2017 (1) TMI 178 - HC - Income Tax

Court rules in favor of partnership firm in commission payment dispute, emphasizing proper documentation and independent assessment.

Harish Clays Versus ACIT, Circle, Jaipur & Anr.

The Court allowed the appeal of a partnership firm regarding the disallowed expenditure on commission payment to a proprietorship concern. The Court held ... Allowance of expenditure of sales commission - disallwoance on the ground that if the lady is Pardanashin, then question arises how could she conduct business and came to the conclusion that payment made by the assessee is not actually commission payment - Held that:- Taking into consideration the fact that the payment pursuant to agreement was made by account payee which is reflected in the books of accounts of the assessee. Merely because commission agent has not appeared, expenses cannot be disallowed. In our view the view taken by the tribunal is required to be reversed. The expenses which are incurred by assessee is required to be allowed. The issue is required to be answered in favour of the assessee Issues:Challenge to Tribunal's judgment partially allowing the appeal on disallowed expenditure of commission payment.Analysis:1. The appellant, a partnership firm, challenged the Tribunal's order disallowing expenditure on commission payment to a proprietorship concern. The assessing officer disallowed the expenditure based on the non-appearance of the lady proprietor before the AO due to being Pardanashin. The appellant produced evidence of payment and previous years' allowance of similar payments.2. The substantial question of law framed by the Court questioned the correctness of disallowing the expenditure solely due to the non-appearance of the lady proprietor. The appellant contended that despite voluminous evidence, the expenses were allowed in previous years, and the payment was duly made to the concern.3. The appellant relied on various legal precedents to support their case, emphasizing the importance of proper investigation by the assessing officer and the finality of decisions in similar matters across assessment years. The appellant argued that the expenses should be allowed as they were incurred for promoting business and earning profits.4. The Court, after hearing both parties, considered the fact that payments were made through proper channels and were reflected in the appellant's accounts. The Court held that the non-appearance of the commission agent should not lead to the disallowance of expenses. Consequently, the Court reversed the Tribunal's decision and allowed the appeal in favor of the appellant.5. The judgment highlighted the importance of considering each year's assessment independently and not applying res judicata principles in tax matters. The Court emphasized the need for a just and proper view in determining tax liabilities each year based on the specific circumstances.6. Overall, the Court's decision favored the appellant, emphasizing the validity of the expenses incurred and the lack of grounds for disallowance based solely on the non-appearance of the commission agent. The judgment provided a thorough analysis of the legal and factual aspects of the case, ensuring a fair outcome for the appellant.