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TMI Blog2015 (9) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... business of manufacturing of electrical and electronics goods claimed exemption u/s 80IB. Return declaring an income of Rs. 63,77,436/- was filed. The said return was processed u/s 143(1) and subsequently subjected to scrutiny assessment after issuance of notice u/s 143(2) etc. after giving various opportunities to the assessee to file the necessary details in support of its claims. Ultimately the AO made additions on the basis of information available on record. Thereby concluding the assessment at a figure of Rs. 1,43,77,550/-. 3. The additions were challenged in appeal before the CIT(A) wherein the appeal of the assessee was partly allowed as deduction u/s 80IB amounting to Rs. 27,28,194/- was allowed by the CIT(A) and the addition made by way of disallowance of additional discount shown payable to Controls & Switchgears Co. Ltd. of Rs. 6,71,415/- was also reversed. Aggrieved by this relief the Revenue is in appeal before the ITAT. The assessee did not succeed in the challenge posed to the addition made by way of a disallowance of additional discount claimed to have been paid to M/s Sudhir Gensets Ltd. amounting to Rs. 46 lacs which was confirmed in appeal by the CIT(A). Aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was his submission that the addition has wrongly been sustained. 4.1. Addressing the facts as brought out in the synopsis filed, it was his submission that the assessee is a joint venture company between VK SEG, Germany and the Controls Group, India. It was submitted that the assessee is manufacturing alternators which form part of the Generator sets manufactured by M/s Sudhir Gensets Ltd. The additional discount it was submitted has been incurred in regard to the claim made since earlier years by M/s Sudhir Gensets Ltd. on account of the cost incurred by them which as claimed by them resulted in marketing benefits for the assessee company as a result of sale of generators by M/s Sudhir Gensets Ltd. The claim of Rs. 46 lacs it was submitted allowed by the appellant company related to sales made during the year ended 31.03.2000, 31.03.2001 and 31.03.2002. It was submitted that it is not a case of amount paid but it is a credit given to M/s Sudhir Gensets Ltd. against amounts withheld by them out of sales made to them. These arguments, it was stated have been placed on record by way of a synopsis filed. In the facts of this factual background, inviting attention to the case made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is not clearing its dues fully for the reason that it was claiming the cost of indirect benefit by the company in the year ended 31.03.2000 and 31.03.2001 which are at Paper Book pages 9, 10 & 12 and the dues were not being cleared so much so there was an amount of Rs. 1.30 crore due at the beginning of the year as at 01.04.2002 (Paper Book 15). These facts itself demonstrate that the customer was not paying its dues thus in order to settle the claim where the company had sold during the 3 years upto 31.03.2002, the goods worth Rs. 11.62 crores. The claim for compensation for the cost incurred on marketing of generators and the consequent indirect benefit obtained by the company, the company finally decide to settle and the Head (F&A) who was asked to coordinate the negotiation between the Directors and marketing heads. Against the claim of Rs. 49.09 lacs, it was submitted the amount of Rs. 46 lacs was negotiated. The relevant documents it was submitted were available at pages 16-17, 24 & 15 as pursuant to this settlement, the customer paid the dues. The additional discount it was submitted was necessary keeping in view the demands of commercial expediency, based upon ordinary p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m.); 5. State Bank of Saurashtra 93 ITD 662 (Ahd); and 6. Silicon Graphics Systems (2007) 106 TTJ (Del.) 1153 4.7. The expenditure it was claimed was laid out wholly and exclusively for the purposes of trading and business and business purposes it was submitted is a term of wide amplitude and the business purposes cannot be for earning profits but for purposes of the business and it is for the businessman to decide the need for incurring the expenditure. For the said purpose, reliance was placed upon the following decisions:- 1. Malayalam Plantations 53 ITR 140, 150 (SC); 2. Madhav Prasad Jatia 118 ITR 200, 208 (SC); 3. SA Builders 288 ITR 1 (SC); 4. Sweadeshi Cotton Mills 63 ITR 57 (SC) 4.8. Relying upon the decision of the SA Builders 288 ITR 1 (SC) rendered by the Apex Court, it was submitted that commercial expediency is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purposes of business. Various decisions in this context were relied upon as extracted from the Chaturvedi & Pithisaria-Vol. 2 (Fifth Edition) at pages 2124, 2126, 2127, 2129 and 2130. 4.9. It was his submission that in the eventuality, the arguments advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled are internal self created documents in the absence of the basic evidence of a dispute at all cannot be accepted. On record it was submitted there is not a single evidence of M/s Sudhir Gensets actually insisting for a commission over and above the commission already earned as per arguments etc. It was his submission that this is an assessee who is claiming 80IB deductions which facts should be kept in mind. The resolution of the Board, the other internal documents relied upon it was submitted were all self created circumstantial internal documents and at best could have been relied upon in support of some basic document establishing a dispute. The crucial independent evidence of third party evidences capable of demonstrating a dispute have never been placed on record. It was his submission that it is not the claim of the assessee that the evidences can be brought on record and by over sight were not made available to the AO. It was emphasized that no such claim has been made by the assessee at any stage of existence of any independent evidence. It was submitted that consequently no such permission has been sought by the assessee in the present proceedings also. The documents i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is called upon to give a discount to it. It was his submission that even if such a strange claim is made than atleast some evidence would necessarily have to be brought on record to demonstrate that there was a dispute it cannot be left to conjecture and surmises a criticism normally labeled on the Revenue. In the facts of the present case, it was submitted the assessee would want to conjecture and surmise in the absence of hard independent evidence to demonstrate that there was adjustment when on facts the assessee has failed consistently to demonstrate that there was a dispute. 6. We have heard the rival submissions and perused the material available on record. A perusal of the assessment order shows that after recording the number of opportunities given to the assessee at page 1 and page 2 of the assessment order the AO proceeded to consider the issue at page 3 of his order with the following observations and in the following manner:- "The above details clearly state that the assessee company was given sufficient time, a number of opportunities to file details and clarifications on certain issues. In these circumstances, I have no alternative but to decide the case on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hearing to prove that discount @ 3.5% was payable to the party after a period of 3-4 year. Further there is no mention of such claim in the Notes to accounts for these years. After considering the facts and circumstances of the case, it is concluded that this is an after thought that the assessee has allowed a sum of Rs. 46,00,000/-on account of Discount on the sales transactions made with Sudhir Industries Gensets Ltd. in earlier years. Thus the claim of an amount oJRs.46,00,000/- on account of Discount allowed to Sudhir Gensets Ltd. is rejected and added to the income for the year under consideration." (Emphasis provided) 6.2. The record shows that the assessee filed fresh evidences before the CIT(A which were accepted and remanded to the AO and considering the evidences the Remand Report and the arguments of the assessee the CIT(A also rejected the claim of the assessee. These facts are brought out from the following extracts of the impugned order:- "3.1. The relevant portion of the remand report on the issue relating to the disallowance of additional discount to the extent of Rs. 46,00,000/- is extracted below:- "During the course of assessment, it was observed that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting their Gen sets to the ultimate customers through their marketing network. The party Sudhir Gensets Ltd. was claiming additional discount in lieu of the indirect marketing which they stated that they had achieved and were able to help in the growth of the sales. A perusal of the copy of account for A.Y. 2001-02 at page 2, 3 & 4 would show that the amount recoverable from the party had increased to Rs. 1,85,95,910/-. During the A.Y. 2002-03 the amount recoverable from Sudhir Gensets Ltd. was Rs. 1,30,53,227/- (Refer page 6). During all these financial years the company representatives were trying to recover the amounts due from the customers. Sudhir Gensets Ltd. was insisting on additional discount which they claimed was due to them. In view of the exigencies of business the finance head was asked to pursue the matter and give his recommendation. To settle the matter amicably the head of finance recommended that through the efforts of the marketing heads and the directors of the two companies the amount of claim of Rs. 49. 09 lacs was negotiated to Rs. 46.00 lacs on the condition that the balance would be paid by Sudhir Gensets Ltd. Copy of the note of the head of finance is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction of additional discount. Therefore, I have no hesitation in holding that the appellant has not been able to either furnish/adduce any evidence or explain during the appellate proceedings also as to how and why the expenses in question were helpful in promoting its business and the benefit that the business of the company acquired therefrom. In order to claim a deduction on account of expenditure for purposes of business the onus lies on the assessee to prove that the expenditure was incurred for the purposes of business and was not of a capital nature. Merely because a businessman books the expenditure in its profit & loss account and claims the same for deduction does not necessarily lead to the conclusion that the expenditure was of a revenue nature. In order that an expenditure should qualify for deduction as contemplated by section 37(1), one of the requirements of the provision is that the expenditure must have been laid out wholly and exclusively for the purpose of the business. It cannot be disputed that before an assessee can become entitled to an allowance under that provision, he must satisfy the Assessing Officer of the purpose for which the amount is spent. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. Nothing has been placed before us despite repeated queries as to how and why the settlement was arrived at the amount of Rs. 46 lacs and why not Rs. 40 lacs or 47 lacs. The self-serving note of the Director (F&A) who states that the disputes have been settled at a specific amount on a specific date without any reference as to who on behalf of the M/s Sudhir Gensets Ltd. was negotiating for the claim does not inspire any confidence whatsoever. Thus the assessee's claim based on these evidences has rightly been rejected and does not inspire any confidence whatsoever either on in its authenticity nor on its genuineness. 6.4. The Ld. AR has also taken the plea that the issue is decided on wrong facts as the AO has erred in holding that the amounts were paid to M/s Sudhir Gensets Ltd. whereas it was an adjustment. We find that even if this plea is accepted which on facts we find cannot be accepted for reasons to be addressed later we hold that it is not this error which has resulted in negating the claim. The reasons for rejection of assessee's claim is that the evidence is unilateral and in the absence of independent evidence is not reliable. Thus the error if any, in considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirement to demonstrate that there was a dispute. The unilaterally signing of a paper does not convert it into an Agreement as there is no reference therein as to who participated if at all for M/s Sudhir Gensets. Even orally Ld. AR has stated his inability to make any statement thereon. Ld. AR was unable to address the issue and also did not even once state that he may be given time to find out and was categoric in his stand that there is no other evidence available. Thus where the evidence that there was a dispute at all is found wanting the argument that the dispute was settled unilaterally based on the document can not be believed. In the entire factual gamut of the evidences and pleadings the reliance placed on judgements that the claim has to be allowed in the year when it was crystallized is misplaced. For similar reasons, reliance placed on judgements for the proposition that it is for the assessee to decide whether any expenditure should be incurred for the business is misplaced on facts as it is nobodies case that the Revenue can suggest what expenditure is to be incurred. Similarly it is nobodies case that the Revenue can dictate whether the discount is reasonable or ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- made by the AO by disallowing the additional discount paid. 2.1. The learned CIT (Appeals) has ignored the fact that the assessee could not file necessary evidence in support of its claim during assessment proceedings. 03. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in deleting the addition of Rs. 27,28,194/- made by the AO by disallowing the deduction under section 80IB. 3.1. The Ld. CIT (A) ignored the fact that the assessee could not file necessary evidence in support of its claim during assessment proceedings. 04. The Ld. CIT (A) has erred in accepting and relying of the additional evidences as the comment of the AO in the remand report are confirmatory in nature and not acceptance of the additional evidences. 05. The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of hearing." 9. Qua Ground No.2 & 2.1 is seen that the AO made an addition of Rs. 6,71,415/- holding that the said amount paid to M/s Controls & Switchgears Ltd. is not ascertained liability and since it was a provision which was neither paid nor crystallized, it could not be added as an expenditure. The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been paid off in the year ended 31st March 2003. Under the circumstances stated above, the Assessing Officer is directed to delete the addition of Rs. 6,71,415/- on account of additional discount paid to M/s Controls & Switchgears Co. Ltd. As a result, ground of appeal No. 2 is allowed." 10. Aggrieved by this, the Revenue in appeal before the Tribunal. 11. Since the issue was given up by the AO in the remand proceedings the Ld. Sr. DR addressed both the issues in the departmental appeal together. Thus, we proceed to address the next issue in the departmental appeal. 12. The facts relatable to Ground No.3 and 3.1 of the Revenue. For readyreference they are extracted hereunder:- 03. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in deleting the addition of Rs. 27,28,194/- made by the AO by disallowing the deduction under section 80IB. 3.1. The Ld. CIT (A) ignored the fact that the assessee could not file necessary evidence in support of its claim during assessment proceedings. 13. Considering the facts, the AO came to the following conclusion:- "I have carefully gone through the contents of the reply. Assessee coy was incorpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- under section 80IB of the Act. The relevant portion of the remand report on the issue is reproduced below:-"During the course of assessment, it was noticed that the assessee had claimed deduction under section 80IB @ 30% of the profit Rs. 27,28,194/- on verification of the certificate issued the Department of Industrial Development secretariat for industrial approvals that the certificate so issued was valid for a period of three years from the date of issue of the letter. The letter further says that if, commercial production is not established within that period the company should apply for a fresh registration or such other approval as may be required under the policy prevalent at that time. The Assessing Officer disallowed the claim of the assessee for deduction under section 80IB holding that the deduction was allowable for three years only. The assessee has submitted that this certificate was issued for the purpose that the assessee must start production within three years of its date of issue. The assessee company started commercial production of its products on 01.09.1993 which is within the time limit allowed by the Government. Hence, the deduction under section 80lB ..... X X X X Extracts X X X X X X X X Extracts X X X X
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