Vildirect: IncomeTax-caselaws-1998-VIL-111-ITAT-MUM

1998-VIL-111-ITAT-MUM

Income Tax Appellate Tribunal MUMBAI

IT Appeal Nos. 8441 & 8597 (Bom.) of 1990

Date: 15.12.1998

BHARAT BIJLEE LTD.

DEPUTY COMMISSIONER OF INCOME-TAX

For the Appellant : S. N. Inamdar
For the Respondent : A. K. Mehta

BENCH

M. A. Bakshi (Judicial Member) And J. K. Verma (Accountant Member)

JUDGMENT

M. A. Bakshi (Judicial Member)

These cross appeals, one by the assessee and one by the revenue, for assessment year 1986-87, are disposed of by this consolidated order. Rival contentions have been heard and records perused.

2. We first take up the appeal of the assessee.

3. The first issue involved in this appeal is relating to the disallowance of the provision for accrued liability for Leave Travel Assistance of Rs. 5,61,033.

4. The relevant facts, relating to this issue, are that the assessee is maintaining the books of account on mercantile basis. It has a scheme of Leave Travel Assistance for its employees. In the employment contract itself, a sample of which has been shown to us, the assessee agreed to pay Leave Travel Assistance to the employees at mutually agreed rates. However, for the purpose of giving maximum tax benefit to the employees, the assessee allows the LTA in such a manner so that the benefit of section 10(5)(ii)(a) of the Income-tax Act, 1961, read with rule 28 of the Income-tax Rules, could be obtained. The assessee in its books of account provided for the liability on account of LTA on accrual basis. There is a difference between the actual payment and the provision made, as their employees have the option of utilising the LTA within the period of four block years. As already pointed out, the scheme has been formulated to give tax benefits to the employees and if the employee avails the LTA on the basis of actual expenditure no deduction of tax is made on such expenditure. However, if the employee encashes the LTA, tax is deducted at source. The liability of the assessee being on the basis of the letter of appointment at fixed rates, a provision is made in the books of account on the basis of accrual of liability, as pointed out earlier. The adjustment for the year under appeal was made as under : -

Payment during the year ending June 1985	Rs. 24,23,274
Add : Provision as on 30th June, 1985	Rs. 15,58,962
Total	Rs. 39,82,236
Less : Provision as on 30th June, 1984	Rs. 10,00,628
Balance as per ledger	Rs. 29,81,608

The Assessing Officer added the difference between Rs. 29,81,608 and Rs. 24,23,274 (actual figure Rs. 24,20,575) of Rs. 5,61,033.

5. The learned counsel for the assessee contended that the assessee had been allowed a deduction on the same basis in assessment year 1985-86 and therefore there was no justification for denying the deduction to the assessee in the year under appeal.

6. The learned Departmental Representative, on the other hand, relied upon the order of the CIT(A) and pleaded that the decisions referred to in the said order may be considered in deciding the issue.

7. We have given our careful consideration to the rival contentions. The CIT(A) has relied upon the decision of the Bombay High Court in the case of CIT v. Rajkumar Mills Ltd. (1971) 80 ITR 244. However, on the facts and in the circumstances of this case, we find that the aforementioned decision is inapplicable. As per the appointment letters issued to the employees, the assessee undertakes to pay the LTA to the employees at a pre-determined rate. As per the scheme, once the employee becomes eligible to the LTA, the company has no option but to pay such allowance to the employee. For getting tax benefits for its employees, the assessee has given option to the employees to avail the LTA in accordance with the provisions of the Income-tax Act. In case the employee utilizes the LTA by travelling from one place to another, the actual expenditure subject to the limits is reimbursed to the employee. In that event no deduction of tax is made. However, if the employee does not spend the money on travelling, then he has the option of claiming the LTA in cash. The assessee has no option but to pay to the employee. In case the expenditure on travelling is less than the actual amount agreed by the company to be paid as LTA, the employee gets the difference between the actual allowance less the actual expenditure incurred on travelling. As already pointed out, no tax is deducted on the actual expenditure incurred by the employee on travelling, but the cash allowance attracts deduction of tax as per the scheme formulated by the assessee. Thus, it is evident that assessee';s liability to pay LTA under all circumstances is crystal clear. There is no dispute about its quantification nor is the liability of the assessee postponed. Considering the facts and circumstances of this case, we are of the view that the decision of the Bombay High Court in the case of Rajkumar Mills Ltd. (supra) is distinguishable on facts and since in this case the liability of the assessee to pay the LTA is incurred by the end of the previous year and the assessee maintaining its books of account on mercantile basis, was justified in making a provision on account of LTA. The system of accounting of the assessee has been accepted in the past. For assessment year 1985-86 also the CIT(A) has decided the issue in favour of the assessee and revenue has accepted the said decision. It has been argued before us that each year is an independent unit of assessment and therefore there is no bar for taking a different view in a subsequent year. Well, that principle is not disputed. However, when a method of accounting has been regularly followed by the assessee and it has been accepted by the revenue authorities, a strong burden lies upon the revenue to establish that the method followed by the assessee is contrary to law or it does not enable to deduce true profits assessable to tax. On the facts and in the circumstances of this case we are satisfied that the assessee has incurred the liability as on the end of the previous year towards LTA as per the contract with its employees. In such circumstances, making a provision for an accrued liability which is not contingent or happening of any event, is bound to be provided in the books of account. In our view, the assessee is entitled to deduction on the basis of actual liability accrued as on close of the previous year and therefore the addition of Rs. 5,61,033 sustained by the CIT(A) is hereby deleted.

8. The second ground of appeal is relating to the payment of commission to M/s. Rajesh Agency of Rs. 1,15,158. The assessee had claimed a deduction of Rs. 21.00 lakhs and odd, out of which a sum of Rs. 1,15,158 had been claimed to have been paid to M/s. Rajesh Agencies. The assessee had furnished a confirmation from M/s. Rajesh Agencies. The payment had been made by account-payee cheques and M/s. Kamdar Cements Ltd., whose contract was claimed to have been secured for the assessee by M/s. Rajesh Agencies, had also confirmed that the orders had been placed through M/s. Rajesh Agencies. The Assessing Officer made enquiries at the given address of M/s. Rajesh Agencies and found that no such concern existed at that place. The assessee was confronted, with this information. However, the assessee could also not furnish information about M/s. Rajesh Agencies on the ground that they seem to have shifted from that place of business. The Assessing Officer disallowed the claim as not genuine and the CIT(A) has confirmed the disallowance.

9. The learned counsel for the assessee contended that the assessee had furnished necessary evidence in support of the claim which has not been established to be bogus. It was further contended that the mere fact that the party, after several years, was not found at the place of business/given address, does not establish that the evidence furnished by the assessee was unreliable. It is quite possible that the party shifted the place of business and unless it were established that the said party never existed at the given address, the disallowance cannot be made.

10. The learned D.R., on the other hand, contended that the Assessing Officer could not verify the authenticity of the evidence furnished by the assessee and in such circumstances the claim of the assessee was rightly disallowed.

11. We have given our careful consideration to the rival contentions. There is no denying the fact that the onus to establish that the expenditure has been incurred by the assessee for the purposes of business is upon him/them. The question before us is as to whether the assessee having furnished the evidence before the Assessing Officer, can be said to have discharged such onus. If the assessee has discharged the onus, then the next question that arises for consideration is as to whether the Assessing Officer, on shifting of onus to him, has gathered sufficient material to rebut the evidence furnished by the assessee. We have pointed out earlier that the assessee furnished the confirmation, the proof of having made the payment by account payee cheques and a confirmation from M/s. Kamdar Cements Ltd. confirming the orders having been placed through M/s. Rajesh Agencies. This evidence, in our view, was sufficient to discharge the primary onus that lay upon the assessee. Once the primary evidence is produced by the assessee, the onus shifts to the Assessing Officer. The Assessing Officer admittedly has made enquiries and found that the party, viz. M/s. Rajesh Agencies, was not existing at the given address. In our view, the mere fact M/s. Rajesh Agencies was not found existing at the given address, does not automatically establish that no such party existed at the relevant point of time. The Assessing Officer has failed to make enquiries as to whether M/s. Rajesh Agencies existed at the relevant point of time, that is the year in which the payment of commission is claimed to have been made. If the Assessing Officer had collected material to establish that the party, viz. M/s. Rajesh Agencies, did not exist at the relevant point of time, then the obvious conclusion would be that the evidence furnished by the assessee was unreliable. But in this case the enquiry by the Assessing Officer stopped on finding that M/s. Rajesh Agencies did not exist at the given address at the time of making the enquiry. When we weigh the evidence furnished by the assessee on the one hand and the information collected by the Assessing Officer on the other, the balance tilts heavily in favour of the assessee. We are therefore of the considered view that on the facts and in the circumstances of this case the claim of commission paid to M/s. Rajesh Agencies did not warrant disallowance. We accordingly delete the addition of Rs. 1,15,158.

12. We now take up the appeal of the revenue.

13. The first ground of appeal is relating to the direction of the CIT(A) for allowing investment allowance on fire hydrants and exhaust fans. The CIT(A) has treated these items as part of the plant for manufacture of goods and accordingly directed the deduction to be allowed.

14. The learned D.R. contended that the requirement of law for allowing investment allowance is that the machinery, on which deduction is claimed, should be involved in the production of articles and things.

15. The learned counsel for the assessee, on the other hand, contended that deduction is permissible in respect of any machinery or plant installed in the business of manufacturing or production of articles and things and that it is not necessary that the machinery in question should actually be involved in the manufacturing or production process. Reliance has been placed on the decision of the Karnataka High Court in the case of CIT v. Electronics Research Industries (P.) Ltd. (1991) 192 ITR 20/59 Taxman 46 in support of the contention.

16. Whereas the view canvassed on behalf of the assessee is supported by the aforementioned decision of the Karnataka High Court, no contrary decision has been brought to our notice. We therefore respectfully following the said decision, dismiss this ground of appeal raised by the revenue.

17. The second ground of appeal is relating to the grant of investment allowance on the cost of computer installed in the factory.

18. The learned counsel for the assessee supported the decision of the CIT(A) by the decision of the Calcutta High Court in the case of CIT v. Fort Gloster Industries Ltd. (1996) 219 ITR 223, where their Lordships have held that the computer installed in the factory for the purpose of business of manufacture or production qualifies for deduction for investment allowance.

19. The decision of the CIT(A) is in conformity with the decision of the Calcutta High Court referred to above. We respectfully following the said decision of the Calcutta High Court, dismiss this ground of appeal raised by the revenue.

20. The last ground of appeal raised by the revenue is as to whether in the case of the employee directors the disallowance is to be worked out in accordance with section 40(c) and not as per the provisions of section 40A(5).

21. This issue is covered in favour of the assessee by the decision of the Supreme Court in the case of CIT v. Continental Construction Ltd. (1998) 230 ITR 485.

We respectfully following the aforementioned decision of the Supreme Court, dismiss this ground of appeal raised by the revenue.

22. In the result, whereas the appeal of the assessee is allowed, the appeal of the revenue is dismissed.

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.