TMI Blog1995 (10) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... er cent on first year's commission and of Rs. 22,075 at the rate of 15 per cent on renewal commission (in aggregate Rs. 87,793). The learned CIT in view of the Board's Circular noted that assessee was entitled to deduction of Rs. 10,000 only as he was not maintaining books of accounts though his total receipts were more than Rs. 60,000. According to the CIT, the assessment order was erroneous and prejudicial to the interest of Revenue and so he initiated proceedings under s. 263 of the IT Act and served a notice calling upon the assessee to furnish explanation. The assessee in compliance to notice dt. 17th Jan., 1994 issued under s. 263 of the IT Act filed show cause reply dt. 16th Feb., 1994. The learned CIT having gone through the written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order. He urged for reversal of the impugned order. 4. On the other hand, Shri M.P. Lohia, the learned Departmental Representative of course relied on the order of the CIT. 5. We have heard the rival submissions and have gone through the appeal record besides various papers compiled in the paper book including the two circulars as referred to above. In order to appreciate the matter in controversy in right perspective the relevant circulars are required to be gone through. The first Circular was issued in 1965 vide F.No. 14/9/65-IT(AI) dt. 22nd Sept., 1965 which when reproduced reads as follows: "Commission earned by Insurance agents of the LIC—Allowance of expenditure. 1. Where detailed accounts regarding expenses incurred ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c deductions would not apply in their cases. F.No. 14/9/65-IT(AL), dt. 22nd Sept., 1965." Subsequently, in 1984 the said circular was modified vide F.No. 168/9/93-IT(AI) Instruction No. 1546 dt. 6th Jan., 1984 which when reproduced reads as follows: "F.No. 168/9/93-IT(AI) Government of India Central Board of Direct Taxes Instruction No. 1546 New Delhi, Dt. 6th Jan., 1984 From V.B. Srinivasan, Director, Central Board of Direct Taxes. To All Commissioners of Income-tax. Sir, Subject: Commission earned by insurance agents of the Life Insurance Corporation—Taxation of allowance of expenditure. Attention is invited to Board Circular dt. 14th Sept., 1965 issued from F. No. 14-9-65-IT(A I) on the subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year's commission and at the rate of 15% of the renewal commission was allowed. In case where separate figures with regard to the first year's commission and renewal commission were not available in that case a consolidated ad hoc deduction at the rate of 25% of the total commission was allowable. However, in either of the events the maximum allowable deduction was not to exceed Rs. 6,000 per year where the gross commission did not exceed Rs. 20,000. However, in case where the gross insurance commission exceeded Rs. 20,000 in any particular year the AO might allow deduction of more than Rs. 6,000 if there were special circumstances to justify the deduction of more than the aforesaid amount of Rs. 6,000 but in no case that should have exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n case where the gross commission is less than Rs. 60,000. In the present appeal, the first year's commission itself is Rs. 1,64,294. So as stated above the provision as contained in the first circular still holds good in the present case. In fact the learned CIT has misconstrued the paragraph 2 of the first circular dt. 22nd Sept., 1965. This paragraph is necessarily to be read with the first paragraph. In para 1 it has been laid down that in the first year's commission the deduction towards expenses is to be allowed @ 40% and similarly @ 15% for the renewal commission. The CBDT has never intended or meant that even in the event of gross insurance commission exceeding Rs. 20,000 the maximum deduction for expenses is to be given at Rs. 10,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Rs. 61,115 instead of Rs. 24,446 being 40% of the said amount. The learned counsel of the assessee has referred to the aforesaid decision of the CIT, Rajkot, in order to show that actually in the present case the assessee is entitled to deduction @ 40% in the first year's commission and @ 15% on renewal commission which the AO has rightly allowed and the assessment is not erroneous and prejudicial to the interest of the Revenue. No doubt, the Revenue have also filed certain decisions of the Tribunal, Ahmedabad Bench viz. ITO vs. Nathalal P. Thanki Mugutlal Ratilal Shah vs. ITO in ITA No. 1722/Ahd/1985 and ITO vs. P.V. Ashar in ITA No. 582/Ahd/1984 but we find that they are not on the subject matter of appeal before us. 8. One other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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