TMI Blog2016 (1) TMI 1407X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain - Decided against revenue - ITA Nos. 1381 to 1384/PN/2014 - - - Dated:- 8-1-2016 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri Mukesh M. Patel For The Revenue : Shri Mukesh Jha ORDER PER VIKAS AWASTHY, JM : These set of four appeals for the assessment years 2006-07, 2007-08, 2008-09 and 2009-10 have been filed by the Revenue against the orders of Commissioner of Income Tax (Appeals)-V, Pune for the respective assessment years. All the impugned orders are dated 04-03-2014. Since, the issues involved in all the appeals are identical, these appeals are taken up together for adjudication. 2. The Revenue has assailed the findings of Commissioner of Income Tax (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been following mercantile system of accounting and the expenditure towards taxes and duties claimed by the assessee are prepaid expenses not relating to the respective assessment years. It is only when the expenditure is incurred for the relevant year the expenditure can to be allowed on payment basis. The assessee ought to have made provisions for these expenses under mercantile system of accounting and should have claimed the same in the year to which they relate. In support of his submissions, the ld. DR placed reliance on the decision rendered in the case of CIT Vs. Kerala Solvent Extractions Ltd. reported as 306 ITR 54 (Kerala). In respect of expenditure on free service to the customers, the ld. DR submitted that the Commissioner of Income Tax (Appeals) has granted relief to the assessee by following the decision of Hon'ble Supreme Court of India in the case of Rotork Control India (P) Ltd. Vs. CIT reported as 223 CTR 425 (SC). However, there is nothing on record to show that the assessee has adopted scientific method for creating such a provision. The Assessing Officer has specifically mentioned this fact in the order. The ld. DR prayed for reversing the findings of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible for deduction u/s. 43B irrespective of the method of accounting followed by the assessee. It was further contended that the Assessing Officer should have allowed these expenses as deduction on payment basis though the same has not been debited to the Profit Loss Account. However, the CIT(A) disagreed with the contentions of the assessee and confirmed the action of the assessee by holding that if the expenditure is not incurred for the relevant previous year, it cannot be allowed as deduction under the I.T. Act. He further held that the issue was covered against the assessee by the order of the CIT(A) in assessee s own case in A.Y. 1998-- 99. Aggrieved with such order of the CIT(A), the assessee is in appeal before us. 6.3 Before us the assessee contended that the issue is covered in favour of the assessee by the decision of the Special Bench (Chandigarh) in the case of Dy. CIT v. Glaxo Smithkline Consumer Healthcare Ltd., 107 ITD 343 wherein the Special Bench has taken a view that the deduction is to be allowed on actual payment bass u/s. 43B irrespective of the year in which the liability to pay would be incurred. 6.4 We have heard the rival submissions of both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the subject mentioned is previous year . It means the deduction has to be allowed regardless of the previous year. Any reference to the time of incurring or accruing of the liability is dispenses with by the statute while concentrating is made on the point of actual payment of the sum to the Treasury of the Government. 52. Therefore, we hold that the deduction for tax, duty etc., is allowable under section 43B of the Income-tax Act, 1961 on payment basis before incurring the liability to pay such amounts. Accordingly, the first question is answered in affirmative and in favour of the assessee. 6.5 Respectfully following the decision of the Special Bench of the Tribunal Chandigarh Bench cited above, the ground raised by the assessee is allowed. We find that identical issue has been raised by the Revenue in all the four appeals before us. Respectfully following the decision of Coordinate Bench, we dismiss the first ground raised in the appeals of the Revenue. 7. The second ground in the appeals by the Revenue is with respect to expenditure and free services to the customers. This issue has also been considered in the assessee s own case in ITA No. 1483/PN/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l payment may be made at a later date. The appellant submitted that at the year end the company calculates the liability for unencashed coupons which are valid for the free servicing and the provision is made for such unencashed coupons. The appellant added that during the year, the payments/credit notes are issued to the dealers for services rendered to the customers against such coupons for which the provisions are made. Further, the dealer is also reimbursed for free services rendered by him against the sale of the current year. Thus, at the end of the year, when the provisions for unencashed coupons is made it is only for the coupons valid for availing of services. This automatically nets off the balance provision, if any, made in the earlier, years. At the beginning of the next year, the provision so made is reversed and a similar provision for the following year is made based on the validity of unencashed coupons. 12.5 The appellant submitted that this method of accounting is being consistently followed by the appellant from several years. The appellant claimed that the provision is made and quantified on a scientific basis and is not contingent in nature. Minor balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or supportive evidences before us. This is a decided issue at the level of the Apex Court that the liability quantified with a reasonable basis though discharged at a later date is an allowable claim of the assessee and it amounts to an ascertained liability. We borrow relevant paragraph from the judgement of the Hon'ble Supreme Court in the case of Bharat Earth Movers Ltd. (supra) which is as under: To be provided by Sir. 11.3 Considering the settled position on this issue, we are of the opinion that the decision of the CIT(A) does not call for any interference in this regard. Accordingly ground No. 1 of the Revenue is dismissed. The Hon'ble Apex Court in the case of Bharat Earth Movers Vs. CIT (supra) has held: The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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