2013 (6) TMI 853 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of capital subsidy as revenue receipt.
2. Disallowance of commission and incentive expenses.

Summary:

Issue 1: Taxability of Capital Subsidy
The assessee, a Private Limited Company engaged in manufacturing industrial explosives, disclosed a net loss of Rs. 6,36,502/- for the Assessment Year 2005-2006. The Assessing Officer (A.O.) completed the assessment u/s 143(3) determining total income at Rs. 21,46,400/-, adding Rs. 5 lakhs as revenue receipt from the subsidy received by the assessee. The First Appellate Authority upheld this addition. The Tribunal found that the subsidy was sanctioned as "capital subsidy" for a "new unit" and noted that the scheme under which the subsidy was received was not examined by the Revenue authorities. The Tribunal set aside this issue to the file of the A.O. for fresh adjudication after examining the investment subsidy scheme, thus allowing the ground for statistical purposes.

Issue 2: Disallowance of Commission and Incentive Expenses
The A.O. disallowed Rs. 22,82,903/- claimed as commission and incentive expenses, arguing that such expenses were unjustified as all sales were made to a Government Enterprise. The First Appellate Authority upheld this disallowance. The Tribunal noted that the assessee provided names, addresses, and agreements of the commission agents, made payments by cheque, and deducted tax at source. The Tribunal found that the A.O. did not doubt the genuineness of the payments and that the major commission agent, M/s Combined Associates, had a certificate u/s 197(1) issued by the Revenue. The Tribunal held that the assessee discharged its burden of proof and that the disallowance was made on mere surmises. Consequently, the Tribunal allowed the claim of the assessee, thus allowing this ground.

Conclusion:
The appeal by the assessee was allowed in part, with the issue of capital subsidy remanded for fresh adjudication and the disallowance of commission and incentive expenses overturned. The order was pronounced in the Open Court on 28th June, 2013.