1980 (10) TMI 100 - AT - Income Tax

Summary

Issues:
1. Disallowance of provision in the commission account by the ITO.
2. Challenge to the disallowance in appeal before the AAC.
3. Contention of the assessee regarding provision for commission payable.
4. Revenue's argument against the relief allowed by the AAC.
5. Justification of the provision made by the assessee.
6. Decision on the appeal by the Appellate Tribunal.
7. Dismissal of the cross objection by the assessee.

Detailed Analysis:
1. The primary issue in this case was the disallowance of a provision in the commission account by the Income Tax Officer (ITO). The ITO disallowed Rs. 20,000 provision made by the assessee under the head 'commission account' as the assessee failed to provide a satisfactory explanation for the provision.

2. The assessee challenged this disallowance in appeal before the Appellate Authority Commissioner (AAC). The AAC accepted the contention of the assessee, stating that the provision was justified due to outstanding payments from a party and past practices of making such provisions.

3. The assessee argued that the provision for commission payable was based on actual sales made to a specific party, and it was a legitimate business practice to protect the interest of the business by making such provisions. The provision was calculated based on sales figures and was rounded off to Rs. 20,000.

4. The Revenue contended that the provision made by the assessee was a lump sum and not an ascertained liability, hence should not be allowed. However, the AAC justified the provision, considering the mercantile basis of accounting and the need to protect business interests.

5. The Appellate Tribunal upheld the decision of the AAC, stating that the provision was justified as it was based on actual sales, and the assessee was maintaining books on a mercantile basis. The Tribunal found no grounds to interfere with the AAC's order and dismissed the Revenue's appeal.

6. Finally, the cross objection by the assessee seeking no relief was dismissed as infructuous by the Tribunal, resulting in the dismissal of both the appeal and the cross objection.