Income Tax Appellate Tribunal - Chandigarh
Punjab Small Industries & Export Corpn. ... vs Inspecting Assistant Commissioner, ... on 9 March, 1994
Equivalent citations: (1994)50TTJ(CHD)73
ORDER
N. K. AGRAWAL, J. M. :
These are cross-appeals for asst. yr. 1984-85. We shall first take up the assessees appeal. Ground No. 1 was withdrawn by the learned counsel at the time of hearing. Therefore, ground No. 1 is rejected as withdrawn.
2. Ground Nos. 2 and 3 relate to the disallowance of certain expenditure on the ground that they were spent on entertainment and advertisement. Both these grounds are being taken up together because the principal plea raised by the learned counsel is identical. The first disallowance is to the tune of Rs. 48,133, treating it as expenditure on entertainment and gifts. Out of the above expenditure, sum of Rs. 11,031 had been disallowed on the ground that certain gifts above Rs. 50 each had been given by the assessee and so it was not allowable under r. 6B of the IT Rules. The learned counsel has not pressed this ground with respect to the said amount of Rs. 11,031. The next two items also related to gifts but of different nature. Sum of Rs. 4,477 had been spent on gifts to VIPs and sum of Rs. 32,625 related to gifts in trade fair. The learned counsel has argued that certain gifts were given to foreign dignitaries during the International Trade Fair at New Delhi. He has, therefore, claimed that out of Rs. 48,133 sum of Rs. 37,102 must be allowed being the expenditure for the purpose of business. The main thrust of the argument of the learned counsel was, however, on a different ground. He has argued that the expenditure had been indeed incurred by the assessee-Corporation but it was reimbursed by the Punjab Govt. in subsequent years. He has invited our attention to the amount of Rs. 33,98,188 received by the assessee from the Punjab Govt. as the amount of reimbursement of exhibition expenses. This amount was received in next year and was shown as income at page 52 of the balance-sheet relating to the accounting year 1983-84, which was relevant to the asst. yr. 1985-86. The accounting period ended on 30th June, 1983 for the year under appeal. The second expenditure for which ground No. 3 has been raised related to the exhibition expenses amounting to Rs. 58,755 and anniversary expenses at Rs. 12,720. The third item related to the cost of samples at Rs. 7,063. These there expenditures were disallowed on the ground that they fell within the purview of s. 37(3A) of the Act. These three amounts are also claimed to have been reimbursed by the Punjab Govt. in next year. The learned counsel has argued that he would not go into the merits of the claim but would simply plead that the amount has been brought to tax in next year after having been reimbursed by the Punjab Govt. and, therefore, on that ground the expenditure should not be disallowed in this year.
3. The learned Departmental Representative has, in reply, submitted that if the amounts were reimbursed by the Punjab Govt., these expenses, in that situation, were not in the nature of the assessees expenditure but that of the Govt. If the money was to be received from the State, it was not at all necessary nor warranted under law to bring law to bring it in the P&L account of the assessees business. The amount would have been debited to the account of the Punjab Govt., so that it could be claimed by the assessee from the Govt. The learned Departmental Representative has argued that the specific expenditures claimed to have been reimbursed have not been established by direct connecting evidence and, therefore, total sum of Rs. 33,98,188 said to have been reimbursed in next year, cannot be said to include the amounts in dispute here. The learned counsel has filed the details of the amounts received in next year but it appears that the specific amounts involved in grounds Nos. 2 and 3 here, do not find place in the list relating to reimbursed amounts, filed by the assessee.
4. Keeping in view the difficulty in directly linking the expenditure with the reimbursement, the learned counsel was asked to find out as to how the amounts spent by the assessee and claimed to have been received by way of reimbursement, could be linked, the learned counsel expressed his inability, stating that the reimbursement was made by the Punjab Govt. in instalments and in different lump sum amounts. Therefore, he fairly conceded that the specific expenditures disallowed by the Revenue authorities cannot be shown by him as having been reimbursed in the same amounts. He has, however, vehemently argued that the amount of Rs. 33,98,188 did include the amounts in question here and, therefore, since the said amount has been shown as income in next year, the expenditure incurred in the year under appeal should be allowed as business expenditure.
5. We have considered the rival contentions and we find that in the absence of any direct link between the expenditure and the reimbursement, it will be difficult to accept the assessees plea that the expenditure had been incurred so as to be reimbursed in future and that amount was to be actually reimbursed fully. As we have already seen, the assessee could have taken the amount of expenditure to the account of the Punjab Govt., rather than to the P&L account, if the amount was actually required to be received from the Punjab Govt. by way of reimbursement. The very fact that the expenditure was to be reimbursed by the Punjab Govt. itself indicates that this was not an expenditure for the assessees business. Therefore, the fact of reimbursement goes against the assessee and the expenditure cannot be held to be allowable. Since the expenditure as reimbursement have not been directly connected, it will be difficult to hold that the amounts in question were actually reimbursed in future. This new plea raised by the learned counsel does not appear to have been raised before the Revenue authorities. We, therefore, do not find any justification to allow the expenditure mentioned in Grounds Nos. 2 and 3, either on the ground that these expenditures were the assessees expenditure nor that on reimbursement these amounts have been brought to tax in subsequent years. Ground Nos. 2 and 3 stand rejected.
6. Ground No. 4 relates to the disallowance of Rs. 3,08,037 under s. 43B of the Act. The Assessing Officer noted that a sum of Rs. 2,66,395 had been paid as sales-tax, after the close of the accounting period. Similarly, some amount was paid to the provident fund after the said closing. The Assessing Officer invoked s. 43B and disallowed the assessees claim. The learned counsel has submitted that under s. 43B, the amount of sales-tax, if paid on or before the due date for filing of return, could be allowed under the first proviso thereto. Similarly, provident fund contribution was allowable under the second proviso to s. 43B, if payment was made before the due date as defined in the Expln. below s. 36(1)(va). The learned Departmental Representative has submitted that since the payment was made after the close of the accounting period, these were not allowable under s. 43B.
7. We have considered the rival contentions and we find that the Tribunal has been taking a consistent view that if the amount of tax was paid on or before the due date applicable to the assessees case, for furnishing the return of income under s. 139(1), the claim should be allowed under the first proviso to s. 43B. The Tribunal has been following the view taken by the Ahmedabad Bench in Chandulal Venichand vs. ITO (1991) 40 TTJ (Ahd) 358 : (1991) 38 ITD 138 (Ahd). Reference can also be made to the decision of the Andhra Pradesh High Court in the case reported as Sinkakollu Subba Rao & Co. & Ors. vs. Union of India & Ors. (1988) 173 ITR 708 (AP). The Tribunal has taken a view that the first proviso to s. 43B had retrospective effect, though it was inserted by the Finance Act, 1987, w.e.f. 1st April, 1988. Taking a consistent view in the matter, we find that if, on verification, it is found that the amount representing the sales-tax liability was paid by the assessee on or before the due date applicable in its case for furnishing of return of income in respect of asst. yr. 1984-85, it should be allowed. As regards payment of contribution to provident fund, we find that second proviso to s. 43B permitted deduction, if the amount was actually paid on or before the due date as defined in the Expln. below s. 36(1)(va). We, therefore, restore this issue regarding deduction under s. 43B to the file of the Assessing Officer with a direction of verify if the payment of sales-tax was made on or before the due date for filing of return and if the payment of provident fund contribution was made on or before the due date as defined in s. 36(1)(va). If, on verification, the payments are found to have been made on or before the respective due dates, as referred to in the respective provisions, the claim shall be allowed. The assessees appeal stands partly allowed for statistics.
8. Now, we shall take up the Revenues appeal. Ground No. 1 relates to the deletion of addition in respect of claim under s. 35B. The Assessing Officer noted that a sum of Rs. 26,930 had been spent on actual travelling to foreign countries and a sum of Rs. 51,367 had been spent on daily allowance. It was found that the air fare was incurred at Rs. 15,277 in respect of journey by two persons to Kuala Lumpur. This expenditure was held by the Assessing Officer to be allowable because it was incurred before amendment of s. 35B. The second item of expenditure amounting to Rs. 11,646 was disallowed because it was noted that this had been incurred in the month of June, 1983, in respect of air fare to Sydney. The Assessing Officer allowed the sum of Rs. 5,076 only under s. 35B. The first appellate authority noted that the assessee was an Export House and, therefore, was primarily engaged in export business. The assessee had claimed 1/3rd of Rs. 78,230 as allowable under s. 35B. This expenditure had been incurred for going abroad to attend various trade fairs and to promote business. These expenditures were claimed as allowable under s. 35B. Since D. A. and incidental charges were part of travelling expenditures, it was noted by the CIT(A) that D. A. and other expenditures could not be disallowed. As regards disallowability of Rs. 11,646 as pointed out by the learned Departmental Representative, the learned counsel has fairly conceded that he would not press his claim in respect of the expenditure of Rs. 11,646. He has agreed that after the amendment of s. 35B, this was not allowable. We have looked to the facts of the case and we find that except for Rs. 11,646 the remaining expenditure has rightly been allowed by the CIT(A) for the purpose of s. 35B. Therefore, ground No. 1 is partly allowed.
9. Ground Nos. 2 and 3 relate to the deletion of addition of Rs. 44,46,374. It was noted by the Assessing Officer that the assessee was showing interest income on accrual basis before asst. yr. 1981-82 but the assessee charged the system of accounting thereafter and started showing it on receipt basis. Therefore, out of Rs. 90,59,769, the assessee credited interest income amounted to Rs. 46,13,035 only to the P&L account. Interest accruing but not received amounted to Rs. 44,46,374. The first appellate authority agreed with the assessees plea that the change of system of accounting was permissible and, therefore, the assessee could not be required to treat the entire accrued interest as its income. The learned Departmental Representative has submitted that the assessee could not be permitted to change the system of accounting for a particular item of income. Total income by way of interest is said to be liable to be taxed on accrual basis, as was done in the past. The learned counsel has pointed out that the Tribunal has in ITA No. 1037/Chd/1988 for the preceding year, decided this question in the assessees favour, following yet another order for the earlier year. Therefore, the learned counsel has argued that the matter stands concluded in the assessees favour and is, therefore, a covered issue. The assessee showed a sum of Rs. 3,66,678 as interest income on said money on cash basis. Total amount of interest was Rs. 5,73,977. The CIT(A) allowed the assessees claim that interest income after change of system of accounting could not be brought to tax on accrual basis. Looking to the facts of the case, we find that in the assessees case, claim has been allowed in earlier two years and, therefore, taking a consistent view, we are not inclined to interfere with the CIT(A)s order. Therefore, grounds Nos. 2 and 3 stand rejected.
10. Ground No. 4 relates to deletion of addition of Rs. 4,56,814 on account of cash incentive for good work done by the employees. The Assessing Officer noted that the incentive bonus cash incentive had been paid, though certain amount as bonus was separately given to the employees under the Payment of Bonus Act, hereinafter called the said Act. It was noted that a sum of Rs. 3,63,003 as bonus and Rs. 22,925 as ex gratia payment had been paid to the employees. The Assessing Officer noted that the amount of Rs. 4,56,814 could not be allowed as incentive bonus as it was in addition to the bonus under the said Act. The first appellate authority allowed the assessees claim on the ground that the bonus was paid to the employees @ 8.33% as allowable under the said Act. The amount of Rs. 4,56,814 was not paid under the said Act but was paid as incentive bonus for the good work. Since the profit in this year was higher, the first appellate authority allowed the claim. The learned Departmental Representative has contended that the second proviso to s. 36(1)(ii) permitted any other bonus to be allowable, if it was reasonable with reference to the pay of the employees and their conditions of service, profits of business and the general practice in similar business or profession. The second proviso to s. 36(1)(ii), therefore, allowed any other bonus, if all the three conditions were fulfilled. Therefore, it was necessary to see if the amount paid as bonus other than the bonus under the said Act, was reasonable with reference to the three specific factors described therein. The learned counsel has argued that the assessee was a Govt. corporation and higher incentive bonus was given because it had earned higher profit. The leaned counsel has placed reliance on a decision of the Honble Supreme Court in the case of Shahzada Nand & Sons vs. CIT (1977) 108 ITR 358 (SC). That was a case where certain commission had been paid on the ground of commercial expediency. The question there had arisen whether deduction could be allowed under s. 36(1)(ii) on the ground that the commission paid was reasonable in view of the extra services rendered. It was held that the three factors laid down by the proviso to s. 36(1)(ii) are not really conditions on the fulfilment of which alone the amount of commission paid to an employee can be regarded as reasonable. They are merely factors to be taken into account by the Revenue authorities in determining the reasonableness of the amount of commission. It may be that one of these factors yields a negative response. The learned counsel has, on the basis of the said decision, contended that the assessee-corporation gave incentive bonus to the employees on the basis of higher profits in business and, therefore, the payment could not be held to be unreasonable. Looking to the entire facts of the case and keeping in view the observations made by the Honble Supreme Court in the case of Shahzada Nand & Sons (supra), we find that the first appellate authority has gone into the question of liability and has found that the incentive bonus could be allowed within the meaning of s. 36(1)(ii). We, therefore, find that the requirement of proviso was fulfilled and it was allowed. Our attention has also been drawn to the Boards Circular No. 206 dt. 9th Aug., 1976, which permitted the payment of incentive bonus. It is also noted that the said Act did not prohibit payment of bonus beyond the minimum limit of 8.33%. The maximum limit provided in the said Act is 20%. We, therefore, find that ground No. 4 has no force and it is rejected.
11. Ground No. 5 is against the deletion of addition of Rs. 13,11,079. The assessee had received a sum of Rs. 13,25,635 as advance money against the allotment of plots. A sum of Rs. 14,556 was spent on the development of land. The Assessing Officer allowed deduction of expenditure and added the balance to the assessees income. The assessee developed land and then sold the plots. The amount by way of instalments was received and the assessee brought the receipt to tax after 60% of the cost had been incurred. Before that, the assessee did not prepare the trading account and treated the money as advance receipt only and not as trade receipt. The Assessing Officer rejected the assessees plea and made the addition. The first appellate authority agreed with the assessees contention that the system was being followed since the beginning of the business and, therefore, he allowed the assessees claim and deleted the addition. We have looked into the facts of the case and we find that looking to the past history, the CIT(A) has taken a correct view in the matter and there was no justification to make the addition. The system of accounting adopted by the assessee is the same as in the past. No objection can be taken to the system of accounting adopted by the assessee consistently. We, therefore, find no force in ground No. 5 also and it is rejected. The Revenues appeal stands partly allowed.