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TMI Blog2012 (8) TMI 575X X X X Extracts X X X X X X X X Extracts X X X X ..... n deleted – In favor of assessee Disallowance of expenses claimed as export commission – Held that:- Assessee explained the reasons for inflating the commission which was due to mainly inflating the prices in the invoices - authorities below merely compared the commission with the preceding assessment year and rejected the claim of the assessee – CIT has not given any finding on the matter in controversy in the light of the submissions of the parties and documentary evidences available on record -commission cannot be disallowed by comparing with the earlier years due to the explanation of the assessee supported by documents – matter remanded to CIT - appeal of the assessee is allowed for statistical purposes - IT APPEAL NO. 1248 (AHD.) OF 2009 - - - Dated:- 13-5-2011 - BHAVNESH SAINI AND A.N. PAHUJA, JJ. Ms. Urvashi Shodhan for the Appellant. S.A. Bohra for the Respondent. ORDER Bhavnesh Saini, Judicial Member. - This appeal by assessee is directed against the order of the learned CIT(A)-VI, Ahmedabad dated 1-1-2009 for assessment year 2005-06. 2. We have heard the learned representatives of both the parties, perused the findings of the authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he audit inspection was carried out by the Employees State Insurance Corporation in financial year relevant to the assessment year under appeal and the assessee was directed to pay the above amount which has been paid during the financial year relevant to the assessment year under appeal. The learned Counsel for the assessee also submitted that since the liability is crystallized during the assessment year under appeal on the basis of the letters received from ESI Corporation copies of which are filed in the paper book, therefore, payment made actually in the financial year relevant to the assessment year under appeal, the assessee would be entitled for deduction. It was also stated that even Accounting Standard 5 issued by the ICAI stated that such expenses are the expenses incurred in the year in which liability is crystallized though it may pertain to earlier year, deduction shall have to be allowed. She has relied upon the decision of the Hon ble Supreme Court in the case of Prakash Cotton Mills (P.) Ltd. v. CIT [1993] 201 ITR 684/ 67 Taxman 546 in which it was held that "deduction shall have to be allowed where amount incurred were wholly compensatory in nature and when co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, set aside the orders of the authorities below and delete the addition. In the result, ground No. 1 of the appeal of the assessee is allowed. 7. Ground No. 2 of the appeal of the assessee reads as under : "2. The ld. CIT(A) has erred in law and on the facts of the case in confirming disallowance of Rs. 44,44,175 made by Assessing Officer of bad debts written off. Both the lower authorities have failed to appreciate the voluminous documentary evidence on record to prove the amount of efforts put in by the appellant for recovery of the export dues for which intervention of RBI also proved futile to bring about the recovery. The authorities have wrongly interpreted the amended provisions of section 36(1)( vii ) vis-a-vis judgment of the Hon ble Gujarat High Court and ignored the facts of the case that justified writing off the amount by any prudent businessman that has become bad and non-recoverable." During the assessment proceedings it was noticed that assessee has made export sales to Kucukacalic Taksil Kimya Savas Cad. Mese Sok, 9/9, Merter, Istanbul in financial year 2003-04 and debited Rs. 44,44,175 in the profit and loss account as bad debt. On being asked in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer s account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off." The learned DR did not dispute the above facts. 9. On consideration of the above facts in the light of the decision of the Hon ble Supreme Court in the case of T.R.F. Ltd. ( supra ), we do not find any justification to sustain the addition. The assessee has satisfied the requirements of section 36(1)( vii ) of the Income-tax Act admittedly, therefore, we set aside the orders of the authorities below and delete the addition. In the result, ground No. 2 of the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 License Sales 9,968 8. 17,41,008 30% 5,08,797 Entry Reverse of M/s. Mamta Inter (1,835) 4,42,88,389 48,42,185 1,86,49,130 9,62,367 On perusal of the above details, it was found that sales effecting commission payments are Rs. 4,42,88,389 on which the commission payments were Rs. 48,42,185 which is 10.93 per cent. Whereas, in the preceding years sales effecting commission payments were Rs. 1,86,49,130 on which commission payments were Rs. 9,62,367 which were 5.16 per cent. Further perusal of the details furnished by the assessee shows that no reasons as well as details of the parties to whom the commission have been paid were offered. Therefore, a show-cause notice issued on 20-9-2007 proposing the proportionate disallowance on account of excess claim of commission. In response to the above, the assessee has submitted his reply vide letter dated 27-9-2007, which is reproduced as under : "From the table given in your show-cause notice, it may be appreciated that : ( a )The sale value effecting commission paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d above. We therefore say that, commission payments debited in the accounts, are reasonable and not excessive considering substantial increase in export sales volume and are fully allowable as business expenditure. Merely on the comparison ground, it cannot be disallowed as facts of the case in one year are different from that of the other year. The allowability has to be decided from the stand alone facts prevailing in the year under question and not otherwise. As mentioned by the assessee in the aforesaid submissions that the letter dated 16-9-2007 of the overseas buyer is enclosed. The same is reproduced as under: E. Frapas and Co. Dyestuffs and Chemicals Products for the Textile Industry Factory/Office Oreokastro Greece Tel. 00302310-692967 and 682938/Fax-682315 Date : 16-9-2004 To : Mr. Vishal Shah (Director of Associated Intermediates) We hereby inform you that consumption of dyes purchased from you has become very erratic and unpredictable. In order to maintain continuity of business with our customers, we have to maintain inventory of Different Dyes for a long period. Further textile dying printing units are also demanding larger credit period from us. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the authorities below and referred to the details of sales commission filed at PB-93 to 104 and submitted that these documents were filed before the authorities below. The learned Counsel for the assessee also submitted that the aforesaid sum was paid to the overseas buyers on the basis of their request contained in the letter dated 16-9-2004 to meet with their increase in operating cost of business such as interest cost, inventory management cost as well as customer entertainment cost at the rate of 30 per cent and the invoice value. Such expenses being 30 per cent of the invoice value were reimbursement by the company by debiting the commission amount; therefore, it is allowable deduction under section 37(1) of the Income-tax Act. It is further explained through the proforma invoices that expenses were in-built by inflating the invoice value so that the company does not incur loss or reduce profit to such export transactions. The export commission was paid through official banking channel. It is also explained that since the value of sales has increased by adding to 30 per cent of the commission, therefore, there was loss in the case of the assessee or to inflate expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices in the invoices. The authorities below merely compared the commission with the preceding assessment year and rejected the claim of the assessee. The learned CIT(A) confirmed the order of the Assessing Officer without going through the crux of the matter in issue. Since the learned CIT(A) has not given any finding on the matter in controversy in the light of the submissions of the parties and documentary evidences available on record, we are of the view the matter requires reconsideration at the level of the learned CIT(A). The above facts suggest that the commission cannot be disallowed by comparing with the earlier years due to the explanation of the assessee supported by documents. We, therefore, set aside the order of the learned CIT(A) and restore this issue to the file of the learned CIT(A) with direction to re-decide this issue in the light of the submission of the assessee and the documentary evidences available on record. The learned CIT(A) shall give specific finding on the matter in issue as noted above by giving reasonable sufficient opportunity of being heard to the assessee as well as the Assessing Officer. In the result, ground No. 3 of the appeal of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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