TaxTMI 
TaxTMI 
2008 (10) TMI 237
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.... brought on record, the conclusion of the Income Appellate Tribunal that the fact of commission payment by the assessee to the Mehtas was proved beyond reasonable, is tainted by flawed logic ? 2. Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in concluding that camouflaged payments made pursuant to a tainted contract would be allowable expenditure in the hands of the assessee ? 3. Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in coming to the conclusion that the purported payment of the commission by the assessee to the Mehtas in cash would not be hit by the provisions of section 40A(3) of the Income-tax Act thereby defeating the very purpose of its enactment? 4. Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in coming to the conclusion that the liability for the purported commission payment arose, when the assessee showed the debit for bogus steel purchases in its books and not when the purported agreement was entered into on August 2,1982 (assessment year 1983-84) or when the purported commission amount was actually disbur....
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....88, and further the Income-tax Appellate Tribunal in I. T. A. Nos. 905 and 906/Bang/1998 confirmed the orders of the Commissioner of Income-tax (Appeals) by its order dated January 31, 1990, and Miscellaneous Petition No. 10/Bang/90 filed against the said order was also dismissed on June 29, 1990. Aggrieved by the rejection of the miscellaneous petition the assessee had moved this court in W.P. No. 23825 of 1990 and this court, vide order dated April 6, 1992, quashed the order of the Tribunal dated June 29, 1990, and directed the Tribunal to consider the miscellaneous petition afresh and the Tribunal by its order dated August 30, 1993, recalled its order in appeal dated January 31, 1990. Against this order dated January 31, 1990, the Revenue moved this court in W. P. No. 39210 of 1993 and this court by its order dated July 15, 1994, rejected the contention of the Revenue and the matter was again heard by the Tribunal afresh. Thereafter, the matter was again heard by the Tribunal and by order dated July 8, 1996, the appeal of the assessee was allowed. The Commissioner of Income-tax, Karnataka-I, Bangalore, then filed a reference application before the Appellate Tribunal, Bangalore B....
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....was declared by various members of the Mehta group in their returns which were filed after the search. 5. According to the Department, the payments purportedly made cannot be termed as commission as the amount involved is not paid for any services rendered inasmuch as the contract with the principal was entered into on July 16, 1982, and thus, there was no liability which accrued in the course of running a business. It is the further contention of the Revenue that the payment of commission for a tainted purpose cannot be allowed. 6. On the other hand, the assessee's contention is that as per the "memorandum of minutes of the meeting of Mr. J. K. Panthaki with Mr. A. P. Mehta, Mr. Jairaj A. Mehta and others held on August 12, 1982" commission was payable to Mehtas and therefore, it is an allowable expenditure. 7. The Tribunal, while considering the above pleas, held that the agreement referred to above, though entered into on August 12, 1982, was reduced into writing on January 2, 1987, after the search took place and there was nothing wrong in this. It is also held that it is a fact that the assessee paid to Mehtas who were the directors of the company. It was further obse....
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....sessee revealed about the commission paid to the principal and, therefore, no purchases had actually been made but only purchase bills had been obtained and that a sum of Rs. 45,84,815.62 was shown under the materials accounts and that penalty proceedings should be initiated separately. The Assessing Officer also recorded that the contract work was for Rs. 1,28,18,413, out of which a sum of Rs. 48,00,000 was claimed as commission paid by the assessee to the principal instead of steel purchases but the same was disallowed by the Assessing Officer. 11. Under the above circumstances, the question that arises for our consideration is whether the disallowance of commission alleged to have been paid by the assessee to A. P. Mehta and others for obtaining the contract from Karnataka Ball Bearings Ltd. for construction of the factory building and other unit is justified. 12. We have heard Sri M. N. Seshachala learned counsel for the applicant/Revenue and Sri Vivek Holla for M/s. Holla and Holla learned counsel for the respondent. 13. It is submitted by counsel for the Revenue that Chapter IV-D of the Income-tax Act, 1961, deals with profits and gains of business or profession and ....
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.... behalf of other persons by Mr. A. P. Mehta. As mutually agreed upon by the aforesaid persons, Mr. J. K. Panthaki was asked to remit the below mentioned amounts to the said persons: 1. Mr. A. P. Mehta Rs. 13.80 lakhs 2. Mr. Jayaraj A. Mehta Rs. 12.85 lakhs 3. Mrs. Prabhavathi A. Mehta Rs. 7.15 lakhs 4. Mrs. Susheela A. Mehta Rs. 9.75 lakhs 5. Miss. Raksha A. Mehta Rs. 4. 45 lakhs for J. K. Panthaki and Company Sd/- (J. K. Panthaki) Partner" It is submitted on behalf of the assessee that the assessee which is a partnership firm was dealing with a private limited company, namely, Karnataka Ball Bearings Ltd. and that the commission paid by the assessee for obtaining the contract for construction of factory building cannot be said to be tainted or prohibited by law or an offence and, therefore, the Tribunal was right in its order dated July 8, 1996, by permitting the assessee in allowing the said commission amount to be deducted by way of expenditure. 17. Both sides have relied upon case law and authorities to explain the meaning of "commission". 18. At the outset it is relevant extract section 37 of the Act. ....
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....commission to an extent of Rs. 48,00,000 for obtaining a building contract of Rs. 1,28,18,413 by the assessee not to the principal that is Karnataka Ball Bearings Ltd. but to the personal accounts of the Mehta group which was controlling the said company in respect of which a meeting was held on August 12, 1982, is prohibited by law and is an offence in terms of section 630 of the Companies Act, 1956. He further submits that if the original contract was for Rs. 1,28,18,413 and if Rs. 48,00,000 out of the said amount was paid by the assessee as commission in cash to various individuals of the Mehta group who were controlling the company is also in violation of section 299 of the Companies Act. Hence, the Assessing Officer was right in disallowing the said payment made by the assessee as expenditure. 21. The basic question that needs to be answered is as to whether the disallowance of commission paid by the assessee to A. P. Mehta and others for obtaining the contract from Karnataka Ball Bearings Ltd., the principal for construction of the factory building is justified in view of the Explanation to section 37(1) of the Act. We find that detailed orders have been passed by the Trib....