2011 (4) TMI 1320 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of commission payments.
2. Disallowance of short-term capital loss on redemption of LIC mutual fund.

Summary:

1. Disallowance of Commission Payments:
The assessee and the revenue filed cross appeals against the orders of CIT(A) for A.Y. 2005-06 and 2006-07. The common ground raised by the assessee was the confirmation of disallowance of Rs. 9,21,305/- (5%) for A.Y. 2005-06 and Rs. 7,71,056/- (5%) for A.Y. 2006-07, while allowing 95% of the total commission paid. The assessee argued that the disallowance was made on an adhoc estimated basis without pointing out any deficiency in the information and evidence submitted. The revenue contended that the CIT(A) erred in deleting the disallowance of Rs. 1,75,04,863/- out of the total disallowance of Rs. 1,84,26,168/- made by the AO on account of commission claimed to have been paid to various agents.

The ITAT noted that the assessee had provided all relevant details, including the names and addresses of agents, mode of payment, and confirmations from agents. The ITAT referenced its earlier decision for A.Y. 2004-05, where it had allowed the commission payments, and the decision was upheld by the Hon'ble Delhi High Court and the Hon'ble Supreme Court. The ITAT held that the facts and circumstances remained the same for the years under consideration, and therefore, the entire commission paid by the assessee to its agents/distributors was to be allowed. The ITAT dismissed the revenue's appeals and allowed the assessee's appeals on this ground.

2. Disallowance of Short-Term Capital Loss on Redemption of LIC Mutual Fund:
The only other ground raised by the assessee for A.Y. 2005-06 was the confirmation of disallowance of Rs. 15,68,627/- to the extent of dividend received out of short-term capital loss incurred in redemption of LIC Mutual Fund by applying the provisions of section 94(7). The assessee argued that the units were held for more than three months as per the law applicable on the date of sale, and the amended provision w.e.f. 1/4/2005 was not applicable.

The CIT(A) upheld the AO's order, holding that the Finance Act is applicable to the whole year, and the transaction was effected when the finance bill was under consideration. The ITAT upheld the CIT(A)'s order on this issue, confirming that the provision of section 94(7) was applicable from 1-4-2004.

Conclusion:
The ITAT partly allowed the assessee's appeal for A.Y. 2005-06, allowed the appeal for A.Y. 2006-07, and dismissed the revenue's appeals. The order was pronounced in open court on 29-04-2011.