INDIA STEEL CORPORATION,KOLKATA vs. ITO, WD-35(2), KOLKATA, KOLKATA

Both appeals by assessee are arising out of order of Commissioner of Income Tax (Appeals)-XX, Kolkata dated 02.07.2014. Assessments were framed by ITO Ward-35(2), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his orders dated 21.03.2013 & 28.03.2014 for assessment years 2010-11 & 2011-12 respectively.

Since common grounds are involved in both the appeals of assessee except figurers, therefore they were heard together and are being disposed of by way of this common order for the sake of convenience.

Facts in brief are that assessee is a partnership firm and engaged in the manufacturing business of electric transformer and similar other products used by various Electricity Boards and their Distribution units. During the year, assessee has claimed expense of ₹47,47,106/- in the form of commission expense paid by assessee for getting the tenders arranged through various agents from the Electricity Boards @ 2 to 3% on the value of orders procured by such agents. During the assessment proceedings, Assessing Officer asked the assessee to submit details of sales made during the year against the aforesaid commission expense. In compliance thereto, assessee submitted that for the year under consideration sale has been booked against commission expense at ₹23,09,937/- only but for the payment of commission of ₹24,37,169/- no sale was booked during the year. Accordingly, AO disallowed the excess claim of commission expense for the sum of ₹24,36,169/- on the ground that this expense should be booked in its books of account in the year when the related sales will be recorded in its books of account also. Hence, the commission amount of ₹24,37,169/- was disallowed and added back to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A) where assessee submitted that commission expense was based on the value of orders procured through services of agents and these expenses were incurred through account payee cheque after deducting TDS. There was no disallowance in the earlier years made by AO and the assessee claimed such A.Ys 2010-11 & 2011-12 India Steel Corpn. v. ITO Wd.35(2) Kol. Page 3 expenses. However, Ld. CIT(A) rejected the claim of assessee by observing that “commission attributable to the sales declared in the year under consideration was correctly allowed by AO.”

Before us Ld. AR filed paper book having pages 1 to 75 and submitted that assessee is following to recognize the commission expense on the basis of orders procured by commission agent and not on the basis of actual sale booked in its books of account. This payment to the commission agent was made after deducting TDS. The commission agents used to raise the bills immediately after procuring the order in the name of assessee which are placed on pages 25 to 62 of the Paper Book and all the commissions were booked after deducting TDS and the challans for the payments of TDS were placed from pages 64 to 72 of the paper book. Finally, Ld. AR prayed that assessee has been claiming such commission expense consistently for the last so many years. Therefore it should be allowed as deduction while computing the income in the head of “business” and stated that issue may be decided on merit. On the other hand, Ld. DR submitted that the commission expenses corresponding to sales booked by the assessee should be allowed as deduction as no services rendered by the agents in connection unrecorded sale. Ld. DR further submitted that issue of commission arose first time during the year and same was not looked upon in the earlier years so, this does not mean the commission expense should be allowed on the basis of consistency. He vehemently relied on the orders of Authorities Below.

We have heard rival submissions and perused the materials available on record. From the aforesaid discussion, we find that assessee was claiming the commission expense on the basis of orders procured by commission agent but Authorities Below did rejected the same on the ground that A.Ys 2010-11 & 2011-12 India Steel Corpn. v. ITO Wd.35(2) Kol. Page 4 commission expense which are corresponding to the sales made during the year should be allowed as deduction in the year under consideration. However, we find force from the argument of Ld. AR that no such disallowance was made in earlier years and expenses were duly claimed in its books of account after getting the bills from the concerned parties and after TDS deduction. We find that services rendered by commission agents have not been doubted by the Authorities Below. We further find that assessee’s claim of commission expense on the basis of bills raised by commission agents for the value of orders arranged by them consistently and these were allowed in the past years also. We also find that assessee having the arrangement with the commission agent for procuring the orders from the Electricity Boards and once the order has been arranged then the commission agent is entitled for the commission on the value of such order arranged by him. In this point of argument, Ld. DR has not brought anything on record to controvert the argument raised by Ld. AR. Therefore, we are inclined to reverse the orders of Authorities Below and this ground of assessee’s appeal is allowed.

Coming to next ground raised by assessee is that Ld. CIT(A) erred in confirming the action of AO by disallowing the deduction of ₹ 5,100/- u/s 80G of the Act on account of donation.

At the outset, it was observed that Ld. CIT(A) has disallowed the donation on the ground that assessee failed to submit the exemption certificate issued to the institution registered u/s 80G of the Act by the Competent Authority. However, Ld. AR drew our attention on page 73 of the paper book where the certificate issued by Competent Authority u/s. 80G(5) clause (iv) to the institution was placed along with PAN No. Accordingly, we are inclined to reverse the orders of Authorities Below and this ground of assessee’s appeal is allowed.

As stated earlier, the issue in this year is same as that of the last year. The only difference is the amount involved. Since the facts are exactly identical, both the parties are agreed whatever view taken in the above appeal of assessee may be taken in this appeal of assessee also, we hold accordingly.

In the result, assessee’s appeal is allowed.