2021 (10) TMI 461 - AT - Income Tax

Fresh claim before appellate authorities - D.R contended that the assessee could make fresh claims only by filing revised return of income - HELD THAT - Hon ble Karnataka High Court has held in the case of Karnataka State Co-operative Federation Ltd 2021 (3) TMI 694 - KARNATAKA HIGH COURT that the assessee could raised fresh claim before appellate authorities. In the instant case, we notice that the assessee has raised claim for deduction of above said amounts before the A.O. by filing a revised computation of income and also before Ld. CIT(A) by raising specific grounds. As noticed earlier, both the tax authorities did not consider them. Accordingly, we are of the view that the claim of the assessee deserves admission. Accordingly, we admit both the claims of the assessee and restore the same to the file of the A.O. for examining them in accordance with law. Disallowance of provision for commission expenses - AO has observed that the assessee has not furnished the details of computation of commission amount and also purpose of payment - HELD THAT - On a reading of whole of clause 3.3 of the agreement, we are of the view that the commission expenditure shall accrue as and when the sales is finalized. Hence, we are of the view that the Ld. CIT(A) was not justified in taking the view that the commission expenditure shall become due only when the payment is received from the customers. In the case of KCP Ltd. 2018 (6) TMI 514 - TELANGANA AND ANDHRA PRADESH HIGH COURT has upheld the view of the Tribunal in holding that the liability to pay commission accrues when orders were secured by agents and not when supplies were effected by the assessee. There is one more angle with regard to the claim of the assessee. Under revenue cost matching principle , all expenses incurred in generating the revenue should be provided for in the books of account and also under the Principle Prudence , all known liabilities have to be provided for in the books of account. In the instant case, the assessee is aware that it would be liable to pay commission amount to Md. Ziaul Hassan Khan when the sales is finalized and this commission expenditure is related to the revenue generated during the year under consider. Hence it is also a known liability for this year. Hence, as per accounting principles discussed above, the said commission expenditure should be provided for in the books of accounts when the relevant sales are accounted. On this count also, the claim of the assessee is admissible - we are of the view that the commission expenditure claimed by the assessee is allowable in the year under consideration - we set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to allow the commission expenditure claimed by the assessee. Deduction u/s 35(2AB) @ 200% of the expenditure incurred on Research and development - A.O. noticed that the R D expenditure is related to product development expenditure - HELD THAT - It is pertinent to note that the AO had made identical disallowance in an earlier year and when the matter reached Hon ble Karnataka High Court, it has expressed the view that the A.O. has no jurisdiction to sit in the judgement over the report submitted by DSIR in form No.3CL. The appeal filed by the revenue before Hon ble Supreme Court against the decision rendered by Hon ble High Court has also been dismissed. 2015 (4) TMI 1064 - KARNATAKA HIGH COURT -The decision rendered by Hon ble jurisdictional High Court is binding on all authorities below it. Since the Ld. CIT(A) has followed the decision rendered by jurisdictional High Court, we do not find any reason to interfere with the decision rendered by Ld. CIT(A) on this issue. Accordingly, we confirm his order passed on this issue. Disallowance u/s 14A r.w.r. 8D - Sufficiency of own funds - HELD THAT - Admittedly, the own funds available with the assessee is in far excess of the investments made by the assessee. Accordingly, as per decision rendered by Hon ble Karnataka High Court in the case of Micro Labs Ltd. 2016 (4) TMI 219 - KARNATAKA HIGH COURT no disallowance out of interest expenditure is called for. Accordingly, we confirm the decision rendered by Ld. CIT(A) in deleting this disallowance.

Summary

Issues:
1. Non-granting of deduction u/s 35(1)(i) & 35(1)(iv) of the Income-tax Act,1961
2. Disallowance of provision for commission
3. Non-setting off of brought forward losses and unabsorbed depreciation
4. Non-granting of refund
5. Disallowance u/s 35(2AB) of the Act
6. Disallowance u/s 14A read with Rule 8D(ii)

Analysis:
1. The first issue concerns the non-granting of deductions u/s 35(1)(i) & 35(1)(iv) of the Act. The appellant initially did not claim these deductions but later filed a revised computation of income during assessment proceedings, which was not considered by the Assessing Officer (A.O.). The appellant raised specific grounds before the Ld. CIT(A) regarding these claims, but they were not adjudicated. The Tribunal admitted the claims, citing the power to admit additional claims and the appellant's actions in raising them before the A.O. and Ld. CIT(A).

2. The second issue revolves around the disallowance of provision for commission expenses. The A.O. disallowed the provision as the appellant failed to provide details of the computation and purpose of payment. The Ld. CIT(A) upheld the disallowance, stating that the commission was not payable in the year under consideration. However, the Tribunal disagreed, ruling that the commission expenditure accrued when sales were finalized, and should be allowed based on accounting principles.

3. The third issue pertains to non-setting off of brought forward losses and unabsorbed depreciation, as well as the non-granting of a refund. These issues were deemed to require verification by the A.O., and thus were restored to the A.O.'s file for examination.

4. Moving to the appeal by the revenue, the first issue was the disallowance of deduction claimed u/s 35(2AB) of the Act. The A.O. disallowed a portion of the claimed deduction related to research and development expenditure, which was certified by DSIR. The Ld. CIT(A) deleted the disallowance, following a decision by the jurisdictional High Court, which was upheld by the Tribunal.

5. The next issue raised by the revenue was the disallowance made u/s 14A of the Act. The A.O. disallowed a portion of interest expenses under Rule 8D(2)(ii), which was deleted by the Ld. CIT(A) due to lack of suitable reasons provided by the A.O. The Tribunal upheld the decision of the Ld. CIT(A) based on the excess own funds of the appellant compared to investments, as per a decision by the Hon’ble Karnataka High Court.

In conclusion, the Tribunal allowed the appeal filed by the assessee and dismissed the appeal of the revenue, confirming the decisions made on various issues raised by both parties.