SUNIT MUNOT,,AHMEDNAGAR vs. DEPUTY COMMISSIONER OF INCOME-TAX,,

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 :

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.

made by the ld. CIT(A) to the tune of Rs.124.53 lakh.

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.

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.

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.

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.

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

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%.

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 :

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.

by the ld. CIT(A) to the tune of Rs.21.77 lakh.

8 ITA No.2184/PUN/2013 & ITA No.1131/PUN/2014

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.

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. *