Tax Tribunal Rules Against CIT in Disallowing Expenditure

The Tribunal held that the Commissioner of Income Tax (CIT) cannot assume jurisdiction under section 263 of the Income-tax Act, 1961 to disallow expenditure already allowed by the Assessing Officer (AO) based on previous Tribunal decisions. The CIT's directions to disallow Trade Scheme Expenditure and commission payments were annulled. The Tribunal allowed the appeal for the assessment year (A.Y.) 2006-07, dismissed the appeal for A.Y. 2005-06 as infructuous, and partly allowed the appeal for A.Y. 2007-08.

---

---

Issues Involved:
1. Assumption of jurisdiction by the CIT u/s 263 of the Income-tax Act, 1961.
2. Disallowance of Trade Scheme Expenditure.
3. Disallowance of commission payment.

Summary:

1. Assumption of jurisdiction by the CIT u/s 263 of the Income-tax Act, 1961:
The assessee challenged the CIT's assumption of jurisdiction u/s 263, arguing that there was no mistake by the Assessing Officer (AO) in allowing the claim. The Tribunal had previously allowed similar claims for A.Ys. 2003-04, 2004-05, and 2005-06. The AO had conducted a detailed inquiry and allowed the claim based on the books of account, bills, and vouchers. The Tribunal held that the CIT cannot reopen a settled issue and must follow the Tribunal's binding orders. The CIT's direction to disallow the expenditure was annulled.

2. Disallowance of Trade Scheme Expenditure:
The CIT directed the AO to disallow Trade Scheme Expenditure of Rs. 3,35,17,143 paid to M/s. Gayatri Marketing Agencies and M/s. ARK Marketing Agencies, alleging it was a spurious deduction. The Tribunal had previously allowed similar claims for earlier years, and the CIT was bound by these decisions. The Tribunal reiterated that the CIT cannot take a contrary view on a settled issue and annulled the CIT's order u/s 263.

3. Disallowance of commission payment:
For A.Y. 2007-08, the CIT(A) sustained a disallowance of Rs. 1,84,145 out of Rs. 6,84,145 incurred towards commission payment. The Tribunal had previously allowed a reasonable extent of commission payments due to their inevitability in the business. The Tribunal found the ad-hoc disallowance by the AO to be on the higher side but justified sustaining the disallowance at Rs. 1,84,145.

Conclusion:
- ITA No. 692/Hyd/2011 (A.Y. 2006-07) - Allowed.
- ITA No. 499/Hyd/2011 - Dismissed as infructuous.
- ITA No. 1420/Hyd/2011 (A.Y. 2007-08) - Partly allowed.

Order pronounced in the open court on 16th November, 2012.

---