Tribunal upholds CIT(A) decision on dealers' incentive disallowance, citing accrual basis.

The tribunal upheld the CIT(A)'s decision to delete the disallowance of Rs. 5.89 crores on account of dealers' incentive, finding that the incentive had accrued during the relevant year and was allowable as per the incentive scheme. The Revenue's appeal was dismissed, and the order was pronounced on 24/04/2019.

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Issues Involved:
1. Deletion of Rs. 3.85 crores under the head dealers incentive.
2. Deletion of Rs. 2.04 crores on account of dealers incentive.

Issue-wise Detailed Analysis:

Issue 1: Deletion of Rs. 3.85 crores under the head dealers incentive

The Revenue contested the deletion of Rs. 3.85 crores routed through the Profit and Loss Account under the head dealers incentive, arguing that the Assessing Officer's addition was based on discrepancies in the supporting credit notes furnished by the assessee. The case file indicated that the proceedings were consequential to the tribunal’s first round remand direction, which restored the dealers incentive issue back to the Assessing Officer. The assessee, a widely held domestic company engaged in the manufacture and sale of batteries, had made a provision of Rs. 3.85 crores in its books for incentives payable to dealers and an additional claim of Rs. 2.04 crores as a deduction in the revised return. The Assessing Officer had disallowed the additional claim, stating that the assessee did not furnish details showing that the amount pertained to the assessment year 2002-03, but allowed the provisioned amount of Rs. 3.85 crores. The CIT(A) had enhanced the income by disallowing the entire Rs. 3.85 crores, relying on the Supreme Court decision in Indian Molasses vs. CIT, arguing that the expenditure had not gone out of the assessee’s pocket irretrievably.

The tribunal, however, found that the dealer’s incentive had accrued during the year under appeal and should have been allowed by the Assessing Officer. The tribunal noted that the incentive scheme and credit notes were verified, and the claim was found to be as per the scheme. Therefore, the CIT(A) was justified in deleting the disallowance of Rs. 3.85 crores, as the amount had accrued during the relevant year and was allowable.

Issue 2: Deletion of Rs. 2.04 crores on account of dealers incentive

The Revenue also contested the deletion of Rs. 2.04 crores routed through the balance sheet on account of dealers incentive, arguing that the assessee could not justify that this expense pertained to the assessment year in question. The tribunal noted that the assessee had filed the incentive scheme, computation of incentive for seven regions, and numerous credit notes before the Assessing Officer for verification. The Assessing Officer had issued notices to the assessee’s dealers, who confirmed the credit notes except for a few small amounts. The Assessing Officer had disallowed the claim, stating that the liability had neither accrued nor crystallized during the relevant previous year, citing the Supreme Court decision in Indian Molasses vs. CIT.

The CIT(A) found that the assessee had computed incentives as per the incentive scheme and that the details were verifiable. The CIT(A) held that the disallowance by the Assessing Officer was against the tribunal’s directions, which had already decided that the incentive had accrued during the relevant year. The CIT(A) directed the deletion of the disallowance of Rs. 5.89 crores (Rs. 3.85 crores + Rs. 2.04 crores), as the incentive had been computed as per the scheme and was allowable.

Conclusion:

The tribunal upheld the CIT(A)’s decision to delete the disallowance of Rs. 5.89 crores on account of dealers incentive, finding that the incentive had accrued during the relevant year and was allowable as per the incentive scheme. The Revenue’s appeal was dismissed, and the order was pronounced in open court on 24/04/2019.

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