TMI Blog2018 (3) TMI 1641X X X X Extracts X X X X X X X X Extracts X X X X ..... years. It is the duty of the assessee to show that this expenditure has crystallized during the year and therefore they are incurred during the year. As the adequate details have not been produced before the Ld. assessing officer as well as before the Ld. CIT (A) we set aside the issue of the disallowance of commission paid by the assessee disallowed by the lower authorities holding that these are prior period expenditure. With respect to the sales incentive departmental representative could not controvert that how the issue with respect to the disallowance of ₹ 7.75 crores of sales incentive is not now squarely covered in favour of the assessee. No other judicial precedent was submitted before us. In view of this we reverse the finding of the lower authorities with respect to the disallowance of sales incentive of ₹ 7.75 crores indirect the Ld. assessing officer to delete the above disallowance as the expenditure is not a prior period expenditure but the expenditure pertaining to current year the assessee has incurred expenditure during the year based on crystallization. With respect to the other disallowance confirmed by the Ld. CIT(A) the basis of taxing inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to unrelated parties in various under-developed countries is in small numbers as compared to export of big quantities to controlled enterprises in developed countries when volumes are high the margins are generally low vice versa. The marketing conditions also vary in different countries. 2 On the facts circumstances of the case in law, the Id. Assessing Officer has erred in disallowing ₹ 102583794/- on account of prior period expenses and the CIT(A) has erred in allowing relief of only ₹ 1312018/- sustaining the disallowance of the balance amount. The CIT(A) has not appreciated the fact that the said expenditure accrued in the relevant assessment year and is accounted for as per consistent accounting practice followed by the appellant. 2. Brief facts of the case is that appellant manufactures tractors primarily for domestic market and also makes export to its associated enterprise in Poland and USA and also to nonassociated enterprise in several other countries. Assessee filed its return of income on 31/10/2005 declaring loss of ₹ 119, 39, 92, 230/ , assessment under section 143 (3) of the act was made on 15/12/2008 at loss of ₹ 73, 44, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AE‟s and non-AE‟s which shows average per tractor realization form AE‟s and non- AE‟s . He further submitted that Once an average price or average margin is available in the case of comparables, the assessee becomes entitled to the consequential benefit of the proviso to section 92C (2). He submitted that It needs to be highlighted that the law on the question of allowing tolerance limit of 5% is more or less settled with a number of judicial pronouncements on the issue. He submitted compilation of the judgments relied upon. He mainly relied up on [2017] 79 taxmann.com 246 (Delhi - Trib.) Hi-Lex India (P.) Ltd. v. ACIT, Gurgaon Circle, Gurgaon. , [2012] 26 taxmann.com 102 (Mum.) ACIT, 8(1), Mumbai v.Genesys International Corpn. Ltd. 6. Ld DR supported the orders of the lower authorities and submitted that in absences of multiples prices benefit of 5 % range is correctly denied to the assessee. 7. We have carefully considered the rival contentions. Brief facts are that the appellant manufactures tractors primarily for domestic market. Exports are made to associate enterprises (AEs) in Poland and USA and to non-AEs in several other countries. The LD AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are various transactions of the sale of tractors to AE and which is not one price but multiple prices of sale of tractors, therefore, , assessee deserves to be allowed the benefit of 5 % range and therefore we reverse the finding of the Lower Authorities and direct ld AO to grant benefit of margin of 5 % on the Alp determined by the ld TPO/AO and recompute the adjustment accordingly. In the result, Ground No 1 of the appeal is allowed accordingly. 9. Ground No 2 of the appeal is against the order of the Ld. CIT (A) in arriving relief of ₹ 1312018/ only out of the disallowance of ₹ 102583794/ on account of prior period expenses. The facts shows that in the tax audit report the assessee company submitted that the prior period expenses amounting to ₹ 1 0258 3794/ has been debited. On verification of the details it was noted by the Ld. AO that these include personal expenses amounting to ₹ 210261/ , sales and administration expenses of ₹ 101067785/ and purchase and raw material consumption of ₹ 112 2465/ and operating expenses of ₹ 183283/ . The Ld. assessing officer noted that Assessee Company has been following mercantile system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es along with justification before the Ld. CIT (A), who referred the matter to the AO for remand report and after that he admitted the additional evidences but only give relief to the extent of ₹ 1312018/ out of the total disallowance of ₹ 1 0258 3794/ . The Ld. authorized representative submitted that the major disallowance confirmed by the Ld. CIT (A) is with respect to sales incentive to the dealers of ₹ 7.75 crores out of the total disallowance of ₹ 10.25 crores. According to him, the appellant had fixed target for its dealers for the 15 months accounting period ending on 30/06/2004 and based on the achievement of each dealer the sales incentive had to be determined after the end of the financial year as at 30/6/2004. The appellant has computed the amount of sales incentive payable to each dealer by the month of September 2004 and accordingly issued credit notes on 30/9/2004 to the qualifying dealers. The appellant was not in a position to make a provision in its account for the year ended on 31/03/2004 because the sales incentive could not have been determined on the said date because the incentive determination period has not expired. He therefore sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt as prior Period expenses. However, the Ld. CIT (A) has mentioned in this finding that the appellant has failed to produce any documentary evidence to prove that the observation of the auditor is incorrect. This is the main reason given by ld CIT (A) for confirming the disallowances. Before us, the assessee has not produced the copy of the tax audit report as well as the details of commission expenses of ₹ 1.33 Crores. It was not demonstrated before us that how this expenses are crystallized during the year. Merely because expenditure has been debited in the profit and loss account during the year neither it becomes the expenditure pertaining to this year more it becomes an expenditure pertaining to the prior years. It is the duty of the assessee to show that this expenditure has crystallized during the year and therefore they are incurred during the year. As the adequate details have not been produced before the Ld. assessing officer as well as before the Ld. CIT (A) we set aside the issue of the disallowance of ₹ 1339600/- of commission paid by the assessee disallowed by the lower authorities holding that these are prior period expenditure. 13. With respect to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the incentive was postponed. 6. In our opinion, the assessee has been able to make out a case in its favour particularly in view of the judgment of Gujarat High Court in Saurashtra Cement Chemical Industries Ltd. v. CIT [1995] 213 ITR 523. 7. Before we actually go into the decision, we may note that two situations arise : The first situation is that the liability arises on one date but gets crystallized on a later date (30-6-1981 in this case). It is submitted by learned counsel for the assessee that crystallization of the liability on a future date would necessarily relate back to the earlier period but the entitlement to a deduction would have reference to the date on which the liability gets crystallized. The second situation, which has been canvassed by learned counsel for the revenue, is where the liability is actually crystallized on an earlier date but it may be quantified on a future date. 8. In our opinion, the case of the assessee falls in the first category and not in the second category. 9. In Saurashtra Cement Chemical Industries Ltd.'s case (supra), the Gujarat High Court noted as follows : . . . Merely because an expense relates to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case as in that case the liability had accrued on an earlier date. In the present case it is possible that a dealer may not have any sale at all from 1-5-1981 to 30-6-1981 with the result that he would not be entitled to any additional incentive. However, if sales were made, then the additional incentive would be given on a graded scale and therefore, the additional liability on the assessee would only be known with any degree of certainty only on 30-6-1981 and not earlier. 13. We may also note that in E.D. Sassoon Co. Ltd. v. CIT [1954] 26 ITR 27 the Supreme Court has observed as under : . . . Income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. . . . (p. 51) 14. Applying this principle, insofar as the dealers of the assessee are concerned, they would not have acquired a right to get additional incentive in the sense that the assessee would not have know ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the department is likely to collect from him whether in one year or the other. (p. 684) 18. In the reference that is before us there is no doubt that the assessee had incurred an expenditure. The only dispute is regarding the date on which the liability had crystallized. It appears that there was no change in the rate of tax for the assessment year 1983-84 with which we are concerned. The question, therefore, is only with regard to the year of deduction and it is a pity that all of us have to expend so much time and energy only to determine the year of taxability of the amount. 19. Be that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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