Qualifying Note of Auditor not a Ground to treat a Factual Finding as ‘Absurd’: Delhi HC [Read Judgment]

A division bench of the Delhi High Court has held that a factual finding cannot be termed as absurd merely on the basis of a qualifying note of an Auditor.

In the instant case, the Assessing Officer disallowed a claim for the expenditure of Rs.7.75 crore 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.

The order was based on the opinion of the auditor who did not satisfied with the explanation given by the respondent-assessee, had notified that the expenditure was the prior period expenditure.

On appeal, the ITAT found that the sales incentive was paid for meeting sales target in the period of 15 months, ending on 30.6.2004.

Before the High Court, the Revenue argued that the note and reservation of the auditor were reliable and should be accepted.

While upholding the ITAT Order, Justice Sanjiv Khanna and Justice Chander Sekhar held that “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.”

“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,” the bench said.