2011 (6) TMI 2 - HC - Income Tax

Dis allowance - Commission paid to DSA - TDuring the instant assessment year, the appellant had incurred an expenditure of Rs. 52,70,636/- on account of commission paid to the Direct Selling Agents (DSA) for their services in sourcing hirers in the year in which the loan is disbursed and debited its Profit & Loss account by a sum of Rs. 48,38,636/- for the purpose of accounting was treated as deferred revenue expenditure. The appellant claimed a deduction on entire sum of Rs. 52,70,636/- incurred during the year as a deduction on the ground that the expenditure was incurred during the year and being revenue in nature, is fully allowable as deduction. - ITAT remitted the matter with direction - Held that - After stating the principle on which commission paid by the assessee to DSAs would be treated as expenditure relating to particular areas, for want of sufficient evidence to arrive at a definite finding in this behalf, the Tribunal, in its discretion, remitted the case back to the AO giving clear guidelines how to examine the issue on the basis of records to be produced and what course of action, the AO was supposed to take. - Decided against the assessee.

Summary

Issues: Disallowance of commission paid to Direct Selling Agents (DSAs) as deferred revenue expenditure.

In this case, the appellant, a Non-Banking Financial Company (NBFC), filed an income tax return for the Assessment Year 1998-99, declaring a loss. The Assessing Officer (AO) accepted the returned loss initially but later made disallowances/additions during the assessment under Section 143(3) of the Income Tax Act. The dispute centered around the disallowance of a portion of the commission paid to DSAs by the appellant. The Commissioner of Income Tax (Appeals) upheld the disallowance, treating the expenditure as deferred revenue expenditure based on a Supreme Court judgment. However, the Income Tax Appellate Tribunal (ITAT) remitted the matter back to the AO for fresh adjudication, considering the terms of the agreement between the appellant and DSAs. The Tribunal noted that the liability to pay the commission partly arose when the DSA sourced hirers and partly on the volume of business generated, indicating that the payment was not solely based on hire-purchase charges receivable by the appellant. The Tribunal directed the AO to determine the allowability of the brokerage based on the nature of income receivable by the appellant. The appellant contended that the Tribunal should have decided the issue itself without remanding it to the AO, citing relevant judgments on appellate powers. However, the Court found no infirmity in the Tribunal's decision to remit the case back to the AO for further examination based on the available evidence.

The Court emphasized the distinction between actual liabilities and contingent liabilities in determining allowable deductions under the Income Tax Act. While acknowledging the general principles regarding expenditure and deductions, the Court highlighted the Tribunal's discretion to remit a case back to the AO for further examination when there is insufficient evidence to arrive at a definite finding. The Court upheld the Tribunal's decision to remand the matter for fresh adjudication, dismissing the appeal.