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2017 (4) TMI 1432 - AT - Income TaxAddition on account of sales commission - AO has disallowed the entire claim of the assessee for want of any evidence, confirmation of service rendered, any agreement, identity of persons receiving the sales commission - HELD THAT - In the absence of any agreement between the parties and further the execution of the sale to the said party M/s. Khodayss System Limited during the year under consideration it is not possible to believe the explanation of the assessee that the assessee has received the business of ₹ 6.4 crores from the said company M/s. Khodayss System Limited. Even otherwise no document has been placed before us to show any communication between the assessee and M/s. Khodayss System Limited regarding this transaction of the order received from M/s. Khodayss System Limited. Thus in the absence of any evidence to show that the assessee has received a business order of ₹ 6.4 crores from the said company and further in the absence of any agreement between the assessee and Mr. Rakesh Gupta regarding payment of sales commission we do not find any error or illegality in the orders of the authorities below qua this issue. Accordingly appeal is decided against the assessee. As regards the claim paid to Ms. Latha Gehani we find that the CIT(A) has not discussed any fact while allowing the claim of the assessee whereas the AO has disallowed the claim for want of evidence, agreement and identity as well as confirmation of rendering of service. Since the order of the CIT(A) is silent and non-speaking on this issue therefore in the facts and circumstances of the case we set aside this issue to the record of the AO for proper examination and verification of facts as well as evidence to be produced by the assessee. Reallocation of expenses among three segments - HELD THAT - Allocation of cost can be made only in respect of indirect common cost incurred in respect of all the segments. Therefore the allocation of the cost can be made only in respect of the indirect cost. The cost which is directly related to a particular segment cannot be reallocated. The same can be examined for the purpose of allowability and genuineness but not for the purpose of reallocation. Accordingly, the action of the TPO in allocating the direct as well as indirect cost in the ratio of turnover of each segment is not proper and justified. Hence no error or illegality in the impugned order of the CIT(A) which has taken note of the fact that if the direct cost is taken out from the allocation then the adjustment made by the TPO will not survive. Hence we uphold the impugned order of the CIT(A) qua this issue. Disallowance of excess current liability towards head office account - AO made the addition on the ground that it is an excess liability - CIT(A) accordingly held that un-cleared liability as on 31.03.2003 is an allowable expenditure except it is covered u/s. 43B - HELD THAT - The assessee has made a provision of ₹ 4,90,480/- as the liability of expenditure to the head office account yet to be cleared on 31.03.2003. We find that the assessee has claimed that this an ascertainable liability but yet to be cleared from the other side on 31.03.2003. There is no quarrel on the point that if the provision was made by the assessee as an ascertainable liability to be paid in future then it is an allowable expenditure. However this issue has not been examined by the AO as well as by the CIT(A) from this angle. Accordingly, we set aside this issue to the record of the AO to verify the relevant record as well as the actual liability paid or payable by the assessee after 31.03.2003 to the head office.
Issues Involved:
1. Deletion of addition made by the AO on account of sales commission. 2. Reallocation of expenses among three segments. 3. Disallowance of excess current liability towards head office account. 4. Disallowance of deduction under Section 44C. 5. Levy of interest under Section 234B. Detailed Analysis: 1. Deletion of Addition Made by the AO on Account of Sales Commission: - During scrutiny assessment, the AO asked the assessee to furnish details of sales commission paid amounting to ?33,60,000/- and the services rendered in return. In the absence of evidence, the AO treated this amount as non-genuine expenditure and added it to the income of the assessee. - On appeal, the assessee contended that ?24 Lakhs was accrued selling expenses incurred during the ordinary course of business and ?9,60,000/- was paid to Ms. Latha Gehani for marketing services. - The CIT(A) confirmed the disallowance of ?24 Lakhs due to lack of evidence but allowed ?9,60,000/- paid to Ms. Latha Gehani. - The Tribunal found that the assessee failed to show any agreement or evidence of services rendered by Shri Rakesh Gupta, thus upheld the disallowance of ?24 Lakhs. However, for the ?9,60,000/- paid to Ms. Latha Gehani, the Tribunal noted the CIT(A) did not discuss facts and remanded the issue back to the AO for proper examination and verification. 2. Reallocation of Expenses Among Three Segments: - The TPO noted discrepancies in the allocation of direct employee costs and other indirect costs among marketing support service, trading functions, and AMC of local sales segments. - The TPO reallocated costs based on the ratio of sales revenue, which the CIT(A) found improper due to the inclusion of direct costs pertaining to the marketing segment. - The CIT(A) corrected the allocation, reducing the adjustment made by the TPO. The Tribunal upheld the CIT(A)'s order, stating that only indirect costs should be reallocated, not direct costs. 3. Disallowance of Excess Current Liability Towards Head Office Account: - The AO added ?4,90,480/- towards current liability under the head office account, considering it an excess liability. - The CIT(A) allowed the expenditure, stating that un-cleared liability as on 31.03.2003 is allowable except under Section 43B. - The Tribunal remanded the issue back to the AO to verify the actual liability paid or payable by the assessee after 31.03.2003. 4. Disallowance of Deduction Under Section 44C: - The assessee did not press these grounds during the hearing, and the Tribunal dismissed them as not pressed. 5. Levy of Interest Under Section 234B: - The Tribunal noted that the levy of interest under Section 234B is consequential and mandatory in nature. Conclusion: - The revenue's appeal was partly allowed, and the assessee's appeal was dismissed. - Pronounced in the open court on April 18, 2017.
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