2018 (9) TMI 1242 - AT - Income Tax

Taxability of commission received in advance in respect of purchases accounted for in the next financial year - Held that - The advance commission received in respect of purchases accounted for in the succeeding year should not be brought to tax in the year of receipt. The facts and circumstances of the instant ground are, admittedly, similar. In view of the foregoing and respectfully following the precedent, we hold that the ld. CIT(A) was justified in deleting the addition of ₹ 32.37 lac and erred in sustaining the remaining addition. Thus, the ground raised by the assessee is allowed and that by the Revenue is dismissed. Addition on account of Rebates and write offs - Held that - The amount receivable from debtors was, admittedly, written off during the year for which necessary details were also produced before the ld.CIT(A) and, in turn, before the Assessing Officer in remand proceedings. The Hon ble Supreme Court in the case of TRF Ltd. vs. CIT 2010 (2) TMI 211 - SUPREME COURT has held that claim for bad debt has to be allowed on a mere write off and there is no further need to prove that the amount of debt became bad during the year. In view of the above binding precedent, we hold that the ld. CIT(A) was justified in deleting the addition. Addition of sales-tax along with surcharge and such sales-tax paid during the year was debited under the head Repairs and renewals - Held that - CIT(A) deleted the addition by noticing that ₹ 11,27,955/- was the amount of sales-tax paid by the assessee during the year in respect of sales-tax assessments completed and such amount was not of a penal nature. The ld. DR could not controvert the findings recorded by the ld. CIT(A) with any cogent evidence. Since the said sum represented the payment of sales-tax made during the year, the same, in our considered opinion, was rightly allowed by the ld. CIT(A). Disallowance on account of interest expenses as assessee has not capitalized proportionate interest cost allocable to Capital Work in Progress - Held that - The ground reproduced above does not arise out of the impugned order. In fact, the Assessing Officer made two additions, namely, one u/s 14A to the tune of ₹ 1,83,397/- and another on account of advance commission amounting to ₹ 68,65,000/-, which the ld. CIT(A) dealt with in the impugned order. There is no reference whatsoever to subject matter encapsuled in the ground extracted above. The ld. DR also fairly admitted that this ground does not arise from the impugned order. Under these circumstances, we dismiss the ground taken above as not arising from the impugned order.

Summary

Issues:
1. Taxability of commission received in advance for purchases accounted for in the next financial year.
2. Deletion of addition of rebates and write-offs.
3. Deletion of addition of sales tax paid.
4. Disallowance of interest expenses for not capitalizing proportionate interest cost.

Analysis:

Issue 1: Taxability of advance commission
The assessee raised the issue of taxability of advance commission received for purchases accounted for in the next financial year. The Assessing Officer contended that since the assessee followed the mercantile system of accounting, the commission received should be taxed. The CIT(A) partially accepted the assessee's contention, bringing forward the commission income from the previous year for taxation. The Tribunal referred to a precedent from a similar case and held that advance commission received for purchases accounted for in the succeeding year should not be taxed in the year of receipt. Consequently, the Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal.

Issue 2: Deletion of addition of rebates and write-offs
The Department appealed against the deletion of an addition made by the Assessing Officer on account of rebates and write-offs. The Assessing Officer made the addition due to insufficient details provided by the assessee. The CIT(A) deleted a portion of the addition after considering details of debtors written off. The Tribunal referred to a Supreme Court ruling stating that bad debt claims should be allowed on mere write-off without further proof. Consequently, the Tribunal upheld the CIT(A)'s decision to delete a portion of the addition.

Issue 3: Deletion of addition of sales tax paid
The Department appealed against the deletion of an addition made by the Assessing Officer for sales tax paid by the assessee. The Assessing Officer considered the sales tax payment as a penalty and made an addition. The CIT(A) deleted the addition, stating that the sales tax was raised by the authorities and was allowable as a payment in the year of occurrence. The Tribunal upheld the CIT(A)'s decision, noting that the sales tax paid was not of a penal nature and was rightly allowed.

Issue 4: Disallowance of interest expenses
The Department appealed on the ground of disallowance of interest expenses for not capitalizing proportionate interest cost. The Tribunal found that the ground raised by the Department did not arise from the impugned order. The Tribunal dismissed the appeal as the ground was not related to the issues addressed in the order.

In conclusion, the Tribunal allowed the assessee's appeal on various grounds related to taxability and additions, while dismissing the Department's appeal on these issues.