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2019 (4) TMI 204 - AT - Income TaxDisallowance of expenditure / provision made on account of accrued incentive - assessee has made a provision for the performance based incentive of the employees - as submitted payments to be made to the employees for encouraging them to promote business of the assessee - HELD THAT - The above provision has been made by the assessee on year-to-year basis on the basis of the performance of the employees. The excess provision is always written back to the profit and loss account in the subsequent year, if it is found to be short, further provision is made. This accounting practice is carried on by the assessee consistently. As the expenditure has been incurred for the incentive of the employees of the company raised on their performance for the same year for which the actual services have been rendered by the employees, above expenditure has been incurred by the assessee during the year only and exclusively for the purposes of the business. Expenditure has been made on the basis of the performance of the employees and allocated to each of the employees it is an ascertained provision. According to us it is a definite and accrued liability of the assessee for the year for which the services have been rendered by the employees. It is nothing but additional variable salaries payable to the employees. Same partakes character of salary. - Decided in favour of assessee Disallowance of depreciation on 12 vans - HELD THAT - On the fact that the assessee has shown the purchase of these vehicles, obtained the temporary registration of these vehicles, shown that after bodybuilding they have been received back by the assessee from 22 to 25/03/2004, and they have been used for the purposes of the shooting during the year, it cannot be said that assessee has not used these vans for the purpose of the business of the assessee. Therefore according to us, assessee has also satisfied user test for allowability of depreciation.- Decided in favour of assessee Addition on account of advances written off - advance given to employees who left - business loss - HELD THAT - advances were given to employees for the purposes of business, such advances have become bad as employees left the assessee. They are not in the nature of bad debt so, not required to have been credited to Profit and Loss A/c in earlier periods. Conditions of allowability of bad debts do not apply to business losses. We do not find any infirmity in the order of the learned CIT A and therefore the order of the learned CIT A is confirmed. Addition of interest payable to Prasahar Bharti for non-deduction of tax - CIT A has deleted the disallowance since Prashar Bharti is a corporation and not liable to pay income tax on its income as provided under 196 (ii) - HELD THAT - Though we find that Prasar Bharti has been established under the Prasar Bharti Act. CIT(A) has not given any reason that how interest earned by it is exempt from tax. Provisions of section 10(23BBH) exempts income of Prasar Bharti . Above section was inserted w.e.f. 01.04.2013 (i.e AY 2013-14). Therefore, up to that Assessment Year income of Prasar Bharti was not exempt. Hence, as the impugned assessment year is prior to the date of Assessment Year 2012-13, we are of the opinion that assessee should have deducted tax at source on income of interest paid to Prasar Bharti. We reverse the order of the ld CIT(A) and restore the order of the AO Addition of software expenses - revenue or capital expenditure - AO granted assessee 60% of the depreciation holding that software expenditure is a capital expenditure in nature - HELD THAT - CIT A who held that software expenditure incurred by the assessee is an application software for upgradation. The assessee has not incurred any expenditure on acquiring any asset of enduring nature. He further relied upon the decision in case of Ashahi Glass Works Limited 2011 (11) TMI 2 - DELHI HIGH COURT . In view of this we do not find any infirmity in the order of the learned CIT A in deleting the above disallowance. Addition on account of provision consumption of debtors - claim of the assessee is that company has given discount to its debtors based on consumption of Airtime during the current year - HELD THAT - The assessee company sale space in its channels to advertiser usually a unit of sale of space is 10 seconds. The assessee company gave various schemes to its advertiser like consumption incentive, series discount etc. In case of consumption incentive, the advertisers are given an offer that in case if it consumes particular amount of time during the given period for broadcasting and advertising then it will be entitled to the consumption incentive. During the year, assessee has passed on this consumption incentive of ₹ 34059992/ . Learned CIT(A) has held that this is the expenditure in the nature of incentive to the advertiser and the assessee has also shown income against this expenditure. Before the learned CIT A the assessee demonstrated by producing the copies of the deals of some of the parties and shown that it is not an asset or liability but actual expenditure. As held that assessee is eligible for deduction of the above expenditure. DR could not point out any infirmity in the order of the learned CIT(A). We confirm the order of the learned CIT(A) Disallowance of software expenditure - assessee has not furnished the adequate details before the lower authorities to demonstrate that the software expenditure incurred by the assessee is whether revenue expenditure or capital expenditure? - HELD THAT - As the assessee has not submitted any details before the lower authorities, this ground of appeal is once again set aside back to the file of the learned assessing officer with a direction to the assessee to substantiate it within 30 days of this order before the assessing officer by submitting the proper evidences in the form of the bill and the nature of the software to demonstrate how they are of the revenue expenditure. In the result ground number 4 of the appeal of the assessee is allowed with above direction. Addition u/s 14A - disallowance of expenses for earning dividend income - HELD THAT - satisfaction is the mandatory requirement for invoking the provisions Section 14A read with Rule 8D of the Income Tax Rules for making any disallowance. As the learned assessing officer has not recorded any satisfaction about the correctness of the claim of the assessee about the disallowance made by it in its tax audit report, the disallowance made by the learned assessing officer is not sustainable. Disallowance towards leave encashment expenditure - HELD THAT - Assessee has claimed leave encashment expenditure without making any payment. As the provisions of section 43B (f) of the income tax act is very clear. Therefore, we upheld the disallowances of leave encashment expenditure under section 43B of the income tax act.
Issues Involved:
1. Disallowance of accrued incentive. 2. Disallowance of depreciation on OB Vans. 3. Disallowance of advances written off. 4. Disallowance of interest payable to Prasar Bharti. 5. Disallowance of software expenses. 6. Disallowance of provision consumption debtors. 7. Disallowance of expenses for earning dividend income. 8. Disallowance of leave encashment. Detailed Analysis: 1. Disallowance of Accrued Incentive: The assessee contested the disallowance of ?2,05,69,764/- on account of accrued incentive, arguing it was meant for employees based on their performance during the financial year 2003-04. The Tribunal found that the assessee had provided detailed employee-wise accrued incentive lists and that the incentive was a definite and accrued liability, akin to additional variable salaries. Thus, the disallowance was reversed, and the amount was allowed as a deduction. 2. Disallowance of Depreciation on OB Vans: The assessee claimed depreciation of ?1,55,26,521/- on OB Vans used for business purposes. The AO disallowed it, stating the vans were not permanently registered and thus not used for business. The Tribunal found that the vans were temporarily registered, used for business, and the invoices and utilization reports supported the claim. Therefore, the disallowance was reversed, and depreciation was allowed. 3. Disallowance of Advances Written Off: The AO disallowed ?80,861/- claimed as advances written off, arguing these advances were never part of credit entries in the profit and loss account. The Tribunal upheld the CIT(A)'s decision, stating the advances were given to employees for business purposes and were written off as a loss when employees left without returning the advances. Thus, the disallowance was deleted. 4. Disallowance of Interest Payable to Prasar Bharti: The AO disallowed ?62,54,353/- for non-deduction of tax on interest payable to Prasar Bharti. The CIT(A) deleted the disallowance, noting Prasar Bharti's income was exempt from tax. However, the Tribunal found that this exemption applied only from AY 2013-14. Thus, the disallowance was reinstated for the assessment years in question. 5. Disallowance of Software Expenses: The AO treated software expenses as capital expenditure and allowed only 60% depreciation. The Tribunal noted the assessee failed to provide sufficient details to prove the expenses were revenue in nature. Therefore, the issue was remanded back to the AO for reassessment, directing the assessee to substantiate the claim with proper evidence. 6. Disallowance of Provision Consumption Debtors: The AO disallowed ?3,40,59,992/- stating it was a provision for discount and not an actual expense. The Tribunal upheld the CIT(A)'s decision, noting the discount was an incentive given to debtors based on airtime consumption, supported by detailed records and deal copies. Thus, the disallowance was deleted. 7. Disallowance of Expenses for Earning Dividend Income: The AO applied Rule 8D to disallow ?36,73,276/- for earning exempt income. The Tribunal found the AO did not record satisfaction about the correctness of the assessee's claim of ?3,91,960/- as disallowable expenses. Thus, the additional disallowance was deleted. 8. Disallowance of Leave Encashment: The AO disallowed ?2,37,97,880/- for leave encashment based on Section 43B(f), as the Supreme Court stayed the Calcutta High Court's decision allowing such claims without actual payment. The Tribunal upheld the disallowance, affirming the application of Section 43B(f). Conclusion: The Tribunal provided a detailed analysis and rulings on each issue, reversing some disallowances and upholding others based on the merits of the evidence and legal provisions. The decisions reflect a thorough examination of the facts and adherence to legal standards.
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