2016 (3) TMI 1149 - AT - Income Tax

Disallowance made on account of commission expenses not incurred wholly & inclusively for the purpose of business - Assessee has failed to produce any evidential proof regarding services rendered by such parties - Held that - Assessee has submitted complete details of party-wise commission paid, as well as TDS deducted thereon, along with confirmation from the parties, full particulars with PAN and copies of liaison agreement with various parties. It is a general accepted fact that in pharma business commission expenses are incurred for boosting up sales and it is a usual practice. We further find that assessee gross turnover is also increased to 15.17 crores from ₹ 10.66 crores in the immediate preceding financial year and profit has also doubled reaching ₹ 20.74 lacks in the year under appeal from ₹ 11.06 lacs. We therefore are of the view that looking to the nature of business of assessee various details and documentary evidences produced before the lower authorities, increase in sales along with increase in profits and allowability of commission expenditure in previous years, we are of the view that ld. CIT(A) has rightly deleted the impugned addition disallowing commission and we find that the same has been incurred wholly and exclusively for the purpose of business and assessee has produced sufficient proof regarding services rendered by these parties. - Decided in favour of assessee Disallowance on account of prior period expenses - Held that - Looking to the course of business of assessee wherein assessee is having various branches and details of expenses are to be sent to the head office then there remains the possibility that some invoices which pertain to prior period have been received by the head office of the assessee during the year under appeal. As the genuineness of the expenditure has not been doubted we find no reason to interfere with the order of ld. CIT(A) who has rightly deleted the addition made on account of disallowance of prior period expenses by Assessing Officer.- Decided in favour of assessee Disallowanceon account of late payment of employees contribution - amount deposited before the due date of filing return of income - Held that - The contribution to PF/ESIC both by employees or employers contribution towards employees PF/ESIC are allowable u/s. 43B provided the same are deposited before the due date of filing return of income u/s. 139(1) of the I.T.Act, 1961. Considering all the facts and circumstances and the fact that the payment has been made before due date of filing of return u/s. 139(1) of the Income Tax Act, the disallowance made by the A. O. is directed to be deleted.- Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of disallowance of commission expenses.
2. Deletion of disallowance of prior period expenses.
3. Deletion of disallowance of late payment of employees' contribution to Provident Fund.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Commission Expenses:
The Revenue challenged the deletion of disallowance of Rs. 51,40,632/- for the assessment year 2009-10 and Rs. 38,43,245/- for the assessment year 2010-11 on the grounds that the commission expenses were not incurred wholly and exclusively for business purposes and lacked evidential proof of services rendered. The Assessing Officer (AO) had disallowed these expenses due to insufficient confirmations and proofs from the parties involved. However, the assessee provided comprehensive details, including proof of identity, PAN, confirmation letters, basis of commission calculation, business provided through these parties, TDS details, and copies of agreements. The CIT(A) accepted these details, noting that the AO did not prove the expenses were non-genuine and failed to gather positive evidence against the assessee. The Tribunal upheld the CIT(A)'s decision, emphasizing the increase in sales and profits, and the regularity of commission expenses in previous years, concluding that the expenses were incurred wholly and exclusively for business purposes.

2. Deletion of Disallowance of Prior Period Expenses:
For the assessment year 2010-11, the Revenue contested the deletion of disallowance of Rs. 2,76,912/- on the grounds that these were prior period expenses. The assessee argued that these expenses, incurred by the Rudrapur Branch, were reported in the audit report and crystallized during the relevant assessment year as the invoices were received late. The CIT(A) accepted this explanation, relying on judicial precedents that allow such expenses if the liability is ascertained in the year of the claim and the genuineness of the expenditure is not disputed. The Tribunal agreed with the CIT(A), noting the business nature and the possibility of delayed invoice receipt, and upheld the deletion of the disallowance.

3. Deletion of Disallowance of Late Payment of Employees' Contribution to Provident Fund:
The Revenue objected to the deletion of disallowance of Rs. 13,601/- for the assessment year 2010-11, related to the late payment of employees' contribution to Provident Fund. The CIT(A) observed that although the payment was made after the due date, it was deposited before the due date of filing the return under section 139(1) of the Income Tax Act. The CIT(A) relied on the Supreme Court judgment in CIT v. Alom Extrusions Ltd., which held that such payments are allowable if made before the due date of filing the return. The Tribunal concurred with the CIT(A)'s view and upheld the deletion of the disallowance.

Conclusion:
The Tribunal dismissed both appeals filed by the Revenue, affirming the CIT(A)'s decisions on all contested grounds. The Tribunal found that the assessee had provided sufficient proof and justification for the commission expenses, prior period expenses, and late payment of employees' contribution to Provident Fund, and thus, the deletions of disallowances were appropriate.