2017 (2) TMI 406 - AT - Income Tax

Revision u/s 263 - addition of performance bonus of the earlier years - Held that - we find that it was only by the end of July, 2010 the assessee company could quantify the performance bonus, and could pay it only alongwith the salary for the Month of August, 2010 payable in the month of September, as such by no stretch of imagination could we say that the assessee could have crystallized the liability during the FY 2009-10 itself or before the due date of filing of return. Addition of advertisement expenses Held that - AR submission that arm s length price has to be considered, and the Ld. Pr. CIT compared the figures of 2010-11 with the figures of 2007-08 which does not reflect the correct state of affairs is very much acceptable. Further, Ld. AR invited our attention to pages 151 and 153 of the paper book wherein the assessee clearly submitted his contentions in respect of advertisement and selling expenses. Having considered the same, the AO took a probable view that such expenses are allowable as deductions. When we considered this fact in the light of the contemporaneous advertisement charges incurred by several players in the market or by the assessee in successive years, we find that the AO s allowing the same as deduction was not without enquiry or consideration of such facts, as such, the substitution of the opinion of the Ld. Pr. CIT is not justified for revision of the same u/s. 263 of the Act. Addition of service tax - Held that - Merely because the practical wisdom dawned over the head of the assessee or his Ld. AR at a later point of time, the same cannot become unworthy of consideration or should be looked with suspicion. Ld. Pr. CIT is under a statutory obligation to verify the liability of service tax components in the hands of the assessee and in the hands of the landlord and since the landlord is under a statutory obligation to remit it to the government, section 43B of the Act is applicable only in respect of landlord. Ld. Pr. CIT should have taken the view that in the hands of the assessee such a liability assumes the character of contractual liability as such, sec. 43B of the Act has no application. Thus we are convinced that such a course taken by the Ld. Pr. CIT is beyond the scope of section 263 of the Act and it is for the Ld. Pr. CIT to pursue his basis to initiate proceedings vide show cause notice dated 17.02.2016 to their logical conclusion. His observation that there was no proper or adequate enquiry by the AO on these aspects is a clear shift of stand which is not permissible under law. - Decided in favour of assessee

Issues Involved:
1. Revision of assessment order under Section 263 of the Income-tax Act, 1961.
2. Disallowance of expenses pertaining to earlier years.
3. Examination of advertisement and selling expenses.
4. Disallowance of service tax on rent under Section 43B of the Act.

Issue-wise Detailed Analysis:

1. Revision of Assessment Order under Section 263 of the Income-tax Act, 1961:
The Principal Commissioner of Income Tax (Pr. CIT) issued a notice proposing revision under Section 263 of the Act for the assessment year 2011-12, citing three main issues. The assessee contended that the revision was beyond the scope of the rectification order dated 04.08.2014 and that the Pr. CIT exceeded his powers under Section 263. The Tribunal found that the Pr. CIT intended to revise the original assessment order dated 31.03.2014, and any clerical or typographical errors in the date did not affect the validity of the notice. The Tribunal dismissed the assessee's grounds related to this issue, affirming that the Pr. CIT's intention was clear and within the period of limitation.

2. Disallowance of Expenses Pertaining to Earlier Years:
The Pr. CIT proposed disallowing ?3,38,99,000/- related to performance bonuses from earlier years, arguing it should not be allowed in the assessment year 2011-12. The assessee argued that the liability for performance bonuses crystallized only after the end of the financial year, citing Supreme Court decisions in Laxmi Devi Sugar Mills and Swadeshi Cotton & Flour Mills. The Tribunal agreed with the assessee, noting that the liability was quantified and paid in September 2010, and thus could not have been crystallized during the financial year 2009-10. The Tribunal found the Pr. CIT's stand on this aspect incorrect.

3. Examination of Advertisement and Selling Expenses:
The Pr. CIT noted a significant increase in advertisement expenses from ?2,68,62,000/- in FY 2007-08 to ?23,22,39,000/- in FY 2010-11, suggesting a need for reappraisal. The assessee argued that such expenses constituted a reasonable percentage of sales and were comparable to competitors' expenses. The Tribunal found that the Assessing Officer (AO) had made specific inquiries and allowed the expenses after considering the submissions. The Tribunal held that the Pr. CIT's substitution of his opinion for the AO's was not justified for revision under Section 263.

4. Disallowance of Service Tax on Rent under Section 43B of the Act:
The Pr. CIT proposed disallowing ?3,67,21,865/- as service tax on rent, arguing it was not paid to the government account before the due date. The assessee contended that the service tax was a contractual liability between the assessee and the landlord, not a statutory liability, and thus Section 43B did not apply. The Tribunal agreed with the assessee, noting that the liability to remit service tax to the government was on the landlord, and Section 43B applied only to the landlord's statutory obligation. The Tribunal found the Pr. CIT's approach incorrect.

Conclusion:
The Tribunal quashed the Pr. CIT's order under Section 263, finding that the AO had made proper inquiries and allowed the expenses based on the information and submissions provided by the assessee. The Tribunal allowed the assessee's appeal, concluding that the Pr. CIT's revision was not justified on merits.

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