MMTC Ltd., New Delhi V. DCIT, New Delhi

ITA 5180/DEL/2010

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2387 (ITAT-DELHI)
• Duration Of Justice: 8 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 19-04-2017
• Assessment Year: 1996-1997
• Appeal Filed On: 22-11-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Additional evidence; Competent authority; Assessment record; Set aside
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.5180/DEL/2010 ASSESSMENT YEAR: 1996-97 MMTC LTD., SCOPE COMPLEX, CORE-1, LODHI ROAD, INSTITUTIONAL AREA, NEW DELHI VS. DCIT, CIRCLE-5(1), C.R. BUILDING, NEW DELHI PAN :AAACM1433E (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST OR DER DATED 21/09/2010 PASSED BY THE LEARNED COMMISSIONER OF IN COME-TAX (APPEALS)-VIII, NEW DELHI, FOR ASSESSMENT YEAR 1996 -97, RAISING FOLLOWING GROUNDS: APPELLANT BY SHRI ROHIT JAIN, ADV. MS. DEEPASHREE RAO, ADV. SH. VIBHU GUPTA, CA RESPONDENT BY SH. R.L. MEENA, CIT(DR) DATE OF HEARING 23.09.2019 DATE OF PRONOUNCEMENT 15.11.2019 2 ITA NO.5180/DEL/2010 1. THAT THE ORDER DT. 21.09.2010 PASSED BY CIT(A)- VIII [RECEIVED ON 24.09.2010) U/S 143(3)/254 OF THE IT ACT, 1961 IS B AD IN LAW AND VOID AB INITIO 2. THAT THE CIT(A)-VIII ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF RS.3,35,54,270/- FOR WHICH A LIABIL ITY WAS CREATED IN THE BOOKS OF ACCOUNTS ON ACCOUNT OF PRODUCTIVITY LI NK INCENTIVE PAYABLE TO EMPLOYEES CALCULATED ON THE BASIS OF THE FORMULA DESIGNED BY THE PRODUCTIVITY COUNCIL. 3. WITHOUT PREJUDICE, THE ID. CIT[A) ERRED IN DIRE CTING THAT THE DEDUCTION OF PLI, FOR WHICH A PROVISION WAS CREATED DURING TH E YEAR UNDER REFERENCE, WILL BE ALLOWABLE ON PAYMENT BASIS IN TH E YEAR OF ACTUAL PAYMENT/WITHDRAWAL, DESPITE THE FACT THAT THE APPEL LANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND DEDUCTION OF EX PENSE IS ADMISSIBLE EVEN ON ACCRUAL BASIS. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, DELETE, ALTER, AMEND, MODIFY OR SUBSTITUTE ANY GROUND OF APPEAL BEFORE THE DISPO SAL THEREOF. 2. IN THE GROUNDS RAISED, THE ASSESSEE HAS CHALLENGED ISSUE OF DISALLOWANCE OF PRODUCTIVITY LINKED INCENTIVE (PLI) AMOUNTING TO RS. 3,35,54,270/-. 2.1 BRIEFLY STATED FACTS OF THE CASE ARE THAT IN THE F IRST ROUND OF PROCEEDINGS, THE TRIBUNAL VIDE ORDER DATED 08/07/20 05 IN ITA NO. 378/DEL/2003, RESTORED THE ISSUE FOR CLAIM OF D EDUCTION OF INCENTIVE BONUS OF RS.3,35,54,270/- TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING AFRESH IN THE LIGHT OF ADDITIO NAL EVIDENCES FILED BY THE ASSESSEE. THE RELEVANT FINDING OF THE TRIBUN AL (SUPRA) IS REPRODUCED AS UNDER: 10. GROUND NO. 4 IS THAT THE CIT(A) ERRED IN NOT A LLOWING THE CLAIM FOR DEDUCTION OF THE INCENTIVE BONUS OF RS. 3,356,5 4,370/-. ALTERNATIVELY, IT IS CLAIMED THAT THE CIT(A) OUGHT TO HAVE DIRECTED THAT THE ACTUAL PAYMENT MAY BE ALLOWED IN THE NEXT YEAR AND THE 3 ITA NO.5180/DEL/2010 REMAINING AMOUNT IS NOT DOUBLY TAXED HAVING BEEN SU RRENDERED BY THE ASSESSEE FOR TAX PURPOSES. IT IS NOT IN DISPUTE THAT THE AMOUNT REPRESENTS ONLY A PROVISION FOR THE PRODUCTION INCE NTIVE BONUS. THE AO INVOKED S. 43B TO MAKE THE DISALLOWANCE. THE CIT (A), HOWEVER, AGREED THAT S. 43B IS NOT APPLICABLE, BUT SAYS THAT THE LIABILITY HAS NOT BEEN CRYSTALLIZED IN THE YEAR OF ACCOUNT. THE L D. REPRESENTATIVE FOR THE ASSESSEE HAS FILED THE SCHEME, NAMELY, A LE TTER DATED 19.05.96 AND CERTAIN ADDITIONAL PAPERS AND HAS SOUG HT THE PERMISSION UNDER RULE 29 OF THE ITAT RULES FOR ADMI SSION THEREOF AS ADDITIONAL EVIDENCE. 11. A PERUSAL OF THESE PAPERS SHOWS THAT IN THE EAR LIER YEARS, THE SCHEME WAS CALLED THE PRODUCTIVITY LINKED INCENTIVE AND THEY WERE BEING ALLOWED AS A DEDUCTION IN THE ASSESSMENTS MAD E UP TO THE AY 1994-95. THE INCENTIVE SCHEME RELATES TO THE SERVIC ES RENDERED DURING THE RELEVANT YEAR OF ACCOUNT AND AS SOON AS THE COMPETENT AUTHORITY ISSUES DIRECTION FIXING THE PAYMENTS OF T HE PRODUCTIVITY LINKED INCENTIVE BONUS, A PROVISION IS MADE IN THE BOOKS OF ACCOUNT, CLAIMING DEDUCTION. IN THE LIGHT OF THESE FACTS, WH ICH WE ADMIT AS ADDITIONAL EVIDENCE UNDER RULE 29 OF THE ITAT RULES , IT SEEMS TO US THAT THE MATTER SHOULD RECEIVE A FRESH CONSIDERATIO N IN THE HANDS OF THE AO. THE ASSESSEE IS A PUBLIC SECTOR UNDERTAKING AND, THEREFORE, THE GENUINENESS AND THE AUTHENTICITY OF THE PAPERS FILED BEFORE US CANNOT BE CALLED INTO QUESTION. IN THE INTEREST OF JUSTICE, THEREFORE, WE SET ASIDE THE ORDERS OF THE DEPARTMENTAL AUTHORITIE S ON THIS POINT AND RESTORE THE MATTER TO THE FILE OF THE AO WHO SHALL EXAMINE THE ISSUE AFRESH IN THE LIGHT OF THE ADDITIONAL EVIDENCE AND TAKE A FRESH DECISION REGARDING ALLOWABILITY OF THE BONUS IN ACC ORDANCE OF THE LAW. THE ASSESSEE SHALL BE GIVEN ADEQUATE OPPORTUNI TY OF SUBSTANTIATING ITS CLAIM. WE DIRECT ACCORDINGLY. 2.2 IN COMPLIANCE TO THE DIRECTION OF THE TRIBUNAL, TH E ASSESSING OFFICER CONSIDERED THE ADDITIONAL EVIDENCES AND OTH ER DOCUMENTS FILED BY THE ASSESSEE, HOWEVER, DID NOT ACCEPT DUE TO THE REASONS THAT LIABILITY WAS IN THE NATURE OF THE BONUS, A CL AIM WHICH HAS TO BE ALLOWED, IF ACTUALLY PAID DURING THE YEAR U/S 43 B OF THE ACT. HE ALSO HELD THAT PROVISION FOR PLI HAD NOT CRYSTALLIZ ED DURING THE YEAR UNDER CONSIDERATION. 4 ITA NO.5180/DEL/2010 2.3 ON FURTHER APPEAL, THE LEARNED CIT(A) AGREED WITH THE CONTENTION OF THE ASSESSEE THAT EXPENDITURE ON ACCO UNT OF PRODUCTIVITY LINKED INCENTIVE (PLI) DOES NOT FALL U NDER SECTION 43B OF THE ACT, BUT DID NOT AGREE THAT IT WAS AN ASCERT AINED LIABILITY. HE OBSERVED THAT SUM OF RS.1,94,55,169/- HAS BEEN W RITTEN BACK BY THE ASSESSEE IN THE PERIOD CORRESPONDING TO SUBS EQUENT ASSESSMENT YEAR AND, THEREFORE, IT WAS NOT ASCERTAI NED LIABILITY AND HE REJECTED THE CLAIM OF DEDUCTION OF RS.1,94,5 5,169/-. REGARDING BALANCE OF 1.41 CRORES, THE LEARNED CIT(A) ASKED THE ASSESSEE TO FURNISH COMPLETE DETAILS OF LIST OF EXE CUTIVE AND STAFF MEMBERS IN RELATION TO WHOM THE PROVISION WAS CREAT ED IN DETAIL OF PAYMENT ACTUALLY MADE BY THE ASSESSEE TO SUCH EX ECUTIVE AND STAFF MEMBERS. HOWEVER, THE ASSESSEE FAILED TO FURN ISH THE REQUIRED INFORMATION BEFORE THE LEARNED CIT(A). HE HAS ALSO RECORDED THAT NO SUCH DETAILS WERE EVEN FILED BEFOR E THE TRIBUNAL IN FIRST ROUND OF THE PROCEEDINGS. IN ABSENCE OF RE QUISITE DETAILS, HE UPHELD THE DISALLOWANCE OF BALANCE AMOUNT OF 1.41 CRORES. THE FINDING OF THE LD. CIT(A) ON THE ISSUE OF DISAL LOWANCE IS REPRODUCED AS UNDER: 5.1 ON A CAREFUL CONSIDERATION, I FIND THAT THE EX PENDITURE ON ACCOUNT OF PRODUCTIVITY LINKED INCENTIVE DOES NOT F ALL WITHIN THE MEANING OF BONUS AND, THEREFORE, NO DISALLOWANCE U/ S 43B OF THE IT ACT, 1961 IS CALLED FOR IN THE CASE OF THE APPELLAN T COMPANY. HOWEVER AS REGARDS ADMISSIBILITY OF THE CLAIM IN TH E YEAR UNDER CONSIDERATION, I DO NOT FIND MYSELF IN AGREEMENT WI TH THE CLAIM OF THE APPELLANT COMPANY THAT THE ENTIRE CLAIM OF RS 33554 270 WAS AN ASCERTAINED LIABILITY FOR THE AY UNDER CONSIDERATIO N. A PERUSAL OF ASSESSMENT RECORDS FOR THE AYS 97-98 AND 98-99 CLEA RLY REVEALS THAT A SUM OF RS 19455169 WAS WRITTEN BACK BY THE APPELL ANT COMPANY 5 ITA NO.5180/DEL/2010 DURING THE FY 97-98 AND WAS OFFERED TO TAX FOR THE AY 98-99. IN VIEW OF THE AFORESAID, I DO NOT AGREE WITH THE CLAIM OF THE APPELLANT COMPANY THAT THE ENTIRE CLAIM OF RS 33554270 WAS AN ASCERTAINED LIABILITY PAYABLE BY THE APPELLANT FOR THE AY UNDER CONSIDERATION. 5.2 AS REGARDS BALANCE OF RS 1.41CRORES, THE APPELL ANT COMPANY CLAIMS THAT THIS PAYMENT WAS MADE BEFORE 31-3-97 AN D WAS THEREFORE NOT DISALLOWABLE. IN THIS REGARD, THE APP ELLANT COMPANY HAS RELIED UPON THE BALANCE SHEETS FOR THE FYS 96-9 7 AND 97-98 AND CLAIMED THAT NO LIABILITY ON ACCOUNT OF THE CLAIM O F RS 1.41CRORES WAS OUTSTANDING AS ON 31-3-97 AND 31-3-98. HOWEVER, THE APPELLANT COMPANY HAS NOT FURNISHED BEFORE ME THE COMPLETE LI ST OF EXECUTIVES AND STAFF MEMBERS IN RELATION TO WHOM THE PROVISION OF RS 33554270 WAS CREATED DURING THE FY 95-96 AND THE DETAILS OF PAYMENTS ACTUALLY MADE BY THE APPELLANT COMPANY TO SUCH EXEC UTIVES AND STAFF MEMBERS DURING THE FYS 95-96 AND 96- 97. EVEN BEFORE THE HONBLE ITAT, NO SUCH DETAILS WERE MADE AVAILABLE B Y THE APPELLANT COMPANY. THEREFORE, IN THE ABSENCE OF REQUISITE DET AILS/EVIDENCE, I AM UNABLE TO ACCEPT THE CLAIM OF THE APPELLANT COMP ANY WITH RESPECT TO THE BALANCE AMOUNT ALSO. ACCORDINGLY, THE DISALL OWANCE OF RS 33554270 IS BEING SUSTAINED. 3. THE LEARNED COUNSEL OF THE ASSESSEE FILED A PAPER-B OOK CONTAINING PAGES 1 TO 135 AND SUBMITTED THAT IN VIE W OF THE ADDITIONAL EVIDENCES FILED, THE TRIBUNAL IN FIRST R OUND OF THE PROCEEDING RESTORED THE MATTER TO THE ASSESSING OFF ICER, BUT THE ASSESSING OFFICER HAS NOT EXAMINED THE EVIDENCE FIL ED IN THE RIGHT PERSPECTIVE. HE SUBMITTED THAT IN SUBSEQUENT ASSESS MENT YEAR, I.E., 1997-98, THE PROVISION WRITTEN BACK OF 1,94,55,169/- BY THE ASSESSEE HAS BEEN ACCEPTED BY THE ASSESSING OFFICER . HE SUBMITTED THAT PAYMENT OF 1,44,87,273/- PAID AS PRODUCTIVITY LINKED INCENTIVE BONUS (PLI) IN NOVEMBER, 1997 BEF ORE FILING OF RETURN OF INCOME WAS ALSO ACCEPTED AND ALLOWED BY T HE ASSESSEE IS DEDUCTION ON THE BASIS OF A CERTIFICATE OF THE H EAD OF THE ACCOUNTS DEPARTMENT OF THE ASSESSEE COMPANY. IN SUP PORT OF THE CLAIM, THE LEARNED COUNSEL OF THE ASSESSEE RELIED O N THE DECISION 6 ITA NO.5180/DEL/2010 DATED 20/05/2011 OF THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF CIT VS M/S. S.T. MICRO ELECTRONICS PRIVATE LIMITED IN ITA NO. 928/2010. THE ASSESSEE ALSO RELI ED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF PEC LTD IN ITA NO. 3910/DEL/2010 FOR ASSESSMENT YEAR 2007-08. 4. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE PART OF TH E PROVISIONS WAS ALREADY WRITTEN BACK BY THE ASSESSEE, WHICH SHO WS THAT LIABILITY WAS NOT ASCERTAINED AND FURTHER NO PROOF HAS BEEN SUBMITTED BEFORE THE LEARNED CIT(A) REGARDING PAYME NT OF THE BALANCE LIABILITY. HE FURTHER SUBMITTED THAT THE LE ARNED CIT(A) HAS ALREADY DIRECTED THE ASSESSING OFFICER FOR NOT TO A DD BACK WRITTEN BACK OF THE LIABILITY OF 1,94,55,169/- IN THE SUBSEQUENT ASSESSMENT YEAR, I.E., 1997-98 IN VIEW OF THE ADDIT ION SUSTAINED IN THE CURRENT ASSESSMENT YEAR. FURTHER, HE HAS ALS O DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEDUCTION IN THE YEA R OF THE ACTUAL PAYMENT. THE LD. DR HAS SUBMITTED THAT FINDINGS OF THE LEARNED CIT(A) ON THE ISSUE IN DISPUTE ARE JUSTIFIED. 5. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE PROVI SION OF LIABILITY OF PRODUCTION LINKED INCENTIVE OF 3,35,54,270/- HAS BEEN CREATED IN FINANCIAL YEAR 1995-96, I.E., PERIOD COR RESPONDING TO THE ASSESSMENT YEAR UNDER CONSIDERATION ON THE BASI S OF THE RECOMMENDATION OF THE MANAGEMENT. A COPY OF SUCH RECOMMENDATION IS AVAILABLE ON PAGE 117 OF THE PAPE R BOOK, RELEVANT PART OF WHICH IS REPRODUCED AS UNDER: 7 ITA NO.5180/DEL/2010 8 ITA NO.5180/DEL/2010 6. THE LD. COUNSEL OF THE ASSESSEE HAS RELIED ON THE DECISION IN THE CASE OF M/S. S.T. MICRO ELECTRONICS PRIVATE LIM ITED (SUPRA), WHEREIN THE HONBLE DELHI HIGH COURT HAS HELD AS UN DER: 10. WITH REGARD TO THE DISALLOWANCE OF RS.76.23,75 4/- ON ACCOUNT OF PROVISION OF MBO INCENTIVE, THE CIT(A) N OTED THAT THE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING. IN SUCH SYSTEM IF A LIABILITY HAS ARISEN OR ACCRUED DURING THE ACC OUNTING PERIOD, EVEN THOUGH PAID SUBSEQUENTLY, IT WOULD CONSTITUTE AN AL LOWABLE EXPENDITURE. THE ASSESSEE WAS FOLLOWING THIS SYSTEM CONSISTENTLY IN THE PAST. IN THE CASE OF BHARAT EARTH MOVERS LTD. V S. CIT, 2000(112) TAXMAN 61, IT WAS HELD THAT IN CASE OF PROVISION MA DE FOR PAYMENT OF LEAVE ENCASHMENT, IF A SCIENTIFIC METHOD OF VALU ATION HAS BEEN FOLLOWED FOR CALCULATION OF THE LIABILITY, THE SAME WOULD BE ALLOWABLE EXPENDITURE. IN THE PRESENT CASE, SINCE THE ASSESSE E HAS BEEN MAKING A PROVISION FOR THIS LIABILITY IN THE PAST A ND THE LIABILITY STOOD PROVED AND CRYSTALLIZED DURING THE PREVIOUS YEAR IT SELF AND THERE BEING INSIGNIFICANT DIFFERENCE BETWEEN PROVISION MA DE AND ACTUAL PAYMENTS MADE IN THE PRECEDING YEARS, THE METHOD AD OPTED BY THE ASSESSEE COULD BE SAID TO BE SCIENTIFIC ONE. THE BU SINESS LIABILITY HAVING DEFINITELY ARISEN IN THE ACCOUNTING YEAR, TH E DEDUCTION CAN BE ALLOWED BOTH FOR THE LIABILITY QUANTIFIED AND DISCH ARGED ON A FUTURE DATE AND THE PROVISION MADE PERMITTING SUCH LIABILI TY INCURRED WOULD BE DEDUCTABLE EXPENDITURE. WE DO NOT SEE ANY INFIRM ITY IN THIS FINDING RECORDED BY THE BOTH APPELLATE AUTHORITIES. 7. IN THIS DECISION THE LIABILITY CREATED HAS BEEN HEL D AS ASCERTAINED IN VIEW OF THE INSIGNIFICANT DIFFERENCE BETWEEN PROVISION MADE AND THE ACTUAL PAYMENT MADE. BUT IN THE INSTANT CASE BEFORE US, OUT OF THE PROVISION OF LIABILITY O F 3,35,54,270/- CREATED BY THE ASSESSEE, THE AMOUNT OF 1,94,55,169/- HAS BEEN WRITTEN BACK, WHICH IS MORE THAN 50% OF THE PROVISI ON AND CANNOT BE TREATED AS INSIGNIFICANT, AND THUS, THE RATIO OF THE DECISION CANNOT BE APPLIED IN THE CASE OF THE ASSESSEE. IN T HE CASE OF PEC LTD (SUPRA) ALSO, THE PROVISION CREATED FOR PRODUCT IVITY LINK REWARD (PLR) SCHEME WAS ALLOWED AND HELD AS ASCERTAINED LI ABILITY, BUT IN THE INSTANT CASE THE PROVISION CREATED IS NOT ASCER TAINED LIABILITY IN VIEW OF THE DECISION OF THE HONBLE DELHI HIGH C OURT IN THE CASE 9 ITA NO.5180/DEL/2010 OF M/S. S.T. MICRO ELECTRONICS PRIVATE LIMITED (SUP RA). REGARDING THE AMOUNT OF RS. 1.41 CRORES, WHICH HAS BEEN CLAIM ED BY THE ASSESSEE, AS PAID IN THE SUBSEQUENT ASSESSMENT YEAR , WE AGREE WITH THE CONTENTION OF THE LEARNED DR THAT THE ASSE SSEE FAILED TO FILE REQUISITE DETAILS/EVIDENCES REGARDING THE LIST OF EXECUTIVE AND STAFF MEMBERS IN RELATION TO WHOM THE PROVISION WAS CREATED AND ALSO FAILED TO PROVIDE DETAILS OF ACTUAL PAYMENT TO THOSE PERSONS DURING FINANCIAL YEAR 1995-96 AND FINANCIAL YEAR 19 96-97. FURTHER, THE LEARNED CIT(A) DIRECTED THE ASSESSING OFFICER NOT TO ADD THE WRITING BACK OF ANY PART OF THE PROVISION I N SUBSEQUENT ASSESSMENT YEARS AND ALSO DIRECTED TO ALLOW THE PRO VISION IN THE YEAR OF ACTUAL PAYMENT. IN VIEW OF THE DETAILED REA SONING GIVEN BY THE LEARNED CIT(A) FOR SUSTAINING THE DISALLOWANCE IN THE YEAR UNDER CONSIDERATION, WE DO NOT FIND ANY ERROR IN TH E ORDER OF THE LEARNED CIT(A) ON THE ISSUE IN DISPUTE AND ACCORDIN GLY, WE UPHOLD THE SAME. THE GROUNDS OF APPEAL OF THE ASSESSEE ARE ACCORDINGLY DISMISSED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED . ORDER IS PRONOUNCED IN THE OPEN COURT ON 15 TH NOVEMBER, 2019. SD/- SD/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 15 TH NOVEMBER, 2019. RK/-(D.T.D.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI