M/s.MIL controls Ltd, Trichur v. The Addl.CIT, Cochin

ITA 399/COCH/2014 | 2009-2010
Pronouncement Date: 21-11-2014

Appeal Details

RSA Number 39921914 RSA 2014
Assessee PAN AABCM1515G
Bench Cochin
Appeal Number ITA 399/COCH/2014
Duration Of Justice 2 month(s) 2 day(s)
Appellant M/s.MIL controls Ltd, Trichur
Respondent The Addl.CIT, Cochin
Appeal Type Income Tax Appeal
Pronouncement Date 21-11-2014
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 21-11-2014
Date Of Final Hearing 18-11-2014
Next Hearing Date 18-11-2014
Assessment Year 2009-2010
Appeal Filed On 18-09-2014
Judgment Text
ITA NO 399/COCH/2014 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE S/SHRI N.R.S. GANESAN JM & CHANDRA POOJARI AM ITA NO.399/COCH/2014 (ASST YEAR 2009-10 ) MIL CONTROLS LTD MELADOOR PO MALA 680 741 THE ADDL COMR OF INCOME TAX RANGE 1 KOCHI ( APPELLANT) VS (RESPONDENT) PAN NO. AABCM1515G ASSESSEE BY SHRI P R KRISHNA KUMAR REVENUE BY SHRI K K JOHN SR DR DATE OF HEARING 18 TH NOV 2014 DATE OF PRONOUNCEMENT 21 NOV 2014 ORDER PER CHANDRA POOJARI AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 27.6.2014 OF THE CIT(A)-II KOCHI AND ITS RELATES TO THE AY 2 009-10. 2 THE SOLITARY ISSUE BEFORE US IS WITH REGARD TO TH E DISALLOWANCE OF COMMISSION ON THE REASONS THAT THE SAME WAS NOT ACC RUED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. 2.1 THE FACTS OF THE CASE ARE THAT F OR THE YEAR ENDED 31 S T MARCH 2009 RELEVANT TO ASSESSMENT YEAR 2009-10 THE ASSESSEE HAD ACCRUED AN AMOUNT OF RS.77 32 218 / - IN THE BOOKS OF ACCOUNT TOWARDS SOLE SELLING AGENC Y COMMISSION ITA NO 399/COCH/2014 2 BASED ON CONTACT BETWEEN THE APPELLANT AND KSB SING APORE (ASIA PACIFIC) PTE LIMITED SINGAPORE. THIS CONTACT WAS DULY APPROVED BY THE MI NISTRY OF CORPORATE AFFAIRS GOVERNMENT OF INDIA VIDE THEIR LETTER DATED 10 TH JULY 2007 . WHILE COMPLETING THE ASSESSMENT THE ASSESSING O F FICER HAS DISA L LOWED PART OF THE COMMISSION ON SALES DEBITED TO THE PROFIT AND LOSS ACCOUNT AMO U NTING TO RS.31 06 189/-. 2.2 T HE ASSESSEE COMPANY IS ENGAGED IN THE PROD U CTION OF PUMPS. THE HOLDING COMPANY IS KSB AKTIENGESELLSCHAFT GERMANY . DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD DEBITED RS . 77 32 280 AS COMMISSION PAID WHICH WAS DUE FOR A . Y . 2008 - 09. ON A QUERY RAISED WHY THE AMOUNT OF RS . 45 26 029 WHICH WAS THE ACTUAL REMITTANCE MADE DURI NG THE PERIOD TOWARDS COMMISSION SHOULD NOT BE THE ACTUAL DEBIT AND NOT RS . 77 32 218 THE ASSESSEE SUBMITTED THAT AS PER ACCRUAL SYSTEM OF ACCOUNTING THE COMMISSION HAS BECOME DUE AND HENCE THE DEBIT OF R S . 77 32 218/- WAS REFLECTED IN THE BOOKS OF ACCOUNT . IT WAS SUBMITTED THAT THE C OMMISSION WAS BASED ON ACTUAL SALES AND BECOMES DUE ONLY AS AND W HEN THE ENTIRE EXPORT PROCEEDINGS ARE COMPLETED . ACCORDING TO THE AO THE ACTUAL REMITTANCE ALONE SHOULD BE DEBITED IN THE P&L ACCOUNT BECAUSE THAT WAS THE AMOUNT ACCRUED AND DUE ON ACCOUNT OF COMMISSION . FURTHER THE COMMISSION WAS SOL E LY DEPENDED ON ACTUAL SALE OR EXPORT OF GOODS . ACCORDING TO THE AO O NLY AFTER THE EXPORT PROCEEDS ARE REALIZED SELLING COMMISSION BECOMES DUE . ITA NO 399/COCH/2014 3 ACCORDINGLY THE AO WAS OF THE OPINION THAT IN THE ABSENCE OF SALE NOT REALIZED COMMISSION WILL NOT BECOME DUE . ACCORDINGLY THE EXCESS COMMISSION DEBITED AMOUNTING TO RS . 31 06 18/ WAS DISALLOWED BY THE AO AS THIS AMOUNT RELATIN G TO COMMISSION PAYABLE HAS NOT BECOME DUE NOR ACCRUED. 23 ON APPEAL BEFORE THE CIT(A) THE ASSESSEE SUBMIT TED THAT THE AO HAS MADE A MISTAKE APPARENT FROM RECORD IN STATING THAT THE ASSESSEE HAS DEBITED RS . 77 32 280 AS COMMISSION PAID AND DUE FOR A . Y. 2008-09. IT WAS SUBMITTED THAT THE SAID DEBIT PERTAINS TO ASSESSMENT YEAR 2009 - 10. AFTER CONSIDERING THE SUBMISSION MADE BY THE ASSESSEE AND THE LEGAL POSIT ION THE CIT(A) CONFIRMED THE ORDER OF THE AO BY OBSERVING THAT SINCE ACCORDI NGLY TO THE AGREEMENT THE COMMISSION CHARGES WOULD FALL DUE FOR PAYMENT ONLY ON RECEIPT OF THE PAYMENT FROM THE CLIENTS; THEREFORE THE AO WAS RIGHT IN A LLOWING ONLY THAT PART OF THE COMMISSION PAYMENT THAT HAVE BEEN RECEIVED BY THE A SSESSEE DURING THIS YEAR . FURTHER HE OBSERVED THAT S INCE THESE PAYMENTS ARE ASCERTAINED ON THE BASIS O F SALE / EXPORT OF GOODS OR MATERIALS THEREFORE EVEN THOUGH THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING THE COMM ISSION WOULD BE DUE TO BE PAID ONLY WHEN THE TRANSACTION FOR EXPORT OF GOODS IS FINALIZED AND PAYMENT IS RECEIVED FROM THE CLIENTS. THE CIT(A) OBSERVED THA T THE MINISTRY OF CORPORATE AFFAIRS WHILE ALLOWING/APPOINTING M / S KSB SIN G APOR E A S TH E S AL E S ELLIN G AGE NT S FOR TH E ASSESSEE H AS S P EC I F I CA LL Y S T A T E D IN S U CH APPR OV AL TH A T S UCH A GE NT S S HALL NOT PL E D GE OR H Y P O TH ECA T E O R OTH E R W I SE G I VE AS SE C U RIT Y ANY OF THE G OOD S TILL ITA NO 399/COCH/2014 4 PA Y MENT S IN R ES P E CT OF S UCH G O O D S I S R E C E I VE D . ACCORDING TO THE CIT(A) T HI S PA Y MENT I N RESPECT OF GOODS R E CEI VE D WAS A PRE-R E QUI S IT E FOR PA Y M E NT O F COMMISS I ON. FURTHER SINCE PAYMENT OF COMMIS S ION WAS LINK E D TO S UCH PA Y MENT S OF G OOD S; THEREFORE THE AO WAS JUSTIFIED IN MAKING THE ADDIT ION. ACCORDINGLY HE CONFIRMED THE DISALLOWANCE MADE BY THE AO . AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 3 THE LD AR OF THE ASSESSEE SUBMITTED THAT THE CIT( A) ERRED IN DISREGARDING THE F A CT THAT TH E CO MMI SS ION EXPE N SES DEBITED TO P R OFIT AND LOS S ACCOUNT ARE GENUINE EXPENSES INCURR E D FOR TH E PURPOS E OF BUSINESS . IT WAS SUBMITTED THAT T H E CIT (APPEAL S ) HAS FURTHER E RRED IN I G NORING TH E FACT THAT ASSESSEE IS FOLLOWIN G MERCANTILE S Y STEM OF ACCOUNTIN G AND ACCORDINGL Y THE COMMI S SI O N EX PENSES TOWARDS S A L ES FOR THE FINANCIAL Y EAR E ND E D 31 S T MARCH 2009 P E RTAIN T O TH E R E LEVANT FINANCIAL Y EAR AND ACCORDIN G L Y OU G HT TO BE ALLO WE D IN THE S AM E YE AR IRR ES P E CT IVE OF THE REALIZATION OF EXPORT PROCE E DS. ACCORDINGLY IT WAS SUBMITTED THAT THE ENTIRE AMOUNT OF COMMI SS I O N RS.77 32 218 / - D EBITED TO THE PROFIT & LOSS ACCOUNT SHOULD BE ALLOWED AS AGAIN S T RS . 45 26 029 / - A LL OWED IN THE ASSESSMENT . THE LD AR INVITED OUR ATTENTION TO THE RE L E VANT CLAUSE IN THE C ONTRACT B E T WEE N MIL C O N TROLS LI M I T ED AND K S B S I NGA PORE (A SIA PA C IFIC ) PT E LI M ITED . 3.1 THE LD AR FURTHER SUBMITTED THAT T HE SA L ES INCOME CORRESPONDING TO THE COMMISSION OF RS. 77 3 2 218 1 - HAS BEEN RECOGNIZED IN THE PREVIOUS YEAR 2008-09 . IT WAS SUBMITTED THAT I NCOME MAY ACCRUE TO AN ASSESSEE WITHOUT ACTUAL RECE IPT ITA NO 399/COCH/2014 5 OF THE SAME AND IF THE ASSESSEE ACQUIRES A RIGHT T O RECEI V E THE INCOME THE INCOME CAN BE SAID TO HAVE ACCRUED TO HIM THOUGH IT MAY BE RECEIVED LATER. IN SUPPORT OF HIS CONTENTION THE LD AR RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE CIT V. S HR I GOVE R D H A N L T D . [1 968 ] 6 9 I T R 6 75 (SC). THE LD AR SUBMITTED THAT THE CORRESPONDING COMMISSION P AYABLE AS PER THE SSA CONTRACT HAS ALSO ACCRUED BY IMPLICATION. THE RECEI PT OF PAYMENT FROM CLIENTS IS TAKEN AS A RE F ER E NCE POINT ONLY FOR THE SAKE OF DECIDING THE TIMING OF ACTUAL CASH OUTFLOW TO A V OID OUT O F P OC KET PAYMENT AND IS ONLY FOR OPERATIONAL CONVENIENCE. THE LD AR FURTHER SUBMITTED THAT IN T HE CASE OF AN ASSESSEE MAINT A ININ G HIS ACCOUNTS ON MERCANTILE S Y STEM A LIABILIT Y ALREADY ACCRUED THOUGH TO BE DISCHAR GE D AT A FUTURE DATE WOULD BE A PROPER DEDUCTION WHILE WORKING OUT THE PROFITS AND GAINS OF HIS BUSINESS REGARD BEING HAD TO THE ACCEPTED PRINCIPLES OF COMMERCIAL PRACTICE AND ACCO UNTANCY AND IT IS NOT AS IF SUCH DEDUCTION IS PERMI S SIBLE ONLY IN CASE OF AMOUNT S ACTUALL Y EXPENDED OR PAID. IT WAS SUBMITTED THAT JUST AS ACTUAL RECEIPT S A S WELL AS THOSE ACCRUED A RE BROU G HT IN FOR INCOME-TAX ASSESSMENT SO ALSO LIABILITIES ACCRUED W OULD B E T A KEN INTO ACCOUNT WHILE WORKING OUT THE PROFITS AND GAIN S OF THE BUSINESS. IN SUPPORT OF HIS CONTENTION THE LD AR RELIED ON THE ORDER O F THE SUPREME COURT IN THE CASE OF METAL BOX CO. OF INDIA LTD. VS THEIR WO RKM E N [1 969 ] 7 3 IT R 53 (SC) . IT WAS SUBMITTED THAT IF A LIABILIT Y HAS ACCRUED DURING THE ACCOUNTING YEAR; BUT WAS TO BE DISCHARGED AT A FUTURE DATE THE AMOUNT TO BE EXPENDED IN TH E DISCHARGE OF THAT LIABILITY WOULD HAVE TO BE ESTIMATED IN ORD ER THAT UNDER THE MERCANTILE ITA NO 399/COCH/2014 6 SYSTEM OF ACCOUNTING THE AMOUNT COULD BE DEBITED B EFORE IT WAS ACTUALLY DISBURSED. FOR THIS PROPOSITION HE RELIED ON THE D ECISION OF THE SUPREME COURT IN THE CASE OF CALCUTTA CO.LT D . V . C IT [ 1959] 3 7 ITR 1 (SC). ACCORDINGLY THE LD AR SUBMITTED THAT THE COMMISSION AMOUNTING TO RS.77 32 218 / - IS ACCRUED AND I S AN ALLOWABLE EXPENDITURE AS AGAINST RS . 45 26 029 / - ALLOWED IN THE ASSESSMENT . ACCORDINGLY IT WAS SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE CIT(A) WAS UNWARRANTED AND AND NOT ACCORDING TO FACTS AND LAW AND THE SAME MAY BE DISMISSED. 3.2 ON THE OTHER HAND THE LD DR RELIED ON THE ORDE RS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE COMMISSION IS PAYABLE ONLY O N REALIZATION OF SALE VALUE AS PER THE AGREEMENT WHICH HAS NOT ACCRUED AND TH E AO WAS RIGHTLY DISALLOWED BY THE AO. 3 WE HAVE HEARD THE PARTIES AND PERUSED THE RELEVAN T MATERIAL ON RECORD. WE HAVE ALSO GONE CAREFULLY GONE THROUGH THE ORDER OF THE AUTHORITIES BELOW AND ALSO THE AGREEMENT ENTERED BETWEEN THE ASSESSEE AND KSB SINGAPORE (ASIA) PACIFIC) PTD LTD SINGAPORE. CLAUSE 4 OF THE AGREEMENT READS AS UNDER: 4 FOR ALL EXPORT ORDERS MATERIALIZING DURING TH E PERIOD OF THIS CONTRACT THE COMPANY WILL PAY KSB SINGAPORE (ASIA PACIFIC) A COMMISSION AT THE RATE NOT EXCEEDING 12.5% (TWELVE AND A HALF PERCENT ) FOR ALL COUNTRIES OF THE WORLD OF THE FOB VALUE OF THE ORDER IN THE CURR ENCY IN WHICH THE ORDER IS PLACED. THESE CHARGES WILL FALL DUE FOR PAYMENT ON RECEIPT OF PAYMENT FROM THE CLIENTS. THIS WOULD COVER THE USUAL SERVIC ES OF KSB SINGAPORE (ASIA PACIFIC) FOR SECURING THE ORDER AND THE EXPENSES IN CURRED IN CONNECTION WITH THE SAME. ITA NO 399/COCH/2014 7 3.1 AS PER CLAUSE 4 OF THE AGREEMENT THE COMMISS ION PAYABLE TO KSB SINGAPORE(ASIA PACIFIC) AT THE RATE NOT EXCEEDING 12.5% ON FOB VALUE OF THE ORDER IN THE CURRENCY IN INDIA IN WHICH THE ORDER I S PLACED. THESE CHARGES WILL FALL DUE FOR PAYMENT ON RECEIPT OF PAYMENT FROM THE CLIE NTS. BEING SO IT IS CLEAR THAT THE PAYMENT OF COMMISSION ACCRUED ONLY ON REA LIZATION OF SALE VALUE. THE ASSESSEES CLAIM IS THAT IT IS BOOKING EXPENDITURE ON THE BASIS OF SALE VALUE AND NOT ON THE BASIS OF SALE REALIZATION AND THIS SYST EM HAS BEEN ACCEPTED BY THE DEPARTMENT IN EARLIER YEARS AS WELL AS IN THE SUBSE QUENT YEAR. IN OUR OPINION WE ARE NOT CONCERNED WITH THE ANY OTHER YEAR WHICH AR E NOT BEFORE US. IN OUR OPINION IF THE DEPARTMENT HAS ACCEPTED IN EARLIER YEAR IT WAS A MISTAKE AND THERE IS NO MERIT IN CONTINUING THE SAME MISTAKE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE PAYMENT OF COMMISSION ACCRUED ON LY ON REALIZATION OF SALE VALUE AND IT IS TO BE ALLOWED WHEN THE REALIZATION OF SALE VALUE WHICH IS IN COMPLIANCE WITH THE AGREEMENT CITED SUPRA AND DISAL LOWANCE IS BASED ON THE ABOVE AGREEMENT BROUGHT ON RECORD BY THE AUTHORITIE S AND HENCE WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF THE AUTHORITIES BELOW WHICH IS CONFIRMED. ITA NO 399/COCH/2014 8 4 IN THE RESULT THE APPEAL FILED BY THE ASSESSEE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21ST D AY OF NOV 2014. SD/- SD/- (N.R.S. GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER COCHIN: DATED 21ST NOV 2014 RAJ* COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT COCHIN 1 DATE OF DICTATION 18 TH NOV 2014 2 DT ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 19 NOV 2014 3 DT ON WHICH THE APPROVED DRAFT COMES TO THE SR P S/PS 4 DT ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER 5 DICTATION PAID PLACED IN THE ORIGINAL FILE (NO.OF PAGES) 6 DT OF PRONOUNCEMENT 7 DT ON WHICH THE FILE GOES TO THE BENCH CLERK 8 DT ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DT ON WHICH THE FILE GOES TO AR 10 DT OF DISPATCH OF THE ORDER