HINDUSTAN EVEREST TOOLS LTD.,NEW DELHI vs. ITO, WARD- 11(3), NEW DELHI

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ITA 7012/DEL/2017Status: DisposedITAT Delhi22 March 2021AY 2014-154 pages
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What did the Tribunal hold?

The Tribunal directed the AO to provide an opportunity to the assessee to produce evidence for sales promotion expenses. It also held that the provision for gratuity is an ascertained liability and should not be added back for book profit computation. The AO was directed to verify the quantum of brought forward book loss.

What were the facts?

The assessee appealed against the CIT(A)'s order upholding a 10% disallowance of sales promotion expenses. The assessee also contested the treatment of provision for gratuity and the restriction of brought forward book loss.

What were the issues?

Whether ad-hoc disallowance of sales promotion expenses without specific discrepancies is justified and whether provision for gratuity is an ascertained liability for book profit calculation.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 250,Section 115JB

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Income Tax Appellate Tribunal, DELHI BENCH ‘C’, NEW DELHI

Before: Sh. Kul BharatDr. B. R. R. Kumar

Hearing: 17.03.2021Pronounced: 22.03.2021

Per Dr. B. R. R. Kumar, Accountant Member:

1.

The present appeal has been filed by the assessee against the order of the ld. CIT(A)-4, New Delhi dated 22.09.2017.

2.

Following grounds have been raised by the assessee: “It is humbly submitted that assessment order dated November 29, 2016 passed under Section 143(3) of the Income-tax Act, 1961 (‘the Act’) by the learned Income-tax Officer Ward 11(3) and as upheld by Commissioner of Income-Tax (Appeals)- IV, Delhi under provisions of Section 250 is erroneous and not in accordance with provisions of law inter- alia on the following Grounds, which are without prejudice to each other:

1.

The Learned Commissioner of Income-Tax (Appeals)-IV, Delhi (hereinafter referred as ‘Learned CIT-A’) has grossly erred in facts and 2 Hindustan Everest Tools Ltd. circumstances of the case to uphold the action of the Income-tax Officer, Ward 11(3) [hereinafter referred as ‘Learned AO’] to partly uphold the adhoc disallowance of 10% of the expenditure incurred under the head Sales Promotion expenses without any justification and contrary to his findings as stated in Para 5.2 of the Appeal Order.

2. The Learned CIT(A) has grossly erred in facts and circumstances of the case to uphold the action of the Learned AO of making a disallowance of 10% under the head Sales Promotion without appreciating the fact that no specific discrepancy in the books of accounts so produced by the Appellant were brought on record by the Learned AO. The action of the Learned AO is arbitrary and based on his whims & fancies which deserve to be deleted.

3.

The Learned CIT-A has erred in facts and circumstances of the case by not appreciating that the Provision for Gratuity amounting to Rs 171,311 as debited in the books of the accounts is an ascertained liability and therefore is not to be added back for determination of books profits as per the provisions of Section 115JB of the Act; Reliance in this regard is placed on the Judgment of the Hon’ble Supreme Court in the case of Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 (SC) and Bharat Earth Movers v. CIT [2000] 245 ITR 428;

4.

The Learned CIT-A has grossly erred in facts and in law in restricting the deduction on account of brought forward book loss or depreciation to Rs 5,30,848 by considering the business loss as per books at Rs 5,30,848 against the accumulated book loss of Rs. 12,2%,529 as claimed by the Appellant in the Return of Income;”

3. Ground Nos. 1 & 2 deals with disallowance of 10% under the head “sales promotion” without appreciating the fact that no specific discrepancy in the books of accounts produced by the assessee were brought on record by the Assessing Officer.

3 Hindustan Everest Tools Ltd. 4. We find that the AO disallowed 20% out of the sales promotion expenses as the assessee did not produce any supporting evidences with regard to the claim.

5.

The ld. CIT(A) confirmed the action of the Assessing Officer and also restricted the disallowance from 20% to 10% holding that the assessee failed to produce any evidences.

6.

The ld. AR argued that no specific instances for making the adhoc disallowance have been pointed out and only general observations have been made.

7.

On the other hand, the ld. DR argued that the disallowance is made owing to not production of evidences and any expenditure to be allowed by the authorities. It is incumbent upon the assessee to give sufficient suitable evidences to claim the expenditure. We find that the disallowance has been made owing to non-furnishing of evidences before the revenue authorities. The assessee is hereby given another opportunity to produce the same before the Assessing Officer to claim the benefit of all the expenses incurred.

8.

With regard to ground No. 3 wherein the gratuity amount of Rs.1,71,311/- which was added back for determining the book profit was in fact an ascertained liability and therefore, the same may not be considered for determination of profits u/s 115JB of the Income Tax Act, 1961. The sub-clause (c) to Explanation 1 to Section 115JB envisages that no ascertained liabilities need to be added back for the purpose of that section. Hence, we direct the authorities to give remission to the effect

4 Hindustan Everest Tools Ltd. of Rs.1,71,311/- being an ascertained liability while computing the book profits.

9.

With regard to ground No. 4 regarding restriction of deduction on account of brought forward book loss or depreciation to Rs.5,30,848/- based on the request of the ld. AR, we direct the Assessing Officer to verify the quantum and compute the correct amount.

10.

In the result, the appeal of the assessee is allowed for statistical purposes. Order Pronounced in the Open Court on 22/03/2021.

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