2015 (12) TMI 892 - AT - Income Tax

Disallowance of commission - the same was not accrued in the assessment year under consideration - Held that - As per clause 4 of the agreement, the commission payable to KSB Singapore(Asia Pacific) at the rate not exceeding 12.5% on FOB value of the order in the currency in India in which the order is placed. These charges will fall due for payment on receipt of payment from the clients. Being so, it is clear that the payment of commission accrued only on realization of sale value. The assessee s claim is that it is booking expenditure on the basis of sale value and not on the basis of sale realization and this system has been accepted by the department in earlier years as well as in the subsequent year. In our opinion, we are not concerned with the any other year which are not before us. In our opinion, if the department has accepted in earlier year, it was a mistake and there is no merit in continuing the same mistake in the assessment year under consideration. The payment of commission accrued only on realization of sale value and it is to be allowed when the realization of sale value which is in compliance with the agreement cited supra and disallowance is based on the above agreement brought on record by the authorities and hence, we do not find any infirmity in the orders of the authorities below, which is confirmed.- Decided against assessee.

Summary

Issues: Disallowance of commission for not being accrued in the assessment year under consideration.

Analysis:
1. The appellant accrued a commission amount in the books of account for the assessment year 2009-10, but the Assessing Officer disallowed part of it as not accrued during the year.
2. The AO disallowed the commission based on the actual remittance made towards commission during the period, stating that commission becomes due only upon realization of export proceeds.
3. The CIT(A) confirmed the AO's decision, emphasizing that commission payment is linked to receipt of payments from clients, as per the agreement with the selling agent.
4. The appellant argued that the commission expenses were genuine business expenses under the mercantile system of accounting and should be allowed regardless of export proceeds realization.
5. The appellant cited legal precedents to support the claim that accrued liabilities should be considered for deduction under the mercantile system of accounting.
6. The Tribunal noted the agreement terms that commission falls due only upon receipt of payment from clients, and upheld the disallowance based on the agreement's provisions.

Conclusion:
The Tribunal dismissed the appeal, affirming the disallowance of the commission as it was contingent upon the realization of sale value, as per the agreement terms. The Tribunal held that the commission should be allowed only when the sale value is realized, rejecting the appellant's argument based on the mercantile system of accounting.