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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 ..... we are not required to address the reasons why M/s Sudhir Gensets Ltd. does not want to come forward and the assessee is reluctant to place any evidence from the so-called affected party. The assessee’s reluctance to address the same is a motive which we do not want to conjecture suffice it to conclude that the claim has rightly been rejected on facts. Since the payments were withheld the assessee could have claimed as a bad debt and the debit notes placed on record amount to the writing of these claims. These arguments have been opposed by the Ld. Sr. DR that no such claim was made before the AO and nor has it been raised by way of a ground and have only come as an afterthought deserve to be accepted. Since the so called dispute itself is not established before us we find that the claim put forth as an aftherthough has to be rejected as the evidence does not inspire any confidence. - Decided against assessee. - I.T.A .No.-5581/Del/2010, I.T.A .No.-5826/Del/2010 - - - Dated:- 26-8-2015 - SMT DIVA SINGH AND SH. N.K.SAINI, JJ. For The Appellant : Dr. B.R.R.Kumar, Sr.DR For The Respondent : Anil Bhalla, CA ORDER PER DIVA SINGH, JM These are cross ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Sudhir Gensets Ltd. It was submitted that the correct position on facts is that it was only an adjustment. In support of the said claim attention was invited to the impugned order, where the assessee s submissions are recorded. A perusal of the same it was submitted would show that the assessee placed fresh evidence before the CIT(A) which consisted of copy of ledger account of M/s Sudhir Gensets Ltd. in the books of the company for the period 01.04.1999 to 31.03.2000 at page 9; at pages 10-12 for the period April 2000 to March 2001; at pages 13-14 for the record April 2001 to March 2002; and at pages 15 for the period April 2002 to March 2003. Apart from that this it was submitted that the claim was further supported by the note of the Head of Finance Accounts dated 28.10.2002, in regard to the accounts settlement with M/s Sudhir Gensets Ltd. at page 16. The said note it was submitted was supported by copy of the Credit Notes dated 14.12.2002 and computation of discount paid to M/s Sudhir Gensets Ltd. These evidences it was submitted are placed at pages 17-23 and on facts have also been supported by resolution of the Board dated 08.11.2002 approving the additional discount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord the CIT(A) disregarded the same. The evidence it was submitted was confronted to the AO and Remand Report was called for wherein the AO has merely repeated that additional discount has been allowed after a period of 3-4 years and business exigencies are not proved. In the said background it was submitted the CIT(A) has come to a finding that the assessee has not been able to furnish any evidence or explain as to how and why expenses in question were helpful in promoting its business and what benefit had the business of the company acquired therefrom. The answers to these queries it was submitted has to be gathered from the circumstantial facts available on record as how can an assessee prove these claims. Referring to the judgements relied upon at page 6 of the synopsis, it was his submission that if an assessee can prove that the expenditure has been incurred for the purposes of business the existence of immediate benefit is not required to be proved. Similarly the allegation of the CIT(A) that the commercial necessity has not been explained, it was submitted that commercial necessity is for the businessman to decide, and is evident from the fact that the company settled the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he customer was taken in the previous year ended 31 st March 2003, therefore claimed in A.Y.2003-04. 4.4. Addressing the benefit derived by the assessee which was questioned by the CIT(A) it was submitted that the immediate benefit to the assessee was settlement of account, and the indirect benefit derived by the assessee was to have harmonious business relationship. The nature of the relation between the expenditure and business it was submitted stands proved as the benefit was near not remote; immediate and not prospective; and real and not imaginary. The facts as explained it was submitted show that the assessee company took a commercial decision to settle the dispute and applied its mind to determine the amount and the Board of directors approved such a commercial decision. The expenditure it was argued was laid out wholly and exclusively for the purposes of Business keeping in view the exigencies of business and the exigencies of business it was submitted do not need the existence of a contract. 4.5. It was submitted that M/s Sudhir Gensets Ltd. is a customer and is a leader in providing Generator sets and has got the benefit of this additional discount and is a corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovered would have been written off as a bad debt and as per the provisions of section 36(1)(vii) the claim would have to be allowed against the income. It was his submission that there is no dispute that the amount was due from a customer. The debit it was submitted was on account of credit to sale account i. E. income of the assessee company. The debit has been adjusted by credit to the account. All the ingredients for allowing the claim as Bad debt have been met. Thus, it was submitted that the alternative plea that the amount be allowed as Bad debt be accepted. TRF Ltd.-(2010) 323 ITR 397 (SC)-Write off is sufficient. 4.10. Based on these arguments and facts and the legal proposition it was his submission that the appellant company has been able to explain with facts that the impugned expenses by way of additional discount were incurred out of commercial necessity of business settlement, the expenditure was real, was incidental to carrying on trade, was based upon ordinary principles of commercial trading and that the benefit obtained by way of settlement of account and creation of an undisputed, harmonious commercial relationship which is conducive to in promoting busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged agreement. The reliance of the assessee on the proposition that existence of an agreement cannot establish that there is a dispute, it was submitted is of no help, as no doubt agreement can not show the existence of a dispute but atleast the reference to the parties agreeing to resolve the dispute would reflect that the M/s Sudhir Gensets atleast accepts the position that there was a dispute. In the facts of the present case, it was his submission that the evidence to demonstrate that there was a dispute has never been referred to by the assessee. The only evidence is the unilateral internal Board s resolution and reports of G.M.(Fin.) etc and they only demonstrate that only unilateral evidence is there which has rightly not been believed by the tax authority. 5.2. It was his submission that it is not the case of the Revenue that the Tax Department can suggest what expenditure should be incurred by the assessee as the assessee is free as per its own understanding to incur whatsoever expenditure, it deems fit. However, when the issue arises of allowability of expenditure then the Tax Department is fully within its right to consider its allowability as per settled legal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed its reply vide letter dated 7.2.2006 which is placed on record. Assessee has stated as under. As regards to explain the nature of expenses of ₹ 46,00,000/~claimed under the head Discount (alternator), we submit that the same was paid to M/s. Sudhir Gensets Ltd. who were manufacturers of Diesel Generator sets which required alternators manufactured by the assessee company. The said purchaser was a regular and old customer of the assessee company and had promoted the sale of the company s alternators by using the same with the Generator sets sold by M/s. Sudhir Gensets Ltd. We enclose statement of sales generated by Sudhir Gensets in the last three years for the assessee company. In view of the volume of business generated by the said party, it was decided by the company to give them additional discount which were approved by the Board of directors vide its resolution dated 08.11.2002. (Emphasis provided) 6.1. A perusal of the said order further shows that the assessee s submission was rejected by the AO holding as under:- The submission of the assessee has been considered. First of all, it is mentioned that the Discount does not pertain to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,33,601/- as the company was not paying the balance as they were claiming compensation against the cost incurred for indirect marketing of the company s alternates while marketing their Gensets to the ultimate customers through their marketing network. The Assessing Officer disallowed the claim of the assessee holding that the transactions were made in earlier years and the compensation was paid during the year and the assessee did not file any evidence during the course of hearing to prove that discount @ 3.5% was payable to the party after a period of three four years. Further, there was no mention of such claim in the notes to accounts for these years. The Assessing Officer held that this was an afterthough that the assessee had allowed a sum of ₹ 46,00,000/- on account of discount on the sale transaction made with M/s. Sudhir Gensets Ltd. in earlier years. The assessee now has pleaded that the assessee allowed the additional discount to settle the matter amicably for smooth running of business and for recovery of the amount due with the party. The additional discount was approved through a resolution passed by the Board of Director s of AVK-SEG and Controls (India) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the party. Copy of the debit note and computation is enclosed at page 8 to 14. The company is a joint venture between AVK SEG, Germany and the Controls Group, India. This issue of discount was placed before the Board and the granting of additional discount of ₹ 46,00,000/- was approved by the Board on 8 th November 2002. Copy of the Board resolution is enclosed at page 15. The AO had an objection that the amount of additional discount, because it pertain to earlier years, therefore had been debited to the expense account as an after thought and therefore is not allowed the deduction of ₹ 46,00,000/-. The important point to be noted is that the expenditure of ₹ 46,00,000/- though computed on the basis of turnover of earlier years crystallized in the year under assessment i. E. A.Y. 2003-04 as the dispute was resolved in November 2002 relevant to A.Y. 2003-04. It is a trite that in any contractual liability the amount of expenditure accrues when it is ascertained, and that is when the dispute is resolved. The customer Sudhir Gensets was making additional claim and the company keeping in view the business exigencies accepted the claim to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inly entitled to be satisfied as to the commercial necessity of expending that amount. The question will always be as to the nature of the relation between the expenditure and the business, whether the benefit is remote or near, prospective or immediate, imaginary or real and so forth. The capacity in which the assessee spends will also be relevant. In the instant case, the assessee did not furnish any material to the Assessing Officer to arrive at the conclusion favoring the assessee. The A.O. therefore, exercised his judgment and discretion which cannot be said to be arbitrary or unreasonable. In view of the aforesaid, I have no hesitation in holding that the action of the A.O. in disallowing additional discount to M/s. Sudhir Gensets Ltd. amounting to ₹ 46,00,000/-. Is justified. As a result, the addition of ₹ 46,00,000/- is confirmed and Ground of appeal no. l is dismissed. (Emphasis provided) 6.3. On a consideration of the above-mentioned peculiar facts and circumstances which we have already discussed in elaborate detail in the earlier part of this order, we find considering the arguments on facts and law and the evidences relied upon by the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting the finding as in the facts based on the evidence on record the genuineness of the claim itself is not established. Addressing error of the AO the record shows that infact it is the assessee who led the AO to commit such an error as would be evident from the assessee s reply dated 07.02.2006 extracted at page 3 of the assessment order wherein the assessee itself says that As regards to explain the nature of expenses of ₹ 46,00,000/~ claimed under the head Discount (alternator), we submit that the same was paid to M/s. Sudhir Gensets Ltd. who were manufacturers of Diesel Generator sets which required alternators manufactured by the assessee company. The said purchaser was a regular and old customer of the assessee company and had promoted the sale of the company s alternators by using the same with the Generator sets sold by M/s. Sudhir Gensets Ltd. We enclose statement of sales generated by M/s Sudhir Gensets in the last three years for the assessee company. In view of the volume of business generated by the said party, it was decided by the company to give them additional discount which were approved by the Board of directors vide its resolution dated 08.11.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in force. However whether on facts, it was demanded over and above the normal discount agreed to as per agreements this claim if made by the assessee has to be demonstrated by some cogent evidence. The arguments advanced is that the payments were withheld on the said aspect there is no evidence and the claim has been rejected for want of evidence. However if for moment it is presumed that the argument is correct in such an eventuality also the reasons on record for withholding should be supported by some evidence. This long chain of inference which the ld. AR wants us to draw is too far-fetched an inference without any independent evidence which the assessee would want to press for. It is for the assessee to know the actual facts which for reasons best known to the assessee he does not want to place on record. In the present proceedings we are not required to address the reasons why M/s Sudhir Gensets Ltd. does not want to come forward and the assessee is reluctant to place any evidence from the so-called affected party. The assessee s reluctance to address the same is a motive which we do not want to conjecture suffice it to conclude that the claim has rightly been rejected on fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty full details were not made available by the assessee. Reliance was also placed upon Syshayee Paper Boards Ltd. vs. CIT {1998} 145 CTR Madras 498, 503. 9.1. Assailing the said action in appeal, the assessee submitted that the provision for the discount was made during the 2001-02 assessment year and it was credited to the account of M/s Controls Switchgears Co. Ltd. and thereafter paid to the party. 9.2. It is seen that the said position was accepted by the AO in the remand proceedings as per para 1.4 of the CIT(A). Considering which the CIT(A) proceeded to delete the addition. The relevant extract from the Remand Report extracted in the impugned order is reproduced hereunder:- During the course of assessment, it was noticed that the assessee had made provisions of ₹ 6,71,415/- on account of additional discount payable for the year 2001-02. The party M/s. Controls Switchgears Co. Ltd. is a specified person under section 40A (2)(b) of the Act. During the course of assessment the assessee did not file any concrete evidence of payments if, made to the assessee or not. The Assessing Officer disallowed the same holding that this was a mere provision and not an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee coy was incorporated on 28.02.1991. It had applied for registration of Industrial Undertaking for the manufacture of Protection Relays and the same was granted as per copy of certificate dated 13.5.1991 filed during the course of hearing. The registration was allowed for the period of three years subject to the conditions laid down in the Annexure to the said letter. Assessee has not furnished the copy of that annexure in spite of repeated requests. Further there is no evidence whether Assessee got registration for the subsequent period as the registration was only for the period of three years. Assessee company is engaged in the business of manufacturing of electrical electronic goods namely Alternators, Protection Relays, Current Transformer etc. Assessee is eligible for deduction u/s 80IBon the profits earning from the manufacture and sales of Protection Relays. As per Audit report on Form 10CCB, the deduction u/s 80IB has been claimed on the total profits. There is no evidence filed on record to prove that the other items namely Alternators and Current transformers, which are being manufactured by the assessee coy. are eligible items and are covered in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Government. Hence, the deduction under section 80lB is allowable to the assessee. In support of its claim the assessee has submitted the assessment order passed by the DCIT, Special Range - 28 for A.Y 1994-95. The allowability of the deduction under section 80IB may be considered accordingly. 5.1. I have carefully considered the submissions made on behalf of the appellant, the findings of the Assessing Officer in the assessment order as well as in the remand report and the facts on record. I find that the Assessing Officer has, in all fairness, admitted in the remand report that the deduction under section 80IB of the Act is allowable to the assessee. Under the circumstances stated above, the Assessing Officer is directed to allow the deduction under section 80IB of the Act in accordance with the allowable claim of the appellant. Subject to the above remarks, ground of appeal No. 3 is allowed. 15. Aggrieved by this also, the Revenue is in appeal before the Tribunal. 16. The Ld. Sr. DR, Sh. B.R. R. Kumar inviting attention to paras 4.1 4.2 qua the first issue (reproduced in the earlier part of this order) and paras 5 5.1 qua the second issue (also reprodu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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