Ecs Ltd., New Delhi vs Assessee

DCIT, Circle-11(1), Vs. M/s ECS Ltd. New Delhi. 12, Commercial Complex, G.K-II, New Delhi

(PAN AAACE 0279 L)

C.O. No. 288/Del/2012 (In ITA No. 2643/DEL/ 2012) A.Y. 2004-05

M/s ECS Ltd. Vs. DCIT, Circle-11(1) 12, Commerial Complex, G.K.-II, New Delhi. New Delhi.

(Appellant) (Respondent)

Date of hearing : 11.03.2015 Date of Pronouncement : 13.03.2015

Appellant by : Smt. Parwinder Kaur, Sr. DR. Respondent by : Sri Gaurav Jain & Bhavita Kumar, Advocates

ORDER

PER SHRI GEORGE GEORGE K, JM:

1. This appeal, at the instance of the Revenue and the cross objection filed by

the assessee arise out of CIT(A)'s order dated 05.03.2012. The relevant assessment

year is AY 2004-05.

ITA No.2643/Del /2012 2 CO No.288/Del/2012

2. The solitary ground that is raised in revenue's appeal is whether the CIT(A) is

justified in deleting the addition of Rs.1,14,63,360/- made by the AO on account of

provision of expenses. In the assessee's cross objection, the solitary ground that is

raised is with reference to the validity of reopening the assessment by issuance of

notice u/s 148 of the Act.

3. We shall first adjudicate the Revenue's appeal.

Revenue's Appeal (ITA No.2643/Del/2012)

4. Brief facts with reference to Revenue's appeal are as follows.

The assessee is a company. The assessee filed its return of income on

30.10.2004, disclosing total income of Rs.2,55,93,730/-. The assessment u/s 143(3)

was completed on 31.08.2006, determining the total income at Rs.2,65,66,342/-.

Thereafter, notice u/s 148 was issued on 06.03.2009 and reassessment u/s 147 r.w.s.

143(3) of the Act was completed by order dated 17.09.2009, wherein a sum of

Rs.1,14,63,360/- which was claimed as deduction of expenses was disallowed by the

AO, for the reason that these expenses were only provision and the liability was

contingent in nature.

5. The assessee being aggrieved by the reassessment completed, preferred an

appeal to the CIT(A). The assessee challenged the reopening of assessment and also

the issue on merits. The CIT(A) rejected the assessee's contention raised with regard

to reopening of assessment. With reference to issue on merits, the appeal of the

assessee was allowed.

ITA No.2643/Del /2012 3 CO No.288/Del/2012

6. The Revenue being aggrieved by the CIT(A)'s order in granting relief on

merits is in appeal before us and the assessee being aggrieved by rejecting its

contention on reopening of the assessment is in cross objection before us.

7. We have heard rival submissions and perused the material on record. The

CIT(A) on merits has allowed the claim of the assessee by giving the following

reasoning:-

"............I have perused the details of provision for expenses, amounting to Rs.1,14,63,360, made by the assessee at the end of the relevant year. The same has been made for expenses, which were incurred during the year and for which liabilities were ascertained as at the end of the year. For instance, the assessee has created a provision for royalty payable to Bioss International, for the period pertaining to relevant year, which can be computed in accordance with the agreement entered with such party. The assessee, in fact, even deducted TDS of Rs.49,171 at the end of the year against aforesaid expense, which establishes the accrual of aforesaid expense and certainty the amount of liability there against. Similarly, the provision has been made for statutory audit fee for the relevant financial year, which is an expense of the relevant year, for which the amount of liability is ascertained on the basis of fees agreed with the auditor and, therefore, the liability there against was provided for in the books of account. To the same effect is the provision for bonus payable to employees in relation to service rendered during the year which got accrued during the year and the liability there against is ascertained. In that, view of the matter, and considering the facts and circumstances of the case, the provision for expenses debited by the assessee is not an ad-hoc provision for non- existent liabilities, nor the same is the finding of the AO. The said provision are for expenses, which got accrued during the year were ascertained liability and the same were credited to the provision account, instead of vendor's account, in the absence of the final bill/invoice being received from the vendor, which cannot render, the aforesaid expenses as contingent in nature or not actual expenditure, as alleged in the assessment order. In view of the above, I hold that the assessee is eligible for deduction of provision for expense of Rs.1,14,63,360 and, therefore, ITA No.2643/Del /2012 4 CO No.288/Del/2012

the disallowance made in the assessment order is deleted and the ground of appeal raised by the assessee is allowed."

8. The CIT(A) has categorically held that the expenses, which are claimed

amounting to Rs.1,14,63,360/- are accrued and ascertained liability and the same

was credited to the provision account instead of vendor's account, in the absence

of the final bill/invoice being received from the vendor. The CIT(A) further held

that these expenses are not claimed on ad hoc basis nor it a non-existing liability.

The CIT(A) was of the view these expenses have accrued in the current year and

same is to be allowed as deduction because the assessee admittedly has been

following the mercantile system of accounting. The Revenue has not placed on

record any material to dispel the categorical findings of the CIT(A). Accordingly,

we uphold the order of the CIT(A) as correct and in accordance with law and no

interference is called for. It is ordered accordingly.

9. Hence, ground raised by the Revenue is rejected.

Assessee's C.O. No. 288/Del/2012

10. Since the issue on merits is decided in favour of the assessee, the validity

of reopening of assessment raised in this cross objection is not adjudicated and

the same is dismissed as infructuous. It is ordered accordingly. ITA No.2643/Del /2012 5 CO No.288/Del/2012

11. In the result, the appeal of the Revenue and the cross objection filed by the

assessee are dismissed.

The decision was pronounced in the open Court on 13th March, 2015.

Sd/- Sd/- (N.K. SAINI) (GEORGE GEORGE K.) Accountant Member Judicial Member

Dated: 13th March, 2015. Aks/-

Copy forwarded to 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi