Ita/87/2015 Of Mil Controls Ltd v. The Addl.commissioner Of Income Tax Range 1,Kochi

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE SHAJI P.CHALY WEDNESDAY, THE 27TH DAY OF MAY 2015/6TH JYAISHTA, 1937 ITA.No. 87 of 2015 () ---------------------- AGAINST THE ORDER IN ITA NO.399/COCH/2014 of I.T.A.TRIBUNAL,COCHIN BENCHDATED 21-11-2014 APPELLANT(S)/APPELLANT/APPELLANT/ASSESSEE: --------------------------------------------------------------------------- MIL CONTROLS LTD, MELADOOR PO, MALA 680741, REPRESENTED BY ITS DIRECTOR SRI VERGHESE OOMMEN. BY ADVS.SRI.ANIL D. NAIR SRI.R.SREEJITH SMT.C.S.SULEKHA BEEVI SMT.ROSIE ATHULYA JOSEPH RESPONDENT(S)/RESPONDENTS/RESPONDENTS/REVENUE: -------------------------------------------------------------------------------------- THE ADDL.COMMISSIONER OF INCOME TAX, RANGE 1,KOCHI. BY SRI.CHRISTOPHER ABRAHAM, SR. STANDING COUNSEL FOR INCOME TAX. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 21-05-2015,THE COURT ON 27.05.2015 DELIVERED THE FOLLOWING: P.T.O. I.T.A NO.87 OF 2015 APPENDIX APPELLANT'S EXHIBITS: ANNEXURE - ATRUE COPY OF THE ORDER OF ASSESSMENT FOR THE YEAR 2009-10 ISSUED TO THE APPELLANT. ANNEXURE - BTRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX. ANNEXURE - CTRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH DATED 21.11.2014. RESPONDENT'S EXHIBITS: NIL //TRUE COPY// P.S. TO JUDGE St/- ANTONY DOMINIC & SHAJI P. CHALY, JJ. -----------------------------------------------I.T.A No.87 OF 2015---------------------------------------------Dated this the 27[th] day of May, 2015 JUDGMENT Shaji P. Chaly, J. This appeal is preferred against the order of the IncomeTax Appellate Tribunal, Cochin Bench in I.T.ANo.399/Coch/2014. The short facts required for the disposalof the appeal are only narrated. The assessment concerned isof the year 2009-2010. The assessee had filed return ofincome on 30.09.2009 for the year 2009-2010 declaringtaxable income of Rs.18,36,08,783/-. The said return wasprocessed under Sec.143(1) and thereafter the said case wasselected for scrutiny and notice under Sec.143(2) was issuedon 31.08.2010. Further, a notice under Sec.142(1) was alsoissued on 31.01.2011 calling for information and the case washeard on various dates, the last being on 22.11.2011. Theassessee Company is involved in production of Pumps. Theholding company of the assessee is a German company. From I.T.A.No.87 of 2015 the returns filed, the assessing authority has found that theassessee had debited an amount of Rs.77,32,280/- ascommission paid and due for the assessment year 2008-2009,consequent to which, a query was raised why the amount ofRs.45,26,029/- which is the actual remittance made during theperiod towards commission should not be the actual debit andnot Rs.77,32,218/-. In answer to the query, the assesseestated that as per accrual system of accounting, thecommission had become due and hence the debit ofRs.77,32,218/- and further that the commission is based onsales and becomes due only as and when the proceedings arecompleted. 2. According to the assessee, the actual remittance aloneshould be debited in the Profit & Loss Account, since that is theamount accrued and due on account of commission, and thatthe commission is solely dependent on actual sale or export ofgoods. Therefore, the assessee contended that in the absenceof sale not realized, commission will not become due.Overruling the contentions raised by the appellant, assessmentwas finalized disallowing the excess commission debited,amounting to Rs.31,06,189/-since this amount relating to I.T.A.No.87 of 2015 commission payable had not become due nor accrued. 2. According to the assessee, the actual remittance aloneshould be debited in the Profit & Loss Account, since that is theamount accrued and due on account of commission, and thatthe commission is solely dependent on actual sale or export ofgoods. Therefore, the assessee contended that in the absenceof sale not realized, commission will not become due.Overruling the contentions raised by the appellant, assessmentwas finalized disallowing the excess commission debited,amounting to Rs.31,06,189/-since this amount relating to I.T.A.No.87 of 2015 commission payable had not become due nor accrued. 3. The said order of assessment was challenged inappeal by the assessee and vide an order dated 21.11.2014,the 1[st] appellate authority confirmed the addition made by theassessing officer amounting to Rs.31,06,189/-. Aggrieved bythe same, appellant preferred an appeal before the concernedTribunal, which also affirmed the order in appeal in favour ofthe revenue. 4. Heard the learned counsel for the appellant and theSenior Standing Counsel appearing for the respondent. Wealso perused the records and evaluated the facts andcircumstances of the case and appreciated the legalpropositions canvassed. 5. In this appeal, appellant has raised the followingquestions of law: “(i)In the facts and circumstances of thecase, ought nogt the Tribunal to allow the deductionof commission expenses of Rs.31,06,189/- whichwas accrued in the financial year relevant to theA.Y.2009-10 on accrual basis? (ii)In the facts and circumstances of thecase, ought not the Tribunal allow accept themethod of accounting of commission expenses onaccrual basis being the method of accountingfollowed by appellant in the past years?”. 6. The learned Tribunal after evaluating the entire factsand circumstances of the case has confirmed the order of thelower authority, holding that there is no infirmity in the orderpassed by the authorities below and held as follows in the lastparagraph of the order: “We have heard the parties and perused the relevant material on record. We have also gonecarefully gone through the order of the authoritiesbelow and also the agreement entered between theassessee and KSB Singapore (Asia-Pacific) Pvt. Ltd.,Singapore. Clause 4 of the agreement reads asunder: “4 For all export orders materializing duringthe period of this contract, the company will pay KSBSingapore (Asia Pacific) a commission at the rate notexceeding 12.5% (Twelve and a half percent) for allcountries of the world of the FOB value of the orderin the currency in which the order is placed. Thesecharges will fall due for payment on receipt ofpayment from the clients. This would cover theusual services of KSB Singapore (Asia Pacific) forsecuring the order and the expenses incurred inconnection with the same.” “4 For all export orders materializing duringthe period of this contract, the company will pay KSBSingapore (Asia Pacific) a commission at the rate notexceeding 12.5% (Twelve and a half percent) for allcountries of the world of the FOB value of the orderin the currency in which the order is placed. Thesecharges will fall due for payment on receipt ofpayment from the clients. This would cover theusual services of KSB Singapore (Asia Pacific) forsecuring the order and the expenses incurred inconnection with the same.” 3.1 As per clause 4 of the agreement, thecommission payable to KSB Singapore (Asia Pacific)at the rate not exceeding 12.5% on FOB value of theorder in the currency in India in which the order isplaced. These charges will fall due for payment onreceipt of payment from the clients. Being so, it isclear that the payment of commission accrued onlyon realization of sale value. The assessee's claim isthat it is booking expenditure on the basis of salevalue and not on the basis of sale realization and thissystem has been accepted by the department inearlier years as well as in the subsequent year. Inour opinion, we are not concerned with the any otheryear which are not before us. In our opinion, if thedepartment has accepted in earlier year, it was amistake and there is no merit in continuing the samemistake in the assessment year under consideration.The payment of commission accrued only onrealization of sale value and it is to be allowed whenthe realization of sale value which is in compliancewith the agreement cited supra and disallowance isbased on the above agreement brought on record bythe authorities and hence, we do not find anyinfirmity in the orders of the authorities below, whichis confirmed.” I.T.A.No.87 of 2015 7. Considering the facts and circumstances noticed bythe Tribunal and urged in the appeal also we are of theconsidered opinion that there are no reasons warrantinginterference with the order passed by the learned AppellateTribunal by invoking the powers conferred on us underSec.260A of the Income Tax Act, 1961 and necessarily theappeal has to be dismissed and accordingly, we do so. In the facts and circumstances of the case, there is noorder as to costs. Sd/-ANTONY DOMINIC JUDGE Sd/- SHAJI .P. CHALY JUDGE //true copy// P.S. to Judge St/-