2018 (2) TMI 1359 - AT - Income Tax

Tribunal upholds CIT(A) decisions on 'Commission' and 'Late Delivery Charges' but directs disallowance of 'Loss on Fixed Assets.'

The Tribunal upheld the CIT(A)'s decisions to delete additions under the heads of 'Commission' and 'Late Delivery Charges,' finding the Assessing Officer ... Allowance of unsubstantiated amount of commission - addition on account of non-confirmation from the parties - Held that:- All the necessary details were filed by assessee in the course of assessment proceedings as well as remand proceedings but no defect of whatsoever has been pointed out by AO. It was also pertinent to note that PAN of AEMS was available before AO but no verification was done with the AO having jurisdiction over AEMS - at the time of assessment proceedings a notice was issued u/s. 133(6) of the Act to AEMS for verification of commission expense but no response whatsoever received by the AO till the date of completion of assessment. Accordingly, the AO made the addition of commission expense paid to AEMS without confronting from assessee that no reply was received by him in response to the notice issued u/s 133(6) of the Act to AEMS. - Decided against revenue Addition on account of late delivery charges - necessary details were not furnished by assessee during assessment proceedings - Held that:- AO in remand proceedings has taken the stand that party-wise detail of late delivery charges was not filed by assessee, without point out any defect on the submissions filed by assessee before him. As the AO has not pointed out any defect in the submission made by the assessee at the time of assessment proceedings as well as remand proceedings, we feel that addition has been made by AO on his surmise and conjecture. Also assessee has furnished details of invoice against which late delivery charges was deducted and which are placed on pages 92 to 102 of the paper book. In this regard, Ld. DR before us has not pointed out any defect in the finding of Ld. CIT(A)- Decided against revenue Addition on account of capital loss - whether asset pertaining to the block of asset can be written off in the profit and loss account in the event it is lost? - Held that:- A block of asset can be reduced only in the event of sale, discarded demolished or destroy in the previous year. In the instant case, the deduction was claimed on account of loss of asset which is not appearing under the provision of Section 32(1)(iii). Therefore, no deduction on account of such loss of asset can be claimed by the assessee. Once an asset becomes part of block of asset then such block of asset can be reduced only in the event as provided under Act. There is no provision under the Act to reduce the block of asset in the event of loss of asset. Therefore, the deduction claim by assessee on account of loss of asset is not allowable under the scheme of Act. The assessee at the most can claim deduction in the form of depreciation on the asset lost by it @ specified under the Act. We direct the AO to disallow the claim of assessee on account of loss of asset but allow depreciation on the value of such asset @ Rate specified under the Act Issues Involved:1. Deletion of addition made under the head 'Commission'.2. Deletion of addition made under the head 'Late Delivery Charges'.3. Deletion of addition made under the head 'Loss on Fixed Assets'.Issue-wise Detailed Analysis:1. Deletion of Addition Made Under the Head 'Commission':The Revenue contested the deletion of an addition of Rs. 37,66,311/- under the head 'Commission' by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Assessing Officer (AO) had disallowed this amount due to non-confirmation from the party, Alliance Engineering & Marketing Service (AEMS). The assessee argued that all necessary details and explanations regarding the commission expenses were provided during the assessment proceedings. The AO did not provide sufficient opportunity for the assessee to address the lack of response from AEMS. The CIT(A) found that the commission paid was reflected in the income tax return of AEMS and that the payments were made after deducting income tax and charging service tax. The CIT(A) directed the AO to delete the addition. Upon appeal, the Tribunal confirmed the CIT(A)'s decision, noting that the AO failed to point out any defects in the submissions made by the assessee and did not comply with the principles of natural justice by not confronting the assessee about the non-receipt of a reply from AEMS.2. Deletion of Addition Made Under the Head 'Late Delivery Charges':The Revenue challenged the deletion of an addition of Rs. 21,16,819/- on account of late delivery charges by the CIT(A). The AO had disallowed this amount, asserting that the assessee could not provide supporting documents for the late delivery charges. The assessee explained that the late delivery charges were deducted by the parties from their payments due to the assessee's failure to deliver goods on time. The CIT(A) accepted the assessee's explanation and deleted the addition, noting that the late delivery charges were debited in the profit and loss account instead of reducing the sales due to sales tax/VAT implications. The Tribunal upheld the CIT(A)'s decision, stating that the AO did not point out any defects in the submissions made by the assessee and that the addition was based on surmise and conjecture.3. Deletion of Addition Made Under the Head 'Loss on Fixed Assets':The Revenue appealed against the deletion of an addition of Rs. 8,500/- on account of capital loss by the CIT(A). The AO had disallowed this amount, considering it a capital expenditure. The assessee argued that the loss was due to a mobile handset lost by the director, which was connected to the business. The CIT(A) allowed the loss as a revenue expenditure, noting that the value was reduced from the fixed assets and no depreciation was claimed on it. However, the Tribunal held that the loss of an asset does not fall under the provisions of Section 32(1)(iii) of the Income Tax Act, which allows for the reduction of a block of assets only in the event of sale, discard, demolition, or destruction. The Tribunal directed the AO to disallow the claim of loss but to allow depreciation on the asset's value as specified under the Act.Conclusion:The Tribunal dismissed the Revenue's appeal regarding the commission and late delivery charges, confirming the CIT(A)'s deletions. However, it partly allowed the Revenue's appeal concerning the loss on fixed assets, directing the AO to disallow the loss claim but to allow depreciation on the asset's value. The order was pronounced in the open court on 14/02/2018.