Income Tax Appellate Tribunal ( ITAT ) bench of Delhi, constituted of Anil Chaturvedi (Accountant Member) and Anubhav Sharma (Judicial Member) held that the forfeited commission expenses cannot be disallowed if Tax Deduction Source ( TDS ) is paid.
The Assessee filed the present appeal against the Commissioner of Income Tax (Appeals) [CIT(A)] order that resulted from an appeal against the assessment order made in compliance with Section 143(3) of the Income Tax Act of 1961.
The assessee is a public limited company that trades and distributes a variety of Black & Decker domestic kitchen appliance items of Black & Decker Hitkari and Gryphon. A return was filed by the assessee declaring an income of Rs. 32,52,680.
The tribunal noted that M/s Hitkari Potteries Ltd. was paid Rs. 36,28,842 as part of the Rs. 46,06,393 in commission expenses that were disallowed. The company committed to provide them commission based on the number of sales they generated in various years.
However, M/s Hitkari Potteries Ltd. was guaranteed a minimum commission in the event that the sales target was not met. In order to ensure the fulfilment of the agreement, the company had advanced M/s Hitkari Potteries Ltd. a payment totaling Rs. 25,00,000 at the time of the beginning of the agreement.
Due to weak sales brought on by events beyond their control, the appellant requested M/s Hitkari Potteries Ltd. to relax the minimum guarantee condition. By settlement agreement, M/s Hitkari Potteries Ltd. generously consented to do so.
The same was done, but, under the condition that M/s Hitkari Potteries Ltd. forfeit the money deposited with them and, consequently, the money charged as expense in the 2013–2014 financial year.
According to Sushil Wadhwa, the assessee’s representative, the sum of Rs. 33,27,279 was lying at Hitkari Potteries Ltd. and was forfeited for the loss of commission from short sales. TDS was also paid on the amount. Moreover, it was claimed that the tax authorities allegedly made a mistake by classifying the expenses as prior-period expenses.
The bench noted that Form 16A, given by the assessee, is related to a tax deduction of Rs. 33,27,279 against this sum. The type of payment in question is covered by Section 194H, a clause that unquestionably mandates the deduction of tax from any income received in the form of a commission or brokerage.
The tribunal viewed that the CIT(A) in not giving due consideration to the letter dated 24.01.2014 of M/s. Hitkari Potteries Pvt. Ltd which specifically mentioned that the amount lying as security is being forfeited has compensation for loss of commission or short sales. The TDS deduction against the same stands paid by the appellant in the present Financial Year.
Further observed that the findings of the CIT(A) holding that payment was on account of royalty and a prior period expense cannot be sustained.
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