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2015 (10) TMI 245 - ITAT MUMBAI

2015 (10) TMI 245 - ITAT MUMBAI - TMI - Addition made on account of performance related pay provisions to directors and staff - ascertained liability - CIT(A) deleted the addition - Held that:- We find from the order of the CIT(A) that the documents which were placed before the AO were not disputed by the AO, from which it is clear that the Director was entitled to performance related pay and as the actual amount had not been approved by the Board, the assessee had made provision for a crystalli .....

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Under the circumstances, it stands that there is no reason for disallowing the expenses claimed regarding payment of PRP to the Director since records of the assessee show that they are bonafide expenses which was crystallised. Accordingly, we see no reason to interfere in the findings of the CIT(A). Apart from this, the issue of disallowance of provisions has already been decided by the Tribunal in assessee’s own case vide its order dated 13-11-2006 and also for the assessment year 2 .....

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T. Act, on the following grounds :- 1. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made on account of performance related pay provisions amounting to ₹ 1,77,87,000/- to directors and staff, without considering the fact that there was no ascertained liability on the account of performance related pay, since neither approved by Board of Directors, nor reliably estimated as on 31-03-2009. 2. On the facts and circumstances of the case an .....

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s and staff. 3. Facts giving rise to the present appeal are that the assessee is engaged in the business of credit rating, consultancy and information services. During the year under consideration, assessee has made provisions for expenses of ₹ 1,77,87,000/-. The AO asked the assessee to explain and tabulate all the provisions made under all/any heads of expenses, however, being not satisfied with the explanation of the assessee, the AO disallowed the same on the plea that the assessee has .....

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ted that during the assessment proceedings the appellant had submitted copy of extract of minutes of Board meeting in which payment of PRP to the Director was approved. The appellant submitted certified true copy of the minutes of the Director's meeting during the course of appellate proceedings also. It was stated that the payment of PRP to the Director is made through banking channels and after deduction of TDS Under Section 192 of the Income Tax Act. The amount has been offered as income .....

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the amount after receiving approval for payment. It was stated that the provision had been made for the said payment as bills had not been raised but liability was incurred. It was stated by the appellant that this is the accounting system they have been following always. At the end of every year provision is made on estimated basis for liabilities which have crystallised during the year, however bills when received are paid and the excess provisions are reversed back and offered for tax. It has .....

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isallowed in spite of the fact that before the passing of the Assessment Order on 12/12/2011 the appellant had submitted the signed copy of the approval regarding PRP to the Assessing Officer. Alternatively, it was also submitted that provision for performance related pay are nothing but bonus and hence deductible Under Section 43B (C) as the same was paid on or before due date of filing of return of income. It was stated that the PRP could be compared to the bonus as both are paid after evaluat .....

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ear 2009 - 10. It is also seen that the minutes of the Board meeting held on June 15, 2009 record the fact that the Director was eligible for payment of commission for the period July 08 to March 09 and variable pay from April 08 to June 08. The said extracts of the minutes of the meeting held have been signed by the Company Secretary and record the amount that was payable to the said Director for Financial Year 08-09 in terms of the scheme approved by the Board. As per the bank statement submit .....

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it in the P&L Account. As soon as the approval was received from the Board of Directors in the meeting held on 15th June 2009 the actual payments were made after deducting tax at source. From the above, it stands that the payment had to be made to the director, the liability had duly crystallised however, on non-availability of the approval it could not be quantified exactly. It is also seen that the payment made was exactly as per the provision made by the assessee. Under the circumstances .....

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t taken into consideration the fact that there was no ascertained liability on the account of performance related pay, since neither approved by the Board of Directors nor reliably estimated as on 31-3-2009. Therefore, the AO was right to disallow the amount in question. 6. Per Contra, ld. AR supporting the order of the CIT(A) submitted that albeit the provisions are made on estimated basis, but it has also been emphasized that they are crystallized liabilities and, therefore, the same has right .....

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m the order of the CIT(A) that the documents which were placed before the AO were not disputed by the AO, from which it is clear that the Director was entitled to performance related pay and as the actual amount had not been approved by the Board, the assessee had made provision for a crystallised liability and debited it in the P&L Account. As soon as the approval was received from the Board of Directors in the meeting held on 15th June 2009, the actual payments were made after deducting ta .....

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s which was crystallised. Accordingly, we see no reason to interfere in the findings of the CIT(A). Apart from this, the issue of disallowance of provisions has already been decided by the Tribunal in assessee s own case vide its order dated 13-11-2006, wherein the Tribunal deleted the addition so made on the provisions for expenses. The relevant observations of the Tribunal are as under :- 9. We have duly considered the rival contentions. On perusal of the ld. CIT(A) s order we find that in pri .....

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