DCIT 6(2), MUMBAI V. CREDIT ANALYSIS AND RESARCH LTD, MUMBAI

ITA 3722/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100921 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 31-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 10-05-2013
• Court: TRIBUNAL
• Department Lawyers: RAKESH KUMAR AGARWAL
• Assessee Lawyers: TEJAS SODA
• Section: 43B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH MUMBAI . . , , BEFORE SHRI G.S.PANNU , A M & SHRI PAWAN SINGH , J M ./ ITA NO . 3722 / MUM /20 1 3 ( / ASSESSMENT YEAR : 2009 - 10 ) DCIT , CIRCLE - 6(2), MUMBAI VS. M/S CREDIT ANALYSIS AND RESEARCH LTD., 5 TH FLOOR, RBC MAHINDRA TOWERS, ROAD NO.13, WORLI, MUMBAI - 18 ./ ./ PAN/GIR NO. : A A ACC 4587 F ( / APPEL LANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI RAKESH KUMAR AGARWAL /ASSESSEE BY : SHRI TEJAS SODA / DATE OF HEARING : 27 /0 8 / 2015 / DATE OF PRONOUNCEMENT 04/09 /2015 / O R D E R PER PAWAN SINGH (J .M) : THE PRESENT APPEAL IS FILED BY THE REVENUE ASSAILING THE ORDER DATED 5 - 2 - 2013, PASSED BY THE CIT(A) - 12, MUMBAI RELATING TO ASSESSMENT YEAR 2009 - 2010, U/S.143(3) OF THE I.T.ACT, ON THE FOLLOWING GROUNDS : - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF PERFORMANCE RELATED PAY PROVISIONS AMOUNTING TO RS.1,77,87,000/ - TO DIRECTORS AND STAFF, WITHOUT CONSIDERING THE FACT THAT THERE WAS NO ASC ERTAINED LIABILITY ON THE ACCOUNT OF PERFORMANCE RELATED PAY, SINCE NEITHER APPROVED BY BOARD OF DIRECTORS, NOR RELIABLY ESTIMATED AS ON 31 - 03 - 2009. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN IGNORING THAT AS NO RELI ABLE ESTIMATES ARE MADE , IT AMOUNTS TO CONTINGENT LIABILITY, WHICH IS NOT ALLOWABLE UNDER I.T.ACT. 3. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. ITA NO. 3722 /1 3 2 2. THE ONLY GROUND AG ITATED BY THE REVENUE IN THIS APPEAL IS WITH REGARD TO CIT(A)S ACTION IN DELETING THE ADDITION MADE ON ACCOUNT OF PERFORMANCE RELATED PAY PROVISIONS OF RS.1,77,87,000/ - TO DIRECTORS AND STAFF. 3. FACTS GIVING RISE TO THE PRESENT APPEAL ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF CREDIT RATING, CONSULTANCY AND INFORMATION SERVICES. D URING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS MADE PROVISIONS FOR EXPENSES OF RS. 1,77,87,000/ - . THE AO ASKED THE ASSESSEE TO EXPLAIN AND TABULATE ALL THE PROVISIONS MADE UNDER ALL/ANY HEADS OF EXPENSES, HOWEVER, BEING NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE AO DISALLOWED THE SAME ON THE PLEA THAT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE IN REGARD TO ACCRUAL OF SUCH EXPENSES. 4. BEING AGGRIEVED WITH THE ASSESSMENT ORDER, THE ASSESSEE APPROACHED BEFORE THE CIT(A) AND THE CIT(A) DELETED THE DISALLOWANCE SO MADE BY THE AO AFTER RECORDING A DETAILED FINDING, WHICH IS AS UNDER: - 3.3 DURING THE COURSE OF APPELLATE PROCEEDINGS THE APPELLANT ONCE MORE RELIE D UPON THE ORDER OF THE HONOURABLE ITAT TO SAY THAT THE PROVISIONS AS DEBITED IN THE P&L ACCOUNT SHOULD BE ALLOWED TO THE APPELLANT. IT WAS FURTHER STATED THAT DURING THE ASSESSMENT PROCEEDINGS THE APPELLANT HAD SUBMITTED COPY OF EXTRACT OF MINUTES OF BOAR D MEETING IN WHICH PAYMENT OF PRP TO THE DIRECTOR WAS APPROVED. THE APPELLANT SUBMITTED CERTIFIED TRUE COPY OF THE MINUTES OF THE DIRECTOR'S MEETING DURING THE COURSE OF APPELLATE PROCEEDINGS ALSO. IT WAS STATED THAT THE PAYMENT OF PRP TO THE DIRECTOR IS M ADE THROUGH BANKING CHANNELS AND AFTER DEDUCTION OF TDS UNDER SECTION 192 OF THE INCOME TAX ACT. THE AMOUNT HAS BEEN OFFERED AS INCOME FOR TAXATION BY THE CONCERN DIRECTOR. FORM NO. 16 (SALARY CERTIFICATE OF THE DIRECTOR), A COPY OF INCOME TAX RETURN OF TH E DIRECTOR, EXTRACTS OF BANK STATEMENTS REFLECTING PAYMENT/RECEIPT OF RS. 17,94,000/ - TO THE DIRECTOR, CERTIFICATES FROM APPELLANT FOR DETAILED BREAKUP OF SALARY PAID TO THE DIRECTOR WAS SUBMITTED TO SHOW THAT THE PAYMENT TO DIRECTORS WAS A BONAFIDE PAYMEN T. SIMILARLY PAYMENT TO STAFF HAS ALSO BEEN ACCOUNTED FOR BY MAKING A PROVISION IN THE P&L ACCOUNT ITA NO. 3722 /1 3 3 AND THEN PAYING THE AMOUNT AFTER RECEIVING APPROVAL FOR PAYMENT. IT WAS STATED THAT THE PROVISION HAD BEEN MADE FOR THE SAID PAYMENT AS BILLS HAD NOT BEEN RA ISED BUT LIABILITY WAS INCURRED. IT WAS STATED BY THE APPELLANT THAT THIS IS THE ACCOUNTING SYSTEM THEY HAVE BEEN FOLLOWING ALWAYS. AT THE END OF EVERY YEAR PROVISION IS MADE ON ESTIMATED BASIS FOR LIABILITIES WHICH HAVE CRYSTALLISED DURING THE YEAR, HOWEV ER BILLS WHEN RECEIVED ARE PAID AND THE EXCESS PROVISIONS ARE REVERSED BACK AND OFFERED FOR TAX. IT HAS BEEN ADMITTED BY THE APPELLANT THAT THE PROVISIONS ARE MADE ON ESTIMATED BASIS BUT IT HAS ALSO BEEN EMPHASISED THAT THEY ARE CRYSTALLISED LIABILITIES AN D THEREFORE SHOULD BE ALLOWED AS A DEDUCTION TO THE APPELLANT. IT HAS BEEN STATED THAT THESE ARE NOT CONTINGENT LIABILITIES. THE APPELLANT POINTED OUT THAT THE AO HAS NOT DISPUTED THE FACT THAT THE PRP PAID PERTAIN TO FINANCIAL YEAR 2008 - 09. JUST BECAUSE THE SIGNED APPROVAL WAS NOT PRODUCED BEFORE THE ASSESSING OFFICER INITIALLY THE SAME WAS DISALLOWED IN SPITE OF THE FACT THAT BEFORE THE PASSING OF THE ASSESSMENT ORDER ON 12/12/2011 THE APPELLANT HAD SUBMITTED THE SIGNED COPY OF THE APPROVAL REGARDING P RP TO THE ASSESSING OFFICER. ALTERNATIVELY, IT WAS ALSO SUBMITTED THAT PROVISION FOR PERFORMANCE RELATED PAY ARE NOTHING BUT BONUS AND HENCE DEDUCTIBLE UNDER SECTION 43B (C) AS THE SAME WAS PAID ON OR BEFORE DUE DATE OF FILING OF RETURN OF INCOME. IT WAS S TATED THAT THE PRP COULD BE COMPARED TO THE BONUS AS BOTH ARE PAID AFTER EVALUATING THE PERFORMANCE OF AN EMPLOYEE AS PER DEFINITE DEFINED PARA METER. CAREFULLY CONSIDERING THE ABOVE DISCUSSION, I FIND THAT THE CONTENTION OF THE APPELLANT THAT PRP (PERFORM ANCE RELATED PAY) STOOD PAID TO THE DIRECTOR SHRI D. R. DOGRA WOULD NEED TO BE ACCEPTED. THE ABOVE MENTIONED DOCUMENTS CLEARLY RECORD THE PAYMENT MADE TO THE DIRECTOR THROUGH BANKING CHANNELS, TAX DEDUCTED AT SOURCE ON THE ABOVE PAYMENT AND THE AMOUNT BEIN G INCLUDED IN THE INCOME TAX RETURN OF THE DIRECTOR FOR ASSESSMENT YEAR 2009 - 10. IT IS ALSO SEEN THAT THE MINUTES OF THE BOARD MEETING HELD ON JUNE 15, 2009 RECORD THE FACT THAT THE DIRECTOR WAS ELIGIBLE FOR PAYMENT OF COMMISSION FOR THE PERIOD JULY 08 T O MARCH 09 AND VARIABLE PAY FROM APRIL 08 TO JUNE 08. THE SAID EXTRACTS OF THE MINUTES OF THE MEETING HELD HAVE BEEN SIGNED BY THE COMPANY SECRETARY AND RECORD THE AMOUNT THAT WAS PAYABLE TO THE SAID DIRECTOR FOR FINANCIAL YEAR 08 - 09 IN TERMS OF THE SCHEME APPROVED BY THE BOARD. AS PER THE BANK STATEMENT SUBMITTED IT IS SEEN THAT THE PAYMENT WAS MADE ON 24/7/09 AFTER DEDUCTING TDS I.E. AFTER THE APPROVAL RECEIVED FROM THE BOARD. I FIND NONE OF THESE DOCUMENTS HAVE BEEN DISPUTED BY THE ASSESSING OFFICER REGA RDING THEIR CONTENTS. ACCORDINGLY, TAKING INTO COGNIZANCE THE SUBMISSIONS MADE BY THE APPELLANT, IT IS CLEAR THAT THE DIRECTOR WAS ENTITLED TO PERFORMANCE RELATED PAY AND AS THE ACTUAL AMOUNT HAD NOT BEEN APPROVED BY THE BOARD T HE APPELLANT HAD MADE PROVIS ION FOR A CRYSTALLISED LIABILITY AND DEBITED IT IN THE P&L ACCOUNT. AS SOON AS THE APPROVAL WAS RECEIVED FROM THE BOARD OF DIRECTORS IN THE MEETING ITA NO. 3722 /1 3 4 HELD ON 15TH JUNE 2009 THE ACTUAL PAYMENTS WERE MADE AFTER DEDUCTING TAX AT SOURCE. FROM THE ABOVE, IT STAND S THAT THE PAYMENT HAD TO BE MADE TO THE DIRECTOR, THE LIABILITY HAD DULY CRYSTALLISED HOWEVER, ON NON - AVAILABILITY OF THE APPROVAL IT COULD NOT BE QUANTIFIED EXACTLY. IT IS ALSO SEEN THAT THE PAYMENT MADE WAS EXACTLY AS PER THE PROVISION MADE BY THE ASSES SEE. UNDER THE CIRCUMSTANCES, IT STANDS THAT THERE IS NO REASON FOR DISALLOWING THE EXPENSES CLAIMED REGARDING PAYMENT OF PRP TO THE DIRECTOR SINCE RECORDS OF THE APPELLANT SHOW THAT THEY ARE BONAFIDE EXPENSES WHICH WAS CRYSTALLISED. THEREFORE, FOR THE REA SONS DISCUSSED ABOVE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER REGARDING THE AMOUNT OF RS.20 LACS PAID TO THE DIRECTOR STANDS DELETED AND THE GROUND OF APPEAL OF THIS ISSUE ALLOWED. 5. LD. DR CONTENDED BEFORE US THAT THE CIT(A) WHILE DELETING THE ADDITION HAS NOT TAKEN INTO CONSIDERATION THE FACT THAT THERE WAS NO ASCERTAINED LIABILITY ON THE ACCOUNT OF PERFORMANCE RELATED PAY, SINCE NEITHER APPROVED BY THE BOARD OF DIRECTORS NOR RELIABLY ESTIMATED AS ON 31 - 3 - 2009. THEREFORE, THE AO WAS RIGHT TO DI SALLOW THE AMOUNT IN QUESTION. 6. PER CONTRA , LD. AR SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT ALBEIT THE PROVISIONS ARE MADE ON ESTIMATED BASIS, BUT IT HAS ALSO BEEN EMPHASIZED THAT THEY ARE CRYSTALLIZED LIABILITIES AND, THEREFORE, THE SAME HAS RI GHTLY BEEN ALLOWED BY THE CIT(A) . LD. AR PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL IN ITS OWN CASE PASSED IN ITA NO.6355/MUM/2003(AY 2000 - 01), ORDER DATED 13 - 11 - 2006, WHEREIN EXACTLY SIMILAR DISALLOWANCE WAS DELETED BY THE TRIBUNAL. 7. WE HAVE CONSIDER ED THE RIVAL SUBMISSIONS OF COUNSEL FOR BOTH TH E PARTIES ON EITHER SIDE AND GONE THROUGH THE MATERIAL AND EVIDENCE AVAILABLE ON RECORDS . THE CASE OF THE REVENUE IS THAT THE ADDITION SO MADE BY THE AO SHOULD NOT BE DELETED BY THE CIT(A). WE FIND FROM THE OR DER OF ITA NO. 3722 /1 3 5 THE CIT(A) THAT THE DOCUMENTS WHICH WERE PLACED BEFORE THE AO WERE NOT DISPUTED BY THE AO , FROM WHICH IT IS CLEAR THAT THE DIRECTOR WAS ENTITLED TO PERFORMANCE RELATED PAY AND AS THE ACTUAL AMOUNT HAD NOT BEEN APPROVED BY THE BOARD , THE ASSESSEE HAD MADE PROVISION FOR A CRYSTALLISED LIABILITY AND DEBITED IT IN THE P&L ACCOUNT. AS SOON AS THE APPROVAL WAS RECEIVED FROM THE BOARD OF DIRECTORS IN THE MEETING HELD ON 15TH JUNE 2009 , THE ACTUAL PAYMENTS WERE MADE AFTER DEDUCTING TAX AT SOURCE. FROM THE AB OVE, IT PROVES THAT THE PAYMENT HAD TO BE MADE TO THE DIRECTOR, THE LIABILITY HAD DULY CRYSTALLISED HOWEVER, ON NON - AVAILABILITY OF THE APPROVAL IT COULD NOT BE QUANTIFIED EXACTLY. IT IS ALSO SEEN THAT THE PAYMENT MADE WAS EXACTLY AS PER THE PROVISION MADE BY THE ASSESSEE. UNDER THE CIRCUMSTANCES, IT STANDS THAT THERE IS NO REASON FOR DISALLOWING THE EXPENSES CLAIMED REGARDING PAYMENT OF PRP TO THE DIRECTOR SINCE RECORDS OF THE ASSESSEE SHOW THAT THEY ARE BONAFIDE EXPENSES WHICH WAS CRYSTALLISED. ACCORDINGL Y, WE SEE NO REASON TO INTERFERE IN THE FINDINGS OF THE CIT(A). APART FROM THIS, THE ISSUE OF DISALLOWANCE OF PROVISIONS HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ITS ORDER DATED 13 - 11 - 2006, WHEREIN THE TRIBUNAL DELETED THE ADDIT ION SO MADE ON THE PROVISIONS FOR EXPENSES. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER : - 9. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS. ON PERUSAL OF THE LD. CIT(A)S ORDER WE FIND THAT IN PRINCIPLE LD. FIRST APPELLATE AUTHORITY UPHELD TH E CONTENTION OF ASSESSEE WHILE DELETING THE DISALLOWANCE OF MAJOR PROVISION OF EXPENSES WHICH HAVE BEEN OTHERWISE ACTUALLY UTILIZED. THE LD. CIT(A) ONLY UPHELD THE DISALLOWANCE OF EXCESS PROVISION. IT IS TO BE SEEN THAT PROVISION WAS MADE LOOKING TO THE NA TURE AND QUANTITY OF EXPENSES ON A BONA FIDE ESTIMATE. HAD THE ASSESSEE WAS HAVING EXACT DETAILS ITA NO. 3722 /1 3 6 OF EXPENSES THEN IT COULD HAVE QUANTIFIED THE EXPENSES. IT HAS MADE THE PROVISION BECAUSE IT WAS DIFFICULT TO QUANTIFY THE EXPENSE WITH SUPPORTING DETAILS. THU S N OUR OPINION THE ASSESSEE MADE THE PROVISION ON A BONA FIDE BELIEF, WHILE SETTING OFF THE PROVISION WITH THE ACTUAL, CERTAIN AMOUNTS RESULTED TO BE EXCESS. THE MOMENT SUCH EXCESS AMOUNT RESULTED ASSESSEE HAS RETURNED IT BACK AND OFFERED IT FOR TAXATION. IF THIS AMOUNT IS DISALLOWED HERE THEN IT WILL BE TAXED TWICE, ONCE IN THIS ASSESSMENT YEAR AND AGAIN IN THE YEAR IN WHICH ASSESSEE HAS OFFERED IT. WHENEVER ANY PROVISION IS MADE FOR THE EXPENSES SOME PLUS AND MINUS IS POSSIBLE BECAUSE PROVISION CANNOT BE MADE WITH EXACTNESS. AS FAR AS THE OTHER ASPECT IS CONCERNED THAT ASSESSEE HAS OFFERED IT FOR THE NEXT YEAR, WE ARE OF THE VIEW THAT AFTER ADJUSTING THE ACCOUNT WHEN ASSESSEE REALIZED THE REAL FACTS IT OFFERED THE EXCESS PROVISION FOR TAXATION IMMEDIATELY IN THE SUBSEQUENT YEAR. THUS, LOOKING INTO THE ENTIRE FACTS AND CIRCUMSTANCES WE ARE OF THE VIEW THAT THE DISALLOWANCE OF RS.6,82,626/ - DOES NOT CALL FOR AND WE DELETE THE SAME. 8. ANOTHER COORDINATE BENCH OF THE TRIBUNAL ALSO IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 2010, PASSED IN ITA NO.4153/MUM/2013 , HAS DELETED THE SIMILAR DISALLOWANCE MADE ON PROVISIONS RELYING UPON THE ABOVE ORDER OF THE TRIBUNAL. 9 . SINCE THE FACTS AND CIRCUMSTANCES DURING THE ASSESSMENT YEAR UNDER CONSIDERATION ARE E XACTLY SAME, RESPECTFULLY FOLL OWING THE ORDER OF THE TRIBUNAL, WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDINGS GIVEN BY THE CIT(A) IN THIS REGARD. ACCORDINGLY, WE CONFIRM THE FINDINGS OF THE CIT(A) AND THE PRESENT APPEAL FILED BY THE REVENUE IS HERE BY DISMISSED. 10 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 04/09 / 201 5 . SD/ - SD/ - ( . . ) ( G.S.PANNU ) ( ) ( PAWAN SINGH ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED 04/09 /201 5 . . /PKM , . / PS ITA NO. 3722 /1 3 7 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//