TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 377
X X X X Extracts X X X X
X X X X Extracts X X X X
....e considered fact that there are no marketing expenses incurred by the appellant as commission agent appointed for marketing and other allied activities and ought to have deleted the disallowances. It be so held now. 3. Without prejudice to above and in alternative. It is submitted that payee to whom commission have been paid also paying tax at maximum marginal rate. Hence, there is no loss to the revenue. It be so held now. 4. Ld. CIT(A) erred in law and on facts in dismissing appeal by invoking section 249(3) of the Act and thereby relief granted of Rs. 20,08,563/- for addition u/s. 40A(2)(b) has no effect in the assessed income of the appellant. 5. Ld. CIT(A) erred in law and on facts in dismissing appeal by invoking section 249(3) of the Act ignoring fact that appellant has filed appeal within statutory time limit and also submitted evidence for the same. Ld. CIT(A) ought to have accepted the appeal of the appellant. It be so held now." Ground Nos. 1 to 3 : Disallowance as Commission Expenses of Rs. 33,92,430/-. 3. The brief facts in relation to the ground of appeals 1 to 3 are that the assessee filed return of income for the year under consideration on 30.09.2014 decla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pellant has a distributorship agreement with M/s. Sonali Traders where under the distributor, M/s. Sonali Traders is required to maintain efficient sale organization secure orders from customers collect payments from buyers, and devote time and attention to development of business and the manufacturer i.e. the appellant responsible for supplying goods for sale to take back any defective stock supplier and though entitled to sale directly within the territory but the distributor shall be entitled to commission on all sale made directly by the manufacturer. The distributor is entitled to a commission by way the remuneration for its services calculated @ 4% on all sales by the manufacturer. From the financial statement of M/s. Sonali Traders submitted it is also seen that M/s. Sonali Traders has commission income only and is filing rectum showing profit which is chargeable at maximum marginal rate. M/s. Sonali Traders has shown commission income of Rs. 34,88,977/- and payment to staff is of Rs. 2,86,000/- and travelling expenses of Rs. 1,21,270/-. The Ld. AR has submitted various communications between M/s. Sonali Traders and M/s. Sud Chemie India Pvt. Ltd. which are relation to job w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as to any sales and distributorship requirement and that M/s. Sonali Traders by virtue of the staffing and nature of expenses appears to be neither capable of rendering of those services nor having rendered those services on which it has received commission. At best the amount paid by the appellant is diversification of its income without any relationship with its business which cannot be allowed under any sections from S28 to S37. 7.6 Though there are various judgments of the Courts wherein commission paid to agents and hit by section 40A(2)(b) have been held allowable on the ground that relevant bills bore name of agents and purchases placed by them were allowed by the revenue and agents income already fell in the highest tax bracket. With due respect to those judgments it is seen from the agreements in the case that they provide for payment of overriding commission on all sales whereas there is no evidence and other material that the so called "distributors" are rendering any special services. The agreements appear to be more device to reduce incidence of tax and to arrange income to related persons (even if these persons may be paying taxes at the highest tax bracket). If the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... never been disallowed in scrutiny assessment. But the assessment orders reveal that the issues were was never examined in those years and in Assessment Year 2014-15 where it was examined the A.O. disallowed the same for the same reason for lack of evidence of services rendered by the agents. Ld. CIT(A)'s order reveals that while deleting the disallowance he did not deal with the aspect of evidence for rendering service but deleted it on the ground that since the agents have paid taxes on the same it is a revenue neutral exercise. Therefore the fact that the assessee has been claiming and has been allowed the said claim in scrutiny assessment for the past many years, we find does not help the case of the assessee. More particularly when the detailed scrutiny in this year brought out facts revealing that there was no basis and reason for paying the commission to these agents who even otherwise were closely related to the assessee, since the assessee was unable to demonstrate any service rendered by them as distributors. The principle of res judicata does not apply to Income Tax proceedings and the facts of each year have to be considered and merely because the claim has been all....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t." 7. The brief facts in relation to these Grounds 4 & 5 of assessee's appeal are that the Assessing Officer made disallowance of Rs. 20,08,563/- out of interest expenses on the ground that the assessee paid higher rate of interest to its partner and other relatives, which is covered under Section 40A(2)(b) of the Act. The Assessing Officer held that the assessee has not given any justification for excess interest payment @ 18% paid to related parties and hence disallowed interest paid of Rs. 20,08,563/- over and above 12% rate of interest, which is the normal interest which the banks charge. 8. The assessee filed appeal before the CIT(A) who allowed relief to the assessee on the ground that this issue has been decided in favour assessee in earlier assessment years by his predecessor CIT(A) and therefore, following the same the appeal of the assessee was allowed on this issue. While allowing relief to the assessee, the Ld. CIT(A) made following observations: "4.2 Ground No. 2 relates to disallowance of Rs. 20,08,563/- out of interest expenses. The AO has noted that the appellant paid higher rate of interest to the partner and the other relative, which is covered u/s. 40A(2....