The DCIT, Ahmedabad Circle-1,, Ahmedabad v. The Adani Wilmar Ltd, Ahmedabad

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND N. S. SAINI) ITA NO.2919 AND 2920/AHD/2007 A. Y.: 2003-04 AND 2004-05 THE D. C. I. T. CIRCLE-1 3 RD FLOOR JITENDRA CHAMBERS R.B.I. LANE ASHRAM ROAD AHMEDABAD VS ADANI WILMAR LTD. 10 TH FLOOR SHIKHAR NR. MITHAKALI CIRLE NAVRANGPURA AHMEDABAD PA NO. AABCA 8056 G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI C. K. MISHRA DR RESPONDENT BY SHRI VERTIK R. CHOKSI AND P.M. MEHTA AR O R D E R PER BHAVNESH SAINI: BOTH THE APPEALS BY THE REVENUE ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE CIT(A)-V AHMEDABAD DATED 12-04-2007 FOR ASSESSMENT YEARS 2003-04 AND 2004-0 5 CHALLENGING THE DELETION OF ADDITIONS OF RS.7 02 569/- AND RS.17 23 464/- MADE ON ACCOUNT OF PRIOR PERIOD EXPENSES. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. 3. IN THE ASSESSMENT YEAR 2003-04 IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD DEBITED RS.83 08 212/- TO THE PROFIT & LOSS ACCOUNT FOR THE EXPENDITURE PERTAINING TO EARLIER YEAR. THE ASSESSE E HAD ITSELF DISALLOWED RS.76 05 745/- IN THE COMPUTATION OF INCOME AND BAL ANCE AMOUNT OF RS.7 02 567/- WAS CLAIMED AS ALLOWABLE. IT WAS EXPL AINED BEFORE THE AO THAT THE LIABILITY FOR SUCH PAYMENT HAS BEEN CRYSTA LLIZED DURING THE YEAR UNDER CONSIDERATION AND IT WAS ELIGIBLE FOR DEDUCTI ON. THE CLAIM OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO BECAUSE NO EVID ENCE WAS PRODUCED ITA NO.2919 AND 2920/AHD/2007 ADANI WILMAR LTD. 2 TO SHOW EXPENSES CRYSTALLIZED DURING THE YEAR. THE CLAIM OF THE ASSESSEE WAS REJECTED. IT WAS BRIEFLY EXPLAINED BEFORE THE L EARNED CIT(A) THAT THE ASSESSEE HAD FURNISHED COMPLETE DETAILS OF STATEMEN T IN THE AUDIT REPORT AS WELL AS IN THE PROFIT AND LOSS ACCOUNT WHICH IS REFERABLE TO THE EARLIER YEAR. IT WAS ALSO EXPLAINED THAT THE EXPENSES UNDER VARIOUS HEADS ARE DEBITED TO THIS ACCOUNT ON RECEIVING DETAILS/CLAIMS ON SETTLEMENT OF CLAIMS DURING THE YEAR UNDER CONSIDERATION AND THUS THIS LIABILITY IS CRYSTALLIZED ONLY IN THE YEAR UNDER CONSIDERATION. IT WAS ACCORDINGLY SUBMITTED THAT THE EXPENDITURE IS ALLOWABLE U/S 37( 1) OF THE IT ACT IN VIEW OF THE DECISION OF THE HONBLE GUJARAT HIGH CO URT IN THE CASE OF SAURASTRA CEMENT & CHEMICALS INDUSTRY LTD. VS CIT 2 13 ITR 523. IT WAS SUBMITTED THAT PRIOR PERIOD EXPENSES ARE MAINLY ON ACCOUNT OF MISC. EXPENSES AND BANK INTEREST. THE LEARNED CIT(A) REPR ODUCED THE WRITTEN SUBMISSION OF THE ASSESSEE IN THE IMPUGNED ORDER AN D FOUND THAT THE ASSESSEE HAD ITSELF DISALLOWED A SUM OF RS.76 05 64 5/- AS THESE ITEMS COULD NOT BE SAID TO HAVE BEEN CRYSTALLIZED DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LEARNED CIT(A) NOTED THAT THE AO DISALLOWED A SUM OF RS.7 02 567/- AFTER GIVING CREDIT FOR PRIOR PERIOD INCOME OF RS.44 544/- OFFERED IN THE RETURN. THE LEARNED CIT( A) FOUND THAT MAJOR ITEM OF THE CLAIM WAS ON ACCOUNT OF LABOUR CHARGES. IT WAS FURTHER FOUND THAT THE BILLS SHOW THAT THE BILL FOR THIS AMOUNT W AS RAISED ON 04-03-2002 AND THE BILL COULD NOT BE ADMITTED FOR T HE SIMPLE REASON THAT THE PAYMENT WAS IN RESPECT OF DISMANTLING OR ERECTI ON OF CERTAIN MACHINERY AT MUNDRA AND UNLESS THE CERTIFICATE OF C OMPLETION OF ALL THE WORKS WAS OBTAINED THE CLAIM COULD NOT BE ADMITTED . ON THE BILL ITSELF IT WAS NOTICED THAT CERTIFICATE OF COMPLETION OF DISMA NTLING/ERECTION WAS GIVEN IN THE MONTH OF MAY 2002 WHICH FALLS IN THE ACCOUNTING PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL I. E. ASSESSMENT YEAR 2003- 04. THE LEARNED CIT(A) ON THE BASIS OF THE MATERIAL ON RECORD FOUND THAT THIS AMOUNT OF PRIOR PERIOD EXPENDITURE HAD CRYSTAL LIZED DURING THE YEAR UNDER CONSIDERATION. THEREFORE IT IS TO BE ALLOWED AS DEDUCTION. THE ITA NO.2919 AND 2920/AHD/2007 ADANI WILMAR LTD. 3 AMOUNT WHICH CRYSTALLIZED DURING THE ASSESSMENT YEA R UNDER APPEAL WAS ALLOWED AS DEDUCTION. 4. IN THE ASSESSMENT YEAR 2004-05 THE ASSESSEE MADE SIMILAR SUBMISSIONS THAT THE AMOUNT OF RS.17 23 464/- PERTA INING TO THE EXPENDITURE OF PRIOR PERIOD WHICH HAD CRYSTALLIZED DURING THE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE THEREFORE MADE A CLAIM WHICH WAS DENIED BY THE AO. THE SUBMISSION OF THE ASSESSEE IS REPRODUCED IN THE APPELLATE ORDER. THE LEARNED CIT(A) FOUND THAT THE ENTIRE AMOUNT IN QUESTION PERTAINS TO THE PAYMENT OF EMPLOYEES WHICH WAS IN THE NATURE OF INCENTIVES AND PERFORMANCE REWARDS. THE SAME WAS WORKED OUT BY THE HR DEPARTMENT ON THE BASIS OF PERFORMANCE ETC. AND THE SAME WAS CLEARED FOR PAYMENT DURING THE YEAR UNDER APPEAL I. E. ASSESSMENT YEAR 2004-05 AND THIS WORKING ITSELF WAS DONE IN THE MON TH OF JULY 2003 ON THE BASIS OF PERFORMANCE OF THE EMPLOYEES IN THE EA RLIER YEAR. THE LIABILITY CRYSTALLIZED DURING THE ASSESSMENT YEAR U NDER APPEAL AND WAS THEREFORE HELD TO BE ALLOWABLE DEDUCTION. ADDITION WAS ACCORDINGLY DELETED. 5. THE LEARNED DR RELIED UPON THE ORDER OF THE AO W ITHOUT POINTING OUT ANY INFIRMITY IN THE ORDERS OF THE LEARNED CIT( A). ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THE LIABILITY WAS CRYSTALLIZED DURING THE ASSESSMENT YEAR UNDER APPEA L. THEREFORE ADDITIONS HAVE RIGHTLY BEEN DELETED BY THE LEARNED CIT(A). 6. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEANED CIT(A) IN DELE TING BOTH THE ADDITIONS. THE HONBLE SUPREME COURT IN THE CASE OF METAL BOX COMPANY 73 ITR 53 HELD THAT LIABILITY ACCRUED DURING THE YEAR WOULD BE CONSIDE RED FOR THE PURPOSE OF DEDUCTION. THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS APPOLLO TEXTILES AGENCY HELD AS UND ER: (283/ITR/591) ITA NO.2919 AND 2920/AHD/2007 ADANI WILMAR LTD. 4 THE ASSESSEE DEALT IN STAPLE AND YEARN. FOR THE ASSESSMENT Y8EAR 1978-79 IT CLAIMED RS.15 498 REPRESENTING ADDITIONAL DEMAND FOR SALES TAX LIABIL ITY ON IT FOR THE EARLIER YEARS. THE AUTHORITIES BELOW DISALLOWED THE CLAIM BUT THE TRIBUNAL HELD THAT THE DEMAND OF SALES TAX WAS THE ADDITIONAL DEMAND CREATED BY THE SALES TAX AUTHORITIES ON NOVEMBER 2 1976 AND THEREFORE T4HE ADDITIONAL DEMAND CREATED IN THE RELEVANT ASSESSMENT YEAR OUGHT TO HAVE BEEN ALLOWED AS A DEDUCTION. ON A REFERENCE AT THE INSTA NCE OF THE REVENUE: HELD THAT THE ASSESSEE HAD REALIZED SALES TAX FROM ITS CUSTOMERS AND WHATEVER AMOUNT HAD BEEN REALIZED HAD BEEN PAID OVER TO THE SALES TAX AUTHOR ITIES. THE DEMAND OF SALES TAX WAS OVER AND ABOVE THE ADMITTED AMOUNT OF TAX LIABILITY WHICH HAD BEEN CREATED PURSUANT TO THE ASSESSMENT ORDER PASSED ON NOVEMBER 2 1976. THEREFORE THE LIABILITY TO PAY T HE AMOUNT OF RS.15 498 CAME INTO EXISTENCE AND ACCRUED FOR THE FIRST TIME ON NOVEMBER 2 1976. THUS THE C LAIM FOR RS.15 498 REPRESENTING SALES TAX LIABILITY AND PENAL INTEREST ON IT FOR THE EARLIER YEARS WAS ALLOWABLE AS DEDUCTION FOR THE ASSESSMENT YEAR 1978-79. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAURA STRA CEMENT & CHEMICAL INDUSTRY LTD. (SUPRA) HELD THAT EXPENDITURE RELATING TO EARLIER YEARS LIABILITY ARISING IN RELEVANT ASSESS MENT YEAR IS DEDUCTIBLE EXPENDITURE. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ABOVE DECISIONS IT IS CLEAR THAT THE LIABIL ITY OF THE ASSESSEE FOR THE EXPENDITURE CRYSTALLIZED DURING THE ASSESSMENT YEAR IN QUESTION. THE LEARNED CIT(A) IN ASSESSMENT YEAR 2003-04 AFTER VER IFICATION OF THE CERTIFICATE OF COMPLETION OF DISMANTLING/ERECTION W ORK FOUND THAT SAME WAS GIVEN IN MAY 2002 WHICH PERTAINS TO THE ASSESS MENT YEAR UNDER APPEAL I.E. ASSESSMENT YEAR 2003-04. THE ASSESSEE E XPLAINED THAT THE BILL COULD BE ADMITTED ONLY ON GIVING SUCH A CERTIFICATE . THE LEARNED CIT(A) THEREFORE RIGHTLY FOUND THAT THE LIABILITY TO PAY THE EXPENDITURE CRYSTALLIZED DURING THE ASSESSMENT YEAR IN QUESTION . SIMILARLY IN ASSESSMENT YEAR 2004-05 THE PAYMENT TO EMPLOYEES WA S MADE BASED ITA NO.2919 AND 2920/AHD/2007 ADANI WILMAR LTD. 5 UPON THE PERFORMANCE OF THE EMPLOYEES IN THE EARLIE R YEAR. THE LIABILITY CRYSTALLIZED DURING THE ASSESSMENT YEAR IN QUESTION BECAUSE THE WORKING OF THE INCENTIVES BASED ON PERFORMANCE WAS CLEARED FOR PAYMENT IN THE MONTH OF JULY 2003 WHICH FALLS DURING THE ASSESSME NT YEAR UNDER APPEAL I.E. ASSESSMENT YEAR 2004-05. SINCE THE LIAB ILITY TO PAY THE EXPENDITURE CRYSTALLIZED DURING THE ASSESSMENT YEAR UNDER APPEAL THEREFORE THE LEARNED CIT(A) WAS JUSTIFIED IN DELE TING THE ADDITION. THE LEARNED DR HAS NOT PRODUCED ANY MATERIAL CONTRARY T O THE FINDINGS OF THE LEARNED CIT(A). THUS THE REVENUE HAS FAILED TO REB UT THE FINDINGS OF THE LEARNED CIT(A). WE THEREFORE DO NOT FIND ANY INFI RMITY IN THE ORDER OF THE LEARNED CIT(A) IN DELETING THE DISALLOWANCE OF THE EXPENDITURE. WE CONFIRM HIS FINDINGS AND DISMISS BOTH THE APPEALS O F THE REVENUE. 7. AS A RESULT BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON 07-05-2010 SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 07- 05-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD