1994 (12) TMI 98 - AT - Income Tax

Summary

Issues:
1. Discrepancy in interest income calculation.
2. Disallowance of provision for commission.
3. Confirmation of addition on unaccounted advertisement expenses.

Analysis:

Issue 1: Discrepancy in interest income calculation
The appeal was against the CIT(A)'s order confirming the addition of the interest income difference. The assessee argued that interest income should be based on actual receipts rather than accruals. However, the ITO held that as per the mercantile system, the entire interest accrued should be declared. The ITAT upheld the decision, noting the departure from the usual practice with a sister concern. Citing a previous case, the ITAT dismissed the appeal, emphasizing adherence to the mercantile system for interest income.

Issue 2: Disallowance of provision for commission
The dispute involved a provision for extra commission made by the assessee for a group company's efforts in securing orders. The Assessing Officer disallowed this provision, stating it was not justified under the agreement terms. The CIT(A) upheld the disallowance, emphasizing the absence of a written agreement for the extra commission. The ITAT concurred, finding the provision an afterthought to reduce tax liability, lacking commercial justification. The ITAT dismissed the appeal, noting the attempt to evade tax through the provision.

Issue 3: Confirmation of addition on unaccounted advertisement expenses
The Assessing Officer disallowed half of the advertisement expenses borne solely by the assessee, as per the agreement terms. The CIT(A) confirmed the principle but adjusted the disallowance amount. The ITAT found no grounds for interference, as the agreement required sharing the advertisement costs with the selling agent. Acknowledging the CIT(A)'s correction in disallowance calculation, the ITAT upheld the decision, dismissing the appeal on this issue.

The ITAT also addressed minor grounds raised by the assessee, affirming the lower authorities' rejections. Consequently, the appeal was dismissed in its entirety.