TaxTMI 
TaxTMI 
2009 (4) TMI 535
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....allowance of Rs. 12,265. 2.2 The Appellant prays that the ACIT be directed to delete the disallowance of Rs. 12,265. 3.1 Ground No 3: Commission paid.-On the facts and circumstance of the case and in law, the CIT(A) erred in confirming the disallowance in respect of commission of Rs. 1,793,399. 3.2 The Appellant prays that the ACIT be directed to delete the disallowance of Rs. 1,793,399. 4.1 Ground No 4: Adjustment of Provision for Gratuity under section 115JB.-On the facts and circumstance of the case and in law, the CIT(A) erred in confirming the ACIT's action of adding the provision for gratuity of Rs. 3,47,107 to the book profit, under section 115JB of the Act. 4.2 The Appellant prays that the ACIT be directed to delete the addition so made to book profits." 2. Briefly stated, the relevant facts of the case are that the assessee is engaged in the business of manufacturing and trading of control valves and actuators, level instruments and related accessories and filed the return of income for the assessment year 2003-04 declaring the total income at Rs. 'nil' under the normal provisions and Rs. 20,78,853 under section 115JB of the Income-tax Act (Act). The same was scrutin....
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....ned that assessee is under contractual obligation to make the payments on account of delayed deliveries. In this regard, he has taken us through Para 6 of pages 22, 23 and 27 etc. of the paper book to highlight the stipulated conditions for the payability of the enhanced amounts and applicable rates in this regard. In this regard, the learned Counsel has also relied on the decision of the Madras Tribunal Bench in the case of Kaveri Engg. Industries Ltd. v. Dy. CIT [1992] 43 ITD 527 for the proposition that the payments made in the context of belated deliveries is an allowable expenditure. The Learned Counsel for the assessee has also emphasized that the Special Bench decision in the case of Oman International Bank SAOG (supra) has been upheld by the Bombay High Court in the ITA No. 114 of 2009. Further, the Counsel has relied on the Bombay High Court judgment in the case of CIT v. Star Chemicals (Bombay) (P.) Ltd. [2008] 220 CTR (Bom.) 319 for the proposition that once the assessee has written off the debt as bad debt requirements under section 36(1)(iii) is satisfied and claim for deduction for bad debts is allowed. On the other hand, Learned DR has relied on the orders of the rev....
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....ged suppliers in question. Therefore, DR has argued for referring the matter to the files of the Assessing Officer. 9. We have heard both the parties and perused the relevant paragraphs of the orders of the revenue authorities as well as the Special Bench decision of the Tribunal in the case of Oman International Bank SAOG (supra) as well as judgment of the Bombay High Court in the same case. This is the case where Assessing Officer made disallowances on the issue of recoverability, which was confirmed by the CIT(A) on the ground of failure to discharge the onus. Paper book does not contain any information as to the names of the parties involved and continuation of the business transactions with the said parties, if any, in the subsequent periods. We have also perused para 13 of the Bombay High Court judgment in the case of Oman International Bank SAOG (supra) and same reads as under:- "13. Considering the above discussion, in our opinion to treat the debt as bad debt has to be commercial or business decision of the assessee based on the relevant material in possession of the assessee. Once the assessee records the debt as bad debt in his books of account that would prima facie e....
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....examining the above, the CIT(A) rejected the assessee's submissions and held that the services rendered by the commission agent are not explained with evidences and in effect, assessee failed to discharge the onus in this regard. The CIT(A) held that the expenditure claimed is not wholly and exclusively for the business purposes of the assessee. While mentioning that the assessee has furnished any paper-evidence in support of the claim, the CIT(A) reasoned that the said claim appears to be only on paper inasmuch as rendering of the active services has not been substantiated. Accordingly, CIT(A) confirmed the disallowances made by the Assessing Officer. 12. Aggrieved with the same, the assessee filed an appeal before us. The Learned Counsel for the assessee has argued stating that the assessee has made the payment to M/s. Pramat Technical Services (P.) Ltd. as per the written contract between the assessee and the commission agent. In this regard, he has taken us through pages 29 to 44 of the paper book showing the names, their addresses, account, the purpose of the commission payments (page 29), the agreement dated 24-1-2000 showing the terms and conditions of the commission paymen....
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....n 30-1-2000. (4) For all orders issued during the validity of this agreement you shall receive a commission of ten per cent only (10 per cent) on the ex-works value of the customer order net of any applicable taxes, duties and levies etc. (5) After acceptance and successful execution of the orders and within 30 to 90 days after receipt of full payment by us, you shall be entitled to receive above commission for the services rendered by you." [Emphasis supplied] 14. From the above, it is evident that the commission agent is under obligation to generate the demand and also the requirements for the products of the company from the corporates such as NTPC and UPSEB and procure the orders. Accordingly, the assessee got the orders through the agent and commission became payable. In the process, the assessee furnished requisite basic information to the Assessing Officer, who was not satisfied with the said information. Considering the quantum of information available with the Assessing Officer in the matter, Assessing Officer should have attempted to disprove the contents of the agency agreement or payments made through the banks are bogus or money has come back to the Assessee Company....
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....evenue has relied on the orders of the revenue authorities. 18. We have heard both the parties and have gone through the orders, decisions and judgments and provisions of the Income-tax Act. From the facts, it is noticed that the objection of the revenue is with regard to the assessee's failure to follow the AS-15 and the 'actuarial method' referred therein and not disputed the quantification of the 'provision of gratuity'. In other words, the incorrect quantification of the provision makes the provisions as an unascertainable liability and therefore, such provisions should be dealt with as per the provisions of section 115JB read with Explanation 1(c) and accordingly, the book provisions should be increased. On the other hand, the case of the assessee is that it is an ascertained liability as evident from the books and method of quantification does not decide the issue of ascertainment or otherwise of the liability and therefore, the provision for gratuity is required to be excluded for the purpose of determining the book profits. Considering the rival positions, it is noticed that the said provision of section 115JB are code by itself and determination of the book profits has to....