2015 (2) TMI 774 - HC - Income Tax

Prior period expenses - liability for over a 12 year period - Disallowance for salary of Managers, Officers on deputation from Hindustan Lever Ltd. for the earlier years - Tribunal deleted disallowance - Held that - So far as the sum of ₹1.52 crores is concerned, HLL never appears to have pressed for the arrears of wages and salaries for its employees for the period 1999-2003 to the extent claimed by the assessee on the basis of the debit note. Furthermore, large part of those amounts was in fact time-barred. That the debit note demanded ₹1.52 crores may be a matter of record. There is no evidence on the record that at any time during the relevant period 1999-2003 provisions were ever made on the basis of any material to suspect such claims by HLL. At the same time the Court cannot ignore the circumstance that the overwhelming majority of the Board of Directors of the assessee was comprised of HLL s nominees who could conveniently impose this law which they did. The palpable exaggeration of this claim is also evident from the fact that HLL subsequently in the year 2013 conceded that it only claimed ₹81,22,072/-, which was payable towards the balance part of the payment of salaries of supervisors etc. In the circumstances, this Court is of the opinion that the ITAT s reasoning affirming the order of the CIT(A) is entirely without justification. - Decided in favour of the revenue. Additional payment for earlier years towards short payment of processing charges - Tribunal confirmed deletion of addition done by CIT(A) - Held that - Both the CIT and the ITAT took note of the fact that these amounts were disputed and were mere claims. The Company Court rejected it in its judgment dated 25.4.2013. In these circumstances, the Court finds no reason to interfere with the impugned judgment and the question of law is accordingly answered in affirmity and against the revenue.

Summary

Issues:
1. Disallowance of cost paid to Hindustan Lever Ltd. for salary of Managers, Officers on deputation
2. Addition of claim for additional payment for earlier years towards short payment of processing charges

Analysis:

Issue 1: Disallowance of cost paid to Hindustan Lever Ltd. for salary of Managers, Officers on deputation
The case involved the assessee making a provision of Rs. 1.52 crores on account of a debit note raised by Hindustan Lever Ltd. (HLL) at the time of handing over documents to the company. The Assessing Officer (AO) disallowed this amount, claiming it pertained to salary payable for the period 1998-2002. The Court noted that the liability crystallized due to a Board Resolution in 2003 and held that the deduction could not have been disallowed solely based on the liability pertaining to earlier years. The Court further observed that HLL denied charging the amount claimed by the assessee, stating that a lesser sum was payable. The Court found no evidence of provisions made during the relevant period to support the exaggerated claim. The Court concluded that the ITAT's reasoning upholding the CIT(A)'s order was unjustified, ruling in favor of the revenue on this issue.

Issue 2: Addition of claim for additional payment for earlier years towards short payment of processing charges
Regarding the addition of Rs. 24.30 crores claimed by the assessee from HLL for short payment of processing charges, the CIT and ITAT noted that the matter was sub-judice and pending adjudication in the Company Court. The Company Court rejected the claim in its judgment. The Court agreed with the lower authorities that the claim was disputed and a mere claim without any right to receive the amount. The Court found no reason to interfere with the lower judgments and answered the question of law in affirmity and against the revenue. Consequently, the appeal was partly allowed on this issue.

In conclusion, the High Court partially allowed the appeal, ruling in favor of the revenue on the disallowance of the cost paid to HLL for salary and in affirmity of the lower judgments on the addition of the claim for additional payment for earlier years towards short payment of processing charges.