ACIT, CHENNAI vs. V.S.L.INDIA PRIVATE LIMITED, CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

The appeals filed by the assessee are directed against common orders of the Commissioner of Income-tax (Appeals)-VI,

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Chennai in ITA Nos 67, 65 & 66/11-12, Dated 28.03.2013 for the

assessment years 2006-07, 2007-08 & 2008-2009, passed u/s. 143(3)

and 250 of the Income Tax Act, 1961 (herein after referred to as ‘the

Act’). The issues in these three appeals are common in nature,

hence these appeals are combined, heard together, and disposed off

by this common order for the sake of convenience.

We take up appeal of assessment year 2006-2007 for 2.

adjudication. The assessee company is in the business of Civil

contract works and engineering works and Return of income was filed

on 27.11.2006 with total loss of �76,15,506/- and the return was

processed u/s.143(1) of the Act on 26.03.2008. Subsequently, the

case was selected for scrutiny under CASS and notice u/s.143(2) was

issued. In compliance to the notice the ld. Authorised Representative

appeared from time to time and produced books of accounts for

verification. In the assessment proceedings, the Assessing Officer had

made disallowance and the same is dealt as under. On perusal of

Financial statements the assessee has provided information on

management fees, design fees and royalty fees payable to Non

residents and no TDS was deducted. But the ld. Assessing Officer by

applying provisions of Sec.40(a) added to the returned income. The

Assessing Officer dealt on the issue of deduction of TDS on

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reimbursement on cost of insurance and bank guarantee. The

assessee has incurred �82,17,897/- as Insurance premium payable to

VSL Switzerland during the current year and claimed as deduction and

it was submitted that in cases of reimbursement of expenses, the

provisions of Sec.40(a) of the Act are not applicable and in assessee’s

own case for the assessment year 2004-05 was allowed by

Commissioner of Income Tax (Appeals) vide ITA No290/07-08, dated

06.03.2008. But ld. Assessing Officer by applying the decision of

Ashok Leyland Ltd, the Co-ordinate Bench of the Tribunal in ITA

No.1615/Mds/2006, Dated 3.1.2008 held that reimbursement of

expenses come within purview of Sec.195 of the Act and TDS is

required to be deducted on expenditure and made an addition of

�82,17,897/-. Similarly, the assessee claimed expenditure of

�11,33,565/- as Bank guarantee commission payable to Non Resident

Company M/s. VSL international Ltd and no TDS was deducted and

payment was towards reimbursement of expenses. The ld. Assessing

Officer based on decision of Ashok Leyland Ltd (supra) made an

addition. Aggrieved by the additions of the Assessing Officer, the

assessee filed an appeal before the Commissioner of Income Tax

(Appeals).

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2.1 The Commissioner of Income Tax (Appeals) in his order at

para No.4 gave direction to the Assessing Officer to allow the

payments claimed in respect of management fees, design fees and

royalty fees to VSL, Singapore where TDS paid in subsequent years.

On the issue of reimbursement of cost of insurance and bank

guarantee expenses, the company has contested the issue as it takes

the characteristic of reimbursement of cost by M/s.VSL India Ltd to

parent company and there is no element of profit or income which

attracts the provisions of TDS u/s.40(a)(i) of the Act. The ld.

Commissioner of Income Tax (Appeals) deleted the addition.

Aggrieved by the deletion, the Revenue assailed an appeal before the

Tribunal.

2.2. Before us the ld. Departmental Representative argued that

Commissioner of Income Tax (Appeals) has erred in deleting the

disallowance made u/s.40(a)(i) of the Act on reimbursement on cost of

insurance and bank guarantee and further alleged that TDS needs to

be deducted when payments made to Non Resident and also relied on

decision of Co-ordinate Bench.

2.3 The ld. Authorised Representative contra to the submissions

of the ld. Departmental Representative argued that this is pure case

of reimbursement of expenses incurred on behalf of the company by

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parent company and was reimbursed on the basis of principle to

principle and there is no profit or income included for the application.

2.4 We after hearing the submissions of both the parties are of

the opinion that similar issue on re-imbursement of expenses was dealt

by the Co-ordinate Bench of Tribunal in assessee’s own case in ITA

No.1185/Mds/2008, Dated 24.06.2009 for the assessment year 2004-

05 and allowed in favour of the assessee. Respectfully following the

above decision, we upheld the order of Commissioner of Income Tax

(Appeals) on this ground.

The second ground raised by the Revenue is that 3.

Commissioner of Income Tax (Appeals) erred in allowing Professional

Tax of �51,059/- as deduction. The assessee company submitted that

Professional Tax paid is allowable as deduction vide Circular No.16

and 18/1969. But the ld. Authorised Representative could not

substantiate payments with any evidence whether expenditure is

incurred for the business and therefore, the Assessing Officer

disallowed the claim.

3.1 In the appellate proceedings, the Commissioner of Income

Tax (Appeals) has allowed the ground based on the applicability of

circular and considered that such professional tax is not personal and

directed the Assessing Officer to delete the addition.

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3.2 Before the Tribunal, the ld. Departmental Representative

has contested that the Commissioner of Income Tax (Appeals) has

erred in directing the Assessing Officer to delete the addition inspite of

assessee has not produced any documentary evidence and not

explained the nature of expenditure.

3.3. Contra, the ld. Authorised Representative submitted that

professional tax is pertaining to employee is deducted and paid to the

Government. Hence it is wholly and exclusively incurred for the

purpose of business and Commissioner of Income Tax (Appeals) has

rightly allowed the deduction.

3.4 We are of the opinion that the ld. Authorised Representative

substantively argued that Professional Tax paid pertains to employees

but there is no supporting evidence filed before lower authorities or

before us. Considering the facts we are of the opinion that the matter

has to be verified by the Assessing Officer subject to assessee

producing required documents and proof in hearing proceedings and

we remit the issue back to the file of the Assessing Officer for

adjudication.

interest paid on delayed payments of sales tax and service tax. In

hearing proceedings, the ld. Authorised Representative submitted that

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�18,51,471/- was wrongly added back and that should be allowed in

view of Supreme Court decision in the case of M/s.Swadeshi Cotton

Mills Company Ltd vs. CIT 223 ITR 1989 and M/s. Malwa Vanaspathi

and Chemical Company vs. CIT 225 ITR 383 as interest payment takes

the character of compensatory nature and be allowed. The ld.

Assessing Officer found that no evidence was produced and the

interest is penal in nature not compensatory considering the collection

of tax from clients and defaulted on payment of taxes to Government

not within the specified time is violation and made an addition.

4.1 The ld.CIT(A) based on the decisions relied by the assessee

in the assessment proceedings and submissions considered that

interest paid on delayed payment of taxes is not penal in nature but

only compensatory for the default of the assessee in not remitting the

taxes collected in time and directed the Assessing Officer to delete the

addition.

4.2 Before the Tribunal, the ld. Departmental Representative

has raised ground that the ld.CIT(A) has erred in deleting the interest

disallowance as compensatory in nature and also no opportunity was

provided to the Assessing Officer to verify the payments and argued

further that there is violation of Rule 46A of Income Tax Rules.

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4.3 On the other hand, the ld.AR reiterated it is as

compensatory in nature and relied on Commissioner of Income Tax

(Appeals) order.

4.4 We heard both the parties and perused the material on

record. We are of the opinion that Assessing Officer was not provided

with opportunity for verification of details filed before Commissioner of

Income Tax (Appeals) wherther the payments are of compensatory in

nature. Considering the circumstances, of violation of Rule 46A of

Income Tax Rules, we set aside this ground to the file of the Assessing

Officer for examination and assessee should produce details of sales

tax and service tax payments with proofs before Assessing Officer

passing the order on merits.

to CIT(A) erred in deleting the disallowance of Deprecation and finance

charges of Managing Director’s Vehicle. The company has filed fixed

asset schedule and vehicles stood in the name of Managing Director

and was utilized for the purpose of business. In the assessment

proceedings, the Assessing Officer called for explanation how vehicles

are in the name of Managing Director and same cannot be part of the

asset of the company though shown in the fixed asset schedule. The

assessee company is maintaining the vehicle and claiming finance

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charges and deprecation on the vehicles. The ld. Authorised

Representative submitted that Commissioner of Income Tax (Appeals)

in assesees own case for the assessment year 2004-05 has deleted the

addition. But the Assessing Officer on the ground that the assessee

company is not the legal owner of the vehicle and transfer was not

been effected and disallowed finance charges and deprecation of

�1,00,198/-

5.1 The ld. Commissioner of Income Tax (Appeals) based on the

right of the ownership of the vehicles reflected in the fixed asset

schedule of the company and the vehicles are used for the purpose of

business and maintenance expenditure was debited in the books of

accounts of the appellant company and further relied on the decision

of Mysore Minerals Ltd 239 ITR 175(SC) and Poddar Cements (1997)

227 ITR 625(SC) and allowed the claim.

5.2 Before the Tribunal, the ld. Departmental Representative

agitated his grounds on usage of vehicle though the vehicle is the

name of Managing Director, and reflected in Fixed Assets schedule,

the assessee is not a legal owner of the asset and no compliance of

necessary conditions for claiming depreciation u/s.32 of the Act.

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5.3 On the other hand, the ld. Authorised Representative relied

on the findings of the Commissioner of Income Tax (Appeals) and

submitted that vehicles are used exclusively for the purpose of

business and falls within commercial expediency.

5.4 We heard the submissions of both the parties. The assessee

company claimed deprecation and fiancés charges on vehicle used for

Business, though it was registered in the name of the Managing

Director. Similar issue was dealt in assessee’s own case in ITA

No.1185/Mds/2008, dated 24.06.2009 for assessment year 2004-05.

But before us no information was filed whether the same vehicle Block

was carried forwarded from earlier year or new vehicles was purchased

in financial year 2005-06. In the absence of information, we are of the

opinion that issue should be examined and we following the decision of

Jurisdictional High Court M/s. TamilNadu Diary Development

Corporation Ltd vs. CIT 239 ITR 142 remit the issue in dispute to the

file of Assessing Officer for verification.

Commissioner of Income Tax (Appeals) erred in deleting the

disallowance made towards provision of gratuity of �4,54,497/-

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6.1 The assessee made a provision for gratuity of �4,54,497/- in

the hearing proceedings, the ld. Authorised Representative submitted

that it is an actual payment and not a provision and the Assessing

Officer called for the details of name and address to whom the

gratuity is paid. In reply the assessee submitted that said amount was

paid by cheque. The assessee was asked to submit proof that Group

Gratuity scheme was recognized but ld.AR relied on the Sec.36(1)(v)

of the Act were contribution towards approved Gratuity Fund is

allowed. Considering the facts, the assessee company has not created

any trust for Gratuity , the Assessing Officer disallowed the amount.

6.2 The Commissioner of Income Tax (Appeals) considered the

residual deduction u/s.37(1) of the Act and allowed the deduction.

Considering that the payment made for the welfare of employees

though not contributed to any approved Gratuity Fund. Since gratuity

payment is actual, the ld. Commissioner of Income Tax (Appeals)

directed the Assessing Officer to delete the addition.

6.3 Before, the Tribunal the ld.DR argued that the Commissioner

of Income Tax (Appeals) erred in deleting the disallowance made

towards provision of Gratuity treating it as actual payment to the

employees but not contribution to approved Gratuity Fund.

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6.4 On the other hand, the ld. Authorised Representative

submitted that as actual payment made to the employees by Cheque

and details are available. Though the fund are not approved, such

expenditure is not of personal nature and to be allowed as deduction.

6.5 We are of the opinion that the Gratuity payment has to be

considered on actual payment the ld. Authorised Representative

emphasized that it is an actual payment but the Assessing Officer has

not verified due to non availability of information. We therefore remit

the issue back to the file of the Assessing Officer for verification and

allow the deduction on actual payment basis.

No.1701/Mds/2013 is partly allowed for statistical purpose.

2008 for adjudication:- The assessee filed return of income on

30.10.2007 admitting loss of �21,86,87,962/- and the return was

selected for scrutiny under CASS and notice u/s.143(2) was issued on

12.09.2008. In response to the notice, the ld. Authorised

Representative appeared from time to time and produced books of

accounts for verification and examination. The Assessing Officer upon

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verification made disallowance to the returned income with other

disallowances.

8.1 The first ground raised by the Revenue that the

Commissioner of Income Tax (Appeals) erred in deleting the

disallowance made towards foreseeable loss of �18,49,199/-.

8.2 The ld. Assessing Officer on perusal of balance sheet and

profit and loss account of the assessee company found that the

assessee has claimed foreseeable loss of �18,49,199/- and assessee’s

Authorised Representative submitted that company is following

accounting standard 7 for Accounting on construction contract and as

per Accounting standard each project is evaluated and probable

expected losses has to be provided in the books of accounts in respect

of incomplete contracts. Similarly applying guideline and Accounting

standards the assessee company has shown �18,49,199/- as

foreseeable loss. The Authorised Representative relied on decision of

Mumbai Bench of the Tribunal in the case of Jacobs Eng. India Pvt. Vs.

ACIT (AIT 2009-285-ITAT) which allowed foreseeable loss. The

Assessing Officer is of the opinion that foreseeable loss determined in

respect of incomplete contract as per the accounting standard 7 is

conclusively a provision and same cannot be allowed. Further, the

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decision of Mumabi Bench, has not reached finality and

distinguishable and made an addition.

8.3 In the appellate proceedings, the Commissioner of Income

Tax (Appeals) relied on the submission and decision of Metal Box Co.

India Ltd (73 ITR 83) (SC) and Mazagon Dock Ltd (29 SOT 356)

Mumbai which has considered the case of Jacob Engineering India (P)

Ltd (supra) the method of arriving the deduction was based upon a

bonafide method with the consequence of effecting the profit of

subsequent years. In assessee’s case foreseeable loss has been arrived

after evaluating the work in progress which will reduce automatically

in subsequent years. With the findings, the Commissioner of Income

Tax (Appeals) has directed the Assessing Officer to delete the

disallowance.

8.4 Before the Tribunal, the ld. Departmental Representative

reiterated his submissions on the ground that Commissioner of Income

Tax (Appeals) erred in deleting the deduction of foreseeable loss

without considering uncompleted works contract and the assessee

deferred income by claiming notional loss. The ld. Departmental

Representative has substantiated his arguments and relied on the

decision of Co-Ordinate Bench of the Tribunal in the case of EDAC

Engineering Ltd. vs. DCIT (Chennai) 141 ITD 231 and Shivshahi

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Punarvsan Prakalp Ltd. Vs. ITO (Mumbai) 135 ITD 51 and vehemently

argued that only actual expenditure has to be allowed but not the

provisions under Accounting standard 7.

8.5 Contra, the ld. Authorised Representative has substantiated

his arguments with the submission on disallowance by giving details of

working of the project of the company alongwith work status and also

foreseeable losses and relied on the decisions of CIT vs. Triveni

Engineering Industries Ltd.: 336 ITR 374 and CIT vs Bilahari

Investments P. Ltd. [2008] 299 ITR 1 (SC).

8.6 We have heard the rival submissions of both the parties

and perused the material on record and also judicial decisions cited.

The assessee has claimed foreseeable loss of �18,49,199/- based on

Accounting Standard 7 applicable to construction contracts and

evaluated projects and calculated expected loss provided in the books

of Accounts for uncompleted projects. The question arises whether the

claim is ascertained liability if so, such liability is determined due to

terms of contract or law and claimed in the books of Accounts and if it

is a contingent liability such liability shall depend entirely on the

outcome of completion of projects in future and also whether such

claim was offered as income in subsequent assessment years. In our

opinion, If it is ascertained liability, the following conditions shall be

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fulfilled. The contract work shall have been completed. The assessee

shall have received bill for completed work for payment. The assessee

must have accepted the bill for payment. The assessee shall have

provided for payments in the books of accounts. The assessee shall

have deducted TDS and paid the TDS to the Government account. For

these reasons we are of the opinion that the issue in dispute needs to

be examined and verified in accordance with the terms of contract and

conditions laid down as above. We therefore, remit the issue for

limited purposes to the file of the Assessing Officer and pass the order

after giving adequate opportunity of being heard to the assessee. This

ground of the Department is partly allowed for statistical purpose.

of Income Tax (Appeals) erred in deleting the disallowance on

deprecation on intangible assets.

9.1 The assessee company claimed deprecation on intangible

assets @60% as against 25% and Assessing Officer disallowed the

excess claim.

9.2 The ld. Commissioner of Income Tax (Appeals) considering

the grounds, the intangible assets consists of software rights and is

part of computer and required for utilization of computer and

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deprecation is allowable @60% and accordingly, allowed the assessee

claim.

9.3 Before the Tribunal, the ld. Departmental Representative

submitted that the Commissioner of Income Tax (Appeals) erred in

allowing deprecation @60% on software rights and such software

rights are eligible for deprecation @25% only.

9.4 On the other hand, the ld. Authorised Representative argued

that software is integral part of computer and therefore higher

deduction is allowable.

9.5 We after considering the usage and rely on the decision of

Tribunal of Delhi Bench in the case of Sony India (P) Ltd vs. Addl. CIT

56 DTR 156 where it was held that license for use of computer

software is eligible for deprecation @25% only. Hence, we set aside

the order of the Commissioner of Income Tax (Appeals) on this issue

and confirm the Assessing Officer order. The Revenue ground in this

appeal is allowed.

Commissioner of Income Tax (Appeals) erred in deleting the

disallowance made u/s.40(a)(i) on reimbursement of cost of insurance.

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10.1 The assessee company incurred an expense of �94,53,941/-

as insurance premium paid to parent company (VSL, Switzerland)

during the current year. The Assessing Officer noticed that the amount

was not taken into account while computing the disallowance

u/s.40(a)(i) of the Act. The ld. Authorised Representative argued that

this sum should be allowed as the similar issue for the assessment

year 2004-2005 was considered by the Tribunal in assessee own case

in ITA No.1185/Mds/2008, Dated 24.06.2009. However, the Assessing

Officer disallowed the claim stating that the order of the Tribunal has

not reached finality, and added a sum of �94,53,941/-.

10.2 The Commissioner of Income Tax (Appeals) considered the

reimbursement of cost of insurance and the company has contested

the issue as it takes the characteristic of reimbursement of cost from

VSL India to parent company and there is no element of profit or

income which attracts the provisions of TDS u/s.40(a)(i) of the Act.

The ld. Commissioner of Income Tax (Appeals) deleted the addition.

Aggrieved by the deletion, the Revenue assailed an appeal before the

Tribunal.

10.3 Before us the ld. Departmental Representative argued that

Commissioner of Income Tax (Appeals) has erred in deleting the

disallowance made u/s.40(a)(i) of the Act on reimbursement on cost of

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insurance and alleged that TDS needs to be deducted when payments

made to Non Resident and Assessing Officer has considered the Co-

ordinate Bench decision and distinguished and not followed.

10.4 Before us, ld. Authorised Representative contra to the

submissions of the ld. Departmental Representative argued that this is

pure case of reimbursement of expenses incurred on behalf of the

company by parent company and was reimbursed on the basis of

principle to principle and there is no profit or income included for the

application.

10.5 We after hearing the submissions of both the parties are of

the opinion that similar issue on re-imbursement of expenses was dealt

by the Co-ordinate Bench of Tribunal in assessee’s own case in ITA

No.1185/Mds/2008, Dated 24.06.2009 for the assessment year 2004-

05 wherein held and allowed in favour of the assessee. Respectfully

following the above decision, we upheld the order of Commissioner of

Income Tax (Appeals) on this ground.

No.1702/Mds/2013 is partly allowed for statistical purpose.

2008-2009 for adjudication:- The assessee company has filed return

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of income for the assessment year 2008-2009 admitting total income

of �4,61,02,690/-. Subsequently, the return was processed u/s.143(1)

of the Act and as per scrutiny norms the case was selected and notice

u/s.143(2) was issued on 24.08.2009. The ld. Authorised

Representative of the assessee appeared from time to time and filed

details called for. The Assessing Officer upon submissions of

information finalized assessment and found that assessee has

recognized income of �1,32,00,44,321/- but as per the TDS certificates

the income credit of �1,34,71,22,295/-. When the matter was put to

ld. Authorised Representative, it was explained that the difference has

arised due to receipt of advance from customers and TDS was

deducted by the customers. The contract income has been recognized

in subsequent financial years and mismatch of TDS certificate and

contract income has arised due to difference of advance. The

Assessing Officer on the ground that amount has been credited to

assesee’s account and takes the characteristic of professional services.

The assessee could not produce any parties from whom advance was

received and there was no reconciliation made with the ledger

accounts. The assessee company has claimed TDS credit but not

offered the receipts as income and there is a scope of mismatch. The

ld. Assessing Officer treated the difference amount in TDS certificate

as income and subjected to tax by making an addition.

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12.1 In the appellate proceedings, the Commissioner of Income

Tax (Appeals) observed that the Assessing Officer erred in stating

that TDS certificate has not mentioned the payments as advance

and no such categorization would be made in the TDS certificate.

The Assessing Officer should see whether any work has been

carried out against these monies received, by submitting a bill or

these monies were carried into the balance sheet as advance

received. The monies would attain the colour of the income only

when any work is carried out. The assessee has shown these

monies as ‘’advance’’ in the balance sheet and it is not correct for

the ld.AO to add as income merely because the TDS has been

deducted in the same year. Even though the receipts are not

offered as income in current year, based on these observations,

the ld. Commissioner of Income Tax (Appeals) directed the

Assessing Officer to delete the addition.

12.2. Before us, the ld. Departmental Representative argued that

Commissioner of Income Tax (Appeals) erred in not making a

distinction and also payments were made to the assessee company on

account of contract and sub-contract and finding of the Commissioner

of Income Tax (Appeals) that the assessee has claimed TDS credit

though the income is not considered in the books but due to difference

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in contract receipts, TDS certificate, and profit and loss account, the

Assessing Officer considered receipts as unaccounted receipts. The

assessee has not reconciled the difference before the Assessing Officer

or Commissioner of Income Tax (Appeals) and not produced any

evidence, certificate or letter to the extent of advance received during

the year and also invoice copy was not produced. On verification of

the balance sheet there is huge difference of advance received and

also claim made by the assessee needs reconciliation and also TDS

credit to be considered proportionately and prayed for allowing the

appeal.

12.3 On the other hand, the ld. Authorised Representative

reiterated his submissions made before the Assessing Officer and

Commissioner of Income Tax (Appeals) and argued that difference is

a advance amount, to be adjusted in subsequent assessment years

and relied on the decisions of Sadbhav Engineering Ltd. vs. DCIT 161

TTJ 116 Ahd and ACIT vs. Peddu Srinivasa Rao 30 CCH

0651Visakhpatnam Trib.

12.4 We heard the rival submissions of both the parties, perused

the material on record and also judicial decisions cited. We are of the

opinion that the assessee company having huge turnover and

following contract method for completed projects and TDS is deducted

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on advances received. It is duty of the assessee company to furnish

the confirmation letter. The advance received is not accounted as

contract receipts though the Commissioner of Income Tax (Appeals)

observed and deleted the addition. The fact remains that the assessee

has not provided reconciliation of contract accounts in the assessment

proceedings or before Commissioner of Income Tax (Appeals). In the

appellate proceedings the assessee not provided any bills, supporting

except financial statements. Even before us, the assessee could not

submit any information as alleged by the Department. We are of the

opinion the matter needs to be examined by the Assessing Officer and

the assessee should reconcile and provide substantive evidence for

advances received in the previous year on which the TDS is deducted

and has to establish whether it has offered to taxation in any

subsequent assessment year or not and the Assessing Officer shall

provide adequate opportunity of hearing to the assessee and allow the

TDS credit after due verification of the accounts. Accordingly, the

Commissioner of Income Tax (Appeals) order to the extent is set aside

and remit the issue back to the file of the Assessing Officer for fresh

consideration.

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Commissioner of Income Tax (Appeals) erred in deleting the

disallowance u/s.43B to the extent of �99,17,583/-

13.1 The Assessing Officer found that on verification of the tax

Audit report form 3CD that assessee has not paid the sums before

due date of filing of return u/s.139(1) of the Act and the same was

disallowed u/s.43B of the Act.

13.2 The ld. Commissioner of Income Tax (Appeals) based on the

explanations by the ld. Authorised Representative that the assessee

company payments were not routed through profit and loss account

but dealt Via Balance sheet. Therefore no allowance or deductions

was claimed in the computation of income and relied on the decision in

the case of Noble and Hewitt India P. Ltd 305 ITR 324 and

disallowance U/Sec.43B consist of service tax, R & D cess and Sales

tax payments and observed in his order at page No.11 on each

disallowance as under:-

‘’Sec 68 of Finance Act read with Rule 6 of the Service tax rules stipulate that Service provider has to make payment only on the basis of receipt of consideration. Thus service tax liability is regulated with reference to receipt of consideration for the services rendered. So long as the consideration is not 'received, the service provider is not liable to make payment. Accordingly assessee has made mere provision for Service tax payable but it is not actually due as per relevant laws. This has been upheld in ACIT vs Real Image Media Technologies (P) Ltd 306 ITR 106. b) Research and Development Cess: Rs.20,52,737/=. .

ITA Nos.1701 to 1703/2013. :- 25 -:

The Company had provided ₹53,94,005/- . towards Research & Development Cess during the Assessment year 2007-08 which was disallowed in Asst year 2007-08. Research and Development cess pertains to Technical consultancy fees, and Management fees' payable to parent/group companies. Consequent to waiver of amount payable to Parent/Group companies up to 31.12.2007, the provision for R&D Cess of Rs.53,94,005/- was also written back. R&D cess payable for the Management Fees and Technical fees for the period from 01.01.2008 to 31.03.2008 has been provided at ₹20,52,737/-. This has ₹53,94,005/- been duly adjusted and net figure ₹20,52,737/- is deducted from total income. c) Sales tax payments ₹14,58,203/- Under Sales Tax Act, works contract TDS are being deducted and adjusted against the amount payable to Contractor. In as much as the Contractor has deducted the TDS and deposited on or before the due date specified under relevant law, the sales tax payment needs the requirement of Sec.43B’’.

and ld. Commissioner of Income Tax (Appeals) deleted the addition.

Aggrieved by the order of the Commissioner of Income Tax (Appeals),

the Revenue has filed an appeal before the Tribunal.

13.3 Before us, the ld. Departmental Representative argued that

disallowance u/s.43B of the Act should be allowed only on payment

basis and it should be taken as part of the sales and to be routed

through Profit and Loss account only. Though the assessee made

transactions through balance sheet as discussed by the

ld.Commissioner of Income Tax (Appeals) but payment has to be

made before due date of filing of return u/s.139(1) of the Act. The

assessee company has not submitted any details in the assessment

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proceedings and also Commissioner of Income Tax (Appeals) has not

called for the comments or remand report on this issue and ld.

Departmental Representative relied on the decision of Bartronics

India Ltd vs.ACIT 2012-TIOL-412-ITAT-Hyd and pleaded for set aside

OF the Commissioner of Income Tax (Appeals) order.

13.4 On the other hand, the ld. Authorised Representative

vehemently argued and reiterated his submissions made before the

lower authorities and the findings of the Commissioner of Income Tax

(Appeals) are in accordance of law further submitted that the statutory

payments can also be routed through balance sheet though it is not

considered in the profit and loss account. When the assessee adopted

for this system, the collection of payments are separately considered

and taken into balance sheet. In support of arguments relied on the

decision of ACIT Vs. Real Image Media Technologies Pvt. Ltd., 306

ITR (AT) 106 and prayed for confirming the order of the Commissioner

of Income Tax (Appeals).

13.5 We are of the opinion that considering the circumstances

and evidence in respect of statutory liabilities under provisions of Sec.

43B payments made before filing of return of income u/s.139(1) of the

Act should be considered on actual payment. From the records, the

Assessing Officer could not verify the system of accounting routing

ITA Nos.1701 to 1703/2013. :- 27 -:

through balance sheet and assessee claiming that accepted the Accounting system. But the fact remains that information has to be examined with evidence. Considering the facts and circumstances, we set aside the issue to the file of the Assessing Officer to verify the statutory payments and allow the deduction. Accordingly, the ground of the Department is partly allowed for statistical purpose.

Order pronounced on Monday, the 1st day of February, 2016, at Chennai.

Sd/- Sd/- (चं� पूजार�) (जी. पवन कुमार) (G. PAVAN KUMAR) (CHANDRA POOJARI) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य /ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated:01.02.2016 KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF