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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri N.V.Vasusdevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-Asansol in appeal No.420/CIT(A)/Asl/W.3(4)/Pur.10-11 dated 07.03.2013. Assessment was framed by ITO Ward-3(4), Purulia u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 27.12.2010 for assessment year 2008-09. Grounds raised by assessee are reproduced below:-
1. That on the facts and circumstances of the case, the Ld. Commissioner of Income-tax (Appeals), Asansol, erred in upholding the addition of Rs.66,298/- being the amount credited in the earlier year and reverse entry passed in the year due to denial by M/s Seth Brothers.
Sanjiv Tantia v. ITO Wd-3(4) Pur. Page 2 2. That on the facts and circumstances of the case, the Ld. Commissioner of Income-tax (Appeals), Asansol, erred in upholding the addition of Rs.2,98,340/- being the amount of provision for incentive provided in the accounts.
3. That on the facts and circumstances of the case, the Ld. Commissioner of Income-tax (Appeals), Asansol, erred in upholding the addition of Rs.17,245/- on account of Car expenses and depreciation thereof and Rs.25,848/- on account of cash discount allowed.”
Shri P.J.Bhide, Ld. Authorized Representative appearing on behalf of assessee and Shri Sallong Yaden, Ld. Departmental Representative appearing on behalf of Revenue.
At the time of hearing, Ld. AR fairly conceded that he has instructed not to press ground No.3, hence, same is dismissed as not pressed.
First we take up ground No.1 which states that Ld. CIT(A) erred in confirming the action of Assessing Officer by making the addition of ₹66,298/- which was credited in earlier year but revised in the year under consideration.
Facts in brief are that assessee is an individual and engaged in trading business of cycle and its spare parts. The assessee was buying the goods from M/s Seth Industrial Corporation (MSIT for short). As per understanding with the party, the assessee was entitled for a discount of ₹66,298/- in the preceding financial year i.e. 2006-07. Accordingly, assessee booked the purchase by anticipated amount of discount which assessee was supposed to receive in that financial year 2006-07. However, in the financial year under consideration, the MSIT denied to provide the discount of the said amount. Therefore, assessee had to make payment of this amount on 24.04.2007 by way of cheque No.047929 for amount of ₹66,298/- and this anticipated discount was debited in his profit and loss account. During the course of assessment proceeding, AO issued a notice u/s 133(6) of the Act to MSIT seeking the clarification about such discount as claimed by assessee in his Sanjiv Tantia v. ITO Wd-3(4) Pur. Page 3 books of account as expenditure. In compliance thereto, MSIT did not mention anything about such discount. Therefore, AO disallowed the sum and added it to the income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the action of AO by considering the reply of MSIT u/s. 133(6) of the Act which is silent about the said discount.
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
We have heard rival contentions and perused the materials before us. Before us Ld. AR submitted that during the financial year 2006-07 assessee was expecting the discount of ₹ 66,298/- on booking the consignment purchase. However the MSIT denied to provide such discount. Therefore, it was debited in his profit and loss account by making the actual payment as aforesaid. Ld. AR further requested the Bench to restore this matter to AO for limited purpose to verify whether such amount of discount of ₹66,298/ was claimed in the FY 2006-07 or not, if it was not claimed in that FY i.e., 06-07 then it should be allowed in the year under consideration as it has been ascertained in the present year only. Ld. AR further submitted that the payment towards the anticipated discount of ₹ 66,298/- was duly made to MSIT through banking channel. On the other hand, Ld. DR vehemently relied on the orders of authorities below.
From the aforesaid discussion, we understand that assessee has incurred the expense on purchases which entitled a discount of ₹ 66,298/- in FY 2006-07 but MSIT has not given such discount to assessee. So the assessee has paid by way of cheque to MSIT. From the facts of the case, we find that it is a genuine expenditure incurred by assessee. Now the question before us that the deduction in the relevant year for ₹ 66,298/- should not Sanjiv Tantia v. ITO Wd-3(4) Pur. Page 4 amount to double deduction- firstly, in the AY 2006-07 and secondly in the FY 2007-08. In this view of the matter, we are inclined to restore this matter to the file of AO with a direction to verify whether the discount was allowed in the FY 2006-07 or not, if such discount has not been allowed in FY 2006-07 then it should be allowed in the year under consideration as this discount has become ascertained expenditure in the year under consideration accordingly. The AO shall provide the adequate opportunity to the assessee and adjudicate the matter in light of aforesaid direction as per law. Hence, ground raised by assessee is allowed for statistical purpose.
Next ground raised by assessee is that Ld. CIT(A) erred in confirming the action of Assessing Officer by sustaining the addition of ₹ 2,98,340/- being the amount of provision for incentive provided in his books of account.
At the time assessment, assessee submitted that it is the practice of MSIT to give incentive to the salesman as per their performance. Accordingly, assessee has created the provision for ₹ 2,98,340/- which pertains to incentive of salesman. During the course of assessment proceedings, AO observed that such provision is unascertain liability and therefore not allowed as business expense. Therefore, AO disallowed expense claimed as provision for incentive and added it to the total income of assessee.
Aggrieved, assessee preferred an appeal before Ld. CIT(A). Before Ld. CIT(A) assessee demonstrated that incentive payable to three salesman (1) Shri Dipak for ₹ 1 lac (2) Shri S. Mukherjee for ₹1,38,841/- (3) Shri K. Dey for ₹29,500/- and other salesman for Rs.30,399/- and this is a certain liability which has been booked in his books of account. This expense towards the incentive is determined at the end of year by analyzing the performance of salesman and such incentive pertains to the relevant year under consideration. However, the incentive payment is made in the subsequent year. Therefore, payment created towards the sales incentive should be Sanjiv Tantia v. ITO Wd-3(4) Pur. Page 5 allowed. However, Ld. CIT(A) disregarded such claim of assessee by observing that cash award has neither been paid during the year nor the payment date has finalized. Moreover the incentive provided in the books will increase the productivity in the subsequent assessment year i.e. 2009-10. Therefore the liability has not been crystallized in the year under consideration. Further Ld. CIT(A) observed that assessee has also not deducted the TDS as required u/s 192 or 194H of the Act. Therefore, it is clear-cut violation u/s 40(a)(ia) of the Act and finally Ld. confirmed the action of Assessing Officer.
Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us.
We have heard rival contentions of both the parties and perused the materials available on record. Before us Ld. AR submitted that assessee has just created the provision in its books of account for ascertain liabilities. The assessee has also provided the names of salesman to whom the payment of incentive was to be made. Regarding TDS Ld. AR submitted that TDS has been deducted from the payment of incentive to the salesman in the subsequent year i.e. in the year of payment. On the other hand, Ld. DR relied on the orders of authorities below.
11.1 From the afore said discussion, we find that assessee has claimed the expense for the incentive to be given to employees but assessee has shown in its books of account as provision for incentive and AO has disallowed the same as under the income tax no provision is allowed while working out the profit under Act. The provision until becomes ascertain and actually liable cannot be allowed as expenses. However, in the instant case, we find that assessee has given the name of employees to whom incentive as required to be paid. Therefore, it is ascertain liability and entitle for deduction from the business profit of assessee. However, Ld. CIT(A) has rightly observed if it is Sanjiv Tantia v. ITO Wd-3(4) Pur. Page 6 ascertain liability then it is the duty of assessee to deduct TDS at the time of booking the expense in its books of account irrespective of payment. In view of above, we are inclined to dismiss the ground raised by assessee.