Delhi High Court
The Pr. Commissioner Of Income Tax ... vs Escorts Ltd. on 4 September, 2018
$~35
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of decision: 4th September, 2018
+ ITA 961/2018
THE PR. COMMISSIONER OF INCOME TAX -3 ..... Appellant
Through Mr. Ruchir Bhatia, Advocate
versus
ESCORTS LTD. ..... Respondent
Through None
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE CHANDER SHEKHAR
SANJIV KHANNA, J. (ORAL):
This appeal by the Revenue under Section 260A of the Income
Tax Act, 1961 is directed against the order dated 9.3.2018 passed by the
Income Tax Appellate Tribunal ('Tribunal') in the case of Escorts Ltd.
(respondent-assessee, for short) in ITA No.4235/Del/2014. The appeal
relates to assessment year 2005-2006.
2. The impugned order decided a number of issues. However, this
appeal is confined and limited to disallowance of claim of expenditure
of Rs.7.75 crore made by the Assessing Officer on the ground that it
relates to prior period and was not incurred and does not relate to the
period relevant to the assessment year 2005-2006.
3. Learned counsel for the Revenue relies on the reasoning given in
the assessment order dated 15.12.2008 and the order of the
Commissioner of Income Tax (Appeals) dated 30.6.2014, upholding the
disallowance. He submits that the auditor appointed by the respondent-
assessee, not satisfied with the explanation given by the respondent-
assesssee, had notified that the expenditure was prior period
expenditure. This note and reservation of the auditor was reliable and
should be accepted. Stand and stance of the respondent-assessee that the
payments were not prior period expenditure, should have been rejected.
4. Genuineness of the expenditure of Rs.7.75 crores towards sales
incentive to dealers for meeting the sales target is undisputed. The
question raised is limited and confined to the year in which this
expenditure is to be allowed. It is also not disputed that payment of
Rs.7.75 crores to the dealers as sales incentives was made during the
period relevant to the assessment year 2005-06. The contention of the
Revenue is that this expenditure relates to the earlier assessment year
2004-05, and hence cannot be allowed as expenditure in the assessment
year 2005-06.
5. The finding of the Tribunal is that sales incentive was paid for
meeting sales target in the period of 15 months, ending on 30.6.2004.
Thus, the relevant date and payment would relate to the period relevant
to the assessment year 2005-2006. This factual position is specifically
recorded in para 13 of the order passed by the Tribunal. The
respondent-assessee had taken period from 1.4.2003 to 30.6.2004 for the
purpose of computing and paying sales incentive to dealers. The sales
incentive was payable only after and when the dealers had met the sales
figures in this period. Complete details on account of incentive etc. were
furnished.
6. In view of the factual finding, we do not think that the impugned
order requires interference, as the auditor in the note had qualified this
expenditure as prior period expenditure. This qualification or note alone
would not justify reversal of the factual finding recorded by the
Tribunal. Auditor's opinion though relevant and material would not be
final and conclusive even when against the assessee. Auditor's report in
a way is a third party and an independent report that can be equated with
an expert opinion. It may be accepted or rejected or partly accepted and
partly rejected. It has to be considered with other material. It cannot be
treated as final or binding on the Assessing Officer, or for that matter
even on the assessee, except when mandated by a statutory provision,
which requires an unqualified auditor's report or certification. In the
absence of statutory provision it would not be right to hold that a
reservation or qualifying note in the audit report would be a conclusive
and bind finding against the assessee. The Gujarat High Court in
Rajkot Engineering Association v. Union of India, (1986) 162 ITR 28
(Guj) had appropriately referred to the affidavit file by the Union of
India repelling and quelling misgiving expressed by the assessee on the
binding nature of qualifications or reservations expressed in audit
reports under Section 44AB of the Act, to clarify and observe:-
"53. It was, therefore, submitted that if the auditor
finds that the financial information furnished to him is
not according to the acceptable accounting policy and
principles or not according to the relevant regulations
and statutory requirements, he may refuse to give an
unqualified opinion in which case an assessee would
be exposed to grave consequences of not only a best
judgment assessment but also to penalty. We can
appreciate this apprehension expressed on behalf of
the assessee. However, in view of the clarification
made by the Union Government in the reply affidavit
of Shri Kalyanchand, Under Secretary in the Finance
Ministry to the Government of India in paragraph 15
that opinions given by the chartered accountants are
not binding either on the assessees or on the assessing
officer, we do not think that the assessee will be
prejudiced by the qualified opinion given by the tax
auditor in any given case. It is no doubt true that the
assessee concerned may be required to persuade the
Income-tax Officer that there was no justification for
the qualified opinion or that there were valid and
compelling reasons for an assessee for his failure or
omission to satisfy an auditor. We are sure that the
concerned tax authorities will not approach the matter
in a strictly technical manner so as to make a best
judgment assessment and/or to levy penalty merely
because there is a qualified report of an auditor. The
authorities will adopt a judicial approach and
consider all attendant circumstances including the fact
that the non-corporate assessees were not required to
maintain their financial records in the manner in
which the corporate assessees maintain as required
under the law in force for the time being and the
authorities will also bear in mind that non-corporate
assessees should have reasonable time to adopt
themselves to the changed situation emerging from the
insertion of the impugned provisions for the first time
in the statute book having far-reaching repercussions.
This contention, therefore, also stands rejected."
9. The chartered accountant in the audit report could have qualified
the expenditure claimed, as the sales incentive was also pertaining to
sales made in the earlier year. The finding of the Tribunal is that the
sales incentive was to be quantified and was due and payable only
during the period relevant to the assessment year 2005-2006. The
appellant/Revenue has not placed on record any material and evidence to
show and negate the factual finding of the Tribunal that sales incentive
was not payable on the basis of the performance in the last 15 months.
This factual finding is not specifically challenged as incorrect or wrong
by relying on any document or correspondence exchanged between the
respondent-assessee and the Assessing Officer or the dealers. Factual
finding is not perverse and cannot be regarded as absurd only on the
ground of qualifying note of the auditor.
10. In view of the aforesaid factual finding recorded by the Tribunal,
we find no merit in the present appeal and the same is dismissed in
limine, without any order as to costs.
SANJIV KHANNA, J
CHANDER SHEKHAR, J
SEPTEMBER 04, 2018/tp
