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2014 (5) TMI 888 - AT - Income TaxCommission paid to various sales agents - Addition of miscellaneous sales expenses – Held that:- Payment of commission to sales agents in assessment year 2002-03 consist of two parts - the first being payment made to sales agents directly and second is amount depicted on export realization certificates claimed to have been paid as commission - Regarding first part though the payments on account of receipt of commission has been confirmed by recipients yet they could not establish as to why commission was paid i.e. for what services the commission was paid - The expenses from the income of any assessee who is engaged in business or profession are allowed only if they are incurred wholly and exclusively for the purpose of business which essential ingredients was not established in the present cases as the recipients did not explain the nature of services rendered by them. Before making disallowance the AO should have examined the nature of services by examining the assessee which he had not done – the second component of commission expenses relates to payments of commission to foreign parties – there certificates the word mentioned is discount and not commission - thus, the matter is remitted back to the AO for re-adjudication on the basis of nature of services rendered by the recipients may allow the same if found to have been incurred by the assessee wholly and exclusively for the purpose of business and also to examine as to whether the discount claimed on export realization certificate was claimed by the assessee as reduction from turnover or whether the assessee had claimed it as a separate item of expenditure and if on examination it is found that discount – The AO should also examine as to what on the basis of examination of vouchers etc. and on the basis of nature of expenses can arrive at the appropriate decision - Decided in favour of Assessee. Addition of arrears of salary paid to the Directors of the company – Held that:- From the copy of resolution it has been found that the increase in salary was with retrospective effect and some part of it related to earlier year but the liability to pay with retrospective effect happened due to resolution passed on 18.1.2002 - the payment of the salary cannot be said to belong to earlier years – the amount has been included as arrears of salary in the incomes of the three directors - there is no loss to revenue as all the three directors were in the tax bracket of 30% - Decided partly in favour of Assessee.
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