2016 (1) TMI 1128 - AT - Income Tax

Addition on account of disallowance of quality claim expenses - CIT(A) deleted the addition - Held that - It is not even in dispute that the quality claim were made. As for the Assessing Officer s stand that in view of debit note sent by the buyer, the assessee should have reduced its sale and only shown the net figure of sales, we find that whether gross sales is shown on the credit side, with a quality claim shown on the debit side, or whether a net sale figure is shown effect is the same. His hyper technical objection does not our approval. Learned Departmental Representative has now given a new twist to the matter. He submits that since all the foreign bills were purchased by the buyer, and the assessee had already received the sale proceeds, there was no loss to the assessee. This argument, however, proceeds on the fallacious assumption that banker purchases bills drawn on the buyer, and he has no recourse to the assessee. Even though in the banking terminology such transactions of loan against receivables from foreign buyers are sometimes termed as FDBP (Foreign Documentary Bills Purchased), these are essentially nature of loans to exporters. Nothing, therefore, turns on the receipt of loans in respect of bills raised by the assessee. These are not revenue receipts at all, nor was it ever the case of even the Assessing Officer, on the light of these discussions, we approve the well reasoned of the CIT(A) and decline to interfere in the matter. - Decided against revenue

Summary

Issues:
Challenge to correctness of order dated 29th February, 2012, passed by CIT(A) in assessment under section 143(3) of the Income-tax Act, 1961, for the assessment year 2009-10. Deletion of addition of Rs. 2,90,20,000/- made by Assessing Officer on account of disallowance of quality claim expenses.

Analysis:
The Assessing Officer challenged the order dated 29th February, 2012, passed by the CIT(A) regarding the assessment under section 143(3) of the Income-tax Act, 1961, for the assessment year 2009-10. The grievance raised by the Assessing Officer was related to the deletion of an addition of Rs. 2,90,20,000/- made on account of disallowance of quality claim expenses. The ITAT considered the appeal along with the assessment year 2008-09 and concluded that the quality claim expenses were not contingent or uncertain liabilities but were quantified and already made. The ITAT cited the legal position that if a business liability has definitely arisen in the accounting year, the deduction should be allowed even if the liability needs to be quantified and discharged later. The ITAT found that the claims were made by the vendor, and the deduction was admissible even if the claim was reasonably estimated. The ITAT rejected the Assessing Officer's contention regarding the reduction of sale proceeds and approved the CIT(A)'s decision, emphasizing that the nature of the transactions did not result in revenue receipts. The ITAT dismissed the appeal and upheld the CIT(A)'s order.

In summary, the ITAT dismissed the appeal by the Assessing Officer challenging the order of the CIT(A) regarding the assessment for the year 2009-10. The ITAT upheld the deletion of the addition of Rs. 2,90,20,000/- made by the Assessing Officer on account of disallowance of quality claim expenses. The decision was based on the finding that the quality claims were not contingent liabilities but were quantified and already made, making them admissible deductions. The ITAT also rejected the technical objections raised by the Assessing Officer regarding the treatment of sale proceeds and affirmed the CIT(A)'s reasoned decision. The ITAT's decision was consistent with its earlier ruling for the assessment year 2008-09, and therefore, the appeal was dismissed.