Provision made after deducting TDS is allowed subject to the basis of making provision

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH “A”, NEW DELHI

BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER

AND

SHRI C.M. GARG, JUDICIAL MEMBER

I.T.A. No. 1602/Del/2011

A.Y.: 2006-07

M/s Biltech Building Elements Ltd.,

124, Thapar House,

Janpath,

New Delhi

(PAN/GIR NO.: AACCB4080A)

(Appellant)

Vs.

Asstt. Commissioner of Income

Tax,

Circle-3(1),

New Delhi

(Respondent)

Assessee by: Sh. Prakash Chand Yadav, Advocate

Department by: S h. Bhim Singh, Sr. D.R.

ORDER

PER SHAMIM YAHYA: AM                       

This appeal by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals)-VI, New Delhi dated 17.1.2011 pertaining to assessment year 2006-07.

2. The issue raised is that Ld. Commissioner of Income Tax (A) erred in confirming the disallowance of provision of Rs. 14,76,500/-.

3. In this case the assessee is a Company and is engaged in the business of manufacturing and selling of building materials. During the course of assessment Assessing Officer observed that it was noted from the details of commission on sales that there is a provision made of Rs. 14,76,500/- for the assessment year 2006-07. The Assessing Officer asked the assessee as to why the provision for commission on sale not be disallowed as it is not allowable under the Act and further no evidence has been submitted that it has been valued on some scientific basis. Assessee responded as under:-

“As per or letter dated 22.5.2008, the party wise details of provision for commission on sales were already submitted.

The assessee co. submits that tax had been deducted at source at the time of making the provision for commission on sales. In this support the ledger account of commission on sales is placed at pages 57 to 61. With reference to page no. 61 it is kindly submitted that the tax of Rs. 82,832/- has been deducted at source from the provision of Rs. 14,76,500/- made as on 31.3.2006. Therefore, no disallowance u/s. 40(a) of the Act is called for.”

4. Assessing Officer was not satisfied with the above explanation. He held that the provision being unascertain liability is not allowable under the Act. Hence, a sum of Rs. 14,76,500/- was disallowed and added to the total income of the assessee.

5. Before the Ld. Commissioner of Income Tax (A) it was submitted that the assessee is following the mercantile system of accounting and there is no change in the method of accounting for the current assessment year. It was submitted that out of total provision of Rs. 14,76,500/- commission amounting to Rs. 8,60,634/- was paid / adjusted in subsequent years whereas the balance of Rs. 6,65,866/- was written back in the account and offered for tax in assessment year 2007-08 and 2008-09. Ld. Commissioner of Income Tax (A) was not satisfied with the above explanation. He observed that no evidence has been filed by the assessee to substantiate that the liability was ascertained and crystallized during the year. Hence, he upheld the order of the Assessing Officer .

6. Against the above order the Assessee is in appeal before us.

7. We have heard the rival contentions in light of the material produced and precedent relied upon. Ld. Counsel of the assessee has submitted that the assessee is following mercantile system of accounting and had properly made a provision of Rs. 14,76,500/- for the commission on sales payable. Assessee has duly deducted TDS in this regard. Hence, there is no disallowance u/s. 40(a) in this regard which was called for. He further submitted that whatever the Assessing Officer required was duly submitted. He further pleaded that in subsequent assessment years commission of Rs. 860,634/- was paid / adjusted and balance of Rs. 6,65,866/- was written back in the account and offered for tax subsequently. In this view of the matter, Ld. Counsel of the assessee pleaded that the provision has been properly made and should be allowed.

8. Ld. Departmental Representative on the other hand relied upon the orders of the authorities below.

9. We have heard the rival contentions in light of the material produced. We find that assessee has made a provision for commission on sales payable. It is a claim of the assessee that the said provision was properly made. In this regard, it has been submitted that provision of commission was duly made on the basis of agreements in this regard. The said agreements were neither called for by the authorities below nor it was supplied by the assessee. Ld. Counsel of the assessee submitted that one opportunity may kindly be given so that assessee can submit the requisite papers before the authorities below. Under the circumstances, we find that the basis of making the provision in this case remains to be examined. We find that interest of justice will be served, if the issue in this regard is remitted to the files of the AO. The Assessing Officer is directed to consider the issue properly, after giving the assessee an opportunity of being heard.

10. In the result, the appeal filed by the Assessee stands allowed for statistical purposes.

Order pronounced in the open court on 03/5/2013.

Sd/- Sd/-

[C.M. GARG] [SHAMIM YAHYA]

JUDICIAL MEMBER ACCOUNTANT MEMBER

Date 03/5/2013

“SRBHATNAGAR”

Copy forwarded to:-

1. Appellant

2. Respondent

3. CIT

4. CIT (A)

5. DR, ITAT

TRUE COPY

By Order,

Assistant Registrar,

ITAT, Delhi Benches