TMI Blog2011 (1) TMI 1497X X X X Extracts X X X X X X X X Extracts X X X X ..... istered with RTO in the names of Directors. 4. In appeal the Learned Commissioner of Income Tax (Appeals) following the order of his predecessor in Assessment Year 2004-05 held that as the cars were used by the assessee in its business the disallowance of depreciation was deleted. 5. At the time of hearing before us both the parties agreed that the issue stands covered in favor of the assessee by the decision of the Tribunal in assessee s own case for Assessment Year 2004-05 vide order dated 11-1-2008 in ITA No.2851/AHD/2007. We find that the Tribunal in Assessment Year 200405 held as under:- 7. We have heard the parties, and perused the material on record. The relevant facts stand borne out by the record as well as delineated by the assessee in its Statement of Facts before the first appellate authority. The beneficial or the de facto ownership of the motor cars, in view of the same, is of the assessee-company only, even as the relevant invoice/bill (s); the registration being in the individual name of the Directors, would only be in their name, so that they hold the titular ownership of the said assets, and which, however, would be of little moment. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Rs. 23,19,521/- The Learned Assessing Officer observed that part of premium was paid for succeeding financial year and therefore disallowed an amount of ₹ 19,32,263/- as prepaid insurance expenses not pertaining to assessment year 2005-06. 9. In appeal the Learned Authorised Representative of the assessee submitted that the expenditure incurred must be allowed in its entirety in the year in which it is incurred. The same cannot be apportioned on period or time basis. The appellant stated that under the mercantile system of accounting the amount of premium paid is fully deductible in the year in which the premium is paid. Since liability was incurred on the date when premium became due, it was an ascertained and accrued liability which is fully allowable. The assessee submitted that the risk under keyman policies starts on the commencement of the policies and therefore the amounts of premiums paid become fully allowable and the Assessing Officer has failed to notice that the premium paid is fully allowable as per para 14.4 of CBDT Circular referred in 230 ITR 21 (St.). The Learned Authorised Representative of the assessee relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve of the assessee supported the order of the Learned Commissioner of Income Tax (Appeals) and also submitted that the similar amount of premium of keyman s insurance was allowed as deduction in the earlier year as well as in the subsequent year to the assessee in the year of payment. 13 We find that it is not in dispute that the assessee follows mercantile system of accounting. As per this system of accounting an amount is recognized as income of the year in which right to receive accrues to the assessee and an amount is recognized as expenditure in the year in which liability crystallizes so as a corresponding right to receive gets vested in some other person. Further, we find that it is not in dispute that keyman s insurance premium paid by the assessee was revenue in nature and as per the terms of the policy the liability to pay entire premium of ₹ 23,19,521/- crystallized during the year under consideration. Thus, we do not find any error in the order of the Learned Commissioner of Income Tax (Appeals). Further, we find that no material could be brought on record before us by the Revenue to show that the assessee had any right to receive ₹ 19,32,263/- from the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural justice was denied. While verifying the purchases made by the assessee from Venus Petrochemicals (Bombay) Pvt. Ltd. (referred to as Venus) it was pointed out that the assessee is having two separate and independent units viz. (i) Synthetics Polymer Industries/and or Synpol Products (P) Ltd. (referred to as Domestic Unit) (ii) Synpol International (referred to as E.O.U. Unit) The assessee explained this fact in its letter dated 10-12-2007 and filed separate copy of account of Venus for purchases made by Domestic Unit as well as by E.O.U. Unit. The transactions with Venus as per copy of account filed from the books of Domestic Unit are summarized as under:- Debit Credit 1 Opening Balance Nil 2 Aggregate amount of various purchases 1573020 3 Aggregate amount of various purchases Made by account payee cheques 1288153 4 Closing Credit Balance shown in balance- Sheet as sundry creditors for goods 2848867 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully reflected in the accounts of the parties. The rejection of book results by invoking provisions of section 145(3) is therefore unjustified. Therefore the A.R. pleaded that the impugned additions of ₹ 14,77,700/- and ₹ 2,84,867/-should therefore be deleted. The A.R. relied upon the decision of Hon'ble Gujarat High Court in case of CIT vs. M. K. Brothers 163 ITR 249 (Guj) in support of the contention that impugned addition is wholly unjustified. 16. After the assessment was completed, the assessee obtained a clarification from the party Venus Petrochemicals (Bombay) Pvt. Ltd. vide the latter's letter dated 5-01-2008 enclosing copies of accounts of the appellant's domestic unit and export unit and submitted that the purchases of ₹ 15,73,020/- made by domestic unit fully tallied. The assessee therefore requested that the said statements be admitted as additional evidence under rule 46A of I.T. Rules. Accordingly the same was forwarded to the A.O. calling for his comments. The A.O. submitted a report dated 24-04-2008 stating that papers now submitted should not be admitted and that any papers submitted after the assessment stated to be its evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. as at the end of the relevant previous year. The Learned Assessing Officer sought information u/s 133(6) from Venus Petrochemicals (B) Pvt. Ltd. who in turn supplied copy of ledger account of M/s Synpol International which is an EOU of the assessee and as per said ledger the total sales by Venus Petrochemicals (B) Pvt. Ltd. was 91,320/- only and there was no balance as at the end of the relevant previous year. On being pointed out this discrepancy, the assessee explained to the Learned Assessing Officer that the copy of ledger account was sent in respect of International Division only and transaction of domestic division was not reflected therein. However, the Learned Assessing Officer not accepted the explanation of the assessee on the ground that no confirmation was filed from Venus Petrochemicals (B) Pvt. Ltd. and therefore treated ₹ 14,77,700/- as inflation of purchases and ₹ 2,84,867/- as unexplained cash credit and added both the amounts to the income of the assessee. 20 Before the Learned Commissioner of Income Tax (Appeals) the assessee filed confirmation from Venus Petrochemicals (B) Pvt. Ltd. which tallied with the details furnished by the assessee b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 35,81,152/- made by the Learned Assessing Officer on account of low G.P. The facts of the case are that Learned Assessing Officer observed that the assessee had shown GP rate of 30.23% in the year under consideration whereas GP was 33.26% in the preceding year. The A.O. asked the assessee to explain the reasons for fall hi GP. After considering the reply of the assessee the A.O. observed that the assessee had not produced any evidence to prove that cost of production had gone up due to increase hi rates of raw materials and that the assessee had debited non genuine purchases as discussed in the previous para, hence he concluded that books of accounts were defective and not reliable, so he rejected the books of accounts by invoking provisions of section 145 of the I.T. Act and estimated GP on the basis of GP rate of A.Y. 2004-05 and made addition of ₹ 35,81,152/-. 23 On appeal, the Learned Commissioner of Income Tax (Appeals) has decided the issue with the following observations: 6.1 Before me the A.R. submitted that the reasons mentioned by the A.O. in the assessment order for rejecting the book result of the appellant are not legally sustainable and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. e) The account of both the units folly tallied with the account of Venus and there are no discrepancies. 5.7 Issue is covered in favour of assessee by following decisions: a) ITO v. Girish M. Mehta, 294TTR (AT) 125 (Rajkot) It was held as under: Accounting-Rejection of Accounts-Burden of Proof-Revenue must prove books of account not reliable-Accounts Audited-Profits of every transaction correctly given-Fact that rate of profit is low-Not a ground for rejecting accounts-Income tax Act, 1961, s.!45. b) PyarelalMittalv.AssttC.LT 291 ITR 214 (Gau) It was held as under: : Accounting-Rejection of Accounts-Estimate of Income-No Fault Found with books of Account or method of Accounting No suppression of material facts-Rejection of Accounts and estimate of income-Not justified-Income tax Act, 1961. c) Vishal Infrastructure Ltd. 104 ITD 537 (Hyd) Page 150 It was held as under: Section 145 of the Income tax Act, 1961 - Method of accounting - Rejection of accounts- Assessment year 2001-02 - Whether accounts regularly maintained in course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption, production, sales, purchases etc. in terms of quantity and value obtained and tallied. Page163 to 173 c) Details of Stores Consumption and packing material charges of both the Unit with copies of accounts obtained and verified. Page-174 to 189 d) Details of Electric Power Charges and Fuel Expenses of both the Units with copies of accounts obtained and verified Page-190 to 201 6.4 I have considered the facts of the case and the above submissions of the A.R. carefully. As the purchases of Rs.l5,73,0207- from Venus Petrochemicals (Bombay) Pvt. Ltd have been held to be genuine in the preceding para by me after reconciliation by the A.R. and as no other defect from books of accounts has been found by the A.O. and as fall in GP rate alone cannot be a ground for rejection of books of accounts, relying on the case laws cited by the A.R., I hold that the rejection of books of accounts is not justified especially when the appellant has explained fall in GP with sufficient evidences . Accordingly I also hold that the addition to GP of ₹ 35,81,152/- is not justified and hence the same is deleted. 24 We have heard the rival submissions and perused the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the additions of ₹ 11,31,243/- m made by the Learned Assessing Officer on account of commission expenses. The facts of the case are that the Learned Assessing Officer observed that the assessee had debited commission expenses of ₹ 11.31 lakhs and the assessee did not produce any evidence of services rendered by the persons for which the commission has been paid, so he disallowed the commission expenses. 29 On appeal, the Learned Commissioner of Income Tax (Appeals) has decided the issue as under:- 7.1 Before me the A.R. submitted that the A.O. has disallowed the entire commission expenses of ₹ 11,31,243/- without giving adequate opportunity and as a result natural justice is denied. It was further submitted the appellant had submitted vide their letter dated 5-10-2007 and 20-12-2007, full details of commission expenses from time to time which are part of assessment records. The following evidences were produced during the course of assessment proceedings:- a). Copy of account of commission expense, b) Copies of accounts of the parties to whom commission was paid. The copies of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 37 of the Income tax Act, 1961. While considering whether an expenditure can be said to be proper expenditure laid out or expended wholly and exclusively for the purposes of one's business, one has to take in to consideration questions of commercial expediency and the principles of ordinary commercial trading. It would not be proper to reject a claim for deduction only on the ground that the assessee had not made a specific claim in that behalf by reference to section 37 (see pp.611H, 612A-C, 613C). d) Sasoon J. Devid And Co. (P) Ltd. v, CIT 118ITR 161 (SC). Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. e) CIT v. A and A Bakery P. Ltd. 302 ITR 51 (Del) Business expenditure - payment by account payee cheque to subsidiary of Government undertaking - No proof that bill raised by company unreasonable or fraud involved - deduction allowable - Income tax act, 1961, s.37. 7.2 I have carefully considered the facts of the case and the submissions as advanced by the A.R. of the appellant. I find that the appellant has paid commission in the past years also and the same have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sales arranged through these parties and the commission rate has been 2 to 2.5% of net sale value . The sales representatives are to propagate for the products and to contact customers and to procure indents in the name of the appellant company and they are also responsible for payments due from customers. Considering these facts and the submissions of the A.R., I do not find any justification for disallowance of commission. Accordingly I delete the disallowance of commission of ₹ 11,31,2437-. 32 We find that the names and addresses of the recipients of commission were furnished by the assessee at the far end of the assessment proceedings and therefore the Learned Assessing Officer could not verify the same. Further, it is observed that the Learned Commissioner of Income Tax (Appeals) deleted the addition by relying upon the documents furnished by the assessee without verifying the genuineness of payments from the recipients. Considering the full facts and circumstances of the case, in our considered opinion, it shall be in the interest of justice to restore the issue back to the file of the Learned Assessing Officer for adjudication afresh after proper verification a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Considering these facts I hold that the bad debt is allowable, accordingly I delete the disallowance. 35 The Learned Departmental Representative supported the order of the Learned Assessing Officer. 36 The Learned Authorised Representative of the assessee submitted that the issue is now covered in favour of the assessee by the decision of the Hon ble Supreme Court in the case of T. R. F. LTD. v. Commissioner of Income tax (2010) 323 ITR 397 (SC) wherein it was held as under:- After the amendment of section 36(1)(vii) of the Income-tax Act, 1961, with effect from April 1, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable : it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. The Supreme Court accordingly remanded the matter to the Assessing Officer to examine, solely to the extent of write off, whether the debt or part thereof was written off in the accounts of the assessee. 37 We have heard both the parties and gone through the facts of the case. In the instant case, the Learned Assessing Officer disallowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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