Indian Hume Pipe Co. Ltd. Vs Commissioner of Income Tax (Bombay High Court)
Bombay High Court held that AO and the Tribunal have allowed part of the commission payment as business expenditure. However, disallowance of part of commission payment as business expenditure unjustified.
Facts- The Appellant is a limited company listed on the stock exchange and is engaged mainly in the business of manufacturing and sale of R.C.C. Pipes, Steel Pipes etc. which are required for water supply and drainage system.
In the course of the assessment proceedings, the Appellant filed details of commission paid amounting to Rs. 26,90,104/-. Insofar as commission paid to some of the parties, AO disallowed whole of the amount and with respect to balance parties, AO allowed only 1/3rd as deductible expenditure and disallowed balance 2/3rd on the ground that the entire payment cannot be considered as laid out wholly and exclusively for the purpose of the business because neither the Appellant Assessee nor the recipients of commission could show that orders were procured with their assistance. Therefore, the role of commission agent is only in respect of follow up enquiries and therefore, only 1/3rd was considered as deductible expenditure.
Commissioner (A) partly allowed the appeal. Whereas, Tribunal justified disallowance made by AO. Being aggrieved, assessee has preferred the present appeal.
Conclusion- In the present case, the Assessing Officer and the Tribunal have allowed part of the expenditure as business expenditure. The sequitur of this would be that insofar as the disallowance part is concerned, the Assessing Officer and the Tribunal would be venturing into the quantum of the expenditure which as laid down by the Supreme Court is not permissible.
Held that the Assessing Officer and the Tribunal were not justified in disallowing part of the commission payment for the assessment years 1986-87, 1987-88 and 1988-89. In view thereof, the appeal of the Assessee is allowed by answering the question of law in favour of the Assessee and against the Revenue.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. This consolidated appeal is filed by the Appellant Assessee for assessment years 1986-87, 1987-88 and 1988-89 against common order passed for these three years by the Income Tax Appellate Tribunal (for short “Tribunal”) dated 18th January 2002. The present appeal was admitted under Section 268A of the Income Tax Act, 1961, for short (the Act”) by this Court on 10th September 2004 on the following substantial question of law :-
Substantial question of law
“Whether on the facts and in the circumstances of the case, the Appellate Tribunal’s conclusion that the commission agents had not rendered services to the Appellant company to warrant payment of commission is based on relevant and valid material and is sustainable in law ?”
2. The facts for the assessment year 1986-87, being the lead year, are taken as the basis for deciding the present appeal.
Brief facts are as under :-
3. The Appellant is a limited company listed on the stock exchange and is engaged mainly in the business of manufacturing and sale of R.C.C. Pipes, Steel Pipes etc. which are required for water supply and drainage system.
4. On 30th June 1986, the Appellant filed its return of income declaring income of Rs. 1,89,85,950/-. The said return was supported by audited financial as per the Companies Act and tax audit report as per Section 44AB of the Act. The said return was selected for scrutiny assessment by issuing a notice under Section 143(2) of the Act.
5. In the course of the assessment proceedings, the Appellant filed details of commission paid amounting to Rs. 26,90,104/-, which are as under:-
