2012 (9) TMI 798 - AT - Income Tax

Dis-allowance of selling and distribution expenses on the basis that samples and models for foreign buyers were sent by other party (M/s R) and not by the assesse Held that - CIT(A) deleted the dis-allowance on observation that these expenses are necessary for obtaining the export orders and have been incurred throughout the year. The samples to the prospective buyers abroad were sent through M/s R who in turn procure export orders for the assessee company. The assessee had also produced the details of foreign buyers to whom these samples and models were sent. Keeping all these material facts in mind, it is held that CIT(A) has rightly deleted the disallowance Dis-allowance of write off of irrecoverable advances to the fabricators, employees and suppliers during the year 1996-1999 claim dis-allowed on the basis that the assessee could not furnish documentary evidence in support that the expenses were related to business Held that - Contention of the assessee remained that advances were irrecoverable on ground that employees had left their job and the business with the old fabricators, suppliers were also discontinued. We are of the view that maintenance of books of account in regular course of business is also a good evidence to be relied upon. The same cannot be ignored simply because it is not supported with documents thereto when the details of the persons to whom the advances in question were made, were made available. Thus, CIT(A) has rightly accepted the claimed written off irrecoverable advances Decided against Revenue

Summary

Issues:
1. Disallowance of selling and distribution expenses
2. Disallowance of advances irrecoverable written off

Issue 1: Disallowance of Selling and Distribution Expenses

The appellant, engaged in manufacturing and selling leather garments, faced disallowance of expenses amounting to Rs.16,28,019.95 by the Assessing Officer (AO). These expenses included costs for packing material, freight, quality control, and developing samples for foreign buyers. The AO disallowed the expenses as samples for foreign buyers were sent by another entity, not the appellant. However, the Commissioner of Income Tax (Appeals) (CIT(A)) overturned this decision, stating the expenses were necessary for obtaining export orders and had been incurred throughout the year. The samples were sent through a third party, who procured export orders for the appellant. The CIT(A) upheld the expenses, noting the importance of these costs in securing export orders.

Issue 2: Disallowance of Advances Irrecoverable Written Off

The AO disallowed Rs.4,34,000 claimed as advances made to fabricators, employees, and suppliers during 1996-1999, which became irrecoverable. The AO argued that the appellant failed to provide sufficient documentary evidence linking these advances to business purposes. However, the appellant contended that these advances were made in the ordinary course of business, but due to circumstances like employees leaving and discontinued business relationships, they were written off. The CIT(A) accepted the appellant's explanation, emphasizing that the maintenance of regular business accounts was evidence in itself. The CIT(A) upheld the written-off advances, stating that the absence of specific documents did not negate the validity of the claims when details of the recipients were available.

In conclusion, the Appellate Tribunal upheld the decisions of the CIT(A) regarding both issues, dismissing the appeal. The Tribunal emphasized the importance of the expenses in securing export orders and recognized the validity of the written-off advances based on the regular course of business and available recipient details.