TaxTMI 
TaxTMI 
2009 (1) TMI 60
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....ent year 1992-93, a return of income was filed declaring a loss of Rs. 25,70,965 which was accepted under section 143(1)(a) of the Income-tax Act, 1961, on January 29, 1993. Subsequently, a regular assessment under section 143(3) of the Act was made on March 27, 1995, determining the total loss at Rs. 1,29,495 as against Rs. 25,70,965. In computing the regular assessment, certain additions were made. During the relevant assessment year, the assessee-firm claimed deduction of Rs. 21,91,867 as commission to its agents. Out of which Rs. 7,34,713 was paid to M/s. Rangashree Marketing Private Limited (M/s. R. M. C.) and Rs. 6,03,546 was paid to M/s. Onam Marketing Company (M/s. O. M. C.). According to the assessee, the said commission was paid t....
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....C. and M/s. O. M. C. As these two concerns were brought into existence with the sole object of diverting the profits of the assessee thereby the tax incidence of the firm was reduced or had become nil. Under the circumstances, the Assessing Officer disallowed the entire expenditure of Rs. 16,31,028 claimed on account of marketing and sales promotion expenses paid to M/s. R. M. C. as there was no marketing survey activity in that year and, therefore, the entire amount was added back as excessive and unreasonable to the benefits accrued to the business of the assessee, as the said payment was a device to avoid tax. 4. Similarly, commission payment of Rs. 6,03,546 made to his sister concern M/s. O. M. C. also disallowed under section 40(b) ....
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.... counsel for the respondent/Department. 8. Learned counsel for the appellant submits that M/s. R. M. C. was started with the idea of promoting the appellant's products and also to accept deal with many more items. M/s. O. M. C. had to procure sales for which commission was paid. But the Tribunal without appreciating that the commission was paid for procuring sales proceeded to hold that the procurement of sales had no relevance for payment of commission. The Tribunal further erred in equating the sales promotion paid to M/s. R. M. C. as in the nature of commission by applying section 40(b) of the Act. The Assessing Officer was not right in holding that the payment of commission to these two entities was a device to avoid tax. He, therefo....
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....p firm comprising of eight partners which is in the business of manufacture, sale and export of agarbattis. The assessee claimed a sum of Rs. 21,91,867.63 as commission paid to its agents and out of this commission a sum of Rs. 7,34,713 was paid to M/s. R. M. C. and a sum of Rs. 6,03,546 was paid to M/s. O. M. C. M/s. R. M. C. closed down its activities in October, 1991, and M/s. O. M. C. was started during that period. The amount of Rs. 7,34,713 paid to M/s. R. M. C. has been allowed by way of a deduction. The Tribunal has also noticed that the partners are close relatives having an interest in both these concerns, in fact the closing down of M/s. R. M. C. and the commencement of M/s. O. M. C. was nothing but a substitution of the latter c....
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....arned counsel for the appellant submitted a copy of the agreement dated February 6, 1989, between M/s. O. M. C. and M/s. R. M. C. and under clause 15 of the said agreement it is stated that the first party, i.e., the appellant herein, would bear all expenditure incurred by the second party (M/s. R. M. C) with regard to advertisement and publicity for the marketing and selling of the products in addition to distribution commission as per clause (iii). As per clause (iii) M/s. R. M. C. was entitled to a commission on the sale effected of the products manufactured by the appellant at the rate 15 per cent. of the price charged to stockists. We find that these two clauses were the modus operandi by which the profits of the appellant was transfer....