The DCIT-Circle-5,, Baroda v. M/s. Shree Ranchhodrai Masala Mill, Baroda

ITA 823/AHD/2014 | 2009-2010
Pronouncement Date: 29-09-2016 | Result: Dismissed

Appeal Details

RSA Number 82320514 RSA 2014
Assessee PAN AAGFS0773C
Bench Ahmedabad
Appeal Number ITA 823/AHD/2014
Duration Of Justice 2 year(s) 6 month(s) 8 day(s)
Appellant The DCIT-Circle-5,, Baroda
Respondent M/s. Shree Ranchhodrai Masala Mill, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 29-09-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 29-09-2016
Date Of Final Hearing 27-09-2016
Next Hearing Date 27-09-2016
Assessment Year 2009-2010
Appeal Filed On 21-03-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI N.K. BILLAIYA ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD JUDICIAL MEMBER) ITA. NO: 823/AHD/2014 (ASSESSMENT YEAR: 2009-10) DY. CIT CIRCLE-5 BARODA V/S M/S. SHREE RANCHHODRAI MASALA MILL BANKROAD MANDVII BARODA (APPELLANT) (RESPONDENT) PAN: AAGFS0773C APPELLANT BY : SHRI PRASOON KABRA SR. D. R. RESPONDENT BY : SHRI S. N. DIVETIA A.R. ( )/ ORDER DATE OF HEARING : 27-09-2016 DATE OF PRONOUNCEMENT : 29 -09-2016 PER N.K. BILLAIYA ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF LD. CIT(A)-V BARODA DATED 31.12.2013 PERTAINING TO A.Y . 2009-10. ITA NO 823/A HD/2014 . A.Y. 2009-1 0 2 2. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. C IT(A) ERRED IN DELETING THE ADDITION OF RS. 70 98 152/- MADE U/S. 40(A)(IA) OF THE ACT. 3. AT THE VERY OUTSET REPRESENTATIVES OF BOTH SIDES A GREED THAT SECTION HAS BEEN WRONGLY MENTIONED AS 40(A)(IA) WHEREAS THE SAME SHOULD BE READ AS SECTION 28 OF THE ACT. 4. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS THE A.O. FOUND THAT AN AMOUNT OF RS.71 56 678/- IS DEBITED O N ACCOUNT OF SELLING EXPENSES. ON FURTHER PROBE THE A.O. FOUND THAT THE ASSESSEE HAS MADE A PROVISION FOR EXPENSES OF RS. 70 98 152/ - ON 31.03.2009 AND THE SAME HAS BEEN CLAIMED AS EXPENSES UNDER THE HEAD SELLING EXPENSES. THE A.O. ASKED THE ASSESSEE TO JUSTIFY I TS CLAIM. ASSESSEE FILED A DETAILED REPLY VIDE LETTER DATED 12.12.2011 AND THE SAME READS AS UNDER:- 'ASSESSEE FIRM IS ENGAGED IN TRADING OF SPICES AND KIRANA AND FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. EVERY TRADING LIAB ILITY ACCRUED BUT NOT ACTUALLY PAID ARE DULY ACCOUNTED FOR AND CLAIMED AS EXPENDITURE. FIRM INTRODUCE A SELLING SCHEME WITH FREE GIFT UP ON DIFFERENT LEVEL OF PURCHASES BY RETAILER AND DISTRIBUTORS OPERATIVE FO R THE ENTIRE PREVIOUS YEAR FROM 01.04.2008 TO 31.03.2009 RELEVANT TO A.Y. 2009-10. IN TERM OF THE PROVISION OF THIS SCHEME FREE GIFT WERE TO BE GIVEN TO ENTITLED RETAI LERS WITHIN ONE MONTH FROM 31.03.2009. THEREFORE FIRM INCURRED LIABILITY AMOU NTING TO RS.70 98 152/- BY WAY OF PURCHASE OF GIFT ARTICLES IN PERIOD FOLLOWING. T HE END OF PREVIOUS YEAR ON 31.03.2009 FIRM HAS GETS THE BENEFIT OF INCREASE SA LES BY OPERATION OF THIS SELLING SCHEME AND OFFER AS INCOME DURING THE YEAR 2009-10 AND THEREFORE FIRM IS ENTITLED TO CLAIM THIS ACCRUED LIABILITIES OF RS. 7 0 98 152/-BY WAY OF PROVISION IN THE A. Y. 2009-10. ' ITA NO 823/A HD/2014 . A.Y. 2009-1 0 3 5. THE REPLY OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE A.O. WHO PROCEEDED BY MAKING THE ADDITION OF RS. 70 98 152/- . 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND REITERATED WHAT HAS BEEN CONTENDED BEFORE THE A.O. 7. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS TH E LD. CIT(A) CALLED FOR A REMAND REPORT FROM THE A.O. WHICH WAS SUBMITT ED VIDE REPORT DATED 20.11.2013. AFTER CONSIDERING THE REMAND REPO RT QUA THE FACTS OF THE CASE THE LD. CIT(A) HELD AS UNDER:- 4.2 I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT THE REASONS RECORDED BY THE A.O. THE REMAND REPORT OF THE A.O AND THE APPELLAN TS COMMENTS ON THE REMAND REPORT. SO FAR AS OBSERVATION OF THE A.O. THAT PRO VISION FOR SELLING EXPENSES WAS NOT REFLECTED IN THE BALANCE SHEET OF THE APPELLANT IS CONCERNED IT IS SEEN THAT THE SAME IS NOT CORRECT. THE SAID PROVISION IS INCLUDED IN THE GROUPING OF SUNDRY CREDITORS SHOWN IN THE BALANCE SHEET WITH A BALANC E OF RS. 2 67 60 655/-. I AM ALSO NOT IN AGREEMENT WITH THE FINDING OF THE AO TH AT PROVISION FOR EXPENSES ARE NOT ALLOWED UNDER PROVISIONS OF IT ACT. WHEN THE AP PELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING IT IS FULLY ENTITL ED TO MAKE PROVISIONS FOR THE EXPENSES INCURRED/ACCRUED DURING THE YEAR( IF THE B ILLS FOR THE SAME WERE NOT RECEIVED DURING THE FINANCIAL YEAR) AND DEBIT THE S AME TO THE PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR. THE FREE GIFT SCHEM E INTRODUCED BY THE APPELLANT WAS FROM 01/04/2008 TILL 31/03/2009 AND THEREFORE T HE FIRM WAS ENTITLED TO DEBIT LIABILITY IN RESPECT OF THE SCHEME TO THE PROFIT AN D LOSS ACCOUNT OF THE RELEVANT PREVIOUS YEAR. ONLY ISSUE THAT COULD HAVE BEEN EXAM INED BY THE AO WAS WHETHER THE EXPENSES CLAIMED WERE GENUINE THE PROVISION MA DE WAS JUSTIFIED OR IT WAS EXCESSIVE. SINCE THE PROVISION MADE IS EQUAL TO THE ACTUAL AMOUNT PAID BY THE APPELLANT DURING THE NEXT FINANCIAL YEAR THERE IS NO DOUBT ABOUT THE CORRECTNESS OF THE PROVISION MADE. THE AO HAS OBSERVED IN THE REMAND REPORT THAT NO CR EDIT ENTRY HAS BEEN PASSED IN THE LEDGER ACCOUNT OF RESPECTIVE DEALERS. WHEN THE APPELLANT IS MAKING PROVISION ITA NO 823/A HD/2014 . A.Y. 2009-1 0 4 FOR EXPENSES HOW DOES THE QUESTION ARISE FOR MAKIN G ENTRIES INTO THE LEDGER ACCOUNTS OF THE PARTIES CONCERNED. IN ANY CASE THE GIFTS WERE TO BE GIVEN TO THE ACTUAL CUSTOMERS AND NOT THE DEALERS. THE AO HAS FURTHER OBSERVED THAT THE APPELLANT FAIL ED TO DISCHARGE THE GENUINENESS OF THE EXPENDITURE BY NOT FURNISHING CO NFIRMATION OF EACH AND EVERY DEALER FOR THE YEAR UNDER ASSESSMENT. THERE IS NOTH ING ON RECORD TO SUGGEST THAT ANY SUCH INFORMATION WAS CALLED FOR BY THE AO AT AN Y POINT OF TIME EITHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR DURING THE COURSE OF REMAND REPORT PROCEEDINGS. THE APPELLANT HAS KEPT FULL RECORDS OF PURCHASES MADE BY INDIVIDUAL CUSTOMERS THROUGH ITS DEALERS AND HAS PRODUCED THE SAME BEFORE THE UNDERSIGNED. IT HAS ALSO THE ACKNOWLEDGEMENTS OF THE RECIPIENTS OF THE GIFTS. THE AO HAS ALSO OBSERVED IN THE REMAND REPORT THAT NO EVIDENCE WAS SUBMITTED TO SUBSTANTIATE THE NEED TO FLOAT THE INCENTIVE IS SCH EME ITS ADVANTAGES TO THE BUSINESS OF THE APPELLANT AND THAT IN ABSENCE OF SU CH A SCHEME THE BUSINESS WOULD BE RUINED. THE AO HAS ALSO OBSERVED THAT THERE WAS NO COMMENSURATE BENEFIT TO THE APPELLANT AND THEREFORE GENUINENESS OF THE EXPE NDITURE IS DOUBTFUL. FLOATING OF THE SCHEME WAS A COMMERCIAL DECISION AND AO IS NOT ENTITLED TO SIT ON THE JUDGMENT WHETHER THE DECISION WAS CORRECT OR NOT. A T TIMES BUSINESS DECISIONS DO GO WRONG AND THE GENUINENESS OF THE EXPENDITURE CAN NOT BE JUDGED BY ULTIMATE BENEFITS OF THE DECISION. THE AO HAS NOT BROUGHT AN YTHING ON RECORD TO SUGGEST THAT THE EXPENDITURE INCURRED BY THE APPELLANT WAS NOT GENUINE. IN VIEW OF THESE FACTS DISALLOWANCE OF PROVISION FOR SELLING EXPENS ED AMOUNTING TO RS.70 98 152/- MADE BY THE AO IS HEREBY DELETED. 8. AGGRIEVED BY THIS THE REVENUE IS BEFORE US. THE LD . D.R. SUPPORTED THE FINDINGS OF THE A.O. AND THE LD. COUNSEL RELIED UPO N THE FINDINGS OF THE FIRST APPELLATE AUTHORITY. 9. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORD ERS OF THE AUTHORITIES BELOW. WE DO NOT FIND ANY SUBSTANCE IN THE OBSERVATIONS OF THE A.O. THAT THE PROVISION OF EXPENSES CANNOT BE A LLOWED. IF THE ITA NO 823/A HD/2014 . A.Y. 2009-1 0 5 ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG ALL THE EXPENSES PERTAINING TO A YEAR HAVE TO BE BOOKED ON ACCRUAL BASIS AT THE END OF THE FINANCIAL YEAR. MERELY BECAUSE THE A SSESSEE HAS MADE A PROVISION OF SELLING EXPENSES THE A.O. CANNOT DISA LLOW THE EXPENSES. WE FURTHER FIND NO SUBSTANCE IN THE CLAIM OF THE A. O. THAT THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS TO ESTABLISH THE G ENUINENESS OF THE EXPENDITURE. NO SUCH INFORMATION WAS CALLED FOR BY THE A.O. AT ANY POINT OF TIME DURING THE COURSE OF THE ASSESSMENT P ROCEEDINGS. FURTHER THE A.O. CANNOT SIT ON THE COMMERCIAL DECI SION OF A PRUDENT BUSINESSMAN SO AS TO DECIDE THAT THE ASSESSEE SHOUL D NOT HAVE INCURRED SUCH EXPENDITURE. IT IS PERTINENT TO MENTI ON HERE THAT THE EXPENDITURES ARE INCURRED FOR THE PURPOSES OF BUSIN ESS AND NOT FOR THE PURPOSES OF MAKING PROFIT. A COMMERCIAL DECISION OF THE ASSESSEE MAY AT TIMES GO AGAINST HIM BUT AT THE SAME TIME THE SAME CANNOT BE DISALLOWED BECAUSE IT HAS NOT GENERATED ANY PROFIT. 10. CONSIDERING THE FACTUAL MATRIX AND IN THE LIGHT OF THE ABOVE DISCUSSION WE DECLINE TO INTERFERE. APPEAL FILED BY THE REVENU E IS ACCORDINGLY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 29 - 09- 2016. SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR. ITAT AHMEDABAD.