Income Tax Appellate Tribunal - Ahmedabad
Perfect Equipments vs Deputy Commissioner Of Income-Tax on 15 November, 2001
Equivalent citations: [2003]85ITD50(AHD)
ORDER
T.N. Chopra, Accountant Member
1. This appeal is filed by the assessee against the order of the CIT(A) dated 5-4-1995 for Assessment Year 1992-93.
2. The only ground raised by the assessee is against sustaining the addition of Rs. 1,91,611 on account of commission paid to M/s. Prestige Enterprises.
3. The assessee firm is engaged during the assessment year under appeal in the business of spare parts of textile machinery. M/s. Prestige Enterprises has been working as the selling agent of the assessee for the State of Maharashtra. For Assessment Year 1992-93 sales commission amounting to Rs. 21,82,988 has been debited on account of payments made to Prestige Enterprises. The disallowance of commission to the extent of Rs. 1,91,611 has been sustained by the ld. CIT(A) on the ground that debit notes for this amount have been issued by Prestige Enterprises for sales commission during the accounting year relevant for Assessment Year 1991-92 and the same have been wrongly accounted for in the books of the assessee for Assessment Year 1992-93 under reference. M/s. Prestige Enterprises has duly accounted for the accrual of commission for this amount of Rs. 1,91,611 in its books for Assessment Year 1991-92. When called upon to explain as to why debit notes pertaining to Assessment Year 1991-92 have been debited for Assessment Year 1992-93 in its books, the assessee explained that there were certain differences and disputes with the commission agent which were settled during the present assessment year and therefore the said commission of Rs. 1,91,611 has been debited in the books in this assessment year. The revenue authorities however rejected the explanation of the assessee in the absence of any evidence in this behalf. The addition of Rs. 1,91,611 has accordingly been sustained by the ld. CIT(A) for Assessment Year 1992-93. While upholding the additional CIT(A) has observed that the assessee has been following mercantile system of accounting and since debit notes for the commission have been received by the assessee during the accounting year relevant for the Assessment Year 1991-92,there is absolutely no justification for claiming deduction for Assessment Year 1992-93. The assessee is aggrieved and hence the appeal.
4. Shri M.K. Patel, the ld. counsel for the assessee filed a paper book during the course of hearing and argued that debit notes issued by Prestige Enterprises for the sales commission of Rs. 1,91,611 have admittedly been received in the immediately preceding assessment year i.e. Assessment Year 1991-92 however the assessee did not credit the agent with the commission due to certain differences and disputes and such commission was credited in the Assessment Year 1992-93 on settlement of the matter. However the ld. counsel fairly conceded that no evidence whatsoever regarding disputes and differences can be furnished. The ld. counsel argued that in the business dealings such disputes and differences are bound to arise and settled by negotiations and discussions and no adverse inference should be drawn against the assessee particularly when the genuineness of commission payments have not been questioned by the revenue. The ld. counsel made the alternative plea that even if the commission payments are not allowed as business expenditure for the Assessment Year 1992-93 under appeal, the Assessing Officer may be directed to allow deduction for the amount in the earlier Assessment Year 1991-92. The ld. counsel in this connection drew our attention to page 45 of the paper book wherein a similar request has been made before the Assessing Officer vide assessee's letter dated 21-12-1994. The ld. counsel pointed out that even though the commission amount of Rs. 1,91,611 has been accepted as genuine expenditure, yet the revenue has failed to allow deduction for Assessment Year 1992-93 on the basis of entries in the books of account and did not allow any deduction in the alternative for Assessment Year 1991-92 when the debit notes were received by the assessee. The ld. counsel therefore pleaded that without prejudice to assessee's claim for deduction for Assessment Year 1992-93, the claim may be directed to be allowed for. Assessment Year 1991-92 in the alternative.
5. Mrs. Vibha Desai, the ld. D.R. argued that the amount of commission does not pertain to Assessment Year 1992-93 since debit notes have admittedly been issued by the selling agent in the preceding assessment year and also received in the said year. The ld. D.R. argued that there is no basis for the assessee to claim deduction for the commission for Assessment Year 1992-93 under appeal. Regarding the alternative contention of the assessee that deduction may in the alternative be allowed in Assessment Year 1991-92 during which debit notes were received, the ld. D.R. vehemently urged that no such finding or direction can be given by the Tribunal in relation to assessment year which is not before the Tribunal. The ld. D.R. argued that any such finding or direction would be outside the purview of the jurisdiction of the Tribunal as per the provisions of Section 254(1). The ld. D.R. placed reliance on the decision of Supreme Court in the case of ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335. Further reliance is placed by the D.R. on the following decisions :
1. East India Corporation Ltd. v. CIT [1966] 61 ITR 16 (Mad.).
2. CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 2971 (SC).
3. CIT v. Hirdey Narain Yogendra Prakash [1971] 82 ITR 136 (All.).
4. K. Sudhakar S. Shanbhag v. ITO [2000] 241 ITR 865 (Bom.).
5. Bakshish Singh v. ITO [1974] 93 ITR 178 (Cal.).
6. In rejoinder the ld. counsel for the assessee, assailing the contentions of the ld. D.R. referred to the provisions of Section 153(2A) and Section 153(3) of the Income-tax Act and further invited our attention to Explanations 2 and 3 appended below Sub-section (3) of Section 153 and argued that these provisions clearly bring out the legislative intention regarding the plenary jurisdiction of the Tribunal to give findings and directions for any assessment year other than the assessment year under appeal. The ld. counsel referred to the phraseology used in Section 254(1) while conferring jurisdiction upon the Tribunal to "pass such orders thereon as it thinks fit" and argued that the section is widely worded so as to enable the Tribunal to render justice while adjudicating the appeals before it. The ld. counsel placed reliance on the following decisions in support of his contentions :
1. CIT v. Nathmal Tolaram [1973] 88 ITR 234 (Gauhati).
2. Saurashtra Cement & Chemical Industries Ltd. v. CIT [1995] 213 ITR 5232 (Guj).
3. CIT v. Nagri Mills Co. Ltd. [1958] 33 ITR 681 (Bom.).
The ld. counsel raised strong grievance that the department is adopting an unreasonable and illogical approach in seeking to deny deduction of legitimate business expenditure in either of the Assessment Years 1991 -92 and 1992-93. The ld. counsel referred in this connection to the observations of Hon'ble Bombay High Court in the case of Nagri Mills Co. Ltd. (supra) page 684 which reads as under :
We have often wondered why the I.T. 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 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.
7. We have given our thoughtful consideration to the rival submissions and also gone through the string of judicial authorities cited before us. There is no dispute in the proposition that the Tribunal by virtue of the powers vested upon it under the provisions of Section 254(1) for disposal of an appeal may pass such orders thereon as it thinks fit. The Tribunal would obviously pass the orders which have a bearing on the subject-matter of appeal and cannot possibly record finding or direction on incidental issues which are not connected with the subject-matter of appeal. The various provisions enacted by the Legislature in Chapter XIV of the Income-tax Act, 1961 viz. Sections 153(2A) and 153(3) as well as the two Explanations appended below Sub-section (3) of Section 153, which lift the bar of time limitation for giving effect to the finding or direction given by the Tribunal, amply bring out the legislative intention for enlarged ambit of appellate jurisdiction of the Tribunal conferred under Section 254(1). Obviously if Section 254(1) is to be construed as prohibiting the Tribunal from giving any direction or finding in relation to any assessment year other than the assessment year under appeal, there was obviously no occasion for the Legislature to include various sections in Chapter XIV for lifting the bar of time limitation to initiate proceedings for assessment in consequence of such directions or findings. The only limitation on the powers of the Tribunal to give directions or finding in relation to another assessment year would be that these are necessary for the disposal of appeal and are not merely incidental.
8. With regard to Section 153(3) and Explanations appended thereto, the ld. D.R. put forth the contention that these provisions in Chapter XIV of the Income-tax Act are intended for bringing to tax escaped income for any assessment year and could not be pressed into service for the purpose of finding or direction by the Tribunal in respect of claim of deductions for Assessment Years other than the year under appeal before the Tribunal. We feel that the argument of the ld. D.R. suffers from an inherent infirmity inasmuch as it proceeds on the rooting that the powers of the Tribunal to record finding or direction in respect of other assessment year are derived from the relevant provisions of Chapter XIV of the Act. The ambit of appellate jurisdiction of the Tribunal is governed by the provisions contained under Section 254(1) and not by the provisions in Chapter XIV of the Act. As we have already indicated hereinbefore Section 153(3) as well as the two Explanations appended thereunder lift the bar of time limitation for giving effect to the finding or direction contained in the order of the Tribunal regarding bringing to tax the escaped income. The source of such appellate powers conferred on the Tribunal would essentially be attributed to the provisions contained under Section 254(1). If Section 254(1) is construed as extending the appellate jurisdiction of the Tribunal to record finding or direction to include income for Assessment Year other than the assessment year under appeal, we are unable to understand as to why a similar finding or direction in respect of deduction of any expenditure relating to other assessment year cannot be given by the Tribunal. It is an admitted position that such finding or direction, with respect to income or expenditure would be inextricably linked with the subject-matter of appeal and would be necessary for the disposal of the appeal. It may further be noted that insofar as finding or direction in respect of deduction of claim for any other assessment year is concerned, this would be subject to time limitation as contained in the scheme of the Income-tax Act. The time limitation has been lifted only with regard to finding or direction in respect of inclusion of income for any other assessment year as specifically provided in the various provisions under Chapter XIV of the Income-tax Act to which reference has already been made by us above.
9. The ld. D.R. has cited decision of the Supreme Court in Murlidhar Bhagwan Das's case (supra). The said decision has been rendered in the context of the second proviso to Section 34(3) of the Indian Income-tax Act, 1922. While construing the expressions "finding" and "direction" in the second proviso to Section 34(3), the Supreme Court held that a finding could only be that which was necessary for the disposal of an appeal in respect of an Assessment Year of a particular year. Even though the relevant provisions for lifting the bar of time limitation for giving effect to the finding or direction as contained in 1961 Act are worded in terms which are unequivocal and explicit as compared with the 1922 Act, yet the basic proposition, enunciated in Murlidhar Bhagwan Das's case (supra) still holds the ground that a "finding" contained in the order of the Tribunal could only be that which was necessary for the disposal of an appeal in respect of an Assessment Year of a particular year. Similar proposition has been laid down in the various decisions cited by the ld. D.R. to which reference has been made above.
10. We may now consider the of the instant case in the context of the aforementioned legal position. The basic issue which arises before us is regarding the year in which the aforementioned commission of Rs. 1,91,611 is liable to be deducted. The admitted facts are that the debit notes have been issued by the selling agent and received by the assessee during the period relevant for Assessment Year 1991-92 whereas the assessee has claimed deduction for the commission for Assessment Year 1992-93 which is the subject-matter of the present appeal on the ground that claim has been settled during this year. No evidence whatsoever at any stage has however been produced in support of the claim that there were any differences and such differences were settled in the present assessment year. In these circumstances the conclusion of the ld. CIT(A) that the amount of commission does not fall for deduction for the Assessment Year 1992-93 since the debit notes have been received in the earlier assessment year is liable to be upheld.
11. Regarding the alternative contention of the assessee that deduction may be allowed in the preceding Assessment Year 1991-92,it is relevant to note that such an alternative contention has been made even at the assessment stage by the assessee as evident from the assessee's letter dated 21-12-1994 placed in the paper book at page 45. The revenue authorities have however disallowed the claim of deduction for Assessment Year 1992-93 without considering the alternative contention of the assessee that claim may otherwise be allowed for 1991-92. In our view for deciding the controversy before us, it would be necessary to reach a finding as to which assessment year the commission has fallen due for payment. The claim of the assessee is that commission has fallen due on settlement of disputes in Assessment Year 1992-93 whereas revenue's claim is that the commission has fallen due when debit notes have been received in Assessment Year 1991-92. For resolving the entire issue it is apparently necessary to record a finding as to which assessment year the commission relates. Since we hold the view that debit notes have been received in Assessment Year 1991-92 and there is no evidence that any dispute or controversy has been raised by the assessee, the commission in questions has fallen due in Assessment Year 1991-92 and no such commission is deductible for Assessment Year 1992-93. We hold accordingly. The claim of deduction of Rs. 1,91,611 is therefore allowable for Assessment Year 1991-92 and not for Assessment Year 1992-93. With these observations the appeal of the assessee for Assessment Year 1992-93 under reference is therefore disposed of as above.