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TMI Blog2016 (1) TMI 1407X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case and in law, the CIT(A) is justified in not appreciating the provisions of Section 43B of the IT. Act and in ignoring the clear language of the section 43B, as per which any expenditure has to be otherwise allowable before applying the provisions of Section43B? 2. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in deleting the disallowance of Rs. 45,72,474/- made out of expenditure on free service to customers placing reliance on the decision of Hon'ble Supreme Court in the case of Rotork Controls Ltd [314 ITR 62] when scientific basis of the provision of warranty is not conclusively established ? Similar grounds have been raised by the Revenue in the appeals for the other impugned assessment years. 3. The Assessing Officer during the course of scrutiny assessment proceedings in the impugned assessment years inter alia disallowed the expenditure towards taxes and duties paid by the assessee and expenditure on free services to the customers. Aggrieved by the assessment orders, the assessee filed appeals before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by placing reliance on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal in ITA No. 1522/PN/2007 filed by the assessee as ground No. 5. The Co-ordinate Bench of the Tribunal after placing reliance on the decision rendered by the Special Bench in the case of DCIT Vs. Glaxo Smithkline Consumer Healthcare Ltd. reported as 107 ITD 343 has accepted the claim of assessee. The relevant extract of the order of Tribunal is as under: "6. Ground No. 5 raised by the assessee is against the decision of the learned CIT(A) in holding that the expenses of Rs. 10,07,803/- towards taxes and fees, though not debited to Profit & Loss Account (being prepaid expenses) but which were actually paid in the accounting year relevant to assessment year 2003-04 were not allowable u/s. 43B of the Act. 6.1 Facts of the case, in brief, are that during the course of assessment proceedings the Assessing Officer observed that the company has in its books of account shown certain taxes and duties amounting to Rs. 10,07,803/- as prepaid expenses which was not debited to Profit & Loss Account These expenses were claimed as deduction u/s. 43B of the Act on payment basis. It was contended before the Assessing Officer that these expenses were incurred and paid during the .previous ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples and practices are done away. Accordingly, there is no force in the argument of the revenue that the deduction can be granted only if the 'liability has incurred during the previous year, even when the payment was made by the assessee. The point coming out of the above discussion is that the rule of deduction under section 43 is the actual payment of the liability. The nature of the Account-Current already examined brings home the point that the advance payment of excise' duties are actual payments of duties. Therefore, when the payments are understood as actual payments, those payments even if mentioned as advance payments need to be allowed as deduction under section 43B. 38. The above position is emerging out of the language of the statute itself. Section 43B provides for the deduction of sums payable mentioned in clauses (a to (f), only if actually paid; but shall be allowed irrespective of the previous year in which the liability to pay such sum was incurred by the assessee. The intention of the Legislature is apparent in the above language used in section 43B, that the deduction in respect of tax or duty, which was actually paid by the assessee has to be all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that the basis for making provision is reasonable and scientific and therefore, the provision created is an allowable expenditure. Relevant discussion, facts and summary of the decision of the Assessing Officer on the finding of the CIT(A) are narrated in para 12 of the impugned order. For the sake of completeness the same is reproduced as under: "12. The ninth ground of appeal is against the action of the Assessing Officer in holding that the expenditure amounting to Rs. 17,52,545/- incurred by the appellant company on free service to the customers is a contingent liability. 12.1 For the year under consideration, the assessee company has made provision for free service charges amounting to Rs. 1,47,76,665/- and claimed it as expenditure by furnishing the following details. Particulars Amount (Rs.) Opening liability as on 1.4.2002 83,36,260 Add: Provision during the year 1,47,76,665 2,31,12,925 Less: Paid during the year 1,19,93,780 Closing balance as on 31.3.2003 1,11,19,145 12.2 Before the Assessing Officer it was submitted by the assessee that out of total liability of Rs. 1,11,19,145/- the company has already paid a sum of Rs. 93,66,600/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt's submission that minor balance provision, if any, is automatically written back in the subsequent year and offered for taxation. Considering these aspects, I do not find any justification in the action of the Assessing Officer in disallowing the balance provision of Rs. 17,52,545/- and adding to the income of the assessee-. The disallowance is deleted." 11.1 From the above it is evident that the CIT(A) has allowed the claim of the assessee considering the fact that the provision was done on the basis of unencashed valid coupons and therefore, constitutes a reasonable and scientific basis. The excess of Rs. 17,52,545 over and above the actual payment of Rs. 93,66,600/- paid by the assessee should not question the reasonableness of the provision created. During the proceedings before us the Learned DR relied on the order of the Assessing Officer. Per contra, the learned counsel for the assessee filed a copy of the judgement of the Punjab & Haryana High Court in the case of Majestic Auto Ltd., 156 Taxman 460 for the proposition that the assessee would be entitled to deduction of a liability in the account pg year although such liability might have to be quantified and disch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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