2020 (9) TMI 1123 - AT - Income Tax

Disallowance of selling and marketing expenses paid - Commission on sale - receipt from the sale of FSI was not offered to tax, therefore, the expenses was not liable to be allowed - As argued that the commission or brokerage expenses are accrued and the liabilities towards such expenses are created as soon as the deal takes place between the assessee company and the party and accordingly the brokerage/commission is due, hence, the claim of the assessee is liable to be allowed - HELD THAT - The assessee company has paid 2% commission on sale of FSI 53.33 crores for the year under consideration. The commission has been booked against these transactions in the year under consideration. Since the FSI was not offered in the current year, therefore, the AO has declined the claim. It nowhere seems justifiable in view of the decision in the case of Mysore Tobacco Co. Ltd. Vs. CIT 1978 (5) TMI 29 - KARNATAKA HIGH COURT in which it is held that the accepting certain specific provisions relating to amortization of initial expenses in certain cases, there is no other statutory provision for allowing revenue expenses in a phased or spread out manner. Expenses are required to be claimed and allowed only in the year in which the expenses are incurred or the liability towards such expenses accrued. Revenue expenditure is essentially allowable in the year to which it pertains or in which it is incurred. However, to support his claim, the assessee has also relied upon the decision in the case of Calico Dyeing Printing Works Vs. CIT 1958 (3) TMI 59 - BOMBAY HIGH COURT wherein claim of the assessee was allowed in similar circumstances. We are of the view that the declining of the claim of commission expenses is nowhere justifiable, hence, we set aside the finding of the CIT(A) on the issue. The claim is hereby allowed in the relevant year. Accordingly, we allowed the claim of the assessee.

Summary

Issues Involved:
1. Ignoring the fundamental accounting assumption of accrual.
2. Disallowance of selling and marketing expenses.
3. Deduction of disallowed expenses in subsequent years.

Issue-wise Detailed Analysis:

1. Ignoring the Fundamental Accounting Assumption of Accrual:
The assessee argued that the CIT(A) erred by ignoring the fundamental accounting assumption of accrual, which states that "revenues and costs are recorded when they are earned incurred (and not as money is received or paid) in the periods to which they relate." The assessee contended that the commission expenses should be allowed in the year they were incurred, regardless of whether the revenue from the sale of FSI was recognized in that year.

2. Disallowance of Selling and Marketing Expenses:
The primary issue was the disallowance of ?1,20,19,260/- in selling and marketing expenses. The AO disallowed these expenses on the grounds that the receipt from the sale of FSI was not offered to tax in the current year, thus the corresponding expenses could not be allowed. The assessee argued that the commission expenses were accrued and the liabilities towards such expenses were created as soon as the deal took place between the assessee company and the party. The Tribunal referenced the case of Mysore Tobacco Co. Ltd. Vs. CIT (1978) 115 ITR 698 (Kar), which held that revenue expenses are to be claimed and allowed in the year they are incurred or the liability towards such expenses accrued. The Tribunal found the disallowance unjustifiable and allowed the claim of commission expenses in the relevant year.

3. Deduction of Disallowed Expenses in Subsequent Years:
The assessee alternatively argued that if the expenses were disallowed for the current year, they should be allowed as a deduction in the subsequent year when the revenue for the sale of FSI is recognized. However, since the Tribunal allowed the claim of commission expenses in the current year, this issue became moot.

Delay in Pronouncement of Order:
The Tribunal explained the delay in pronouncement of the order due to the nationwide lockdown imposed by the Government of India in response to the COVID-19 pandemic. The Tribunal referred to Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963, which allows for an extension of the pronouncement period in exceptional and extraordinary circumstances. The Tribunal also cited the decision in DCIT V/s JSW Limited (ITA Nos. 6264 & 6103/Mum/2018), which supported excluding the lockdown period from the computation of the 90-day pronouncement period.

Conclusion:
The Tribunal set aside the CIT(A)'s order and allowed the claim of the assessee for the commission expenses in the relevant year. The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 25/08/2020.