2016 (6) TMI 599 - HC - Income Tax

Allowability of commission expenditure - case of the Revenue was confined to the contention that the assessee without filing a revised return could not have made such a claim and the Tribunal therefore, ought not to have accepted the same - Held that - The assessee had in the returns filed, appended a note suggesting that the commission expenditure is not being currently claimed but would be claimed after actual payment. During the course of assessment, the assessee however, changed its position and sought to raise such a claim. The Assessing Officer did not reject the claim on the ground that no revised return was filed. In any case, when the material was already on record, the CIT(Appeals) and the Tribunal could have entertained such a claim.

Summary

Issues:
1. Disallowance of commission expenditure claimed by the assessee.
2. Entertaining a claim without filing a revised return.

Issue 1: Disallowance of commission expenditure claimed by the assessee:
The assessee filed a return declaring income and claiming commission expenditure. However, during assessment proceedings, the Assessing Officer disallowed the claimed expenditure as the assessee failed to provide necessary details and evidence to substantiate the claim. The Assessing Officer observed discrepancies in the agreements submitted by the assessee and requested further clarification, which the assessee did not provide. The CIT(Appeals) and the appellate Commissioner upheld the disallowance, stating that the necessity of incurring the expenses and the services rendered were not established. However, the Tribunal allowed the appeal, noting that the liability of the expenditure was not disputed, and the assessee had produced copies of agreements related to the commission payments. The Tribunal directed the Assessing Officer to verify the nature of services received by the assessee.

Issue 2: Entertaining a claim without filing a revised return:
The Revenue contended that the Tribunal erred in entertaining the claim without the assessee filing a revised return. The Tribunal had allowed the claim, sending the matter back to the Assessing Officer for verification. The Revenue argued that without a revised return, the claim should not have been entertained. The High Court referred to the decision in the case of Goetz (India) Ltd. v. CIT and distinguished the powers of the Assessing Officer from those of the Appellate Commissioner and the Tribunal. The High Court held that while the Assessing Officer cannot entertain a fresh claim without a revised return, the Appellate Commissioner and the Tribunal have the jurisdiction to entertain new grounds or contentions. The Court emphasized that income tax proceedings are not strictly adversarial and that the intention is to tax real income. In the present case, the assessee had initially indicated in the return that the commission expenditure would be claimed later. Since the material was already on record, the High Court upheld the Tribunal's decision to entertain the claim without a revised return.

In conclusion, the High Court dismissed the tax appeals, affirming the Tribunal's decision to allow the claim for commission expenditure without a revised return. The Court emphasized the powers of the Appellate Commissioner and the Tribunal to entertain new grounds or claims based on existing record material, in line with the objective of taxing real income.