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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: HON’BLE SHRI S. S. GODARA & SHRI G. D. PADMAHSHALI
द्वधरध/ Appearances Assessee by : Mr Kapil Hirani [‘Ld. AR’] Revenue by : Mr Abhay Marathe [‘Ld. DR’] सुनवाई की तारीख / Date of conclusive Hearing : 26/03/2024 घोषणा की तारीख / Date of Pronouncement : 16/04/2024 आदेश/ ORDER PER G. D. PADMAHSHALI, AM; This appeal challenges DIN & order No. ITBA/NFAC/S/250/2022- 23/1048738417(1) dt. 16/01/2023 passed u/s 250 of the Income-tax Act, 1961 [‘the Act’ hereinafter] by the National Faceless Appellate Centre [‘NFAC’ hereinafter] for assessment year 2014-15 [‘AY’ hereinafter].
Briefly stated facts of the case are that; 2.1 the assessee company is engaged in the trading business of Two-wheelers which filed its return of income for AY 2014-15 declaring total income of R ₹3,54,860/-. The case of the assessee was subject to scrutiny wherein the ITAT-Nagpur Page 1 of 5
M/s Shivshakti Vehicle Agency Pvt Ltd. Vs ACIT. AY: 2014-15 assessment was framed u/s 143(3) of the Act by making three bullet additions owning various disallowances viz; (1) disallowance of ₹1,40,291/- being 25% of incentives paid to sales staff where related vouchers lacked key details of incentives paid (2) disallowance owning to delayed remittance of ESIC contribution ₹24,118/- made on the basis of Tax Audit Report [‘TAR’ hereinafter] and (3) disallowance of interest on delayed payment of TDS etc.
2.2 Aggrieved assessee carried the matter in appeal before first appellate authority u/s 246A(1)(a) of the Act, wherein Ld. NFAC allowed the assessee’s appeal partly, however confirmed the first two disallowance on equi-reasons.
2.3 Further aggrieved assessee came in present appeal with two substantive grounds as laid in appeal memo; ‘1) On the facts and circumstances of the case and in law, the AO grossly erred in making and the CIT(A) grossly erred in confirming addition of Rs.1,40,291/- being 25% of expenses incurred on incentives paid to sales staff on mere assumptions, ignoring the fact that the books of accounts of the Appellant are duly audited and that the expenditure were incurred wholly and exclusively for the business of the appellant. The expenditure thus deserves to have been allowed in toto as claimed and the additions so made and confirmed to be deleted in the interest of natural justice.
2) On the facts and circumstances of the case and in law, the AO grossly erred in making and the CIT(A) grossly erred in confirming addition of Rs. 24,118/- on account of late deposit of amounts pertaining to Employee's contribution to Provident Fund (Rs. 21,960/-) and Employee's contribution to ESIC (Rs. 2158/-) despite the said amounts having been paid by the Appellant before the due date of filing the return of income. The amounts having been paid before the due date of filing the return of income, ought to be allowed as per law and the addition so made deserves to be deleted as per law.
During the course of virtual hearing, the Ld. AR at the outset sought our attention to ground related to disallowance of ESIC and submitted candidly that, in view of the settled position of law laid in ‘Checkmate Services Pvt. Ltd. Vs CIT’ ITAT-Nagpur Page 2 of 5
M/s Shivshakti Vehicle Agency Pvt Ltd. Vs ACIT. AY: 2014-15 reported in 143 taxmann.com 178 (SC) the issue of disallowance is no-more res- integra, hence prayed to be decided accordingly. Insofar as the ad-hoc disallowance of sales incentive is concerned, it is averred that, the assessee maintained all requisite vouchers, books & other supporting details in terms of section 44AA of the Act and are certified by the auditor under Companies Act, 1956 as well u/s 44AB of the Act, that these expenditures are incurred wholly and exclusively for achieving sales target and are paid to sales staff/executives over and above their salaries. Such expenses being neither personal nor capital hence are allowable in its entirety u/s 37(1) of the Act without calling for disallowance. Per contra, the Ld. DR strongly relied on the orders of tax authorities below.
We have heard the rival contentions, subject to rule 18 of ITAT-Rules 1963 perused the material placed on record and considered the facts of the case in the light of settled legal position which are forewarned to rival parties.
We shall first deal with ground number 2 relating to disallowance of ESIC contribution. It an admitted fact that due ESIC contribution is remitted beyond the due date prescribed under the relevant law. As rightly submitted by the Ld. AR that, this issue of disallowance has been settled by the Hon’ble Apex Court in ‘Checkmate Services’ (supra) wherein their Hon’ble Lordship have held that the due date for depositing/remittance of PF/ESIC contribution etc., shall be governed by the respective PF/ESIC Act and assessee shall not be eligible for deduction if such contribution to respective fund is remitted beyond the due date prescribed therein. Consequently such delayed remittance shall not be eligible to shelter under the extended period as prescribed by section 43B of the Act. In ITAT-Nagpur Page 3 of 5
M/s Shivshakti Vehicle Agency Pvt Ltd. Vs ACIT. AY: 2014-15 view thereof, the disallowance towards delayed remittance of ESIC made in the assessment and confirmed in appellate proceedings stands errorless. The ground raised challenging the disallowance thus stands meritless, hence dismissed.
Now we shall deal with ground number 1 relating to ad-hoc disallowances; 6.1 On careful consideration of records it transpired that, neither of the lower tax authorities had pin-pointed any voucher where genuineness of sale incentive/expenditure claimed to have been incurred by the assessee wholly and exclusively for the purpose of its business did not inspire any confidence, nor it was the case of the revenue that any part of the expenditure in question was either found bogus or fictitious, nor was found to have not been incurred by the appellant wholly and exclusively for the purpose of its business. Indeed, it showcased an exercise of running around the circle. Further we neither could come across any provision in Income Tax Statute nor it has been brought to our notice by either parties any provision which subscribes vis-à-vis empower the tax authorities to arrive at this logic of subscribing ad-hoc disallowances.
6.2 Evidently, there have been no clear findings as to number of vouchers requiring denial of allowances with the amount of expenditure and nature of defects therein or therewith. If the Ld. AO had any doubt with regard to the genuinity of any one of the vouchers produced he could have drawn sample vouchers and called upon the assessee to establish its genuineness. Moreover department could not bring out any deprecative material on record to substantiate its conclusion as logical. We couldn’t even remotely see there is any mention of rationale in arriving at the percentile of disallowance in the present case. For the ITAT-Nagpur Page 4 of 5
M/s Shivshakti Vehicle Agency Pvt Ltd. Vs ACIT. AY: 2014-15 reasons we find force in the claim of the assessee that, devoid of any specific infirmity in the claim for deduction for sales incentives debited to profit & loss account, the ad-hoc disallowance is arbitrary and could by no means be held to be justified in given situation where books of accounts are subjected to audits.
6.3 The aforesaid view finds fortified in the judgment of the Hon'ble High Court of Madras in ‘V.C. Arunai Vadivelan Vs ACIT’ (TCA No 612 of 2019 dt 05/02/2021), wherein their Hon’ble lordships vide para 7 have held as; ‘7. Given the nature of the industry in which the assessee operates, we can take judicial notice of the fact that, computer generated vouchers may not always be issued unless they are large organization. And If the Assessing Officer had any doubt with regard to the genuinity of any one of the vouchers produced he could have drawn sample vouchers and called upon the assessee to establish its genuineness. Without doing so, making an adhoc disallowance by not specifically assigning any reason to a voucher or bunch of vouchers is not legally tenable.’ (Emphasis supplied)
6.4 Considering the entire conspectus of the issue, respectfully applying the former ratio in the absence of clear finding about non-genuineness or fictitiousness of portion of expenditure disallowed, we find no favour with the arbitrary view of the tax authorities below. For the reason we vacate the ad-hoc disallowance in its entirety and thereby allow this ground number 2.
In the result, the appeal of the assessee stands partly allowed. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Tuesday, 16th day of April, 2024.
-S/d- -S/d- S. S. GODARA G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / PUNE ; ददनाांक / Dated : 16th day of April, 2024. आदेशकीप्रनिनलनपअग्रेनषि / Copy of the Order forwarded to : 1.अपीलाथी / The Appellant. 2. प्रत्यथी / The Respondent. 3. The Pr.CIT Concerned. 4. The NFAC Delhi 5. DR, ITAT, Nagpur Bench, Nagpur 6.गार्डफ़ाइल / Guard File. आदेशानुसार / By Order वररष्ठ दनजी सदिव / Sr. Private Secretary आयकर अपीलीय न्यायादधकरण, पुणे / ITAT, Pune.
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