DCIT, New Delhi v. M/s Infiniti Power P. Ltd., New Delhi

ITA 548/DEL/2011 | 2006-2007
Pronouncement Date: 22-07-2011 | Result: Dismissed

Appeal Details

RSA Number 54820114 RSA 2011
Bench Delhi
Appeal Number ITA 548/DEL/2011
Duration Of Justice 5 month(s) 21 day(s)
Appellant DCIT, New Delhi
Respondent M/s Infiniti Power P. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 22-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 22-07-2011
Date Of Final Hearing 19-07-2011
Next Hearing Date 19-07-2011
Assessment Year 2006-2007
Appeal Filed On 01-02-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER & SHRI K.G. BANSAL ACCOUNTANT MEMBER ITA NO. 548/DEL/2011 ASSESSMENT YEAR: 2006-07 DCIT VS. INFINITI POWER P. LTD. CIRCLE 11(1) B-138 FIRST FLOOR ROOM NO. 312 MOHAMMED PUR C.R. BUILDING BHIKAJI CAMA PLACE NEW DELHI. NEW DELHI. AAAC13802K (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SALIL MISHRA SR. DR RESPONDENT BY : SH. VED JAIN MS. RANO JAIN SH. V ENKATESH CAS. ORDER PER C.L. SETHI J.M. THE ONLY GROUND RAISED BY THE REVENUE IN THIS APP EAL FILED AGAINST THE ORDER DATED 26.11.2010 PASSED BY LD. CIT(A) IN THE MATTER OF AN ASSESSMENT MADE U/S 143(3) OF T HE INCOME TAX ACT 1961 (THE ACT) BY THE AO FOR THE A.Y. 2006 -07 IS AS UNDER: - ITA NO. 548/D/2011 2 1. THE ORDER OF LD. CIT(A) IS WRONG PERVERSE ILLEGAL AND AGAINST THE PROVISIONS OF LAW LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 50 75 263/- IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. THE APPELLANT CRAVES LEAVE TO ADD ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 2. IN THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT ASSESSEE HAD SHOWN EXPENSES PAYABLE TO THE EXTENT OF RS. 73 64 356/- WHICH INCLUDES THE AMOUN T OF INCENTIVES PAYABLE TO THE EXTENT OF RS. 50 75 263/- . IT WAS FURTHER OBSERVED BY THE AO THAT OUT OF THE SAID EXP ENSES PAYABLE A PAYMENT OF RS. 26 94 288/- HAS BEEN MADE IN SUBSEQUENT FINANCIAL YEAR I.E. F.Y. 2006-07. IT WA S ALSO NOTED BY THE AO THAT INCENTIVES PAYABLE HAD REMAINED OUTS TANDING EVEN DURING THE F.Y. 2007-08 TO THE EXTENT OF RS. 1 4 09 879/-. IT WAS ALSO FOUND THAT THE ASSESSEE HAD REVERSED AN AMOUNT OF RS. 12 60 000/- IN F.Y. 1977-78. IN THE LIGHT O F THESE FACTS THE AO HAD TAKEN A VIEW THAT NO LIABILITY FOR PAYME NT OF INCENTIVES HAD CRYSTALLIZED AT THE END OF THE FINAN CIAL YEAR. AO ALSO NOTED THE FACT THAT THOUGH THE ASSESSEE CRE ATED ITA NO. 548/D/2011 3 PROVISION OF INCENTIVES PAYABLE AS ON 31.03.2006 N O TAX WAS DEDUCTED AT SOURCE FROM THE SAID INCENTIVES. THE A O THEREFORE DISALLOWED THE PROVISIONS FOR INCENTIVES TO THE EXTENT OF RS. 50 75 263/- AND ADDED THE SAME TO THE ASSESS EES TOTAL INCOME. 3. BEING AGGRIEVED THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LD. CIT(A). BEFORE THE LD. CIT(A) THE ASSESSEE FURNISHED DETAILS OF INCENTIVES PAYABLE AMOUNTING T O RS. 50 75 263/- SHOWN IN THE BALANCE SHEET AS ON 31.03. 2006 AND CONTENDED THAT ONLY AN AMOUNT OF RS. 5 40 000/- AND RS. 14 543/- WAS CLAIMED BY WAY OF DEDUCTION ON ACCOUNT OF INCENTIVE PAYABLE TO THE STAFF IN THE CURRENT YEAR. IT WAS FURTHER SUBMITTED BY THE ASSESSEE BEFORE LD. CIT(A) THAT IN CENTIVE OF RS. 5 40 000/- AND RS. 14 543/- PAYABLE TO MR. ANIL SAXENA AND MR. ATUL GERA WERE CRYSTALLIZED DURING THE YEAR AND HENCE THE SAME WAS CLAIMED AS DEDUCTION. 4. AFTER CONSIDERING THE ASSESSEES SUBMISSION AND AOS ORDER AND IN THE LIGHT OF THE FACTS AND CIRCUMSTANC ES OF THE PRESENT CASE THE LD. CIT(A) DELETED THE ADDITION B Y OBSERVING AND HOLDING AS UNDER: - ITA NO. 548/D/2011 4 31. FINDING ON GROUND OF APPEAL NO. 2 :- FROM THE COPY OF AUDITED BALANCE SHEET OF THE APPELLANT IT IS OBSERVED THAT INCENTIVE PAYABLE AS ON 31.03.2006 IS RS. 50 75 263/- WHILE THE AMOUNT OF INCENTIVE PAYABLE AS ON 31.03.2005 IS RS. 47 86 073/-. THE APPELLANT HAS ALSO FILED A DETAILED STATEMENT OF ACCOUNT OF INCENTIVE PAYABLE TO STAFF FOR F.Y. 2005-06 FROM WHICH IT IS OBSERVED THAT TOTAL INCENTIVE PROVIDED FOR DURING THE YEAR F.Y. 2005-06 IS ONLY RS. 5 54 543/- OF WHICH RS. 5 40 000/- HAS BEEN PROVIDED TO BE PAID BY WAY OF INCENTIVE TO SH. ANIL SAXENA (CEO/DIRECTOR) AND ANOTHER RS. 14 543/- IS INCENTIVE PROVIDE FOR SH. ATUL GERA (RS. 5676+5277+3590). THE INCENTIVE PROVIDED FOR SH. ATUL GERA HAS ALSO BEEN PAID DURING THE YEAR ITSELF TO HIM AND FORMS PART OF THE TOTAL INCENTIVE PAID DURING THE YEAR FOR RS. 2 65 354/-. FROM THE ABOVE IT IS APPARENT THAT THE TOTAL PROVISION ON ACCOUNT OF INCENTIVE PAYABLE DEBITED TO THE PROFIT AND LOSS ACCOUNT FOR FY 2005-06 IS ONLY RS. 5 54 543/- OF WHICH RS. 14 543/- HAS ALREADY BEEN PAID. CONSEQUENTLY THE MAXIMUM DISALLOWANCE ON THE GROUND THAT THE LIABILITY HAS NOT CRYSTALLIZED DURING THE ITA NO. 548/D/2011 5 YEAR COULD ONLY HAVE BEEN TO THE EXTENT OF RS. 5 40 000/-. AS REGARDS THIS PROVISION OF RS. 5 40 000/- BY WAY OF INCENTIVE TO SH. ANIL SAXENA (CEO/DIRECTOR) IS CONCERNED THE APPELLANT SUBMITTED COPY OF THE MEETING OF THE BOARD OF DIRECTORS DATED 04.04.05 WHEREBY AN INCENTIVE OF RS. 45 000/- P.M. IN ADDITION TO HIS NORMAL SALARY HAS BEEN RESOLVED TO BE PAID TO MR. ANIL SAXENA WHO WILL LEAD THE TEAM FOR THE NEW GE DIGITAL ENERGY PRODUCTS. IT IS ALSO A MATTER OF RECORD THAT THE APPELLANT COMPANY ENTERED INTO DISTRIBUTORSHIP AGREEMENT WITH G.E. PACIFIC PTE. LTD. EFFECTIVE FROM 01.04.2005 TO 31.03.06. THUS THE INCENTIVE OF RS. 5 40 000/- PAYABLE TO MR. ANIL SAXENA FOR THE YEAR IS AN ACCRUED AND ASCERTAINED LIABILITY OF THE APPELLANT AND THEREFORE IS AN ALLOWABLE EXPENDITURE IN TERMS OF THE DECISION OF CIT VS. INSILCO LTD. 320 ITR 322. THE RELEVANT PART OF THIS DECISION IS REFERRED TO AS BELOW: - IF A LIABILITY ARISE WITHIN THE ACCOUNTING PERIOD THE DEDUCTION SHOULD BE ALLOWED THOUGH IT MAY BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. THEREFORE THE PROVISION FOR A ITA NO. 548/D/2011 6 LIABILITY IS AMENABLE TO A DEDUCTION IF THERE IS AN ELEMENT OF CERTAINTY THAT IT SHALL BE INCURRED. IT IS POSSIBLE TO ESTIMATE THE LIABILITY WITH REASONABLE CERTAINTY EVEN THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE AS SUCH A LIABILITY IS NOT OF A CONTINGENT NATURE. NOW IN CASE OF THE INCENTIVE PAYABLE/PROVIDED FOR MR. ANIL SAXENA BEING A QUANTIFIED AND ASCERTAINED LIABILITY IS IN TERMS OF THE BOARDS RESOLUTION AND IS THEREFORE AN ALLOWABLE EXPENDITURE FOR THE APPELLANT. IT IS FURTHER OBSERVED THAT THE AO HAS DISALLOWED THE ENTIRE INCENTIVE PAYABLE FOR RS. 50 75 263/- IN THE BALANCE SHEET AS ON 31.03.06 WHICH INCLUDED THE EARLIER YEARS CARRIED FORWARD LIABILITY FOR RS. 47 86 074/-. IN THE MERCANTILE SYSTEM OF ACCOUNTING BEING FOLLOWED BY THE APPELLANT SINCE EARLIER YEAR LIABILITY HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THOSE YEARS THEREFORE THE DISALLOWANCE OF RS. 50 75 263/- IN THE CURRENT FINANCIAL YEAR OF THIS ENTIRE AMOUNT REFLECTED IN BALANCE SHEET IS NOT IN ACCORDANCE WITH LAW. ITA NO. 548/D/2011 7 MOREOVER FROM THIS LIABILITY AN AMOUNT OF RS. 26 94 288/- HAS BEEN PAID IN FY 06-07; RS. 8 51 096/- HAS BEEN PAID IN FY 07-08 AND ANOTHER RS. 2 69 879/- HAS BEEN PAID IN FY 08-09. AN AMOUNT OF RS. 12 60 000/- HAS BEEN REVERSED IN FY 07-08 BASED ON SH. ANIL SAXENA THE CEO AGREEING TO SURRENDER THE INCENTIVE RECEIVABLE BY HIM FOR RS. 12 60 000/- IN VIEW THE NON RECOVERY FROM DEBTORS WHOSE AMOUNTS HAD BEEN WRITTEN OFF IN THE COMPANIES ACCOUNTS AND THE RESULTANT FINANCIAL CRUNCH IN THE COMPANY. IN ANY CASE AS THE INCENTIVE PAYABLE TO SH. ANIL SAXENA DURING FY 05- 06 HAD CRYSTALLIZED AS A LIABILITY AS ON 31.03.06. THE SUBSEQUENT EVENTS OF SUCCEEDING YEARS WOULD HAVE NO BEARING ON THE ALLOWABILITY OF RS. 5 40 000/- AS A CRYSTALLIZED LIABILITY IN FY 2005-06. THE OTHER GROUND TAKEN BY THE AO FOR MAKING THE DISALLOWANCE OF INCENTIVE FOR RS. 50 75 263/- IS THAT NO TDS HAS BEEN DEDUCTED ON THE SAME. IN TERMS OF THE DECISION IN RAMESH CHANDRA AGARWAL 286 ITR 255 INCENTIVE IS PART OF SALARY ON WHICH TDS IN DEDUCTIBLE AT THE TIME OF PAYMENT AND NOT AT THE TIME OF CREDIT TO EXPENSES PAYABLE IN VIEW OF THE PROVISION OF S. 192. ITA NO. 548/D/2011 8 THIS HAS BEEN CONFIRMED BY THE JURISDICTIONAL HIGH COURT IN CIT VS. TAJ QUEBECOR PRINTING LTD. 281 ITR 170 WHEREIN IT HAS INTER ALIA BEEN HELD THAT: - NO DEDUCTION AT SOURCE IS CONTEMPLATED U/S 192 OF THE I.T. ACT 1961 IN CASE WHERE A PAYMENT TOWARDS SALARY HAS ACCRUED BUT IS NOT MADE. THIS POSITION IS CLEAR FROM SIMILAR PROVISIONS OF SEC. 194B 194BB 194EE 194F AND 194L UNDER WHICH ALSO A DEDUCTION AT SOURCE IS ENVISAGED ONLY IF ACTUAL PAYMENT OF THE AMOUNT IS MADE TO THE PAYEE. IN CONTRADISTINCTION TO THAT REQUIREMENT THERE ARE PROVISION IN THE ACT WHICH AUTHORIZE DEDUCTION AT SOURCE EVEN IN CASES WHERE THE PAYMENT IS EITHER MADE TO THE PAYEE OR CREDITED TO HIS ACCOUNT. THE PROVISIONS OF SEC. 193 194A 194C 194D 194E.ARE RELEVANT IN THIS REGARD. WHEREVER THE LEGISLATURE INTENDED DEDUCTION TO BE MADE AT SOURCE ONLY AT THE TIME OF MAKING THE PAYMENT IT PROVIDED SO AND WHEREVER DEDUCTIONS WERE INTENDED TO BE MADE EVEN IF THE PAYMENT IS CREDITED TO THE ACCOUNT OF ITA NO. 548/D/2011 9 THE PAYEE IT MADE A SPECIFIC PROVISION TO THAT EFFECT. IN VIEW OF THE ABOVE DECISION AS NO TDS WAS REQUIRED TO BE MADE IN CASE OF INCENTIVE PAYABLE (WHICH IS PART OF SALARY) TO THE EMPLOYEES INCLUDING SH. ANIL SAXENA THE CEO OF THE COMPANY TILL SUCH TIME THE ACTUAL PAYMENT HAS BEEN MADE THEREFORE NO DISALLOWANCE FOR RS. 50 75 263/- U/S 40(A)(IA) CAN BE MADE FOR NON DEDUCTION OF TDS. IN ANY CASE THE INCENTIVE PAYABLE/PROVIDED FOR IN THE CURRENT YEAR WAS ONLY FOR RS. 5 40 000/- WHICH HAS ALREADY BEEN HELD TO BE AN ASCERTAINED LIABILITY FOR THE YEAR AND THEREFORE A DEDUCTIBLE EXPENSE. IN VIEW OF THE ABOVE DISCUSSION THE ADDITION MADE ON ACCOUNT OF PROVISIONS FOR INCENTIVE PAYABLE FOR RS. 50 75 263/- IS DIRECTED TO BE DELETED. 5. HENCE THE DEPARTMENT IS IN APPEAL. 6. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL THE MATERIAL ON RECORD. ITA NO. 548/D/2011 10 7. ON PERUSAL OF BALANCE SHEET AS ON 31.03.2006 WE FIND THAT THE ASSESSEE HAD SHOWN INCENTIVE PAYABLE TO TH E EXTENT OF RS. 50 75 263/-. THE INCENTIVE PAYABLE AT THE E ND OF IMMEDIATE PRECEDING YEAR WAS RS. 47 86 073/-. THE DETAIL ACCOUNT OF INCENTIVE PAYABLE TO STAFF AS ON 31.03.2 006 IS AS UNDER: - DATE DESCRIPTIONS DEBIT CREDIT 01-04-2005 BY BAL. B/F 4 786 074.00 30-04-2005 TO AMT. PAID TO MAYANK MOHAN AWASTHI 11 000.00 16-06-2005 INCENTIVE PROVIDED FOR ATUL GERA 5 676.00 16-06-2005 INCENTIVE PAID FOR ATUL GERA 5 676.00 30-06-2005 INCENTIVE PROVIDED FOR ATUL GERA 5 277.00 30-06-2005 INCENTIVE PAID FOR ATUL GERA 5 277.00 06-07-2005 INCENTIVE PROVIDED FOR ATUL GERA 3 590.00 06-07-2005 INCENTIVE PAID FOR ATUL GERA 3 590.00 27-12-2005 TO AMT PAID TO MAYANK MOHAN AWASTHI 69 628.00 31-03-2006 TO AMT PAID TO MANISH VERMA 10 000.00 31-03-2006 TO AMT PAID TO SUBI RAJAN 2 950.00 31-03-2006 TO AMT PAID TO DELLIP JENA 103 244.00 ITA NO. 548/D/2011 11 31-03-2006 TO AMT ADJUSTED AGAINST W/OFF ON A/C OF DELLIP JENA 53 989.00 31-03-2006 BY INCENTIVE TO ANIL SAXENA (CEO/DIRECTOR) 540 000.00 31-03-2006 TO BAL C/F 5 075 263.00 5 340 617.00 5 340 617.00 8. FROM THE BALANCE SHEET AS WELL AS STATEMENT OF A CCOUNT OF INCENTIVE PAYABLE TO STAFF IT IS CLEAR THAT THE AMOUNT OF RS. 50 75 263/- OUTSTANDING AS ON 31.03.2006 IS NOT FUL LY RELATED TO THE AMOUNT OF INCENTIVE PAYABLE TO THE STAFF IN THE CURRENT YEAR. THE AMOUNT OF INCENTIVE PAYABLE TO STAFF AND CLAIME D AS DEDUCTION IN THE CURRENT YEAR IS ONLY RS. 5 40 000/ - PAYABLE TO MR. ANIL SAXENA AND RS. 14 543/- PAYABLE TO MR. ATU L GERA. IN THE LIGHT OF THESE FACTS IT IS THUS CLEAR THAT AO IS NOT JUSTIFIED IN CONSIDERING THE WHOLE OF AMOUNT OF RS. 50 75 263 /- AS INCENTIVE PAYABLE IN THE CURRENT YEAR. THE ASSESSE E HAS NOT CLAIMED DEDUCTION ON ACCOUNT OF INCENTIVE PAYABLE T O THE EXTENT OF RS. 50 75 263/- IN THE CURRENT YEAR. THE ASSESSEE HAS CLAIMED ONLY AN AMOUNT OF RS. 5 54 543/- ON ACC OUNT OF INCENTIVE PAYABLE TO THE STAFF. ITA NO. 548/D/2011 12 9. IN SO FAR AS THE AMOUNT OF RS. 5 40 000/- BEING INCENTIVE PAYABLE TO MR. ANIL SAXENA WE FIND THAT THE ASSESS EE HAS CLAIMED THE DEDUCTION OF INCENTIVE PAYABLE TO MR. A NIL SAXENA IN THE LIGHT OF THE RESOLUTION DATED 04.04.2005 ADO PTED BY THE BOARD OF DIRECTORS IN ITS MEETING. THE INCENTIVES WERE ALSO PAID TO MR. ANIL SAXENA (CEO/DIRECTOR) IN EARLIER Y EAR ALSO. THE LD. CIT(A) HAS CONSIDERED THE BOARDS RESOLUTIO N AND HAS RIGHTLY COME TO A CONCLUSION THAT THE LIABILITY OF INCENTIVE PAYABLE TO MR. ANIL SAXENA HAS BEEN ASCERTAINED AND CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION AND IS THEREFORE AN ALLOWABLE EXPENDITURE. 10. WITH REGARD TO THE NONE DEDUCTION OF TAX AT SOU RCE FROM INCENTIVE PAYABLE THE LD. CIT(A) HAS CONSIDERED TH E PROVISION OF SEC. 192 OF THE ACT AND HAS COME TO A CONCLUSION THAT NO TDS WAS REQUIRED TO BE MADE FROM THE AMOUNT OF INCE NTIVE PAYABLE TO THE EMPLOYEE INCLUDING MR. ANIL SAXENA. 11. IN THE LIGHT OF THE DISCUSSIONS MADE ABOVE AND THE DETAILED DISCUSSION MADE BY THE LD. CIT(A) IN HIS O RDER WHICH HAS BEEN EXTRACTED ABOVE WE FIND THAT THE LD. CIT( A) HAS RIGHTLY DELETED THE ADDITION OF RS. 50 75 263/- MAD E BY THE AO ITA NO. 548/D/2011 13 ON ACCOUNT OF INCENTIVES PAYABLE TO STAFF INCLUDING MR. ANIL SAXENA. THE ORDER OF LD. CIT(A) IS THUS UPHELD. 12. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. THIS DECISION IS PRONOUNCED IN THE OPEN COURT ON 2 2 ND JULY 2011. SD/- SD/- (K.G. BANSAL) (C.L . SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 22.7.11 *KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR