1986 (11) TMI 103 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of brokerage and commission expenses by the IAC (A).
2. Justification for the CIT(A)'s decision to vacate the disallowance.
3. Assessment of evidence and past practice regarding brokerage and commission payments.
4. The procedural correctness of the CIT(A) in entertaining fresh evidence.
5. The necessity and justification for remanding the case for further examination.

Detailed Analysis:

1. Disallowance of Brokerage and Commission Expenses by the IAC (A):

The IAC (A) disallowed estimated sums of Rs. 12,000 for the assessment years 1981-82 and 1982-83. The grounds for disallowance were that the expenditure on brokerage and commission was not verifiable and the assessee failed to prove by evidence that these payments were made for business purposes. This decision was based on the lack of written agreements with the commission agents, inability to produce the recipients, and insufficient evidence of services rendered.

2. Justification for the CIT(A)'s Decision to Vacate the Disallowance:

The CIT(A) vacated the disallowance made by the IAC (A), noting that similar expenses in preceding years were never disallowed. The CIT(A) examined internal vouchers signed by the recipients, which detailed the sales, purchaser names, bill amounts, and brokerage paid. The CIT(A) concluded that there was no justification for disallowing part of the expenditure, given the past history and the details provided in the internal vouchers.

3. Assessment of Evidence and Past Practice Regarding Brokerage and Commission Payments:

The Tribunal considered the rival submissions and noted that the turnover had increased significantly in the years under appeal while the expenditure on brokerage and commission had declined. The Tribunal found that the internal vouchers contained necessary details verified by the CIT(A) and agreed that the expenditure claimed was wholly allowable. The past practice of allowing similar expenses was also a significant factor in the Tribunal's decision.

4. The Procedural Correctness of the CIT(A) in Entertaining Fresh Evidence:

The Tribunal found no substance in the representation that the CIT(A) entertained new evidence not produced before the assessing officer. It was noted that all books of accounts were produced before the assessing officer, and the disallowance was made on the ground that the evidence produced was not convincing. The Tribunal held that the evidence available before the assessing officer and produced again before the CIT(A) was adequate to establish that the expenses claimed were incurred.

5. The Necessity and Justification for Remanding the Case for Further Examination:

The Judicial Member disagreed with the majority opinion, emphasizing that the CIT(A) deleted the disallowance without addressing the reasons provided by the IAC (A). He argued that the CIT(A) should have required the IAC (A) to record statements from the recipients of the commission or brokerage. The Judicial Member believed that the matter should be set aside to the IAC (A) for further examination to ascertain the correct state of affairs.

Conclusion:

The majority opinion held that the expenditure as claimed by the assessee was allowable as business expenditure for the two assessment years. The appeals filed by the Revenue failed. The Judicial Member's dissenting opinion suggested that the deletion of the disallowance was not justified and recommended remanding the case for further examination. However, the majority opinion prevailed, and the matter was resolved in favor of the assessee.