TaxTMI 
TaxTMI 
2018 (8) TMI 844
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.... commission of Rs. 9,31,957/- paid to M/s. Ashapura Agencies, which was disallowed by the learned Assessing Officer vide para No. 3 of his order, holding as under :- " 3.1 During the year, the assessee has debited a sum of Rs. 2.24.31.837/- under the head Commission on Sales. The details tiled by the assessee in this regard have been examined. Out of total commission paid a sum of Rs. 1,83,71,391/- has been paid on domestic sales and Rs. 40.60.446/- has been paid on Export Sales. From the details filed by the assessee it is seen that commission on domestic sales has been paid to 21 parties at the rates ranging from 1.5 % to 1 he assessee has filed copies of accounts and confirmation of the major recipients of commission and also agreements entered into with these commission agents. On the issue of variation in the rates of commission the assessee has vide its letter 31.01.2013 submitted as under :- " lt will be further seen that Commission is given at different rates as mentioned below :- i) The rate of 7% is given only to one Agent M/s Ashapura Associates, Ahmedahad who runs the Ahmedahad Depot for entire state of Gujarat, the biggest sale depot in terms of sale. They are ....
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....tna except that the latter party is entitled to commission of 3% as against 7% payable to M/s Ashapura Associates. M/s. Asian Motors, Patna like M/s. Ashapura Associates is also not under an obligation to bear the direct/indirect expenses. The assessee was required to explain the wide difference in the rate of commission in spite of the terms of agreement with other parties being more favourable inasmuch as all the direct and indirect would be borne by them. The assessee vide its letter dated 19.02.20!3 submitted that with the appointment of M/s. Ashapura Associates as agent on 01.07.2002 the assessee started a new trend of opening sales depot, whereas prior to this tire assessee was selling goods through distributors, After being motivated from the Gujarat case it further opened Sales Depot in other cities e.g. Jaipur (w.e.f. 01.03.2006), Kalyan (22.12.2006) and Indore (22.12.2006). However, in the year 2010 the assessee has reduced tire rate of commission to 5 % in the case of M/s. Ashapura Associates. Assessee's contention is not acceptable as the present agreement with M/s. Ashapura Associates was signed on 01.04.2006 by which time the assessee had opened depots in other cities....
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....visions of section 37 for being allowed any expenditure has to be expended wholly and exclusively for the purposes of business. The Hon'ble Supreme Court in various decisions held that taxing authorities have right to consider whether expenditure incurred by the assessee was excessive. The ratio of decisions of the Hon'ble Supreme Court in the following cases is relied upon :- i) Laxminarayan Madan Lal Vs. CIT (SC) 86 ITR 439; ii) Swadeshi Cotton Mills Co. Ltd. Vs. CIT (SC) 63 ITR 57; iii) Laxmiratan Cotton Mills Co. Ltd. Vs. CIT (SC) 73 ITR 634. The Hon'ble Supreme Court in the case of Laxminarayan Madan Lal Vs. CIT (SC) 86 ITR 439 held as under :- " In our opinion, the facts of this ease come within the rule laid down by this court in Swadeshi Cotton Mills Co. Ltd. Vs. Commissioner of Income-tax (3). The question whether an amount claimed as an expenditure was laid out or expended wholly and exclusively for the purpose of the business has to be decided on the facts and in the light of the circumstances in each case. The mere existence of an agreement between the assessee and its selling agents or payment of certain amounts as commission, assuming there was such paymen....
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....e has furnished inaccurate particulars of its income and therefore, penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 are being initiated against the assessee. (Disallowance : Rs. 9,31,957/-). " 3. The assessee carried the matter before the learned CIT (Appeals) who confirmed the addition as assessee could not substantiate the commercial exigency of such payment @ 7% as the other parties were paid commission @ 5%. In view of this, assessee is in appeal before us. 4. The learned authorized representative submitted an agreement before us stating that the assessee has paid commission @ 7% to M/s. Ashapura Associates, who is acting as sole selling agent of the firm for sale of its products. He further referred to clause 7 of the Agreement, according to which the bad debt is also on account of the commission agent. He further stated that the assessee has also submitted a confirmation of the commission agent where the tax has been deducted on sale of goods at Ahmedabad Depot. He further submitted that the payments have been made by account payee cheques. He further stated that in earlier years the commission paid by the assessee has been accepted and no disall....