2011 (5) TMI 539

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....iled return under Section 143(1) of the Income Tax Act ('the Act' for short). Subsequently, the case was selected for scrutiny under Section 143(3) of the Act. Notice under Section 143(2) of the Act was issued. Detailed questionnaire along with notice under Section 143(1) of the Act was also issued. The Assessing Officer noticed deficiencies on three counts. Firstly, it was noticed from the Profit and Loss Account that assessee had shown total receipts of Rs.11,015.16 lacs which included sale of computer software designs and applications at Rs.10,625.98 lacs and other income to the extent of Rs.389.19 lacs. The ratio of export income from sale of computer software and income from Service & Marketing activities (S&M Activities) was 97.55% an....

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....M division. S&M division had 12 employees and the Export Unit had 714 employees. The AO reduced the quantum of expenses allocated to the S&M division from Rs.2,45,24,090/- to Rs.1,22,25,968/- which resulted in the AO making disallowance of Rs.1,22,98,122/-. 3. With regard to the MBO incentive as claimed by the assessee, the AO held that the provision made on this account represented unascertained liability since the assessee could not foresee whether any particular employee would meet the target or not, or whether the said employee would continue in service or not. Accordingly, the AO disallowed the entire provision of Rs.76,23,754/-.   4. With regard to late payments made by the assessee in respect of employees' and employer's contr....

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....ys beyond the statutory due date would be allowable. 8. Against the order of CIT(A), the Revenue went in appeal before the Tribunal which has upheld the order of the CIT(A) vide the impugned order.   9. It is noted that certain additional evidence was accepted by the CIT(A) observing that additional details had not been called for by the AO and adequate opportunity was not afforded to the assessee for filing further details. The AO had adopted three different criteria for apportionment of the expenses in respect of various items of the S&M division and Export Unit. These were (i) number of employees; (ii) actuals; (iii) ratio of turnover. The CIT(A) recorded, as a matter of fact, that in respect of direct expenses, the apportionment ....

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....r: "Further it is also noticed that the method as followed by the assessee is consistently being followed. In these circumstances, as no evidence to disturb the findings as given by the ld. CIT(A), more specifically in para 2.7 of his order, has been placed before us by the revenue, we are of the view that the findings of Ld. CIT(A) on this issue is liable to be upheld and we do so." 10. With regard to the disallowance of Rs.76,23,754/- on account of provision of MBO incentive, the CIT(A) noted that the assessee followed mercantile system of accounting. In such system if a liability has arisen or accrued during the accounting period, even though paid subsequently, it would constitute an allowable expenditure. The assessee was following thi....