Addition made by AO without Understanding whole Contractual Obligations made by parties: ITAT Deletes Addition [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) deleted the addition made by the assessing officer without understanding the whole contractual obligations made by the parties. 

AB Insurance Brokers Pvt. Limited, the appellant assessee appealed against the order passed by the Commissioner of Income Tax (Appeals) for confirming the disallowance made by the AO and made an addition without understanding the contractual obligations made by the parties. 

Miraj D. Shah, the counsel for the assessee contended that both authorities failed to appreciate the meaning of the expression “claw back” and if the Insurance Company had retained a higher amount than one shown by the assessee, then instead of addition, the AO ought to have granted further relief to the assessee. 

It was also submitted that the meaning of the expression “claw back” was that it was a contractual provision that requires an employee to return money already paid by an employer sometimes with a penalty. 

G. Hukugha Sema, the counsel for the revenue strongly supported the decisions made by the lower authorities. It was also submitted that the addition made by the assessing officer was as per law and after understanding the whole contractual obligations made by the parties. Also, the decision made by the Commissioner by confirming the addition made by the assessing officers was as per the law. 

The bench observed that the business of the assessee was to arrange insurance policies for big Industrial Houses and the Insurance Company would provide an incentive to the assessee could not fulfill the promise of soliciting the insurance policies, according to the expectation of the Insurance Companies they had directed the assessee to pay back out of the incentives paid to the assessee. 

The two-member bench comprising Rajpal Yadav(Vice-President) and Girish Agrawal, (Accountant) held that the higher amount was to be considered as clawback payment, then a higher amount was to be allowed as a deduction not character of income. 

It was also held that the addition made by the AO is liable to be deleted while allowing the appeal filed by the assessee. 

To Read the full text of the Order CLICK HERE

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