2017 (12) TMI 465 - AT - Income Tax

Disallowance on account of commission payment - Held that - The assessee has not produced the requisite details before the assessing officer and further, the Ld. CIT (Appeals) has also not taken a remand report from the assessing officer with respect to the observations made by the assessing officer while making the disallowance. Therefore, in view of above facts, and in interest of justice, we set aside the whole issue back to the file of the assessing officer with a direction to the assessee to produce the commission agents before the assessing officer for verification about the rendition of the services and, for production of any other information and details to prove the allowability of commission expenses. The assessing officer is also free to make necessary enquiries as he deems fit to decide the issue. Needless to say, proper opportunity of hearing will be granted to the assessee before deciding the issue. Accordingly, ground no. 1 is allowed for statistical purposes. Addition on account of interest on insurance claim and deletion of income from insurance claim - Held that - In the case of Godhra Electricity Co. Ltd. vs. CIT (1997 (4) TMI 4 - SUPREME Court) held that if the income does not result at all, it cannot be taxed even though in book keeping an entry has been made about the hypothetical income which does not materialise. Thus, we are of the considered opinion that mere filing of insurance claim did not give any right to the assessee to receive income as the claim was not accepted by the insurance company. Had there been any acceptance by the insurance company, then the income would have definitely accrued on the basis of the accounting entry. But in the instant case it is not so. Even during the course of proceedings before us, the department could not produce any cogent evidence to the contrary in this regard. Accordingly, we find no reason to interfere with the adjudication of the Ld. CIT (A) on this issue and dismiss ground Nos. 2 and 3 of the department appeal. Adhoc disallowance of expenses - Held that - Personal element in all these expenses could not be ruled out. The Ld. CIT (A) also noted that relevant details were furnished before the AO but the AO had failed to point out specific instances of personal element in such expenses. While deleting the disallowances, Ld. CIT(A) has placed reliance on numerous orders of the ITAT Delhi Bench where the jurisdictional Tribunal for the assessee has held that where the expenditure was disallowed without pointing out any expenditure in the nature of personal expenses, there was no justification in making ad hoc disallowances. This adjudication of the Ld. CIT (A) could not be negated by the department by leading any evidence to the contrary even during the course of proceedings before us. Therefore, on this issue also we find no reason to interfere with the adjudication of the Ld. CIT (A) and we, accordingly, dismiss ground No. 4 of the departmental appeal.

Summary

Issues Involved:
1. Disallowance of sales commission expenses.
2. Deduction of interest on insurance claim.
3. Deduction of income from insurance claim.
4. Disallowance of vehicle running, telephone expenses, and business promotion and festival expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Sales Commission Expenses:
The department challenged the deletion of the addition of ?1,59,97,994/- on account of sales commission expenses. The AO had disallowed this commission as the assessee failed to justify the abnormal increase in sales commission and did not produce the commission agents for verification. The Ld. CIT (A) allowed the claim based on the commission agreements, invoices, confirmations, and TDS certificates provided by the assessee, noting that the commission was paid through account payee cheques and the agents were del credere agents. However, the ITAT found that the assessee failed to provide proof of actual services rendered by the commission agents and noted discrepancies in the agents' experience and income declarations. The ITAT set aside the issue back to the AO for verification, directing the assessee to produce the commission agents and provide necessary details to prove the allowability of the commission expenses.

2. Deduction of Interest on Insurance Claim:
The department contested the deletion of the addition of ?1,73,77,580/- for interest on an insurance claim. The assessee had credited this notional interest to the profit and loss account but later filed a revised computation claiming non-accrual of the interest as the insurance claim was rejected. The AO disallowed the claim due to the absence of a revised return. The Ld. CIT (A) allowed the claim, noting that the AO's power to admit fresh claims was limited, but the appellate authority had the power to admit such claims. The ITAT agreed with the Ld. CIT (A), referencing the Hon'ble Apex Court's judgments, and held that the interest did not accrue as the insurance claim was rejected, thus dismissing the department's ground.

3. Deduction of Income from Insurance Claim:
The department also challenged the deletion of the addition of ?5,42,83,132/- for the insurance claim. The assessee had initially credited this amount to the profit and loss account, but the claim was later rejected by the insurance company. The AO disallowed the revised computation due to the lack of a revised return. The Ld. CIT (A) allowed the claim, stating that the income did not accrue as the claim was rejected. The ITAT concurred, citing the Hon'ble Apex Court's judgment in Godhra Electricity Co. Ltd. vs. CIT, which held that income does not result if it does not materialize, even if recorded in bookkeeping. The ITAT found no reason to interfere with the Ld. CIT (A)'s adjudication and dismissed the department's ground.

4. Disallowance of Vehicle Running, Telephone Expenses, and Business Promotion and Festival Expenses:
The department contested the deletion of various disallowances made on an ad hoc basis. The AO had disallowed these expenses, citing the potential for personal use. The Ld. CIT (A) deleted the disallowances, noting that the AO failed to point out specific instances of personal use and relied on numerous ITAT Delhi Bench orders. The ITAT found no evidence to the contrary provided by the department and upheld the Ld. CIT (A)'s adjudication, dismissing the department's ground.

Final Result:
The appeal of the department was partly allowed for statistical purposes, specifically regarding the issue of sales commission expenses, which was remanded back to the AO for further verification. The other grounds raised by the department were dismissed.