Income Tax Appellate Tribunal - Ahmedabad
Emtici Engineering Ltd.,, Anand vs Acit.,Anand Circle,, Anand on 1 May, 2017
आयकर अपील य अ
धकरण, अहमदाबाद यायपीठ - अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD - BENCH 'A'
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER
AND
SHRI AMARJIT SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.2010/Ahd/2012
नधा रण वष /Asstt. Year: 2008-2009
AND
आयकर अपील सं./ ITA No.354/Ahd/2013
नधा रण वष /Asstt. Year: 2009-2010
Emtici Engineering Ltd. Vs. ACIT, Anand Cir.
Anand Sojitra Road Anand.
V.V. Nagar
388 120 (Guj).
अपीलाथ / (Appellant) तयथ
् / (Respondent)
Assessee by : Shri M.K. Patel, AR
Revenue by : Shri K. Madhusudan, Sr.DR
सन
ु वाई क तार ख/Date of Hearing : 12/04/2017
घोषणा क तार ख /Date of Pronouncement: 01 /05/2017
आदे श/O R D E R
PER RAJPAL YADAV, JUDICIAL MEMBER:
Present two appeals are directed at the instance of the assessee against orders of the ld.CIT(A) dated 11.6.2012 and 27.11.2012 passed for the Asstt.Years 2008-9 and 2009-10 respectively.
2. The issues disputed in these appeals are identical therefore, we heard them together and deem it appropriate to dispose of them by this common order.
ITA No.2010/Ahd/2012 & Other 23. First ground is that the ld.CIT(A) has erred in confirming the disallowance of China tour expenses amounting to Rs.23,09,500/- in A.Y.2008-09 and Rs.23,09,500/- for Switzerland tour expenses in Asstt.Year 2009-10 respectively. The facts on this issue are common on all vital points, therefore, for the facility we take up facts from the Asstt.Year 2008-09.
4. The assessee company derives income from business of dealers and commission agent of engineering products and servicing activities. It has filed its return of income electronically on 29.8.2008 and 29.9.2009 declaring total income at Rs.14,56,66,218/- and Rs.17,63,31,404/- in the Asstt.year 2008-09 and 2009-10 respectively. In the Asstt.Year 2008-09, the assessee has revised its return on 16.9.2009 whereby it has disclosed income at Rs.14,38,76,632/-. The case of the assessee for both the years were selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. On scrutiny of accounts it revealed to the AO that the assessee has made a provision of Rs.23,09,500/- in Asstt.Year 2008-09 and Rs.23,93,080/- in Asstt.Year 2009-10. According to the assessee it has provided a scheme vide which if its sub-commission agent achieve a particular target then sub-agent will be entitled for a foreign tour provided by the assessee. For the purpose of providing such tour, the assessee has made provision, because these sub-agents have achieved their target. The ld.AO disallowed the claim of the assessee on the ground that it was a provision only, and not an ascertained liability.
5. Appeal to the ld.CIT(A) did not bring any relief to the assessee.
6. The ld.counsel for the assessee at the very outset submitted that an identical provision was made by the assessee in Asstt.Year 2007-08. This provision was disallowed by the ld.Revenue authorities, but the ITA No.2010/Ahd/2012 & Other 3 assessee took this matter in appeal before the Tribunal in ITA No.1472/Ahd/2011. The Tribunal has allowed appeal of the assessee and deleted the disallowance. He placed on record copy of the Tribunal's order. The ld.DR was unable to controvert the submissions made by the ld.counsel for the assessee.
7. We have duly considered rival contentions and gone through the record carefully. We find that in Asstt.Year 2007-08, the assessee has made a provision of Rs.24,88,000/- relating to Egypt tour. This was disallowed by the AO and the disallowance was confirmed by the ld.CIT(A). The Tribunal has deleted the disallowance. The discussion made by the Tribunal reads as under:
"ITA No. 1473/Ahd/2011 (Assessee's appeal)
9. Concised ground nos.1 & 2 of the assessee's appeal read as under:
"1. That, on facts and in law, the learned CIT(A) has grievously erred in confirming the disallowance of Egypt tour expenses of Rs.24,88,000/-
2. Alternatively, and without prejudice to above ground of appeal, the entire expense of Egypt tour be directed to the allowed in subsequent assessment year 2008-09."
10. At the time of hearing before us, it is submitted by the learned counsel that during the year under consideration, the assessee had arranged a Sales Promotion Scheme for its clients, sub-commission agents and Engineers etc. As per such Scheme, the persons who achieved the target were entitled to Egypt tour. That on the basis of performance, during the accounting year relevant to assessment year under consideration tour was arranged next year. That the Assessing Officer disallowed the provision made towards the tour expenses on the only ground that the liability has not been accrued because the tour was actually arranged in the next year. He stated that the tour was on the basis of performance of the assessee's clients, sub commission agents, Engineers etc. during the year under consideration. Therefore, the liability of the assessee to take them ITA No.2010/Ahd/2012 & Other 4 on tour has accrued during the year under consideration. He also stated that Assessing Officer has neither doubted the genuineness of the expenses nor that the expenses had been incurred for the purpose of business. The sole reason for disallowance was that it was neither accrued nor incurred during year under consideration. He, therefore, submitted that when the genuineness of expenditure and the fact that the expenditure was incurred for the purpose of business was not disputed then necessary direction be given to Assessing Officer to allow the expenses either for the year under consideration or in the next year. Ld. DR, on the other hand, relied upon the order of authorities below and he stated that neither the liability had accrued during the year nor the expenditure was actually incurred. The assessee claimed expenses simply on the basis of the provision made simply on estimate. He, therefore, submitted that the order of the CIT(A) on this point should be sustained.
11. We have carefully considered the arguments of both sides and perused the material placed before us. The relevant facts as recorded by Assessing Officer in the order read as under:
"3.2 In response the assessee vide its letter dated 8.12.2009 has furnished the justification mainly in the form of comparative statement of sales promotion branch wise. On perusal of sales promotion of V.V. Nagar, it was found that it has gone to Rs. 26,90,730/- compared to last year's figure of Rs. 1,86,961. It was further explained that the assessee has arranged one tour to Egypt for its valued clients, sub commission agents, and engineers and due to which the sale promotion expenses of all the branches taken together has increased from 3.08 lac to 28.23 lacs.
3.3 The assessee has also furnished the photocopy of journal vouchers. On perusal of the said voucher it is found that the journal voucher was created on 21.4.2007 i.e. after the end of the year. Effective date was shown to be 31.3.2007. The sale promotion accounts was debited by Rs. 24,88,000/- and outstanding liabilities was credited by the same amount. The narration for the said journal entry mentions "provision for agent tour Egypt".
3.4 The payment voucher of Egypt tour shows that payment of Rs. 41,37,815/- was made on 30.6.2007 to Orbit Corporate Tours and Travels Pvt. Ltd. for Egypt tour (6 days and 7 nights) . The invoice of Orbit Corporate dated 22.5.2007 reveals that it was for air fare taxes, visa charges, arrangement charges, claim charges for 68 ITA No.2010/Ahd/2012 & Other 5 persons. Thus the invoice, the payment, the actual trip and everything took place in the subsequent year.
3.5 On perusal of the aforesaid facts, it is found the amount of Rs. 24,88,000/- represents merely a provision as on 31.3.2007. The tour was arranged in the subsequent year. The said provision was made on ad-hoc basis and the liability has not accrued in the year under consideration. The provision made had no basis and it was to depend largely on certain future events. The assessee has not explained any basis for the amount provided in its books .There is no past trend which can form the basis of such provision. The amount to be spent cannot be ascertained unless the willingness and availability of the persons are known, unless the trip duration is known, unless the Trip Organiser gives the estimate. So, the amount estimated and provided was nothing but merely a contingent liability and the same cannot be allowed. Penalty proceeding under section 271(l)(c) is initiated separately as the assessee has furnished inaccurate particulars of its income by claiming a liability which has not accrued and crystallized during the year."
From the above, it is evident that the Assessing Officer has not doubted that tour was to be arranged by assessee as a part of Sales Promotion expenses. He disallowed the expenses mainly on the ground that there was no basis for the provision and the tour was actually conducted in the next year and all the expenditures were actually incurred in next year. In our opinion, when the assessee has promised to arrange the tour for its clients, sub commission agents and Engineers on the basis of their performance during the year under consideration, then persons who achieved the target given by the assessee have acquired the right to go on tour as per the Scheme of assessee. Therefore, once the assessee's clients, commission agents and Engineers fulfill the target given to them, the assessee incurs the liability to take them on tour to Egypt as per the Scheme. Therefore, the provision for Egypt tour is to be allowed in the year under consideration. Now the only question is whether the provision made by the assessee is reasonable or not. From the details recorded by the Assessing Officer in para 3.3 and 3.4 of the order, which is reproduced above, it is evident that the assessee made the provision of Rs.24,88,000/- while the actual payment made by the assessee in the next year was Rs.41,37,880/-. In the above situation, the provision made by the assessee cannot be said to be unreasonable or excessive. In view of above, we direct the Assessing Officer to allow the deduction for the provision of ITA No.2010/Ahd/2012 & Other 6 Egypt tour expenses amounting to Rs.24,88,000/-. Accordingly, ground no.1 of the assessee's appeal is allowed and consequentially ground no.2 of assessee's appeal has become infructuous. Same is rejected."
7. There is no disparity on facts. In the Asstt.Year 2008-09, the assessee has made a provision of Rs.23,09,5000/-, but in actual it had incurred a sum of Rs.47,77,500/- that is far more than the provision. This provision made by the assessee is based on the past experience and in the last three years, it was not required to write back the provision, on account of its non-user. Considering the order of the Tribunal in the assessee's own case for Asstt.year 2007-098, we allow both grounds of appeal raised by the assessee in both the years and delete the disallowance.
8. Next issue agitated by the assessee in the Asstt.Year 2008-09 is that the ld.CIT(A) ought to have allowed deduction of Rs.24,88,000/- in respect of Egypt tour. It is pertinent to observe that this was a provision made in the Asstt.year 2007-08. It was disallowed by the AO and the disallowance was confirmed by the ld.CIT(A). On appeal, the Tribunal has allowed this disallowance. This amount was allowed in Asstt.Year 2007-08 itself. No question of its allowance again in Asstt.Year 2008-09 arose. Keeping in view this aspect, the ld.counsel for the assessee did not press this ground of appeal. Hence, it is rejected.
9. Next issue agitated in Asstt.Year 2008-09 is that the ld.AO did not grant credit of TDS amounting to Rs.20,34,335/-. When this aspect brought to the notice of the ld.CIT(A), the ld.CIT(A) has observed that this disallowance was made in an intimation made to the assessee under section 143(1) of the Act. It is not subject matter of assessment order under section 143(3) of the Act. Therefore, the ld.CIT(A) did not entertain this issue.
ITA No.2010/Ahd/2012 & Other 710. On due consideration of the facts, we are of the view that this aspect ultimately goes to affect taxability of assessee. If the assessee is entitled for TDS credit, then it ought to have been given. We set aside this issue to the file of the AO. The AO shall verify the TDS details and thereafter decide whether the assessee has credit or not, and if it has credit, then same be given to the assessee. No other issue was pressed in the Asstt.Year 2008-09. Accordingly, the appeal of the assessee for A.Y.2008-09 is partly allowed.
11. In the Asstt.year 2009-10, the next issue agitated by the assessee is that the ld.CIT(A) has allowed a sum of Rs.23,09,500/- on payment basis.
12. The facts regarding this issue are that in the asstt.Year 2008-09, the assessee has made a provision of Rs.23,09,500/- pertaining to the China Tour. This provision was disallowed by the AO in the Asstt.Year 2008-09. It has claimed this amount on actual payment basis in the Asstt.Year 2009-10. The ld.CIT(A) theoretically allowed, but with a rider that in case provision is allowed to the assessee in Asstt.Year 2008-09, then the deduction granted in Asstt.Year 2009-10 on actual incurrence of the expenditure would be withdrawn. Since we have allowed the provision in the Asstt.Year 2008-09 in the foregoing paragraphs, therefore, if any deduction is being granted to the assessee of Rs.23,09,500/- in A.Y.2009-10, the same will be withdrawn by the AO. With the above observation, this ground is rejected.
13. Next issue raised by the assessee is that the ld.CIT(A) has erred in not deleting the addition of short contract receipt amount of Rs.1,64,490/-.
14. The ld.counsel for the assessee at the very outset submitted that the ld.CIT(A) has relegated this issue to the file of the AO because the assessee has already filed an application under section 154 of the Act ITA No.2010/Ahd/2012 & Other 8 and that application is pending. Since it is an issue of reconciliation and the assessee has already moved an application under section 154, no finding is required to be recorded on this issue. The ld.CIT(A) has observed that in case the assessee is not satisfied with the rectification order, then it will be at liberty to challenge that order in appeal. Taking into consideration the observation of the ld.CIT(A), we do not find any force in the contentions of the ld.counsel for the assessee. It is a factual issue which requires verification at the end of the AO, and the ld.CIT(A) has rightly relegated the issue to the AO for verification and adjudication. We do not find any merit in this ground raised by the assessee. Accordingly, it is rejected.
15. In the next ground of appeal, the assessee has challenged charging of interest under section 234D of the Act and granting of interest under section 244 of the Income Tax Act. We find that these issues are consequential in nature. The ld.CIT(A) has already observed that these are consequential in nature. Hence, assessee could have no grievance to the findings of the ld.CIT(A). This ground of appeal of the assessee is rejected.
16. In the result, both the appeals of the assessee are partly allowed.
Order pronounced in the Court on 1st May, 2017 at Ahmedabad.
Sd/- Sd/- (AMARJIT SINGH) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 01/05/2017