TaxTMI 
TaxTMI 
2011 (3) TMI 847
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....e incentives of Rs. 6,79,298/- and sales incentives of Rs. 12,09,650/-holding that the liability was contingent and it did not crystallize during the relevant previous year. The ld CIT(A) failed to appreciate, and ought to have held that the accrual of liability does not get postponed for want of quantification. Your appellant, therefore, prays that aforesaid disallowance is deleted." 2.1 Facts of the case, in brief, are that the assessee company is engaged in the business of marketing, distribution and sales of paediatric vaccines. It follows mercantile system of account. During the course of assessment proceedings, the Assessing Officer noted from the PandL account that the assessee has made a provision of Rs. 20,68,133/- toward....
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.... He, accordingly disallowed the claim of expenditure of Rs. 18,88,948/- on sales incentives and performance incentive. 3. Before the CIT(A), it was submitted that the accounts of the company are required to be maintained in accordance with section 209 of the Companies Act, which requires it to maintain accounts on accrual basis. The concept of accrual is defined in the Accounting Standard-I. Further, as per accrual basis of accounting method, income, expenses, assets and liabilities are reflected in the accounts in the period in which they accrue. It was also submitted that the assessee has contractual obligation to pay since it is mentioned in the appointment letters. Appraisal takes place on the basis of earlier year and instruc....
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....ssee regarding the payment on account of sales incentives that these are announced on quarterly basis and communicated to all the employees via email, is not supported with any documentary evidence. He, therefore was of the opinion that the liability to pay expenditure with reference to performance incentives and sales incentives did not crystallise during the financial year; therefore, the Assessing Officer was justified in denying the claim. He accordingly upheld the order of the Assessing Officer. 4. The ld counsel for the assessee, referring to page 2 of the paper book, drew the attention of the Bench to the provision for performance incentive in the case of 7 employees amounting to Rs. 1,179,403/-. He submitted that out of th....
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....he other hand, strongly relied on the order of the CIT(A). He submitted that the assessee has failed to produce the details of terms and conditions of employment either before the Assessing Officer or before the CIT(A). Therefore, it was not possible on the part of the revenue authorities to find out the terms and conditions in the appointment letter regarding the eligibility of the employees for the purpose of performance incentive and Sales incentive. He, accordingly, submitted that the order of the CIT(A) should be upheld. 5. We have considered the rival submissions made by both the parties, perused the orders of the Assessing Officer and the CIT(A) and the paper book filed on behalf of the assessee. There is no dispute to the ....
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.... order of the CIT(A) on this issue and direct the Assessing Officer to delete the disallowance. Grounds of appeal no.1 by the assessee, is accordingly allowed. 6. Grounds of appeal no.2 reads as under: "On the facts and in the circumstances of the case and also in law, the ld CIT(A) erred in confirming the disallowance of expenditure of Rs. 13,45,553/ out of advertisement and sales promotion expenses holding that the liability was contingent and it did not crystallize during the relevant previous year. The ld CIT(A) failed to appreciate and ought to have held that the accrual of liability does not get postponed for want of quantification. Your appellant, therefore, prays tat aforesaid disallowance be deleted." ....
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...., merely because the assessee has reversed the entry in the subsequent year; in our opinion, the same is not the proper accounting method. If the system is allowed then any person, who earns huge income in a particular year can inflate the provisions for expenses and in the subsequent year when there is less income or loss, can reverse the entry. This, in our opinion, cannot be permitted. We, therefore, do not find any infirmity in the order of the ld CIT(A)upholding the addition. The ground raised by the assessee is accordingly dismissed. 8. Grounds of appeal no.3 reads as under: "On the facts and in the circumstances of the case, and in law, the ld CIT(A erred in rejecting the appellant's contention that the sum of Rs.....