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Before: Shri V. Durga Rao & Shri G. Manjunatha
आयकर अपीलीय अिधकरण, 'बी’ �ायपीठ, चे�ई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI �ी वी दुगा� राव, �ाियक सद� एवं �ी जी. मंजुनाथा, लेखा सद� के सम� Before Shri V. Durga Rao, Judicial Member & Shri G. Manjunatha, Accountant Member आयकर अपील सं./I.T.A. No.151/Chny/2018 िनधा�रण वष�/Assessment Year: 2010-11 The Assistant Commissioner of Vs. M/s. Tractors and Farm Income Tax, Corporate Circle 3(1), Equipment Ltd., No. 33, Pottipatti New Block, 4th Floor, 121, Mahatma Plaza, N.H. Road, Chennai 600 034. Gandhi Road, Nungambakkam, Chennai – 600 034. [PAN: AAACT2761Q] (अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से / Appellant by : Shri R. Boopathi, Addl. CIT ��थ� की ओर से/Respondent by : Shri R. Vijayaraghavan, Advocate सुनवाई की तारीख/ Date of hearing : 21.11.2022 घोषणा की तारीख /Date of Pronouncement : 30.11.2022 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals)-11, Chennai, dated 28.09.2017 for the assessment year 2010-11.
The first ground raised in the appeal of the Revenue is relating to deletion of addition made towards provision for sales incentive expenses included in the project promotion expenses. In the assessment order, the Assessing Officer has noted that in the product
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promotion expenses of ₹.12,30,46,805/- debited in the profit and loss account includes an amount of ₹.1,76,85,236/- towards provision related to payment in subsequent year. As the provisions are not admissible items of expenditure, the amount of ₹.1,76,85,236/- towards “provision related paid in subsequent year” was disallowed and added back to the total income of the assessee. On appeal, after considering the submissions of the assessee, the ld. CIT(A) deleted the addition.
Aggrieved, the Revenue is in appeal before the Tribunal. The ld. DR has submitted that the liability is a contingent liability and paid in subsequent year and therefore, in the year under consideration, the same cannot be considered.
On the other hand, the ld. Counsel for the assessee has submitted that the sales made upto March, 2010 was considered and ascertained the product promotion expenses upto 31.03.2010 and paid in subsequent year. It was further submitted that it is an ascertained liability even though the payment was made in subsequent year and supported the order passed by the ld. CIT(A).
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. Since the
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provision related to the payment of product promotion expenses made in the subsequent year was not an admissible item of expenditure in the current year, the Assessing Officer disallowed and brought to tax. On appeal, after considering the submissions of the assessee, the ld. CIT(A) deleted the addition by observing as under: “15. The second ground of appeal relates to disallowance of provision of Rs.1,76,85,236/- included in the product promotion expenses of Rs.12,30,46,805/-. The AO observed that the provision related to next year and was paid in that year. The AO held that provisions are not admissible items of expenditure and therefore disallowed such provision. 16. During the course of appeal proceedings, the appellant made the following submissions: "During the year the company had provided for Rs.176. 85 lakhs as expense payable towards product promotion expenses. The dealers are provided with an incentive for the sales made by them during the year. A sum of Rs. 176.85 lakhs was provided for incentive payment to be made to Ml s. Metal Pvt. Ltd, Bangladesh, for the sales made by them during the year ending 31st March 2010. As the sales was effected during the year ending 31st March 2010 relevant to the AY 2010- 11, the relevant expenditure has accrued and hence has to be accounted in the same period. The liability due to the dealer was ascertained and it was accrued in the books as at 31.03.2010. Subsequently the payment was made during the month of August 2010. The proof of payment was also submitted during the course of assessment for AY 2010-11. The appellant would like to further add that the amount provided is not an adhoc amount but is based on standard accounting policies laid down under the Accounting Standards and has been consistently followed by the appellant. The provision figure has been arrived at based on an announced scheme only, the details of which are attached." 17. I have carefully considered the observation of the AO and the submissions of the appellant. The examination of the scheme and the books of account reveal that the provision of Rs.176.85 lacs was made based on the rates approved in the scheme for incentive to be provided for whole sale of
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tractors. The sums got ascertained in the financial year 2009-10 relevant to Assessment Year 2010-11, though the same was paid in the subsequent year. The liability which got ascertained in the previous year 2009-10 must be allowed in the same previous year 2009-10 relevant to Assessment Year 2010-11 irrespective of when such quantified sum was paid. In such circumstances, the date of payment is irrelevant. The AO's argument that the provision related to next year is also not correct. The AO's assertion that provision is not an admissible item of expenditure is also not correct. Ascertained liability is always admissible in the year in which such expenses got ascertained. Only contingent liability is not an admissible item of expenditure. Since the provision got ascertained as per the scheme floated, no disallowance is necessary and accordingly, the addition is deleted.” As has been rightly observed by the ld. CIT(A) that the liability which got ascertained in the previous year 2009-10 must be allowed in the same previous year 2009-10 relevant to assessment year 2010-11 irrespective of when such quantified sum was paid and in that circumstances, the date of payment is irrelevant. Since the ascertained liability is always admissible in the year in which such expenses got ascertained, the ld. CIT(A) has rightly deleted the addition made by the Assessing Officer. Accordingly, the ground raised by the Revenue is dismissed.
The next ground raised in the appeal of the Revenue relates to deletion of addition made towards export commission payment made to non-resident agents. In the assessment order, the Assessing Officer has noted that the assessee has paid an amount of ₹.27,84,878/- and no TDS was deducted. Accordingly, as per the provisions of section
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40(a)(ia) of the Act, the Assessing Officer disallowed the entire payment of export commission and brought to tax. On appeal, after considering the submissions of the assessee, the ld. CIT(A) allowed the payment to the extent of ₹.18.62 lakhs, which was made to non- resident commission agent outside India and directed the Assessing Officer to verify as to whether the TDS has been made for the balance payment of ₹.9.23 lakhs made to resident commission agent.
Aggrieved, the Revenue is in appeal before the Tribunal.
We have heard the rival contentions. By reiterating the submissions as made before the ld. CIT(A), the ld. Counsel for the assessee has submitted that out of ₹.27.84 lakhs towards commission on export sales, ₹.18.62 lakhs has been paid to a non-resident and the balance export commission was paid to resident and accordingly, TDS has been made. After considering the submissions of the assessee, the ld. CIT(A) has observed and held as under: “20. I have carefully considered the observation of the AO and the submissions of the appellant. The ITAT Delhi in the case of Unison Hotels Ltd., ITA No.3030/Del/2010 dated 17.09.2010 held that the payment of commission to non-resident agents outside India who have accepted booking from clients or customers at a place outside India is not taxable in India. The Tribunal held that these services have been provided by non- resident commission agents to the assessee only outside India and these agents neither have business connection in India nor any Permanent Establishment in India. Thus the Tribunal held that no income accrues or
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arises or deemed to accrue or arise in India. The Supreme Court in the case of Hyundai Heavy Industries Co. Ltd., 291 ITR 482 held that it is the act of setting out a permanent establishment which triggers the taxability of transaction in the source state, therefore, unless the permanent establishment is set up, the question of taxability does not arise. The judgements cited by the appellant in the written submissions above are also applicable. In view of the above, no TDS is required to be made u/ s 195 of the Act and therefore the provisions of Section 40(a)(i) is also not applicable and accordingly the addition of Rs.18.62 lacs is directed to be deleted. As far as the balance sum of Rs.9.23 lacs (Rs.27.85 - Rs.18.62), the AO is directed to verify whether TDS was made on these payments as submitted by the appellant, if so, addition to that extent will stand deleted, otherwise addition will stand confirmed.” 9. After considering the submissions of the assessee and by following the decision of the Hon’ble Supreme Court in the case of Hyundai Heavy Industries Co. Ltd. (supra), the ld. CIT(A) has rightly deleted the addition of ₹.18.62 lakhs made towards the commission of export sales payment to non-resident agent outside India having no permanent establishment in India. Thus, for the balance amount of ₹.9.23 lakhs, the ld. CIT(A) directed the Assessing Officer to verify as to whether TDS was made to these payments and if so, addition to that extent will stand deleted, otherwise, the addition will stand confirmed. We find no infirmity in the order passed by the ld. CIT(A). Accordingly, the ground raised by the Revenue is dismissed.
The next ground relates to deletion of addition of ₹.15,215,195/- being difference in donations in memo and miscellaneous expenses break-up. The Assessing Officer noted that the expenditure incurred on
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donation as per books is ₹.738.48 lakhs, whereas, in the computation of income, it was mentioned at ₹.7,23,32,806/-. Therefore, the Assessing Officer disallowed and added back the difference of ₹.15,15,195/- to the total income of the assessee. On appeal, the ld. CIT(A) deleted the addition.
Aggrieved, the Revenue is in appeal before the Tribunal.
We have heard the rival contentions. We find that neither the Assessing Officer nor the ld. CIT(A) have examined the facts in right perspective. Accordingly, we remit the matter back to the file of the Assessing Officer to examine and decide the issue afresh in accordance with law. Thus, the ground raised by the Revenue is allowed for statistical purposes.
In the result, the appeal filed by the Revenue is partly allowed for statistical purposes. Order pronounced on 30th November, 2022 at Chennai.
Sd/- Sd/- (G. MANJUNATHA) (V. DURGA RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai, Dated, 30.11.2022
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Vm/- आदेश की �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant, 2.��थ�/ Respondent, 3. आयकर आयु� (अपील)/CIT(A), 4. आयकर आयु�/CIT, 5. िवभागीय �ितिनिध/DR & 6. गाड� फाईल/GF.