2004 (8) TMI 43 - HC - Income Tax

In order to get duty draw-back released from the Central Government, the assessee had incurred expenses of Rs. 2,37,000 which was paid to the commission agent - AO had disallowed a part of sum on the ground that it is excessive payment - Assessing Officer has neither the expertise of running a business nor has any specialisation to sit in judgment over the assessee as to whether such an expenditure was incurred for commercial expediency or not. Apart from it, there is no provision to disallow a part of such expenditure on the ground of excessiveness when the expenditure has been found to be genuine Held that Tribunal was justified in allowing the deduction.

Summary

Issues:
Assessment of excessive payment for duty draw-back expenses incurred by the assessee for the assessment year 1986-87.

Analysis:
For the assessment year 1986-87, the assessee had incurred expenses of Rs. 2,37,000 to get duty draw-back of Rs. 25 lakhs released from the Central Government. The Assessing Officer disallowed a sum of Rs. 1,23,130 as excessive payment, but the Commissioner of Income-tax (Appeals) deleted the disallowance, a decision upheld by the Tribunal.

The High Court noted the difficulty in recovering lawful amounts from the Government without incurring expenses and facing harassment. The court acknowledged that engaging a commission agent and incurring a sum of Rs. 2,37,000, approximately 10 per cent of the amount, was not excessive or uncalled for. It was deemed a prudent business decision to avoid delays and harassment in receiving due money early for business use. The court emphasized that Assessing Officers lack the expertise to judge commercial expediency of such expenditures, and disallowing a part of genuine expenditure on grounds of excessiveness is not provided for.

Therefore, the Tribunal's decision to allow the deduction was considered justified. The High Court found no substantial question of law requiring consideration, leading to the dismissal of the appeal in limine.