2010 (4) TMI 1081 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessment order dated 27.12.2007 was time-barred by limitation u/s 153 of the Income Tax Act, 1961.
2. Whether the delay in serving the assessment order was inadvertent.
3. Whether the expenditure of Rs. 6,62,922 was in the nature of commission liable to be disallowed u/s 40(a)(ia) due to failure to deduct tax at source.

Summary:

Issue 1: Time-barred Assessment Order
The assessee contended that the assessment order dated 27.12.2007 was not passed on that date but after 31.12.2007, making it time-barred u/s 153 of the Income Tax Act, 1961. The CIT(A) held that the assessment order was indeed passed on 27.12.2007, referencing the case of India Ferro Alloy Industry Pvt. Ltd. v. CIT [(1993) 202 ITR 671 (Cal)], which states that the completion of assessment requires the determination of tax liability and issuance of a demand notice, not necessarily its service on the assessee. The Tribunal upheld the CIT(A)'s decision, noting that the assessment was ready before 15.1.2008, evidenced by the adjustment of a refund against the demand arising from the assessment order. The Tribunal concluded that the assessment order was passed on 27.12.2007 and was not barred by limitation.

Issue 2: Delay in Serving the Assessment Order
The assessee argued that the delay of two months and five days in serving the assessment order indicated it was passed after the limitation period. The CIT(A) explained the procedural delays and concluded that the delay was inadvertent. The Tribunal agreed, stating that the reasons for inadvertent delay were stronger than those for backdating, thus rejecting the assessee's claim that the order was passed after 31.12.2007.

Issue 3: Disallowance of Expenditure u/s 40(a)(ia)
The assessee claimed an expenditure of Rs. 6,62,922 towards sales promotion expenses, which the Assessing Officer disallowed, stating it was not incidental to the assessee's business. The CIT(A) held that the payment was commission and disallowed it u/s 40(a)(ia) due to non-deduction of TDS. The Tribunal found that the payment was not supported by detailed evidence of marketing expenses but was also not conclusively commission. It allowed 50% of the claimed amount (Rs. 6,49,096) as marketing expenses, modifying the orders of the authorities below.

Conclusion:
The appeal was partly allowed, with the Tribunal upholding the assessment order's validity and allowing 50% of the claimed marketing expenses.