TMI Blog2017 (12) TMI 465X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Godhra Electricity Co. Ltd. vs. CIT (1997 (4) TMI 4 - SUPREME Court) held that if the income does not result at all, it cannot be taxed even though in book keeping an entry has been made about the hypothetical income which does not materialise. Thus, we are of the considered opinion that mere filing of insurance claim did not give any right to the assessee to receive income as the claim was not accepted by the insurance company. Had there been any acceptance by the insurance company, then the income would have definitely accrued on the basis of the accounting entry. But in the instant case it is not so. Even during the course of proceedings before us, the department could not produce any cogent evidence to the contrary in this regard. Accordingly, we find no reason to interfere with the adjudication of the Ld. CIT (A) on this issue and dismiss ground Nos. 2 and 3 of the department appeal. Adhoc disallowance of expenses - Held that:- Personal element in all these expenses could not be ruled out. The Ld. CIT (A) also noted that relevant details were furnished before the AO but the AO had failed to point out specific instances of personal element in such expenses. While d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation of income whereby the assessee reduced his accrued interest income on insurance claim as well as income on account of insurance claim. However, the AO did not allow the claim raised by the assessee. 2.3 Aggrieved, the assessee preferred an appeal before Ld. CIT(A) who deleted the addition of ₹ 1,59,97,994/- on account of sales commission and also deleted the disallowance on account of travelling and conveyance expenses, telephone expenses and business promotion and festival expenses. 2.4 The Ld. CIT (A) also directed the AO to reduce the income of the assessee by ₹ 7,16,60,712/- on account of insurance claim and notional interest thereon which the assessee had sought to be reduced from the total income by filing a revised computation. 2.5 Aggrieved, the department has now approached the ITAT and has challenged the action of the Ld. CIT(A) in deleting the addition on account of sales commission expenses amounting to ₹ 1,59,97,994/-, allowing the deduction of ₹ 1,73,77,580/- in respect of interest on insurance claim, allowing deduction of ₹ 5,42,83,132/- in respect of insurance claim and deleting the disallowances made on account of vehic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidering the settled judicial precedents and, therefore, the same needed to be upheld. 5. We have heard the rival submissions and have perused the material on record. As far as the first ground raised by the department regarding sales commission paid to M/s. J.B. Exports Ltd. and Shri Satish Kumar Goel is concerned, it is seen that during the year the assessee has incurred expenditure of ₹ 5,38,13,332/ on account of commission paid to various parties. The assessee has made sales of ₹ 20,95,92,795/ to M/s Rhine Raavi Holdings Limited and has paid commission to one Mr. Satish Kumar Goel of ₹ 53,86,004/ and M/s JB Export Ltd of ₹ 1,06,11,990/-. Commission payments to these parties have been paid during the year and nothing is outstanding as on the closing of the assessment year as at 31st of March 2008. Furthermore, the assessee has also made a sale of ₹ 3,13,24,67,902/- to M/s Paktiya Gold LLC and has also paid commission to M/s Patktiya Gold LLC of ₹ 3,78,15,338/ . Notably in case of sales to M/s Paktiya Gold LLC, the commission was also paid to the same party. 5.1 The commission paid to Mr. Satish Kumar Goel, M/s JB Export Ltd and M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO that the gross total income offered by the company was nil, whereas the commission income earned by the company was ₹ 1,06,11,990/ . 5.3 Further with respect to the sales made to the Dubai party of ₹ 31.32 crores. The Assessing Officer noted that the commission was paid to the same party and that this issue of payment to the foreign commission has already been referred by the assessing officer to the Foreign Tax Division of the CBDT on 15/12/2010. 5.4 The Ld. CIT (A) has allowed the claim of the assessee vide Para No. 6 of the impugned order. The main reason for allowance of the claim is that the assessee submitted the copy of the commission agreement containing name and complete address of the parties outlining the services to be rendered by the agents, copy of the invoices which gave the brief description of the services rendered in the form of the name of the buyer and amount of sale facilitated by the agent. It is further supported by the copy of the confirmation and details of tax deducted at source by the assessee. It was further held by the Ld. CIT (A) that the above commission was also paid by account payee cheque in favour of the commission agents. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment of del credere agency commission is justified in absence of proof of rendition of services. 5.6 The Ld. CIT (A) has also noted that the AO had allowed commission on export sales in the earlier assessment years. However, the fact that payment of commission on export sales was allowed in the preceding assessment years cannot be used as a justification for allowing the commission paid by the assessee for domestic sales by drawing a parallel of payment for export commission. In fact, the assessing officer has already referred the matter to the Foreign Tax Division of the Central Board of Direct Taxes. The assessee has given no proof of rendition of services by these two agents before the AO. Further, the Ld. CIT (A) has only extracted details from the copy of the agreement furnished by the assessee and has accepted it as a proof of rendition of services. We are of the considered opinion that the Ld. CIT (Appeals) has misdirected herself because the copy of agreement shows the rendition of the services to be provided whereas the actual rendition of services is to be necessarily substantiated by credible evidence. The assessee has failed to produce any evidence with resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance company and the rejection letter was received by the assessee in April, 2007. Besides the amount of insurance claim, the assessee had also credited notional interest income of ₹ 1,73,77,580/- on such insurance claim to his profit and loss account. As the claim had been rejected and the interest was notional, the assessee filed revised computation of income claiming non-accrual of the insurance claim and interest thereon. However, the AO rejected the claim because revised return of income was not filed within the stipulated time, as laid down in the Act, and the AO was of the opinion that such deduction was not permissible because the assessee himself had credited the amount to his profit and loss account. While submitting revised computation the assessee also submitted copies of letters from the insurance company intimating rejection of the claim and also demonstrated that they had reversed the amount of ₹ 5,42,83,132/- from the sundry debtors accounts. The assessee also demonstrated before the AO that he had approached the Consumer Court against the non receipt of the insurance claim. The assessee also submitted that Accounting Standard 29 (AS 29) issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 251 (1)(a) of the Act, the declaration of law was clear that the power of the AAC was co-terminus with Act of the ITO and, if that is so, then there is no reason as to why the appellate authority did not have the power to modify the assessment order on an additional ground even if it was not raised before the ITO. The Hon ble Apex Court in another judgment in the case of Anchor Pressings (P) Ltd. vs. CIT 161 ITR 159 held that where the assessee had omitted to claim deduction and if precise and clear material is available on record to the fact that the assessee is entitled to such relief, then the income tax authority is required to grant such relief. 5.11 Coming back to the issue before us, the facts are undisputed. It is settled law that income is said to be accrued when a person acquires the right to obtain that income and a mere claim to income without enforceable right cannot be regarded as accrual of income for the purpose of the Act. Thus, a mere filing of claim with insurance company will not be sufficient to make such income to be taxable on accrual basis, especially, when subsequent events show that such claim has not crystallised . Here, in the instant case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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