRI OR PERIOD EXPENSES. ITA NO.2715/AHD/2011 ASST. YEAR 2004-05 2 THE AO SOUGHT TO MAKE THE IMPUGNED DISALLOWANCE KEE PING IN MIND THE NATURE OF EXPENDITURE IN QUESTION AS WELL AS SY STEM OF ACCOUNTING FOLLOWED IN THE PRESENT CASE. THE ASSESSEE PLEADED TO HAVE DEBITED THE IMPUGNED PRIOR PERIOD EXPENSES RELATING TO THE SUM OF RS.14,26,460/- IN THE CASE OF JALARAM CONSTRUCTION LABOUR CONTRACTOR, RS.67,348/- IN RESPECT OF BHARAT ENGINE ER WORKS LABOUR CONTRACTOR & RS.1,71,310/- IN RESPECT OF JAYBHARAT ENGGR. LABOUR CONTRACTOR. IT IS STATED THAT THESE THREE PARTIES H AD BEEN SUPPLYING CASUAL LABOUR. THERE WAS A DISPUTE IN MARCH, 2002. THEY RAN AWAY. THE ASSESSEE CLAIMED TO HAVE MADE PAYMENTS TO CONTR ACT-WORKERS; CONTRACTOR-WISE. IT FURTHER SUBMITTED THAT ITS CONT RACTORS HAD NOT MADE ANY PAYMENT TO THE WORKERS. NOR DID THEY RAISE ANY BILL. THE ASSESSEE EXPLAINED TO HAVE NO OTHER ALTERNATIVE BUT TO MAKE THE PAYMENTS AND DEBIT THE SAME TO ITS CONTRACTORS ACCOUNTS. IT ALS O CONTENDED THAT IN FINANCIAL YEAR 2003-04 A BILL WAS RAISED. THE DISPU TE IN QUESTION WAS STATED TO BE SETTLED IN THE RELEVANT PREVIOUS YEAR. THIS MADE THE ASSESSEE TO DEBIT THE SAME IN ITS PROFIT AND LOSS A CCOUNT AND RAISE THE CLAIM OF IMPUGNED PRIOR PERIOD EXPENDITURE. 3. THE ASSESSING OFFICER DID NOT AGREE TO THE ASSES SEES SUBMISSIONS. HE OBSERVED THAT THE ASSESSEE HAD FAIL ED TO ESTABLISH THE CRYSTALLIZATION OF ITS PRIOR PERIOD EXPENDITURE IN THE RELEVANT FINANCIAL YEAR. HE ALSO REJECTED ALL THE ASSESSEES CONTENTIONS STATED HEREIN ABOVE FOR WANT OF PROOF AND NECESSARY EVIDEN CE. THIS RESULTED IN THE IMPUGNED DISALLOWANCE/ADDITION OF PRIOR PERI OD EXPENDITURE AMOUNTING TO RS.16,65,118/-. ITA NO.2715/AHD/2011 ASST. YEAR 2004-05 3 4. THE CIT(A) HAS REVERSED THE AOS FINDING AS UNDE R :- 2. FIRST GROUND OF APPEAL IS REGARDING ADDITION OF RS.16,65,118/-FOR PRIOR PERIOD EXPENSES. 2,1 IN APPEAL, SUBMISSIONS AS UNDER WERE MADE: '1. ADDITION OF RS. 1665118 FOR PRIOR PERIOD EXPENSES: IN THIS CONNECTION WE HAVE TO SUBMIT AS FOLLOWS; DU RING THE YEAR UNDER REVIEW THE COMPANY HAD DEBITED FOLLOWING EXPENSES U NDER THE HEAD PRIOR PERIOD EXPENSES, DETAILS AS FOLLOWS: PAYMENT TO LABOUR CONTRACTORS: RS. (A) JALARAM CONSTRUCTION LABOUR CONTRACTOR 1426460 (B) BHARAT ENGINEERS WORKS LABOUR CONTRACTOR 67348 (C) JAY BHARAT ENGINEERING LABOUR CONTRACTOR 171310 1665118 THE COMPANY IS HAVING A CONTRACT WITH ABOVE MENTION ED CONTRACTORS TO SUPPLY CASUAL WORKERS. THE FACTS OF THE CASE OF CON TRACTORS ARE AS UNDER; THE ABOVE CONTRACTORS WERE SUPPLYING CASUAL LABOUR TO THE COMPANY. IN THE MONTH OF MARCH 2002 THE COMPANY HAD A DISPUTE W ITH THE CONTRACTORS & HENCE THEY HAVE RUN AWAY & HENCE THE COMPANY HAD TO MAKE PAYMENT TO CONTRACTORS' WORKERS, CONTRACTOR WI SE, THE DETAILS OF WHICH ARE MENTIONED IN ITEM (22B) OF OUR TAX AUDIT REPORT. THE CONTRACTOR HAD NOT MADE PAYMENT TO ITS WORKERS WORKING IN OUR COMPANY. SO THE COMPANY HAD NO ALTERNATIVE BUT TO MAKE PAYMENT TO W ORKERS & DEBITED THE SAME ON THE CONTRACTOR'S ACCOUNT. LATER ON IN T HE FINANCIAL YEAR 2003-04 THE MANAGEMENT OF THE COMPANY HAD DEBITED T HE SAME IN IT'S PROFIT & LOSS ACCOUNT AND CLAIMED AS AN EXPENSE IN THIS FINANCIAL YEAR. THE DISPUTED LIABILITIES ARE ALLOWABLE IN THE YEAR OF ADJUDICATION / SETTLEMENT: - IN THE CASE OF CIT V PHALTON SUGAR WORKS LTD. IT WAS HELD THAT WHERE A LIABILITY ARISING OUT OF A CONTRACTUAL OBLIGATION IS DISPUTED, THE ASSESSEE ITA NO.2715/AHD/2011 ASST. YEAR 2004-05 4 IS ENTITLED , IN THE ASSESSMENT YEAR RELEVANT TO TH E PREVIOUS YEAR IN WHICH THE DISPUTE IS FINALLY ADJUDICATED UPON OR SE TTLED, TO CLAIM A DEDUCTION IN THAT BEHALF. IN SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. V C IT (1995) 213 ITR 523, GUJARAT HIGH COURT HAD PRONOUNCED THAT , THE ALLOWA BILITY OF A LIABILITY, RELATING TO EARLIER YEARS, DEPENDS UPON SEVERAL FACT LIKE MAKING A DEMAND & ITS ACCEPTANCE BY THE ASSESSEE AND WHETH ER SUCH LIABILITY HAS BEEN ACTUALLY CLAIMED AND PAID IN LATER PREVIOU S YEARS, IT CANNOT BE DISALLOWED MERELY ON THE BASIS OF THE ACCOUNTS MAIN TAINED ON THE MERCANTILE BASIS AND THAT IT RELATED TO A TRANSACTI ON OF THE EARLIER YEAR. IT IS WELL SETTLED THAT IF THE ASSESSEE FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING AND THE LIABILITY WHICH ACCRUED IS DISPU TED THEN THE SAME COULD BE CLAIMED ONLY WHEN THE DISPUTE IS SETTLED. THIS WAS PRONOUNCED IN THE FOLLOWING CASES: CIT V PURSHOTHAM GOKULDAS, 237 ITR 15(KER.) CIT V ORIENTAL MOTOR CAR (P.) LTD,, 124 ITR 74 (AIL ) CIT V PHALTON SUGAR WORKS 182 ITR 622 (BOM,) THE ASSESSING OFFICER HAS NOT DOUBT ABOUT THE GENUI NENESS OF EXPENDITURE INCURRED BY THE COMPANY AND THE SAME WE RE NOT CLAIMED BY THE COMPANY AS EXPENDITURE IN EARLIER YEARS. THE BOARD OF DIRECTORS PASSED THE RESOLUTION TO DEB IT THE SAME TO PROFIT & LOSS ACCOUNT IN THE FINANCIAL YEAR 2003-04. COPY OF BOARD RESOLUTION IS ATTACHED HEREWITH. THE ABOVE ATTACHMENTS ARE ATTACHED IN ANNEXURE 1 OF OUR PAPER BOOK PAGE NO. 19 AND PAGE NO. 37. WITH REGARD TO THE ABOVE FACTS IT IS CLEAR THAT THE DISPUTE WERE SETTLED IN FINANCIAL YEAR 2003-04 AND HENCE THIS DISALLOWANCE OF DEDUCTION BEING DISREGARD OF FACTS AVAILABLE ON RECORDS AND THEREFO RE IT IS PRAYED TO BE ALLOWED.' 2,2 AO'S COMMENTS IN REPORT DT. 5,8.2011 WERE THAT IT WAS NOT CLEAR IN WHICH FINANCIAL YEAR, PAYMENT WAS MADE TO LABOURERS ON BEHALF OF CONTRACTORS. AS PER AO, SINCE APPELLANT HAD NOT SUB MITTED COPIES OF CONTRACTORS ACCOUNT, IT COULD NOT BE VERIFIED IN WH ICH EARLIER FINANCIAL ITA NO.2715/AHD/2011 ASST. YEAR 2004-05 5 YEAR, ACTUAL PAYMENT WAS MADE TO THE LABOURERS AND THE DISALLOWANCE WAS THEREFORE, JUSTIFIED. 2.3 I HAVE CONSIDERED THE MATTER. DISALLOWANCE IN THE ASSESSMENT WAS MADE ONLY ON THE GROUND THAT APPELLANT FAILED T O ESTABLISH THAT THE EXPENSES IN QUESTION CRYSTALLIZED DURING FINANCIAL YEAR UNDER CONSIDERATION AND AS PER MERCANTILE SYSTEM OF ACCOU NTING, PRIOR PERIOD EXPENSES WERE NOT ALLOWABLE. DURING APPELLATE PROCE EDINGS, BOARD RESOLUTION DT. 15.9.2003 HAS BEEN SUBMITTED BY THE APPELLANT AS PER WHICH PAYMENTS OF RS. 16,65,118/- MADE DIRECTLY TO CONTRACTORS' WORKERS IN EARLIER YEARS ON BEHALF OF CONTRACTORS WERE DEBI TED TO CONTRACTOR'S ACCOUNT IN FY 2003-04. THIS WAS DONE AFTER DISCUSSI ON OF APPELLANT COMPANY WITH THE CONTRACTORS DUE TO WHICH THEY ACCE PTED THE PAYMENT MADE BY THE APPELLANT COMPANY ON CONTRACTOR'S BEHAL F AS PAYMENT MADE TO THEM. AS SUCH, APPELLANT HAS BEEN ABLE TO J USTIFY CRYSTALLIZATION OF LIABILITY IN FY 2003-04. AS FAR AS YEAR IN WHICH PAYMENTS WERE MADE BY APPELLANT TO CONTRACTORS' LABOUR DIRECTLY IS CON CERNED, IT WAS NOT DOUBTED DURING THE ASSESSMENT THAT THESE PAYMENTS H AD BEEN MADE IN EARLIER YEARS. AO'S OBSERVATION AT THIS STAGE' REGA RDING THE EARLIER FINANCIAL YEAR IN WHICH PAYMENT WAS MADE TO LABOURE RS BY APPELLANT ON BEHALF, OF CONTRACTORS IS THEREFORE NOT RELEVANT TO THE GROUND ON WHICH DISALLOWANCE WAS MADE IN THE ASSESSMENT. ADDITION O F RS. 16,65,118/- IS DELETED. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE CASE FILE. THE CIT(A) HAS DULY ASSOCIATED THE ASSESSING AUTHOR ITY WITH ASSESSEES ADDITIONAL SUBMISSIONS. IT SUBMITTED ITS REPORT ON 5.8.2011. THE LOWER APPELLATE ORDER RELIES UPON THE ASSESSEE S BOARDS RESOLUTION DTD. 15.9.2003 TO PROVE THE DIRECT PAYMENTS IN QUES TION. IT HOLDS THAT THE ASSESSEES PAYMENTS MADE IN THE EARLIER ASSESSMENT YEARS HAVE NOWHERE BEEN DOUBTED. THE ASSESSEE HAS BEEN ABLE TO PROVE BOTH PAYMENT OF LIABILITY AS WELL AS ITS CRYSTALLIZATION . THE REVENUE FAILS TO POINT OUT ANY IRREGULARITY OR INFIRMITY IN THE FIND INGS UNDER CHALLENGE DURING THE COURSE OF HEARING. NOR HAS IT PLACED ON RECORD ANY EVIDENCE ITA NO.2715/AHD/2011 ASST. YEAR 2004-05 6 DISPUTING PAYMENT MADE IN PRECEDING ASSESSMENT YEAR S. WE REJECT THE REVENUES SOLE OF SUBSTANTIVE GROUND ACCORDINGLY. 6. THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9/6/2015 SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (S. S. GODARA) JUDICIAL MEMBER 9/6/15 9/6/15 9/6/15 9/6/15 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD ITA NO.2715/AHD/2011 ASST. YEAR 2004-05 7 1. DATE OF DICTATION: 19/5/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 20/5/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 9/6/2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: