HARYANA AGRO INDUSTRIES CORPORATION,PANCHKULA vs. DCIT, PANCHKULA

PDF · subscribers
ITA 216/CHANDI/2016Status: DisposedITAT Chandigarh16 November 2018AY 2012-136 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal restored issues related to financial assistance, performance awards, and departmental charges to the Assessing Officer for verification of actual payment or incurrence of expenditure. The claim for wooden crates and poly-covers as revenue expenditure was allowed.

What were the facts?

The assessee appealed against the CIT(A)'s order sustaining additions on account of financial assistance, performance awards, departmental charges, and treating certain expenses as capital expenditure. The assessee also contested the disallowance of interest expenditure.

What were the issues?

Whether provisions for financial assistance and performance awards are allowable as expenditure, and whether certain expenses are revenue or capital in nature.

Which sections of the Income-tax Act were involved?

Section 43B,Section 36(1)(ii),Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

आदेश/Order

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against the order dated 06.01.2016 of the Commissioner of Income Tax (Appeals), Panchkula [hereinafter referred to as CIT(A)].

2.

The assessee has taken following grounds of appeal :-

1.

That on the facts and circumstances of the case the Learned CIT(Appeals) has erred in law as well as on facts by sustaining the addition of Rs. 11,17,000/- on account of Financial Assistance to the family of the deceased employee.

(ii) That the Assessing Officer as well as CIT(A) has erred in considering the Financial Assistance as Provision while the liability for the same has arisen

ITA No. Chd/2017- M/s 2

during the year, though payable in future period.

(iii) That the CIT(A) has erred in law and on facts by holding that the provisions of section 43B are applicable to Financial Assistance and allowable on payment basis. 2. That on the facts and circumstances of the case the Learned CIT(Appeals) has erred in law and facts by restricting the claim of assessee on account of Performance Award to its employees to Rs.50,00,000/-.

(ii) That the Assessing Officer as well as CIT (A) has erred in considering the Performance Award as Provision while the liability for the same has arisen during the year

(iii) That the Honble CIT (A) has erred in law and on facts by holding that the provisions of section 36 (1) (ii) and section 43-B of the Act are applicable to performance award and hence allowable on payment basis.

3.

That the Learned CIT(Appeals) has erred in law and facts in upholding the addition of Rs. 72,03,620/- on account of 1% departmental charges on purchase of Gunny Bags (Bardana), considering the same as provision.

4.

That the Learned CIT (Appeals) has erred in treating the wooden crates and poly-covers as Capital Assets and allowing the depreciation @ 10%.

5.

That Honble CIT(Appeals) has erred in law and facts to uphold the addition of Rs. 56,60,760/-under proviso to section 36 (1) (iii) of the Act , when the Corporation has sufficient amount of Interest Free Funds available for making such expenditure. That the assessee reserves the right to add, amend or delete any ground of appeal before the disposal of the appeal.

3.

Ground No.1: The assessee vide Ground No.1 has agitated the

action of the CIT(A) in sustaining the addition on account of Financial

Assistance to the family of the deceased employee . Admittedly, no such

ITA No. Chd/2017- M/s 3

type of financial liability was ascertained for the year under consideration.

The assessee has booked the liability which was payable in future.

However, the Ld. Counsel for the assessee has stated that out of the above

liability certain payments have been made during the year.

4.

After hearing the Ld. Representatives of the parties, we are of the

view, that any liability which is neither paid nor payable for the year under

consideration cannot be allowed as an expenditure. However, if any amount

has been paid during the year in respect of the above said liability, that is

to be allowed as expenditure. Hence, this issue is restored to the file of

the Assessing officer for limited purpose to verify as to whether any

amount out of the aforesaid liability booked by the assessee has been paid

during the year, that is to be allowed and out of the remaining liability, the

amount of expenditure will be allowable as and when the same become

paid or payable in the relevant assessment year.

5.

Ground No.2 : Vide ground No.2, the assessee has agitated the

action of the CIT(A) in restricting the claim of the assessee on account of

claim of expenditure in relation to payment to employees on account of

Performance Award. The Ld. Counsel has stated that the aforesaid

Performance Award is not a bonus and, hence, is not subjected to the

provisions of section 43B of the Act. He has further pointed out that even

Ld. CIT(A) has held so, however, the Ld. CIT(A) directed the Assessing

officer to verify if the aforesaid payment was made by the assessee to its

employees before the due date as provided u/s 43B of the Act. The

contention of the Ld. Counsel for the assessee has been that the Ld. CIT(A)

having held that provisions of section 434B are not applicable then there

ITA No. Chd/2017- M/s 4

was no question of adhering to the time limit of payment / due date as per

the provisions of section 43B of the Act.

6.

After hearing the Ld. Representatives of the parties, we find force in

the contention of the Ld. Counsel for the assessee. Since the liability was

booked during the year, hence, it is directed that the Assessing officer

will verify if the expenditure booked during the year had actually been

paid by the assessee either during the year or in the subsequent year and

if found so, then to allow the aforesaid claim of the assessee as an

expenditure.

7.

Ground No.3: Vide this ground, the assessee has agitated the

addition of Rs. 72,03,620/- on account of disallowance of expenditure @

1% departmental charges on purchase of Gunny bags.

The Ld. counsel for the assessee has submitted that the aforesaid

expenditure has been disallowed by the lower authorities considering the

same as a provision, whereas, the assessee had actually incurred the

aforesaid expenditure during the year. He, in this respect has moved an

application for admission of additional evidence to prove the above fact of

incurring of expenditure during the year. In view of the above submission

of the Ld. counsel of the assessee, the issue is restored to the file of the

Assessing officer to verify if the aforesaid expenditure had actually been

incurred during the year, and if found so, then to allow the claim of the

same to the assessee.

ITA No. Chd/2017- M/s 5

8.

Ground No.4: Vide ground No.4, the assessee has agitated the

treatment of expenditure incurred on wooden crates and poly-covers as

capital expenditure as against the claim of the assessee as Revenue

expenditure.

9.

We find force in the contention of the Ld. Counsel for the assessee

that the wooden crates and poly-covers are perishable things which have

short life and are not of enduring benefit to the assessee. Even the

assessee has claimed only 25% of the said expenditure during the year and

has been spread over the remaining of 75% into four years claiming 25%

during each of the year.

Considering the above facts, we don’t find any justification on the

part of the lower authorities to treat it as a long term capital expenditure of

enduring benefit. This ground of the appeal of the assessee is hereby

allowed .

10.

Ground No.5 : Vide ground No. 5, the assessee has agitated the

disallowance of interest expenditure u/s 36(i)(iii) of the Act. The Ld.

Counsel for the assessee has submitted that though the loan in question was

taken for specific purpose to construct the Godowns, however, the loan

amount was used during the year and the assets were put to use i.e.

godowns were made functional. The Ld. counsel for the assessee has

further submitted that though the assessee had constructed certain other

Godowns, some of which were under construction during the year also,

however, the expenditure in relation to those other Godowns was borne by

the assessee out of his own surplus funds. So far as the loan taken by the

assessee for construction of the Godowns was concerned, that was for

ITA No. Chd/2017- M/s 6

specific Godowns and those Godowns (assets) were put to use during the year. That since from the date from which the assets were put to use, the assessee was entitled to claim of interest expenditure. In view of the above contentions, the issue is restored to the file of the Assessing officer

to verify the same after examining the facts and by giving opportunity to the counsel of the assessee to present his case and then decide this issue afresh. In view of above discussion, the appeal of the assessee is treated as partly allowed.

Order pronounced in the Open Court.

Sd/- Sd/- (अ�नपूणा� गु�ता / ANNAPURNA GUPTA) (संजय गग� / SANJAY GARG) लेखा सद�य/ Accountant Member �या�यक सद�य/ Judicial Member Dated : 16.11. 2018 “आर.के.”

आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar

More judgments on Section 43B

All 7,161 judgments and leading authorities on Section 43B →

Recent GST High Court judgments

Search GST case law →