AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (3) TMI 1641
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....tractors. 1.2 ignoring the fact that the TPO by use of internal comparables arrived at arithmetic mean margin per tractor earned by export of tractors to unrelated parties in several countries & thus ought to have allowed the benefit of 5% safe harbour range mentioned in proviso to section 92C(2) of the Act. 1.3 not considering the fact that the export of tractors to unrelated parties in various under-developed countries is in small numbers as compared to export of big quantities to controlled enterprises in developed countries & when volumes are high the margins are generally low & vice versa. The marketing conditions also vary in different countries. 2 On the facts & circumstances of the case & in law, the Id. Assessing Officer has erred in disallowing Rs. 102583794/- on account of prior period expenses and the CIT(A) has erred in allowing relief of only Rs. 1312018/- & sustaining the disallowance of the balance amount. The CIT(A) has not appreciated the fact that the said expenditure accrued in the relevant assessment year and is accounted for as per consistent accounting practice followed by the appellant." 2. Brief facts of the case is that appellant manufactures tracto....
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....eted the issue by overlooking the fact that the per tractor margin computed in the case of uncontrolled transactions is an average of several export invoices raised during the year on exports to uncontrolled parties in various countries. He reached his conclusion only on the basis of summary sheet of transactions with AE‟s and non-AE‟s which shows average per tractor realization form AE‟s and non- AE‟s . He further submitted that Once an average price or average margin is available in the case of comparables, the assessee becomes entitled to the consequential benefit of the proviso to section 92C (2). He submitted that It needs to be highlighted that the law on the question of allowing tolerance limit of +/- 5% is more or less settled with a number of judicial pronouncements on the issue. He submitted compilation of the judgments relied upon. He mainly relied up on [2017] 79 taxmann.com 246 (Delhi - Trib.) Hi-Lex India (P.) Ltd. v. ACIT, Gurgaon Circle, Gurgaon. , [2012] 26 taxmann.com 102 (Mum.) ACIT, 8(1), Mumbai v.Genesys International Corpn. Ltd. 6. Ld DR supported the orders of the lower authorities and submitted that in absences of multiples prices be....
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....l Comparables. The LD AO has compared the margin of the Sale of All tractors to AE with margin of sale of Tractors to Non AE which are various transactions of the sale of tractors to AE and which is not one price but multiple prices of sale of tractors, therefore, , assessee deserves to be allowed the benefit of 5 % range and therefore we reverse the finding of the Lower Authorities and direct ld AO to grant benefit of margin of 5 % on the Alp determined by the ld TPO/AO and recompute the adjustment accordingly. In the result, Ground No 1 of the appeal is allowed accordingly. 9. Ground No 2 of the appeal is against the order of the Ld. CIT (A) in arriving relief of Rs. 1312018/- only out of the disallowance of Rs. 102583794/- on account of prior period expenses. The facts shows that in the tax audit report the assessee company submitted that the prior period expenses amounting to Rs. 1 0258 3794/- has been debited. On verification of the details it was noted by the Ld. AO that these include personal expenses amounting to Rs. 210261/-, sales and administration expenses of Rs. 101067785/- and purchase and raw material consumption of Rs. 112 2465/- and operating expenses of Rs. 18328....
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....tly contested that appellant has filed complete details of prior period expenses along with justification before the Ld. CIT (A), who referred the matter to the AO for remand report and after that he admitted the additional evidences but only give relief to the extent of Rs. 1312018/- out of the total disallowance of Rs. 1 0258 3794/-. The Ld. authorized representative submitted that the major disallowance confirmed by the Ld. CIT (A) is with respect to sales incentive to the dealers of Rs. 7.75 crores out of the total disallowance of Rs. 10.25 crores. According to him, the appellant had fixed target for its dealers for the 15 months accounting period ending on 30/06/2004 and based on the achievement of each dealer the sales incentive had to be determined after the end of the financial year as at 30/6/2004. The appellant has computed the amount of sales incentive payable to each dealer by the month of September 2004 and accordingly issued credit notes on 30/9/2004 to the qualifying dealers. The appellant was not in a position to make a provision in its account for the year ended on 31/03/2004 because the sales incentive could not have been determined on the said date because the in....
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....not been mentioned by the tax audit or in its report as "prior Period expenses. However, the Ld. CIT (A) has mentioned in this finding that the appellant has failed to produce any documentary evidence to prove that the observation of the auditor is incorrect. This is the main reason given by ld CIT (A) for confirming the disallowances. Before us, the assessee has not produced the copy of the tax audit report as well as the details of commission expenses of Rs. 1.33 Crores. It was not demonstrated before us that how this expenses are crystallized during the year. Merely because expenditure has been debited in the profit and loss account during the year neither it becomes the expenditure pertaining to this year more it becomes an expenditure pertaining to the prior years. It is the duty of the assessee to show that this expenditure has crystallized during the year and therefore they are incurred during the year. As the adequate details have not been produced before the Ld. assessing officer as well as before the Ld. CIT (A) we set aside the issue of the disallowance of Rs. 1339600/- of commission paid by the assessee disallowed by the lower authorities holding that these are prior pe....
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....only the quantification of the incentive was postponed. 6. In our opinion, the assessee has been able to make out a case in its favour particularly in view of the judgment of Gujarat High Court in Saurashtra Cement & Chemical Industries Ltd. v. CIT [1995] 213 ITR 523. 7. Before we actually go into the decision, we may note that two situations arise : The first situation is that the liability arises on one date but gets crystallized on a later date (30-6-1981 in this case). It is submitted by learned counsel for the assessee that crystallization of the liability on a future date would necessarily relate back to the earlier period but the entitlement to a deduction would have reference to the date on which the liability gets crystallized. The second situation, which has been canvassed by learned counsel for the revenue, is where the liability is actually crystallized on an earlier date but it may be quantified on a future date. 8. In our opinion, the case of the assessee falls in the first category and not in the second category. 9. In Saurashtra Cement & Chemical Industries Ltd.'s case (supra), the Gujarat High Court noted as follows : ". . . Merely because an expense ....
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....facts of the present case as in that case the liability had accrued on an earlier date. In the present case it is possible that a dealer may not have any sale at all from 1-5-1981 to 30-6-1981 with the result that he would not be entitled to any additional incentive. However, if sales were made, then the additional incentive would be given on a graded scale and therefore, the additional liability on the assessee would only be known with any degree of certainty only on 30-6-1981 and not earlier. 13. We may also note that in E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27 the Supreme Court has observed as under : ". . . Income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. . . ." (p. 51) 14. Applying this principle, insofar as the dealers of the assessee are concerned, they would not have acquired a right to get additional incentive in the sense that the assessee would not hav....
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....rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or in the assessment year corresponding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the department is likely to collect from him whether in one year or the other." (p. 684) 18. In the reference that is before us there is no doubt that the assessee had incurred an expenditure. The only dispute is regarding the date on which the liability had crystallized. It appears that there was no change in the rate of tax for the assessment year 1983-84 with which we are concerned. The question, therefore, is only with regard to the year of deduction and it is a pity that all of us have to expend so much time and energy only to determine the year of taxability of the amount. 19. Be that ....