TaxTMI 
TaxTMI 
TaxTMI 
2012 (8) TMI 670
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.... scrutiny accordingly, a notice u/s. 143(2) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') was issued and served upon the assessee. During the assessment proceedings, the Assessing Officer sought explanation from the assessee with regard to payment of sale commission of Rs.10,64,461/- including service tax paid to Rupali Traders a firm which is declared in Form No. 3CD of the audit report enclosed along with income tax return as the specified person covered u/s. 40A(2)(b) of the Act. The assessee vide written submission dated 01-12-2008 submitted that the sale commission to M/s. Rupali Traders of Rs.10,64,461/- is paid including service tax. It was submitted that M/s. Rupali Traders is a partnership firm consisting of two persons namely Shri Ramesh N Shah having 90% share of profit and loss and Sonaliben J Shukla having 10% share of profit. It was submitted that the commission is paid @ 4% plus service tax which is reasonable and competitive. The marketing services rendered by M/s. Rupali Traders are to obtain order, visiting the parties, collection and payment etc., It was submitted by the assessee that it paid sales commission to that party for inspection of i....
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....ore, the AO was of the view that the assessee could not justify its claim of payment of sales commission which is also supported by the statement of Shri Daxesh Mehta, asstt-manager of accounts of M/s Sud chemie India Pvt. Ltd. and disallowed the payment of commission for sales promotion expenses of Rs.10,64,461/- and added the same to the income of the assessee. 3. The assessee feeling aggrieved by the assessment order passed u/s 143(3) of the Act filed appeal before the Ld. CIT(A). Before Ld. CIT(A), the submissions of the assessee were that the Assessing Officer failed to appreciate the nature and type of services being rendered by M/s Rupali Traders. It was submitted that the expenditure was genuine business expenditure and same was disallowed without giving reasonable opportunity to explain or to furnish necessary evidences. It was submitted that the assessee was carrying on business of job work and sale of ceramic catalyst items since 1996 and in view of establishment of full-fledged unit, the assessee requested its agent M/s. Rupali Traders at Anand to secure a party which would like to get job work done by the assessee. It was submitted that M/s. Rupali Traders is a partne....
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....eet of M/s Rupali Traders though the confirmatory letter it was clearly mentioned nature of services provided by M/s.Rupali Traders various expenses such as salary, traveling, vehicle etc. were debited. The assessee submitted before Ld. CIT(A) that such income cannot be earned without incurring the relevant expenditure and the income vis-à-vis expenditure had been correlated in respect of M/s Rupalia Traders. It was submitted that the assessee-firm had seven partners, out of which four were women partner and even Shri Rupesh Shah, who was managing partner did not have necessary qualifications in the field of ceramic engineering and salary was paid only to one partner, namely Shri Rupesh Shah. It was submitted by assessee that technical process involved was extremely intricate which could not have run without production-cum-marketing agreement with M/s. Rupali Traders having Shri Ramesh Shah, a ceramic engineer as its partners. It was further submitted that the assessee as well as M/s Rupali Traders were partnership firm having basic exemption limit of nil income tax was chargeable at the flat rate of 33.66% of total income for the assessee as well as M/s Rupali Traders. M/s ....
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....rival submissions, perused the material on record and the Judgments cited. On our query to the Ld. DR about the acceptance claim of assessee of expenditure as sale promotion commission for the A.Ys. 1996-97 & 2002-03 under scrutiny assessment she was not in a position to comment on the same. Admittedly, there is no rebuttal of the fact the expenditure with regard to the sales promotion commission paid to M/s. Rupali Traders was allowed in earlier years. The relevant contents of the order of the Ld. CIT(A) are reproduced herein below:- "4. I have carefully considered the facts of the case, Assessing Officer's findings and appellant's submissions. The Assessing Officer disallowed commission paid to M/s Rupali Traders not by invoking provisions of section 40A(2) but on the ground that the appellant could not justify need to pay commission. As per the Assessing Officer, there was no need to pay the commission. Assessing Officer's conclusion was based on the fact that appellant was doing job work only for one party mainly Sud-Chemie India Pvt. Ltd., under a contract and thus needed nobody to procure orders, payments etc., The Assessing Officer also based her decision on statement of Sh....
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....genuineness of transactions between appellant and M/s Rupali Traders. Moreover, M/s. Rupali Traders is assessed to tax in the same tax slab and Shri Ramesh Shah pays tax in the highest rate slab by including interest of Rs.1,50,512/- received from M/s Rupali Traders. As such, no case of tax evasion is made out. CBDT's Circular No.6P and decision of Bombay High Court in the case of Indo Saudi Services (Travel) Pvt. Ltd., 310 ITR 306 are applicable to this extent. The Hon'ble Supreme Court in the case of CIT Vs. Dharamraj Giriji Riya Narsingiriji 91 ITR 544 held that "it is not open to the Department to prescribe what expenditure an assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows its interest best" Appellant has been able to demonstrate that without involvement of M/s. Rupali Traders and its technically qualified partner, appellant could not have successfully carried out or retained the job work contract from M/s. Sud-Chemie India Pvt. Ltd. The commission was therefore paid to M/s. Rupali Traders by the appellant for its business and is an allowable expense. Addition of commission of Rs.10,64,461/- is deleted." We find that t....