2015 (12) TMI 829 - HC - Income Tax

Court Upholds Disallowance of Excess Commission Debit: Importance of Actual Remittance

The High Court upheld the decision of the Tribunal not to interfere with the disallowance of excess commission debited by the assessee in the assessment ... Method of accounting of commission expenses on accrual basis - Held that:- As per clause 4 of the agreement, the commission payable to KSB Singapore (Asia Pacific) at the rate not exceeding 12.5% on FOB value of the order in the currency in India in which the order is placed. These charges will fall due for payment on receipt of payment from the clients. Being so, it is clear that the payment of commission accrued only on realization of sale value. The assessee's claim is that it is booking expenditure on the basis of sale value and not on the basis of sale realization and this system has been accepted by the department in earlier years as well as in the subsequent year. In our opinion, we are not concerned with the any other year which are not before us. In our opinion, if the department has accepted in earlier year, it was a mistake and there is no merit in continuing the same mistake in the assessment year under consideration. The payment of commission accrued only on realization of sale value and it is to be allowed when the realization of sale value which is in compliance with the agreement cited supra and disallowance is based on the above agreement brought on record by the authorities and hence, we do not find any infirmity in the orders of the authorities below, which is confirmed. No reasons warranting interference with the order passed by the learned Appellate Tribunal by invoking the powers conferred on us under Sec.260A of the Income Tax Act, 1961 and necessarily the appeal has to be dismissed Issues:1. Disallowance of excess commission debited in the assessment.2. Confirmation of disallowance by the 1st appellate authority and Tribunal.3. Questions of law raised in the appeal regarding commission expenses on accrual basis.4. Evaluation of the agreement between the assessee and KSB Singapore.5. Decision on whether to interfere with the Tribunal's order under Sec.260A of the Income Tax Act.Analysis:The appeal was filed against the order of the Income Tax Appellate Tribunal regarding the disallowance of excess commission debited by the assessee in the assessment for the year 2009-2010. The assessing authority found that the commission debited was higher than the actual remittance made, leading to a disallowance of the excess amount. The appellant contended that commission should be debited based on actual remittance as it becomes due only upon sale or export of goods. However, the assessment finalized the disallowance since the commission payable had not accrued or become due.The order of assessment was challenged in appeal, where the 1st appellate authority and the Tribunal affirmed the addition made by the assessing officer. The Tribunal evaluated the agreement between the assessee and KSB Singapore, which stated that commission payment falls due only upon realization of sale value. The Tribunal held that the department's acceptance of the assessee's accounting method in previous years was a mistake and disallowed the excess commission based on the agreement.The appellant raised questions of law regarding the deduction of commission expenses accrued in the relevant financial year and the acceptance of the accrual basis of accounting for commission expenses. The Tribunal, after considering all facts and circumstances, confirmed the lower authority's order, stating that there was no infirmity in the decision. The High Court, upon evaluating the Tribunal's findings and the agreement between the parties, decided not to interfere with the Tribunal's order under Sec.260A of the Income Tax Act, thereby dismissing the appeal.