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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’, NEW DELHI
Before: SHRI BHAVNESH SAINI & SHRI O.P. KANT
PER O.P. KANT, AM:
This appeal by the assessee is directed against order dated 21/09/2010 passed by the learned Commissioner of Income-tax (Appeals)-VIII, New Delhi, for assessment year 1996-97, raising following grounds:
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That the order dt. 21.09.2010 passed by CIT(A)-VIII [received on 24.09.2010) u/s 143(3)/254 of the IT Act, 1961 is bad in law and void ab initio 2. That the CIT(A)-VIII erred in law and on facts in upholding the disallowance of Rs.3,35,54,270/- for which a liability was created in the books of accounts on account of Productivity Link Incentive payable to employees calculated on the basis of the formula designed by the Productivity Council. 3. Without prejudice, the Id. CIT[A) erred in directing that the deduction of PLI, for which a provision was created during the year under reference, will be allowable on payment basis in the year of actual payment/withdrawal, despite the fact that the appellant is following mercantile system of accounting and deduction of expense is admissible even on accrual basis. 4. That the appellant craves leave to add, delete, alter, amend, modify or substitute any ground of appeal before the disposal thereof.
In the grounds raised, the assessee has challenged issue of disallowance of Productivity Linked Incentive (PLI) amounting to Rs. 3,35,54,270/-. 2.1 Briefly stated facts of the case are that in the first round of proceedings, the Tribunal vide order dated 08/07/2005 in ITA No. 378/del/2003, restored the issue for claim of deduction of incentive bonus of Rs.3,35,54,270/- to the file of the Assessing Officer for deciding afresh in the light of additional evidences filed by the assessee. The relevant finding of the Tribunal (supra) is reproduced as under:
“10. Ground no. 4 is that the CIT(A) erred in not allowing the claim for deduction of the incentive bonus of Rs. 3,356,54,370/-. Alternatively, it is claimed that the CIT(A) ought to have directed that the actual payment may be allowed in the next year and the
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remaining amount is not doubly taxed having been surrendered by the assessee for tax purposes. It is not in dispute that the amount represents only a provision for the production incentive bonus. The AO invoked S. 43B to make the disallowance. The CIT(A), however, agreed that S. 43B is not applicable, but says that the liability has not been crystallized in the year of account. The Ld. Representative for the assessee has filed the scheme, namely, a letter dated 19.05.96 and certain additional papers and has sought the permission under Rule 29 of the ITAT Rules for admission thereof as additional evidence.
A perusal of these papers shows that in the earlier years, the scheme was called the productivity linked incentive and they were being allowed as a deduction in the assessments made up to the AY 1994-95. The incentive scheme relates to the services rendered during the relevant year of account and as soon as the competent authority issues direction fixing the payments of the productivity linked incentive bonus, a provision is made in the books of account, claiming deduction. In the light of these facts, which we admit as additional evidence under Rule 29 of the ITAT Rules, it seems to us that the matter should receive a fresh consideration in the hands of the AO. The assessee is a public sector undertaking and, therefore, the genuineness and the authenticity of the papers filed before us cannot be called into question. In the interest of justice, therefore, we set aside the orders of the departmental authorities on this point and restore the matter to the file of the AO who shall examine the issue afresh in the light of the additional evidence and take a fresh decision regarding allowability of the bonus in accordance of the law. The assessee shall be given adequate opportunity of substantiating its claim. We direct accordingly.”
2.2 In compliance to the direction of the Tribunal, the Assessing Officer considered the additional evidences and other documents filed by the assessee, however, did not accept due to the reasons that liability was in the nature of the bonus, a claim which has to be allowed, if actually paid during the year u/s 43B of the Act. He also held that provision for PLI had not crystallized during the year under consideration.
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2.3 On further appeal, the learned CIT(A) agreed with the contention of the assessee that expenditure on account of Productivity Linked Incentive (PLI) does not fall under section 43B of the Act, but did not agree that it was an ascertained liability. He observed that sum of Rs.1,94,55,169/- has been written back by the assessee in the period corresponding to subsequent assessment year and, therefore, it was not ascertained liability and he rejected the claim of deduction of Rs.1,94,55,169/-. Regarding balance of ₹ 1.41 crores, the learned CIT(A) asked the assessee to furnish complete details of list of executive and staff members in relation to whom the provision was created in detail of payment actually made by the assessee to such executive and staff members. However, the assessee failed to furnish the required information before the learned CIT(A). He has also recorded that no such details were even filed before the Tribunal in first round of the proceedings. In absence of requisite details, he upheld the disallowance of balance amount of ₹ 1.41 Crores. The finding of the Ld. CIT(A) on the issue of disallowance is reproduced as under:
“5.1 On a careful consideration, I find that the expenditure on account of productivity linked incentive does not fall within the meaning of bonus and, therefore, no disallowance u/s 43B of the IT Act, 1961 is called for in the case of the appellant company. However as regards admissibility of the claim in the year under consideration, I do not find myself in agreement with the claim of the appellant company that the entire claim of Rs 33554270 was an ascertained liability for the AY under consideration. A perusal of assessment records for the AYs 97-98 and 98-99 clearly reveals that a sum of Rs 19455169 was written back by the appellant company
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during the FY 97-98 and was offered to tax for the AY 98-99. In view of the aforesaid, I do not agree with the claim of the appellant company that the entire claim of Rs 33554270 was an ascertained liability payable by the appellant for the AY under consideration. 5.2 As regards balance of Rs 1.41crores, the appellant company claims that this payment was made before 31-3-97 and was therefore not disallowable. In this regard, the appellant company has relied upon the balance sheets for the FYs 96-97 and 97-98 and claimed that no liability on account of the claim of Rs 1.41crores was outstanding as on 31-3-97 and 31-3-98. However, the appellant company has not furnished before me the complete list of executives and staff members in relation to whom the provision of Rs 33554270 was created during the FY 95-96 and the details of payments actually made by the appellant company to such executives and staff members during the FYs 95-96 and 96- 97. Even before the Hon’ble ITAT, no such details were made available by the appellant company. Therefore, in the absence of requisite details/evidence, I am unable to accept the claim of the appellant company with respect to the balance amount also. Accordingly, the disallowance of Rs 33554270 is being sustained.”
The learned counsel of the assessee filed a paper-book containing pages 1 to 135 and submitted that in view of the additional evidences filed, the Tribunal in first round of the proceeding restored the matter to the Assessing Officer, but the Assessing Officer has not examined the evidence filed in the right perspective. He submitted that in subsequent assessment year, i.e., 1997-98, the provision written back of ₹ 1,94,55,169/- by the assessee has been accepted by the Assessing Officer. He submitted that payment of ₹ 1,44,87,273/- paid as Productivity Linked Incentive bonus (PLI) in November, 1997 before filing of return of income was also accepted and allowed by the assessee is deduction on the basis of a certificate of the head of the accounts department of the assessee company. In support of the claim, the learned counsel of the assessee relied on the decision
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dated 20/05/2011 of the Hon’ble Delhi High Court in the case of Commissioner of CIT Vs M/s. S.T. Micro Electronics Private Limited in ITA No. 928/2010. The assessee also relied on the decision of the Tribunal in the case of PEC Ltd in ITA No. 3910/Del/2010 for assessment year 2007-08. 4. The Ld. DR, on the other hand, relied on the order of the lower authorities and submitted that the part of the provisions was already written back by the assessee, which shows that liability was not ascertained and further no proof has been submitted before the learned CIT(A) regarding payment of the balance liability. He further submitted that the learned CIT(A) has already directed the Assessing Officer for not to add back written back of the liability of ₹ 1,94,55,169/- in the subsequent assessment year, i.e., 1997-98 in view of the addition sustained in the current assessment year. Further, he has also directed the Assessing Officer to allow the deduction in the year of the actual payment. The Ld. DR has submitted that findings of the learned CIT(A) on the issue in dispute are justified. 5. We have heard the rival submission and perused the relevant material on record. We find that the provision of liability of production linked incentive of ₹ 3,35,54,270/- has been created in financial year 1995-96, i.e., period corresponding to the assessment year under consideration on the basis of the recommendation of the management. A copy of such recommendation is available on page 117 of the paper book, relevant part of which is reproduced as under:
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The Ld. counsel of the assessee has relied on the decision in the case of M/s. S.T. Micro Electronics Private Limited (supra), wherein the Hon’ble Delhi High Court has held as under: “10. With regard to the disallowance of Rs.76.23,754/- on account of provision of MBO incentive, the CIT(A) noted that the assessee followed mercantile system of accounting. In such system if a liability has arisen or accrued during the accounting period, even though paid subsequently, it would constitute an allowable expenditure. The assessee was following this system consistently in the past. In the case of Bharat Earth Movers Ltd. Vs. CIT, 2000(112) Taxman 61, it was held that in case of provision made for payment of leave encashment, if a scientific method of valuation has been followed for calculation of the liability, the same would be allowable expenditure. In the present case, since the assessee has been making a provision for this liability in the past and the liability stood proved and crystallized during the previous year itself and there being insignificant difference between provision made and actual payments made in the preceding years, the method adopted by the assessee could be said to be scientific one. The business liability having definitely arisen in the accounting year, the deduction can be allowed both for the liability quantified and discharged on a future date and the provision made permitting such liability incurred would be deductable expenditure. We do not see any infirmity in this finding recorded by the both appellate authorities.” 7. In this decision the liability created has been held as ascertained in view of the insignificant difference between provision made and the actual payment made. But in the instant case before us, out of the provision of liability of ₹ 3,35,54,270/- created by the assessee, the amount of ₹ 1,94,55,169/- has been written back, which is more than 50% of the provision and cannot be treated as insignificant, and thus, the ratio of the decision cannot be applied in the case of the assessee. In the case of PEC Ltd (supra) also, the provision created for productivity link reward (PLR) scheme was allowed and held as ascertained liability, but in the instant case the provision created is not ascertained liability in view of the decision of the Hon’ble Delhi High Court in the case
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of M/s. S.T. Micro Electronics Private Limited (supra). Regarding the amount of Rs. 1.41 Crores, which has been claimed by the assessee, as paid in the subsequent assessment year, we agree with the contention of the learned DR that the assessee failed to file requisite details/evidences regarding the list of executive and staff members in relation to whom the provision was created and also failed to provide details of actual payment to those persons during financial year 1995-96 and financial year 1996-97. Further, the learned CIT(A) directed the Assessing Officer not to add the writing back of any part of the provision in subsequent assessment years and also directed to allow the provision in the year of actual payment. In view of the detailed reasoning given by the learned CIT(A) for sustaining the disallowance in the year under consideration, we do not find any error in the order of the learned CIT(A) on the issue in dispute and accordingly, we uphold the same. The grounds of appeal of the assessee are accordingly dismissed. 8. In the result, appeal of the assessee is dismissed. Order is pronounced in the open court on 15th November, 2019.
Sd/- Sd/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 15th November, 2019. RK/-(D.T.D.) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR
Asst. Registrar, ITAT, New Delhi