2022 (3) TMI 1072 - AT - Income Tax

Addition of Medical Check-up Provision (MCP) - assessee submitted that it had four different health packages for sale to customers during the year and there was a fixed cost involved for the medical check-ups under such packages, which was to be paid to the empanelled hospitals at the time of their performing the medical check-ups, which facility could be availed by its customers within three years from the date of sale of package - CIT-A deleted the addition - HELD THAT - AR fairly admitted that such details of the creation of the MCP were not furnished to the AO as those were claimed not to have been requisitioned from the assessee. It was only before the ld. CIT(A) that the assessee furnished necessary details concerning the MCP. In view of the fact that the ld. CIT(A) deleted the addition made by the AO on this score without calling for the remand report of the AO and further knowing well that such details were not available before the AO, we consider it expedient to set-aside the impugned order and remit the matter to the file of the AO. We order accordingly and direct him to decide this issue afresh by allowing deduction of the MCP created during the year on the basis of number of packages sold as reduced by the reversal of the amount of provision on the expiry of three years period from the date of sale of package for non-availing the facility of medical check-ups. Needless to say, the assessee will place on record all the necessary details in this regard to facilitate the determination of the deductible amount. Deduction us.37(1) on account of Escrow Disbursement Provision ('EDP ) - HELD THAT - Whatever amount of Incentive is paid by the assessee during the year, notwithstanding the year of sale of package, would qualify for deduction. There is a caveat to it. The assessee has been allowed deduction at the time of creation of the Escrow Disbursement Provision up to the A.Y. 2012-13. Such deduction of the provision allowed in the earlier years includes the Incentive payable to CDs during the years to come. Once deduction has been allowed at the time of creation of the EDP, allowing another deduction at the time of payment in the regime of allowing deduction on payment basis, will amount to double deduction, which is impermissible. It has been brought to our notice that the assessee maintains a complete Incentive payment record for each year indicating the respective year of the sale of packages in respect of which the Incentive is paid during the year. Thus, the amount of deduction for Incentive payment to be allowed in the year under consideration will be determined by finding out the total payments made during the F.Y. 2012-13 on this score, as reduced by the payments made in respect of packages sold up to the F.Y. 2011-12. To put it simply, the AO will bifurcate total Escrow Disbursement payment of ₹ 20,76,35,244/- made during the year into the amount of Escrow Incentive in respect of packages sold during the year itself and incentive for the packages sold in earlier years. Deduction of Escrow incentive for the year will be allowed only in respect of the packages sold during the year because for the packages sold in earlier years, the assessee has already availed deduction at the time of creation of the EDP in such earlier years. We, therefore, set-aside the impugned order on this count and remit the matter to the file of the AO for re-determining the amount of deduction accordingly Disallowance of the difference between the Escrow Disbursement Provision and Escrow Disbursement Payment - A.Y. 2014-15 - HELD THAT - In view of our decision rendered supra for the A.Y. 2013-14, we set-aside the impugned order and remit the matter to the file of the AO for allowing deduction of Escrow incentive on the basis of payment made during the year for a sum of ₹ 14.34 crore, as reduced by the payments pertaining to the packages sold in the years prior to and including the financial year relevant to the A.Ys. 2012-13. The reason for such a reduction is that the assessee got deduction up to the A.Y. 2012-13 on the basis of creation of the EDP and hence payments made during the year under consideration out of such provisioned amounts cannot again qualify for deduction. However, for the A.Y. 2013-14, we have directed to grant deduction on payment basis, the consequence of which is that the Incentive paid during the year under consideration pertaining to the sale of packages during the financial year relevant to the A.Y. 2013-14, will also qualify for deduction on payment basis. However, it is clarified that in case the total disallowable amount of Escrow Disbursement for the year under consideration exceeds ₹ 1.99 crore, as disallowed by the AO in the assessment order, the disallowance will be restricted to such a level because the Tribunal has no power to order enhancement. We, therefore, set-aside the impugned order and remit the matter to the file of the AO for doing the exercise of allowing deduction of Escrow Incentive. Appeals are allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of addition of Medical Check-up Provision (MCP) for A.Y. 2013-14.
2. Allowing deduction of Escrow Disbursement Provision (EDP) under section 37(1) of the Income-tax Act, 1961 for A.Y. 2013-14.
3. Deletion of addition of Escrow Disbursement Provision (EDP) for A.Y. 2014-15.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Medical Check-up Provision (MCP) for A.Y. 2013-14:
The Revenue contested the deletion of the addition of ?16,51,23,783/- related to the Medical Check-up Provision (MCP). The assessee, engaged in promoting preventive health check-ups, created an MCP of ?20.68 crore based on the number of health packages sold, each having a fixed cost for medical check-ups payable to hospitals. The Assessing Officer (AO) added the closing balance of ?16.51 crore to the income, citing a lack of detailed basis for the provision. The CIT(A) deleted this addition after the assessee provided necessary details. The Tribunal noted that the details were furnished only before the CIT(A) and not the AO. Therefore, the Tribunal remitted the matter back to the AO for a fresh decision, directing the AO to allow deduction of the MCP created during the year based on the number of packages sold, reduced by reversals for non-availing the facility within three years.

2. Allowing Deduction of Escrow Disbursement Provision (EDP) for A.Y. 2013-14:
The Revenue challenged the deduction of ?18,82,70,667/- claimed under the Escrow Disbursement Provision (EDP). The assessee, using a multi-level marketing scheme, created the EDP based on the number of packages sold and the associated Indus Value Points (IVPs). The AO disallowed the closing balance of ?18.82 crore, citing the provision as unscientific and unsupported by data. The CIT(A) deleted this addition. The Tribunal noted discrepancies in the assessee's calculations, such as an excessive rate per IVP and higher sales count. It found that the provision was not reversed when not utilized, leading to inflated closing balances. The Tribunal held that the deduction should be allowed on an actual payment basis, not on provision creation, to avoid double deductions. The matter was remitted to the AO to determine the deductible amount based on actual payments made during the year, excluding payments for packages sold in earlier years.

3. Deletion of Addition of Escrow Disbursement Provision (EDP) for A.Y. 2014-15:
For A.Y. 2014-15, the Revenue contested the deletion of ?1,99,17,012/- related to the EDP. The facts were similar to the preceding year, with the provision created in the same manner and no part reversed. The AO disallowed the difference between the provision and actual payments. The Tribunal, following its decision for A.Y. 2013-14, directed the AO to allow deduction on an actual payment basis, excluding payments for packages sold in earlier years. The disallowance was capped at ?1.99 crore, as the Tribunal cannot order enhancement. The matter was remitted to the AO for re-determination, ensuring the assessee is given an opportunity for a hearing.

Conclusion:
Both appeals were allowed for statistical purposes, with directions for fresh consideration by the AO based on actual payments and necessary details provided by the assessee. The Tribunal emphasized the need for a scientific and accurate basis for provisions and their subsequent adjustments.