2008 (2) TMI 308 - HC - Income Tax

Two different CITs having jurisdiction over the same range recorded different views in relation to CBDT circulars dt. 22-9-65 & 6-1-84 (about the limit of expenses to be allowed as deduction regarding commission received by LIC Agent) order dealing with commission on basis of circulars can t be held erroneous so Tribunal was justified in concluding that assessment order can t be treated to be erroneous & prejudicial to the interests of revenue as the AO had adopted one view of the matter

Summary

Issues involved:
Interpretation of circulars regarding deduction of expenses for commission earned by an Agent of Life Insurance Corporation who does not maintain books of account.

Analysis:
1. Background: The case involves a dispute over the deduction of expenses for commission earned by an LIC agent who does not maintain books of account. The Commissioner of Income Tax initiated action under section 263 of the Income Tax Act, 1961, questioning the assessment made by the Assessing Officer.

2. Initial Assessment: The Assessing Officer allowed a deduction of 40% on the first-year commission and 15% on renewal commission from the gross commission received by the agent. However, the Commissioner set aside the assessment order and directed the Assessing Officer to grant a deduction of Rs.10,000 based on a circular issued by the Central Board of Direct Taxes (CBDT) due to the agent not maintaining books of accounts.

3. Tribunal's Decision: The assessee appealed to the Tribunal, which allowed the appeal based on its interpretation of the circulars issued by the CBDT. The Tribunal considered the circulars dated 22.09.1965 and 1.9.1984, noting changes in the figures and percentages mentioned in the circulars.

4. CBDT Circulars: The Standing Counsel for the Revenue highlighted the circulars issued by the CBDT and argued that the Tribunal erred in its interpretation. The counsel pointed out that the subsequent circular of 1984 only partially modified the earlier circular of 1965, and the ceiling prescribed in the 1965 circular should still apply.

5. Legal Precedent: The respondent's counsel referred to a decision by the Bombay High Court to support their argument that the issue did not involve a question of law. They urged the court to adopt a similar view and not interfere with the Tribunal's decision.

6. Tribunal's Reasoning: The Tribunal, in its order, referred to a case where another CIT allowed a deduction of expenses based on the circulars. It also noted that the CIT in the present case did not address the objections raised by the assessee in response to the show cause notice issued under section 263 of the Act.

7. Conclusion: The Tribunal upheld its decision based on the differing opinions of two CITs within the same jurisdiction. It concluded that the assessment order was not erroneous or prejudicial to the revenue's interests, as the Assessing Officer had adopted a reasonable view. The court left the question referred unanswered, respecting the Tribunal's decision based on different reasoning.

8. Final Disposition: The Court disposed of the reference without costs, maintaining the Tribunal's decision on the grounds of differing CIT opinions and the reasonableness of the Assessing Officer's view.