2013 (10) TMI 839 - HC - Income Tax

Tribunal's Disallowance Upheld for Illegal Contract Transfer Commission

OVERSEAS TRADING AND SHIPPING CO PVT LTD Versus ASSISTANT COMMISSIONER OF INCOME TAX

OVERSEAS TRADING AND SHIPPING CO PVT LTD Versus ASSISTANT COMMISSIONER OF INCOME TAX - [2014] 366 ITR 311 (Guj) Issues Involved:1. Disallowance of commission of Rs. 28,37,500/-2. Disallowance of business promotion expenses of Rs. 1,65,172/-Issue-wise Detailed Analysis:1. Disallowance of Commission of Rs. 28,37,500/-:The appellant assessee, engaged in trading various goods, entered into a contract with SSOE for importing 12500 MT of Fuel Oil 180 CST. The acquisition, storage, and sale of solvents without a license were prohibited under the Solvent, Raffinate & Slop Order, 2000. The appellant, lacking the necessary license, requested its sister concern, BGH Exim Limited, to undertake the contractual obligations. The assessee claimed a commission of Rs. 28,37,500/- paid to BGH Exim Limited. The Assessing Officer disallowed this claim, deeming it bogus. The CIT (A) allowed the claim, but the Tribunal reversed this decision, citing the prohibition under the Solvent Order, 2000, and the explanation to Section 37 (1) of the Income Tax Act, which disallows expenditure for purposes prohibited by law.The High Court upheld the Tribunal's decision, noting that the commission was paid for transferring contractual obligations, which were illegal without a license. The court emphasized that the payment of commission for an illegal purpose is not allowable under Section 37 (1). The court further noted that even though the sister concern had a license, the subsequent transactions by the appellant violated the Solvent Order, 2000. The court concluded that the disallowance was justified as the transaction contravened the law, and no valid claim for the commission was established.2. Disallowance of Business Promotion Expenses of Rs. 1,65,172/-:The appellant claimed Rs. 1,65,172/- as business promotion expenses for sending mangoes to a supplier company in Singapore. The CIT (A) allowed the claim, considering it necessary for maintaining good business relations. However, the Tribunal disallowed the claim, questioning the business purpose and the feasibility of consuming such a large quantity of mangoes. The Tribunal found no material evidence to support the business expediency of this expenditure.The High Court agreed with the Tribunal's decision, emphasizing the lack of evidence to justify the business promotion claim. The court referred to a previous judgment in Sayaji Iron & Engineering Company v. CIT, which allowed expenses for directors' personal vehicle use as business expenditure. However, the court found no parallel in the present case, as no rationale or evidence supported the expenditure on mangoes. The court concluded that the claim was factually unsupported and dismissed the appeal on this ground.Conclusion:The High Court dismissed the tax appeal, upholding the Tribunal's decisions on both issues. The court found no substantial question of law and deemed the disallowances justified based on the facts and legal provisions involved.