2019 (5) TMI 1254 - AT - Income Tax

Allowability of dealers incentive - scope in remand proceedings - accrual or crystallization of expenses during the relevant previous year - HELD THAT - We wish to re-emphasize here first of all that this is second round of litigation. This tribunal s co-ordinate bench s remand directions extracted hereinabove made it clear that the impugned dealers incentive had much accrued during the relevant previous year. It further concluded that same should have been allowed by the Assessing Officer (supra). The Revenue s fails to dispute the clinching fact that our earlier remand directions had restored back the issue to the Assessing Officer only to verify whether the assessee s impugned claim confirms to the relevant terms and conditions incorporated in the dealers incentive scheme or not. The Assessing Officer appears to have been found no such irregularity in the impugned claim in light of the relevant dealers incentive scheme filed during the course of consequential proceedings. We therefore see no reason to interfere with the CIT(A) s findings deleting the impugned disallowance in tune with tribunal s first round remand directions in these peculiar facts and circumstances - Decided in favour of assessee.

Issues Involved:
1. Deletion of ?3.85 crores under the head dealers incentive.
2. Deletion of ?2.04 crores on account of dealers incentive.

Issue-wise Detailed Analysis:

Issue 1: Deletion of ?3.85 crores under the head dealers incentive

The Revenue contested the deletion of ?3.85 crores routed through the Profit and Loss Account under the head dealers incentive, arguing that the Assessing Officer's addition was based on discrepancies in the supporting credit notes furnished by the assessee. The case file indicated that the proceedings were consequential to the tribunal’s first round remand direction, which restored the dealers incentive issue back to the Assessing Officer. The assessee, a widely held domestic company engaged in the manufacture and sale of batteries, had made a provision of ?3.85 crores in its books for incentives payable to dealers and an additional claim of ?2.04 crores as a deduction in the revised return. The Assessing Officer had disallowed the additional claim, stating that the assessee did not furnish details showing that the amount pertained to the assessment year 2002-03, but allowed the provisioned amount of ?3.85 crores. The CIT(A) had enhanced the income by disallowing the entire ?3.85 crores, relying on the Supreme Court decision in Indian Molasses vs. CIT, arguing that the expenditure had not gone out of the assessee’s pocket irretrievably.

The tribunal, however, found that the dealer’s incentive had accrued during the year under appeal and should have been allowed by the Assessing Officer. The tribunal noted that the incentive scheme and credit notes were verified, and the claim was found to be as per the scheme. Therefore, the CIT(A) was justified in deleting the disallowance of ?3.85 crores, as the amount had accrued during the relevant year and was allowable.

Issue 2: Deletion of ?2.04 crores on account of dealers incentive

The Revenue also contested the deletion of ?2.04 crores routed through the balance sheet on account of dealers incentive, arguing that the assessee could not justify that this expense pertained to the assessment year in question. The tribunal noted that the assessee had filed the incentive scheme, computation of incentive for seven regions, and numerous credit notes before the Assessing Officer for verification. The Assessing Officer had issued notices to the assessee’s dealers, who confirmed the credit notes except for a few small amounts. The Assessing Officer had disallowed the claim, stating that the liability had neither accrued nor crystallized during the relevant previous year, citing the Supreme Court decision in Indian Molasses vs. CIT.

The CIT(A) found that the assessee had computed incentives as per the incentive scheme and that the details were verifiable. The CIT(A) held that the disallowance by the Assessing Officer was against the tribunal’s directions, which had already decided that the incentive had accrued during the relevant year. The CIT(A) directed the deletion of the disallowance of ?5.89 crores (?3.85 crores + ?2.04 crores), as the incentive had been computed as per the scheme and was allowable.

Conclusion:

The tribunal upheld the CIT(A)’s decision to delete the disallowance of ?5.89 crores on account of dealers incentive, finding that the incentive had accrued during the relevant year and was allowable as per the incentive scheme. The Revenue’s appeal was dismissed, and the order was pronounced in open court on 24/04/2019.

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