Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE
BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.2184/PUN/2013 िनधा�रण वष� / Assessment Year : 2008-09 Klassic Wheels Pvt. Ltd., Vs. DCIT, Ahmednagar Circle, L-2, MIDC Area, Ahmednagar Ahmednagar PAN : AABCK3894G Appellant Respondent आयकर अपील सं. / ITA No.1131/PUN/2014 िनधा�रण वष� / Assessment Year : 2008-09 Mr. Sunit Munot, Vs. DCIT, Ahmednagar Circle, M/s. Sumesh Industries, Ahmednagar Industrial Estate, Nagar-Pune Road, Ahmednagar, PAN : AAPPM6328Q Appellant Respondent
Appellant(s) by Shri M.K. Kulkarni Respondent by Shri Sudhendu Das Date of hearing 13-09-2019 Date of pronouncement 16-09-2019 आदेश / ORDER PER R.S.SYAL, VP : These two appeals by the connected but different assessees relate to the assessment year 2008-09. Since a common issue has
2 ITA No.2184/PUN/2013 & ITA No.1131/PUN/2014
been raised in both the appeals, we are, therefore, proceeding to
dispose them off by this consolidated order for the sake of
convenience.
Klassic Wheels Pvt. Ltd. – ITA No.2184/PUN/2013 :
This appeal is time-barred by 404 days. The assessee has filed
an affidavit explaining the reasons which led to the late filing of the
appeal. We are satisfied with such reasons. The delay is condoned
and the appeal is admitted for hearing on merits.
The first issue raised in this appeal is against the enhancement
made by the ld. CIT(A) to the tune of Rs.124.53 lakh.
The assessee is running a manufacturing unit of wheel rims for
two & three wheelers and auto components etc. A return was filed
declaring loss of Rs.4.06 crore odd. The assessment was finalised at
a total loss of Rs.3.26 crore. The assessee challenged the
assessment order before the ld. CIT(A), who enhanced the income
by Rs.124.53 lakh.
The facts concerning this enhancement are that the assessee
availed job work services from Kinetic Engineering Ltd. Such
company raised bill of Rs.144.99 lakh for the A.Y. 2007-08 and
Rs.109.07 lakh for the A.Y. 2008-09. The assessee objected to the
3 ITA No.2184/PUN/2013 & ITA No.1131/PUN/2014
bills on the ground that the rates charged were exorbitant. The
dispute was mutually settled by means of an agreement on 22-02-
2007, whose copy has been placed at page 14 onwards of the paper
book. Through this Agreement, the rates charged by Kinetic
Engineering Ltd. were slashed down, which reduced the bill amount
to Rs.124.53 lakh for the A.Y. 2007-08 and Rs.87.06 lakh for the
A.Y. 2008-09. Credit note of Rs.42.47 lakh, being, the difference
in two amounts for both the years was received. The assessee
recorded payment of Rs.211.59 lakh (Rs. 124.53 lakh plus
Rs. 87.06 lakh) in its books of account for the year under
consideration. The Assessing Officer made addition of Rs.42.47
lakh, which came to be deleted by the ld. CIT(A). However, the ld.
first appellate authority held that the amount of Rs.124.53 lakh
pertaining to the assessment year 2007-08 was a Prior period
expenditure and hence not deductible in the year under
consideration. The assessee is aggrieved by the resultant
enhancement.
We have heard both the sides and gone through the relevant
material on record. It is an admitted position that Kinetic
Engineering Ltd. did job work for the assessee and raised the bills
amounting to Rs.254.06 lakh for the A.Ys. 2007-08 and 2008-09.
4 ITA No.2184/PUN/2013 & ITA No.1131/PUN/2014
The assessee disputed such bills and did not record such amounts in
the respective accounts. It was only on 22-12-2007 that an
Agreement was arrived at between the assessee and Kinetic
Engineering Ltd. reducing the bill amount from a total of Rs.254.06
lakh to Rs.211.59 lakh for both the years. The assessee claimed
deduction of Rs.211.59 lakh in its books of account for the year
under consideration. The ld. CIT(A) accepted the grant of deduction
of Rs.87.06 lakh pertaining to the assessment year under
consideration. He, however, held that the amount of Rs.124.53 lakh
pertaining to the immediately preceding assessment year could not
be allowed as deduction against the income for the year under
consideration and consequently made the enhancement. There is no
dispute on the fact that the assessee did not record any expenditure
on this issue in its books for the financial year relevant to the
assessment year 2007-08 and accordingly no deduction was claimed
in the preceding year on this score. It was only on the mutual
settlement arrived at between the assessee and Kinetic Engineering
Ltd. that the assessee depicted the amount of Rs.124.53 lakh as
expenditure and claimed deduction during the year.
Under the mercantile system of account, a deduction is allowed
when contractual liability to pay finally arises. The Hon’ble Delhi
5 ITA No.2184/PUN/2013 & ITA No.1131/PUN/2014
High Court in National Agricultural Co-operative Marketing
Federation of India Ltd. (NAFED) vs. CIT (2011) 338 ITR 36 (Del)
has held that a contractual liability is incurred when enforceable
liability of the assessee to pay is determined. Unless there is a
contrary separate provision, the amount becomes deductible at that
time, even if it pertains to earlier years. When we view the facts of
the instant case, it clearly emerges that the assessee did not accept
the liability of Rs.144.99 lakh on account of bills raised by Kinetic
Engineering Ltd. for the A.Y. 2007-08. The dispute was finally
settled in the year under consideration at a figure of Rs.124.53 lakh.
It is at this stage that the liability to pay can be said to have finally
arisen. Once the liability to pay arose in the year relevant to the
assessment under consideration, the same has to be allowed as
deduction. We, therefore, overturn the impugned order and delete
the enhancement of Rs.124.53 lakh made by the ld. CIT(A) by
treating it as prior period expenditure.
The second ground raised in this appeal is against the
confirmation of disallowance to Rs.17,49,623/-, being, 50% of
disallowance made by the AO on account of non-genuine labour
expenses.
6 ITA No.2184/PUN/2013 & ITA No.1131/PUN/2014
The factual panorama of this ground is that the assessee
showed payment of Rs.18,49,824/- and Rs.16,47,422/- to its two
related concerns, namely, Sumesh Industries and Sushant Industries
on account of job work charges. The AO recorded that the assessee
could not evidence the movement of job from its concerns to the
associated concerns. He, therefore, invoked the provisions of
section 40A(2) of the Act and added the entire amount of Rs.34.99
lakh. The ld. CIT(A), on going through the relevant evidence, got
satisfied about the genuineness of the expenditure. He, however,
reduced the disallowance to 50%.
Having heard both the sides and gone through the relevant
material on record, it is observed that the genuineness of the
expenditure has been established because the ld. CIT(A) accepted
the same and the Revenue is not in appeal on this issue. Now
comes the question of disallowance u/s.40A(2). In this regard, it is
seen that the assessee furnished the details and rates at which job
charges were paid by it to the sister concerns. Section 40A(2)(a)
states that where the assessee incurs any expenditure in respect of
which payment has been or is to be made to any person referred to
in clause (b) of this sub-section, and the Assessing Officer is of
opinion that such expenditure is excessive or unreasonable having
7 ITA No.2184/PUN/2013 & ITA No.1131/PUN/2014
regard to the fair market value of the goods, services or facilities for
which the payment is made or the legitimate needs of the business
or profession of the assessee or the benefit derived by or accruing to
him therefrom, so much of the expenditure as is so considered by
him to be excessive or unreasonable shall not be allowed as a
deduction. It is evident that the onus is on the AO to prove that the
expenditure incurred by the assessee is excessive or unreasonable.
The ld. CIT(A) has simply treated 50% of the same as excessive
without showing as to how the same was so. In the given
circumstances, we are satisfied that no addition is called for. We,
therefore, order to delete the addition.
Mr. Sunil Munot – ITA No.1131/PUN/2014 :
This appeal is time-barred by 631 days. The ld. AR explained
the reasons for delay with the assistance of an affidavit from the
assessee. We are satisfied with the reasons so given. Accordingly,
the delay is condoned and the appeal is admitted for disposal on
merits.
The only issue raised in this appeal is against the enhancement
by the ld. CIT(A) to the tune of Rs.21.77 lakh.
8 ITA No.2184/PUN/2013 & ITA No.1131/PUN/2014
Both the sides are in agreement that the facts and
circumstances of this ground are mutatis mutandis similar to those
of Ground No.1 in the case of Klassic Wheels Pvt. Ltd. While
dealing with this issue in the case of Klassic Wheels Pvt. Ltd., we
have hereinabove deleted the addition by holding that such
expenditure was deductible in the year in question because liability
to pay it finally arose in this year only. Following the same, we
order to delete the addition.
In the result, both the appeals are allowed.
Order pronounced in the Open Court on 16th September, 2019.
Sd/- Sd/- (S.S. VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 16th September, 2019 सतीश आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-1, Pune 4. The CIT-1, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “बी” / 5. DR ‘B’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार
// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
ITA No.2184/PUN/2013 & ITA No.1131/PUN/2014
Date 1. Draft dictated on 13-09-2019 Sr.PS 2. Draft placed before author 16-09-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *