2016 (1) TMI 1407 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions on expense disallowances, citing Section 43B and business liability deductibility.

The Tribunal dismissed the Revenue's appeals for the assessment years 2006-07 to 2009-10, upholding the CIT(A)'s decisions to delete disallowances for ... Deduction u/s. 43B - expenses incurred by the assessee on account of taxes and fees not pertaining to the year under consideration - method of accounting followed by the company - HELD THAT:- Tribunal in assessee’s own case for the assessment year 2003-04 placing reliance on the decision rendered by the Special Bench in the case of DCIT Vs. Glaxo Smithkline Consumer Healthcare Ltd. [2007 (7) TMI 334 - ITAT CHANDIGARH] and hold that the deduction for tax, duty etc., is allowable under section 43B of the Income-tax Act, 1961 on payment basis before incurring the liability to pay such amounts. Accordingly, the first question is answered in affirmative and in favour of the assessee. Expenditure and free services to the customers - HELD THAT:- This issue has also been considered in the assessee’s own case for the assessment year 2003-04 placing reliance on the decision of BHARAT EARTH MOVERS VERSUS COMMISSIONER OF INCOME-TAX [2000 (8) TMI 4 - SUPREME COURT] rejected the contentions of the Revenue and upheld the findings of Commissioner of Income Tax (Appeals) in favour of the assessee. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain - Decided against revenue Issues Involved:1. Deletion of disallowance of Rs. 10,08,597/- being expenses incurred by the assessee on account of taxes and fees not pertaining to the year under consideration.2. Deletion of disallowance of Rs. 45,72,474/- made out of expenditure on free service to customers.Detailed Analysis:Issue 1: Deletion of Disallowance of Rs. 10,08,597/- for Taxes and FeesThe Revenue challenged the deletion of disallowance of Rs. 10,08,597/- by the Commissioner of Income Tax (Appeals) [CIT(A)], which was claimed as expenses by the assessee on account of taxes and fees not pertaining to the year under consideration. The CIT(A) relied on the Tribunal's order in the assessee's own case for the assessment year 2003-04, where it was held that the deduction is to be allowed on an actual payment basis under Section 43B of the Income Tax Act, irrespective of the year in which the liability to pay such sum was incurred. The Tribunal, in its earlier decision, referenced the Special Bench judgment in DCIT Vs. Glaxo Smithkline Consumer Healthcare Ltd., which allowed deductions on actual payment basis under Section 43B. The Tribunal affirmed this view, dismissing the Revenue's appeal on this ground.Issue 2: Deletion of Disallowance of Rs. 45,72,474/- for Free Service to CustomersThe Revenue also contested the deletion of Rs. 45,72,474/- disallowed by the Assessing Officer (AO) on account of expenditure on free services to customers. The CIT(A) had granted relief to the assessee by referencing the Supreme Court's decision in Rotork Control India (P) Ltd. Vs. CIT, which allowed the provision for warranty expenses if based on a scientific method. The Tribunal, in the assessee's case for the assessment year 2003-04, upheld the CIT(A)'s decision, noting that the provision for free service charges was made on a reasonable and scientific basis. The Tribunal cited the Supreme Court judgment in Bharat Earth Movers Vs. CIT, which established that a business liability, if certain and capable of being estimated with reasonable certainty, should be allowed as a deduction even if it is to be discharged in the future. The Tribunal found no distinguishing factor in the current appeals and dismissed the Revenue's appeal on this ground as well.Conclusion:The Tribunal dismissed the Revenue's appeals for the assessment years 2006-07 to 2009-10, finding no merit in the arguments presented. The Tribunal upheld the CIT(A)'s decisions to delete the disallowances for both the taxes and fees not pertaining to the year under consideration and the expenditure on free services to customers, relying on precedents and established legal principles.