GST Helpdesk   Subscription   Demo   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
What's New Case Laws Highlights Articles News Forum Short Notes Statutory TMI SMS More ...
Extracts
Home List
← Previous Next →

2015 (9) TMI 275 - ITAT AHMEDABAD

2015 (9) TMI 275 - ITAT AHMEDABAD - TMI - Disallowance of incentive - change in the method of accounting - Held that:- The assessee changed the method of account for these expenses from cash to mercantile during the year under appeal, but still the assessee has claimed some of the expenses on cash basis and some of them on mercantile basis during the year itself. According to section 145 Hybrid System of accounting is not at all allowable now. Therefore, the finding of the ld. CIT(A) is hereby u .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Ministry of Company affairs was with retrospective effect. Therefore, we do not see any reason to interfere with the order of the ld. CIT(A), same is hereby upheld - Decided against assessee.

Disallowance made in respect of advance written off u/s.37 - Held that:- The assessee has placed details with regard to the parties to whom the advances have been given, the authorities below have not made any inquiry from such parties, therefore, we are of the considered view that the disallow .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

O's contention is accepted that it is not possible to exactly determine the amount of liability and if no claims are lodged with the assessee, nothing would be required to be paid, then also I believe in that case the assessee would write back the whole amount of provision to its profit and loss account and there is section 41 in the statute to take care of such amounts if the same is granted as deductible here we do not see any reason to interfere with the order of the ld. CIT(A), same is hereb .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

erfere with the findings of the ld. CIT(A) on this issue, same are hereby upheld. -Decided against revenue. - I.T.A. No.1298/Ahd/2012, I.T.A. No.1308/Ahd/2011 - Dated:- 21-8-2015 - SHRI PRAMOD KUMAR AND SHRI KUL BHARAT, JJ. For The Revenue : Shri Shiva Sewak,Sr.D.R. For The Assessee : Shri Sanjay R.Shah, CA ORDER PER SHRI KUL BHARAT, JUDICIAL MEMBER : These cross-appeals by the Revenue and the Assessee are directed against the order of the Ld. Commissioner of Income Tax(Appeals)- Gandhinagar [ C .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nst the same on the following amongst other grounds, which are without prejudice to each other. 1. The order passed by the learned Commissioner of Income Tax (Appeals) is erroneous and contrary to the provisions of law & facts and therefore requires to be suitably modified. It is submitted that it be so done now. 2. The learned CIT(Appeals) erred in not allowing the incentives paid to dealers of ₹ 57,66,297 considering the same to be prior period expenses. It is submitted it be so held .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

so held now. 3.1 Learned CIT(A) erred in appreciating that the appellant had applied for the approval of the Central Government during the concerned year itself and the approval was granted in the subsequent year which would related back to the date of application. It is submitted it be so held now. 4. Learned CIT(Appeals) erred in upholding the disallowance made in respect of advance written off of ₹ 2,09,151 u/s.37 on the ground that appellant failed to substantiate nexus between advanc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

owance(s) for provision for warrantee of ₹ 2,11,10,925/-, incentive to dealers of ₹ 56,50,193/-, penalty for breach of contract of ₹ 65,52,000/-, additional remuneration paid to MD of ₹ 4,95,192/- and Advances written off of ₹ 2,09,151/-. Against the said assessment order, the assessee preferred an appeal before the ld. CIT(A), who after considering the submissions of the assessee, partly allowed the appeal; thereby the ld. CIT(A) deleted the addition made on accoun .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n cross-appeals before us. 3. Ground Nos.1 to 2.1 are inter-connected which are against the disallowance of incentive of ₹ 57,66,297/- confirmed by the ld. CIT(A). The ld.counsel for the assessee argued at length and submitted that the assessee changed in the method of accounting for these expenses from cash to mercantile during the year under appeal. Therefore, there was some distortion likely to be happed. In this eventuality, the expenditure so claimed are allowable. The ld.counsel for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ding on fact by observing as under:- 6.3 I have considered the facts placed before me in this regard, Interestingly, the appellant on one hand claims that it has changed the method of accounting for these expenses from cash to mercantile during the year; but still has admittedly claimed some of the expenses on cash basis and some of them on mercantile basis during the year, itself. According to section 145 Hybrid System of Accounting is not at all allowable now. The agreements with the distribut .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

an enhancement notice and the AR was specifically told about my proposal to enhance the income. The appellant has itself not disputed [actually it has asserted that the expenses are claimed on cash basis although accrued in earlier year(as discussed in earlier paragraph)] and even till 20/03/2012 had neither disputed these facts nor submitted the agreements with dealers for earlier years. Therefore, I hold the following on the issue: - that only mercantile system of accounting is allowed as it i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

₹ 56,50,193)are directed to be disallowed being prior period expenses accrued in earlier year and claimed admittedly and erroneously on cash basis, in earlier year. The income is directed to be enhanced, accordingly. The ground and the enhancement notice is decided as directed above. 4.1. The aforesaid finding of the ld. CIT(A) has not been controverted by the ld.counsel for the assessee by placing any contrary material on record. Although the assessee changed the method of account for the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

naging Director of ₹ 4,95,192/- on the ground that the expenditure has not accrued during the year under appeal. The ld.counsel for the assessee submitted that there is no dispute with regard to the genuineness of the expenditure. The expenditure has been disallowed on the ground that the expenditure does not pertain to the year under appeal. The ld.counsel for the assessee submitted that the amount was subsequently rectified by the Ministry of Company Affairs. 5.1. On the contrary, ld. Sr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

17/05/2007. The assessee has not placed any material on record suggesting that the approval so made by the Ministry of Company affairs was with retrospective effect. Therefore, we do not see any reason to interfere with the order of the ld. CIT(A), same is hereby upheld. Thus, ground Nos.3 & 3.1 are dismissed. 7. Ground No.4 is against upholding the disallowance made in respect of advance written off of R.2,09,151/- u/s.37 of the Act. The ld.counsel for the assessee submitted that the ld. CT .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ecord and gone through the orders of the authorities below. We find that the AO in para-7.2 of his order has given reasoning for making the disallowance, the same is reproduced hereunder:- 7.2. I have carefully considered the submission of the assessee and find that advances written off to the extent of ₹ 2,09,151/- in respect of 8 entries are not an allowable expenses in view of the fact that:- (i) There is nothing on record which suggest that these advances have actually become bad which .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

by holding as under:- 9.3. I find that the advances written off does nto represent bad debts covered u/s.36(1)(vii) and hence does not come within purview of 36(1)(vii). Therefore the decision relied upon by the assessee in case of TRF Ltd cannot be applied. Also the assessee failed to substantiate nexus between the advance given and business of the assessee and hence cannot be allowed u/s.37 of the Act and in view of that AO s addition is upheld and appellant s ground is dismissed. 8.2. The co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pex Court has held as under:- 4. This position in law is well-settled. After 1st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the AO has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's acco .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

) has rejected the plea of the assessee by holding that the judgement of the Hon ble Apex Court is not applicable as the assessee failed to substantiate nexus between the advance given and business of the assessee. However, the assessee has placed details with regard to the parties to whom the advances have been given, the authorities below have not made any inquiry from such parties, therefore, we are of the considered view that the disallowance made cannot be sustained in view of the judgement .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

The learned CIT(Appeals) has erred in law and oanf acts in deleting the addition made by the AO of ₹ 65,52,000/- in respect of penalty for breach of contract. 3. On the facts and circumstances of the case the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 4. It is therefore prayed that the order of the learned CIT(Appeals) may be set aside and that of the A.O. be restored to the above extent. 9.1. First ground in Revenue s appeal is against deletion of addition made b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and it was pointed out that this kind of provision made every year on the basis of the experience and claims made by the customers. 10. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld. CIT(A) has given findings on fact in paras-5.3 to 5.8 of his order, which are reproduced hereunder:- 5.3 I have gone through the facts of the Appellant's case, the contentions of the AO vide his order of as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

not completely eliminate this possibility. In view of such facts, it is required to provide certain amount in books of accounts for the purpose of meeting such liability. 5.4 Coming to the observation of AO wherein he held the same to be of contingent nature, I believe that it is important here to understand the meaning of contingent. Contingent is something which is dependent on some other thing. Here this liability will arise only if certain batteries come out to be defective. Over the experie .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the following in this regard: "The warranty became an integral part of the sale price; in other words, the warranty provisions had to be recognized because the assessee had a present obligation as a result of past events resulting in an outflow of resources and a reliable estimate could be made of the amount of obligation. Therefore, the assessee had incurred a liability during the assessment year which was entitled to deduction under section 37 of the Income tax Act, 1961." 5.5. The o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e the provision for warranty as even the recovery made on sale of lead out of the returned batteries is also reduced while calculating the warranty costs incurred in past years. Further, warranty provision is made based on past experiences of actual warranty costs incurred by the Appellant in proportion to actual sales made by it. Also the amount of provision no longer required is written back to profit and loss account and duly offered to tax. 5.6 As regards calculation of the warranty provisio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

section 41 in the statute to take care of such amounts if the same is granted as deductible here. 5.7 Further, Gujarat High Court in case of CIT-II Vs. Inductotherm (India) Pvt. Ltd. in Tax Appeal No. 2087 of 2010 followed the decision of apex court as mentioned above and dismissed the appeal of the revenue. 5.8 In view of above discussion, AO is directed to allow the claim of the assessee and delete the addition made in this regard. This ground of appellant is allowed. 10.1. The ld.counsel for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

11. Ground No.2 is against deletion of addition of ₹ 65,52,000/- made on account of disallowance of penalty expenditure for breach of contract. The ld. Sr. DR argued that the ld. CIT(A) was not justified in deleting the addition. He submitted that the assessee-company was not the party to the contract, therefore, there was no reason to make payment to group concern but only reimbursement of penalty amount. 11.1. On the contrary, ld.counsel for the assessee submitted that the argument of th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ave the following meanings (enclosed at page-43 of the paper-book):- Affiliates shall mean any Person in which either Daramic or Excide, directly or indirectly, owns or controls fifty percent (50%) or more of the ownership indicia, as well as any Person which, directly or indirectly, owns 50% or more of, or otherwise controls the management decisions of Exide or Daramic. 12. We have heard the rival submissions, perused the material available on record and gone through the orders of the authoriti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sions of Exide or Daramic. The contention of the assessee is that it is the part of the agreement, therefore the AO was not justified in making the addition. We find that the ld. CIT(A) has given findings in paras-7.3 to 7.6 of his order, which are in the following manner:- 7.3 I have gone through the submission made by the AR. I find that the payment has been by the parent company of the appellant and the same is recovered from the assessee. Proper debit notes are submitted by the assessee on t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

warranty expenses, AO gave a strong observation that the same was of contingent nature depending upon the fact disclosed in the Tax Audit Report but while dealing with payment of penalty, he has not considered the amount shown in Tax Audit Report in this regard. This payment has not been paid for any offence which is prohibited by law and the same has been paid in normal business course incidental to carrying on the business as damages for breach of commercial contract. Hence I find that the co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

O categorically sought the information with regard to this international transaction and reply to same effect was also filed before the TPO, that is to say the transaction was categorically dealt with by the TPO during the course of the TP proceedings. Here it is important to quote the decision of Delhi ITAT in case of Oracle India Private Limited (ITA No. 18/Del/2007) wherein it has been held that provisions of 40A(2) cannot override the transfer pricing provisions and where no adjustment has b .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Advanced Search


Latest Notifications:

    Dated      Category

20-7-2017 Cus (NT)

20-7-2017 IT

20-7-2017 GST CESS Rate

19-7-2017 IT

19-7-2017 IT

18-7-2017 IT

18-7-2017 CE (NT)

18-7-2017 CE

18-7-2017 GST CESS Rate

15-7-2017 Kerala SGST

14-7-2017 Andhra Pradesh SGST

14-7-2017 Cus (NT)

14-7-2017 Cus

13-7-2017 Co. Law

13-7-2017 Co. Law

13-7-2017 ADD

13-7-2017 ADD

12-7-2017 Jammu & Kashmir SGST

12-7-2017 Gujarat SGST

12-7-2017 Gujarat SGST

More Notifications


Latest Circulars:

21-7-2017 Goods and Services Tax

20-7-2017 Goods and Services Tax

20-7-2017 Goods and Services Tax

19-7-2017 Goods and Services Tax

19-7-2017 Income Tax

18-7-2017 Customs

17-7-2017 Customs

14-7-2017 Income Tax

13-7-2017 Central Excise

13-7-2017 Customs

More Circulars



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version