2017 (11) TMI 1074 - AT - Income Tax

Disallowance of commission payment - Held that - In the instant case, the primary onus has been duly discharged by the assessee proving the claim of commission payments made by the assessee. There is absolutely no reason for the ld AO to doubt the veracity of the said transactions. Admittedly none of the commission agents were relatives of the assessee or interested parties with the assessee so as to allege some mala fide on the part of the assessee. Hence, in our considered opinion, there is no case made out by the ld AO to treat the commission transactions as ingenuine transactions in these facts and circumstances. We hold that mere nonappearance of the said commission agents in person before the Ld. AO would not make the transaction of payment of commission as ingenuine. Hence, we hold that the Ld. CIT(A) had rightly deleted the disallowance of commission made by the Ld. AO. Accordingly, ground nos. 2 to 4 raised by the Revenue are dismissed. Disallowance of sales promotion expenses - Held that - The payment to clubs towards usage charges is allowable as deduction. With regard to sales promotion expenses representing purchase of small denomination of assorted gold coins, we hold that the explanation given by the assessee is bona fide and reasonable and the same has been given to various parties for maintaining cordial relationship with the concerned sales executives who contributed for substantial increase in turnover of the assessee. We find that the Ld. CIT(A) had categorically mentioned that the turnover of the assessee had increased from 7 crores to 11 crores during the year which fact remain uncontroverted before us. This goes to prove the services rendered by those persons who are at the realm of affairs of improving the sales of the company and this also proves the business expediency and incurrence of such sales promotion expenses. Admittedly, these gold coins which were purchased were given as gifts to customers of the assessee and hence, becomes allowable deduction thereon. Disallowance of bad debts written off - AO had disallowed the same on the ground that mere making of provision for bad and doubtful debt does not amount to writing off of the debt and further the assessee has not produced any evidence from which it could be established that he has accounted for the sales in computing the income of the previous year in terms of Section 36(2) - Held that - We find that the assessee submitted that the debt of ₹ 14,90,113/- became bad as back in the year 2005-06. From that year onwards, the assessee has been consistently writing off 10% of the balance as bad debt in his books of accounts every year, so that there is no constraint on the net profit of the business of each year. It was also seen that such bad debts has been consistently allowed by the revenue commencing from assessment year 2005-06 to assessment year 2011-12. Hence, there is no reason for the revenue to take a different stand during this year when same facts and circumstances are permeating. The Ld. CIT(A) had appreciated this fact and by placing reliance on the decision of the Hon ble Supreme Court in the case of TRF Limited 2010 (2) TMI 211 - SUPREME COURT and in the case of Madras Industrial Investment Corporation Ltd. 1997 (4) TMI 5 - SUPREME Court allowed the claim of the assessee. We do not find any justifiable reason to interfere in the order of the Ld. CIT(A).

Issues Involved:
1. Disallowance of commission payment.
2. Disallowance of sales promotion expenses.
3. Disallowance of bad debts written off.
4. Disallowance of carriage outward expenses.
5. Disallowance of loading and unloading expenses.
6. Disallowance of motor car expenses.
7. Disallowance of telephone expenses.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Payment:
The primary issue was whether the CIT(A) was justified in deleting the disallowance of commission payment of ?15,95,650/-. The AO disallowed the commission payments on the grounds that the assessee failed to prove the services rendered by the commission agents. The assessee provided various details including the commission agents' PAN, address, and income tax returns, and confirmed that the payments were made through account payee cheques and subjected to TDS. Despite issuing notices and summons, the AO did not receive satisfactory compliance from the commission agents. The CIT(A) found that the commission payments were genuine, supported by bills, and the agents had confirmed the transactions. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had discharged its primary onus and the AO had not taken necessary remedial measures against the non-compliance of the commission agents.

2. Disallowance of Sales Promotion Expenses:
The next issue was the deletion of disallowance of sales promotion expenses amounting to ?10,30,488/-. The AO disallowed these expenses on the grounds of lack of proof of services rendered and the nature of promotion. The assessee provided details of gold coins purchased for distribution and payments made to clubs, arguing these were for business purposes. The CIT(A) accepted the assessee's explanation, noting the substantial increase in turnover and the business purpose of the expenses. The Tribunal agreed, citing relevant case laws and confirming the business expediency of the sales promotion expenses.

3. Disallowance of Bad Debts Written Off:
The AO disallowed bad debts of ?1,49,011/- on the grounds that mere provision does not amount to writing off and lack of evidence of accounting for the sales. The assessee argued that the bad debts were consistently written off over the years and previously allowed by the revenue. The CIT(A) accepted this explanation, referencing the Supreme Court decisions in TRF Limited and Madras Industrial Investment Corporation Ltd. The Tribunal upheld the CIT(A)'s decision.

4. Disallowance of Carriage Outward Expenses:
The AO disallowed carriage outward expenses on an estimate basis. The CIT(A) deleted the disallowance, noting that the books of accounts were not rejected and the expenses were incurred for business purposes. The Tribunal found no reason to interfere with the CIT(A)'s decision.

5. Disallowance of Loading and Unloading Expenses:
Similar to the carriage outward expenses, the AO made an estimated disallowance of loading and unloading expenses. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, noting the expenses were for business purposes and the books of accounts were not rejected.

6. Disallowance of Motor Car Expenses:
The AO disallowed motor car expenses on an estimate basis. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, noting the expenses were for business purposes and the books of accounts were not rejected.

7. Disallowance of Telephone Expenses:
The AO disallowed telephone expenses on an estimate basis. The CIT(A) deleted the disallowance, and the Tribunal upheld this decision, noting the expenses were for business purposes and the books of accounts were not rejected.

Conclusion:
The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s decisions on all issues, confirming the deletions of disallowances related to commission payments, sales promotion expenses, bad debts, and various other business expenses. The Cross Objection of the assessee was allowed, supporting the CIT(A)'s order.

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