TaxTMI 
TaxTMI 
2013 (10) TMI 839
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....puted fact that the appellant assessee had no licence for it to legally import the furnace oil, when it entered into contractual obligation for import with SSOE. In the result, the assessee requested its sister concern viz., BGH Exim Limited to undertake and perform contractual obligations arising from the said contract between the appellant assessee and SSOE for the payment of consideration, as also for the sum described as commission. 2.4 The assessee claimed an amount of Rs. 28,37,500/- as commission paid to its sister concern M/s. BGH Exim Limited. During the course of assessment proceedings, the Assessing Officer noted that the assessee had purchased such furnace oil from its sister concern and it did not believe that the commission was paid for transfer of contractual liability for importing the furnace oil from Singapore based company. On not having found satisfactory explanation, such claim of commission was held to be bogus and the same was disallowed. 2.5 The Assessing Officer also disallowed promotional expenditure of Rs. 1,65,172/- incurred by the assessee for sending mangoes to one of its supplier companies at Singapore. 2.6 Both these disallowances were chall....
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....o Section 37 (1) and not save by the aforesaid judgment. Another judgment relied upon by the assessee is CIT v. Kemchand Motilal Jain, 13 Taxmann.com 27. In that case, ransom was paid for saving the life of the kidnapped person, which was not prohibited by law, whereas, in the case before us, the impugned sum has been paid for a purpose prohibited by law. Judgments in CIT v. A.K Menon, 202 ITR 774 (SC) and K.N Narayana Iyer v. CIT, 202 ITR 774 (Ker) relied upon by the assessee are hardly relevant in the context of issue before us." 3. Aggrieved by impugned decision of the Tribunal, the present Tax Appeal is preferred under section 260A of the Income tax Act, 1961 ["Act" for short], proposing following substantial questions of law for our consideration: {A} "Whether on facts and in law, Tribunal has substantially erred in interpretation of Section 28 & Section 37 of the Income Tax Act, 1961 for confirming disallowance of commission of Rs. 28,37,500/- for honouring a contract and business promotion expenses of Rs. 1,65,172/- in case of appellant Company ?" {B} "Whether on facts and in law, the Tribunal's finding and conclusion for confirming disallo....
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....e of the firm opinion that both the Tribunal and the Assessing Officer were justified in not allowing the amount of commission for the reasons to follow hereinafter. 8. The said amount of commission is essentially paid for transfer of contractual obligation. It is an undisputed fact that as per the prevalent law, licence was a must for importing the furnace oil. An application for such licence before the District Magistrate was made on 1st January 2002 and it is also an undisputed fact that till the date, the assessee does not have a licence for acquisition, storage and sale of solvents, as required by the Solvent, Raffinate & Slop [Acquisition, Sale, Storage & Prevention of Use in Automobiles] Order, 2000. It is also not disputed that during the assessment year 2004-05, the assessee had entered into a contract with SSOE for purchase of furnace oil of a specified quantity and in the event of any failure in performing the contract, the same would attract penal and civil liability of compensation. The assessee on having realized that any import in absence of a valid licence, would attract criminal/penal proceedings, it approached its sister concern M/s. BGM Exim Limited. On consen....
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....s] Order, 2000 particularly prohibits importation of goods without a valid licence and when it also prohibits its acquisition, storage and sale, in exercise of the powers conferred by Section 3 of the Essential Commodities Act, 1955, no import legally could have been made by the assessee of such furnace oil without issuance of a requisite licence by the authority concerned. Admittedly, the sister concern which had a licence undertook to perform contractual obligation arising out of the contract between the assessee and the SSOE, one could notice that a request was made by the assessee to SSOE to allow its sister concern to carry out such contractual obligations, as otherwise, it would have incurred huge amount of damages. The amount that was needed to be paid to SSOE by way of damages would have been to the tune of Rs. 55 lacs and odd - which is a sum equivalent to 5% of the contract, if it would have failed in performing the contract. 11. Even assuming that the sister concern since had a licence for importing the furnace oil, the assessee diverted its contractual obligation for averting the payment of damages, nothing comes on the record to explain as to how the sum termed as "....
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....second issue is concerned, it pertains to deduction of expenditure amounting Rs. 1,65,172/- for sending mangoes to one Narayan V. Thosar through Air Wings. According to the assessee, this expenditure was incurred for business promotion, to maintain good business relations with the supplier company and its associate enterprises. 15. CIT [A] allowed the claim on the ground that it was an expenditure incurred for sending mangoes to its supplier to maintain good business relation. 15.1 The Tribunal disallowed the same on the ground that there is no material on record to show as to how such a large quantity of mangoes could be consumed on one day or over few days and what business purpose was to be achieved by giving such large quantity of mangoes to one Mr. Narayan Thosar. In absence of any material on record to establish business expediency for sending the mangoes to one particular person, this ground was disallowed. 15.2 This Court in case of Sayaji Iron & Engineering Company v. CIT, reported in 253 ITR 749 had permitted expenditure in maintenance of vehicles used by the Directors for personal purposes. The Directors' remuneration includes any expenditure incurred in providi....