Case Law Details
Kay Dee Industries Vs JCIT (ITAT Delhi)
Since it was not the first year of the payment of commission to the party and the recipient of the commission income was also not related party in terms of section 40A(2), therefore, revenue was only authorized to see whether the expenditure was laid out or by the assessee for the purposes of the business or not. Power to examine the reasonableness and adequacy of expenses in terms of section 40A(2) are only available when the payment is made to a related party, which was not the case of the Revenue.
The assessee has paid commission to one M/s. Ashapura Associates, Ahmedabad, @ 7% of the sales at Ahmedabad Depot. For the payment of the commission the assessee has entered into an agreement on 1st April, 2006 with the commission agent, who is also responsible for the recovery of sale proceeds as per clause 7 of the agreement. This is not the first year of the payment of commission to that party. The recipient of the commission income is also not related party under provisions of section 40A(2) of the Act. The learned lower authorities have disallowed the payment without showing any reason except stating that there is no business exigency shown by assessee. It is an established law that in what manner the assessee should carry on his business should be left to the assessee only. The Revenue authorities are only authorized to see whether the expenditure has been laid out or expended by the assessee for the purposes of the business or not. In the present case, the amount of commission for this year have been paid @ 7% and total commission paid is Rs.32,61,849/- out of which the disallowance of Rs.9,31,957/- has been made holding that 2% of the total commission paid is excessive. Such powers are only available when the payment is made to a related party. It is not the case of the Revenue that the party has not rendered services to assessee. In view of this, we reverse the finding of the lower authorities and direct the learned Assessing Officer to delete the disallowance of Rs.9,31,957/-.
FULL TEXT OF THE ITAT JUDGMENT
This appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeals)–12, New Delhi, dated 12.02.2011, for assessment year 2010-11 confirming that addition of Rs.9,31,957/- on account of commission paid to M/s. Ashapura Associates @ 7% against the rate of 5% paid to other commission agents, disallowed by the learned Assessing Officer, under section 37 of the Income Tax Act.
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