Income Tax Appellate Tribunal - Ahmedabad
Daniel Measurement Solutions ... vs Addl.Cit.,Circle-1(1),, Baroda on 19 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "A" BENCH
(BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
& SHRI MAHAVIR PRASAD, JUDICIAL MEMBER)
ITA. No: 1386/AHD/2012
(Assessment Year: 2005-06)
M/s. Daniel Measurement V/S Addl. CIT Range-1,
Solutions Pvt. Ltd. 299- Vadodara
300, GIDC Estate,
Makarpura, Baroda
(Appellant) (Respondent)
PAN: AACCD5920F
Appellant by : Shri M.K. Patel, AR
Respondent by : Shri K. Madhusudan, Sr. D.R.
(आदे श)/ORDER
Date of hearing : 17 -01-2017
Date of Pronouncement : 19 -01-2017
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:
1. With this appeal, the assessee has challenged the correctness of the order of the Ld. CIT(A)-I, Baroda dated 30.04.2012 pertaining to A.Y. 2009-10 by raising the following substantive ground of appeal.
2 ITA No. 1386/Ahd/2012. A.Y. 2009-10
1. The ld. CIT (A) -1 has wrongly upheld the order of Addl. Commissioner of Income tax, Range - 1, Vadodara, the Assessing Officer. The appellant company had booked the commission of Rs.50 Lacs payable to the commission agent as per the mercantile system of accounting and the necessary TDS thereon was deducted at source and paid to the Govt. Treasury too. The accrual of the expense and the payment thereof are diverse matter to be looked at from two different perspectives. The accrual of the expense enjoins a liability of payment which has to be accounted for as per the principles of mercantile system of accounting.
2. The appellant company filed its return of income on 29.09.2009 declaring its taxable income at Rs. 10,13,49,000/-.
3. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee.
4. The appellant company is engaged in the business of manufacturing and sale of natural gas and liquid flow measurement products and engineered metering systems. During the course of the scrutiny assessment proceedings, the A.O. found that the assessee has made payments towards commission expenses. The A.O. further found that there was no commission expenses claimed in the immediately preceding year. It was explained by the assessee that during the year the turnover has increased from Rs. 14 crores to Rs. 72 crores and furnished the necessary details relating to the payment of commission.
3 ITA No. 1386/Ahd/2012. A.Y. 2009-10
5. On perusing the details, the A.O. noticed that the agent has raised its first bill on 02.07.2009 and the payment has been made on 13.07.2009.
6. On the basis of these details, the A.O. was of the opinion that neither the bill was received during the year under consideration nor the payment has been made during the year under consideration. The A.O. was of the firm belief that the claim of commission expenses is valid for A.Y. 2010-11 as the liability to pay crystallized in that year and payment was also made in that year. The A.O. disallowed the commission expense of Rs. 50 lacs.
7. Assessee carried the matter before the ld. CIT(A) but without any success.
8. Before us, the ld. counsel for the assessee vehemently stated that since the assessee has booked the entire sales during the year itself, therefore, on the principles of the mercantile system of accounting, the related expenditure should be allowed during the year under consideration. Strong reliance was placed on the decision of the Hon'ble High Court of Bombay in the case of Nagri Mills Company Ltd. 33 ITR 681.
9. Per contra, the ld. D.R. strongly relied upon the findings of the A.O. It is the say of the ld. D.R. that even in the agreement with the agent it has been provided that the commission shall be paid on receiving the full payment under the contract. The ld. D.R. further pointed that the agent raised the bill in the subsequent financial year and the payment has also been made in the subsequent financial year.
4 ITA No. 1386/Ahd/2012. A.Y. 2009-10
10.We have given a thoughtful consideration to the orders of the authorities below. We have also carefully considered the decision of the Hon'ble High Court of Bombay (supra) relied upon by the ld. counsel.
11.There is no dispute that the sales have been booked during the year under consideration itself. There is also no dispute relating to the genuineness of the payment of the commission. The only dispute relates to the year of allowability of the commission expenses.
12.It would be pertinent to refer to the observations of the Hon'ble High Court of Bombay in the case of Nagri Mills Co. Ltd. (supra) and the same read as under:-
"We have often wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income-tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to-us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other."5 ITA No. 1386/Ahd/2012
. A.Y. 2009-10
13. A similar issue came up for consideration before the Hon'ble High Court of Gujarat in the case of Adani Enterprises Ltd. in Tax Appeal No. 573 of 2016 where the Hon'ble High Court was seized with the following question for consideration:
"(A) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in confirming of disallowance of Prior Period expenditure of Rs.3,07,53,106/- by the ld. CIT(A)?
14.And the relevant findings of the Hon'ble High Court reads as under:-
Insofar as question (A) is concerned, in a separate tax appeal being Tax Appeal No.566/2016, against the same assessee, we made the following observations:
"2. Main question is sum of Rs.67.88 lacs(rounded off) which the Assessing Officer and CIT(Appeals) disallowed treating the expenditure as a prior period expenditure. The Tribunal reversed the findings of the Revenue authorities primarily on two grounds that the assessee being a company uniformly for all years and would therefore, have no revenue implication or whether the expenditure was recognized in this assessment year or earlier year. The second ground was that in any case, the Revenue had recognized the prior period income. If that be so, according to the Tribunal, it would be unfair not to recognize the expenditure also of the prior period.
3. Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere. Firstly, the expenditure of Rs. 67.88 lacs is a fraction of the total income of the assessee company declared at Rs. 105.88 crores. Further, even the Revenue does not dispute that the company would be taxed at the same rate in the present assessment year or during earlier year. It is also not disputed that prior period income was declared by the assessee during the current year which is also accepted by the Revenue. No question of law therefore, arises."6 ITA No. 1386/Ahd/2012
. A.Y. 2009-10
15.Considering the facts of the case in hand, in the light of the afore-stated judicial decisions, we do not find any merit/justification for disallowing the impugned commission expense. As the A.O. himself has observed at para 7 of his assessment order that the claim is eligible for A.Y. 2010-11. Since the sales have been booked during the year under consideration itself, on the principles of the mercantile system of accounting, the related allowability should also be allowed during the year under consideration itself. We, accordingly, set aside the findings of the ld. CIT(A) and direct the A.O. to delete the impugned addition of Rs. 50 lacs.
16.In the result, the appeal filed by the Assessee is allowed.
Order pronounced in Open Court on 19 - 01- 2017
Sd/- Sd/-
(MAHAVIR PRASAD) (N. K. BILLAIYA)
JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER
Ahmedabad: Dated 19 /01/2017
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad