TaxTMI 
TaxTMI 
2016 (11) TMI 668
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....mission expense of Rs. 26 lacs as TDS is. not deducted inspite of following reasons: i) The assessee is following mercantile basis of a accounting. Therefore, he is required to follow matching principle i.e. All expenditures relevant to accounted sales/income should be accounted in same year and vice versa, whether bills of relevant parties are received or not. Where ever bills are received, it is credited to party's account and where ever bills are not received for such expenditure entry for provision of expenditure is passed. Expenditure a/c Dr To Provision to Expenditure a/c Cr This entry is required to arrive at true and fair figure of profit for the said year as per normally accepted accounting p....
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....to be credited. 3.2 The AO did not find the reply of the assessee to be tenable on the grounds that the assessee had debited the commission expenses to profit and loss account which had resulted in reduction of his profit and hence TDS should have been made from such expenses. The AO observed that as per the provisions of Section 194H, TDS should be made from the commission amount 'likely to be credited' if the amount exceeded Rs. 2,500/- and as the amount of commission debited by the appellant was Rs. 26,00,000/- which was in excess of the amount stipulated in Section 194H, the assessee should have done TDS on this commission amount. The AO also observed that the accounting practice of the assessee of debiting the amount of Rs. 26,00,00....
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....payable this year has been created on 31-03- 2009 and has been reversed on the 1st day of the next financial year. i.e. on 01-04-2009. This shows that the liability has not crystallized in this year. Such contingent liability is inadmissible as a deduction whatever accounting method the appellant follows-mercantile or cash. This is so because even in mercantile system unless the liability to pay crystallizes it cannot be claimed as a deduction. The very fact that the appellant reverses the whole of the provision on the 1st day of the next F.Y. & then debits the actual amount along with the payees names and other details during the next FY establishes that the liabilities for which provision was made on 31st March had not crystallized. There....
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....red for the year which was quantifiable but only provisions could be made as these had not fallen due for payment and therefore neither paid nor credited to the account of the receiver. It was under those circumstances that the Courts held that there was no liability to deduct tax. The letter to TISCO given by CBDT is also in respect of Interest on Deep Discount Bonds. As against this, in the case of the appellant the expense is neither accrued nor quantifiable and hence the provision itself is inadmissible for deduction - whether TDS made or not. If, as has been mentioned earlier, it is argued that the amount is quantifiable and accrued, then the details would be known to the appellant and the same should be credited to the commission agen....
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....e on these payments. The reason I have mentioned that genuineness of expenses should also be verified is that in different submissions before me the appellant has stated different amounts of commission paid for the year none of which match with the provisions made. Furthermore, the appellant failed to furnish the details of transactions done through commission agents appearing at serial no 11 to 17 in the detail furnished by it before me which raises serious doubts about the genuineness of these payments. Similarly, the actual payments made on account of commission for sales/purchases in subsequent periods are different in different submissions. However, as far as this year is concerned, the provisions are contingent in nature, not quantifi....
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....d in effective terms and was an ascertained liability. Merely because the assessee's practice was accepted in past does not apply as res judicata inasmuch as the provision of law will take precedence over an untenable practice adopted by the assessee. Besides, Section 40a(ia) provides that as and when the assessee makes the payment of relevant TDS, the expenditure will be allowed in the year of payment. Besides, the ld. CIT(A) has given clear findings that the provision was made on whims and fancies of the assessee without any proper basis and even the genuineness of the expenditure; therefore, the ld. CIT(A) has disallowed the expenditure. The facts in the cases of IDBI and Mahindra and Mahindra (supra) are on different footings and the CB....