2006 (4) TMI 108 - HC - Income Tax

Summary

Issues:
Assessment of consultancy/service charges claimed by the assessee for work undertaken by another company.

Analysis:
For the assessment year 1996-97, the assessee filed a return showing a total loss and claimed to have received a sum from another company in connection with setting up a cable unit. The Assessing Officer disallowed the expenses claimed by the assessee as there was no formal agreement or reliable material to show that the work was undertaken by the company to whom the expenses were debited. The Commissioner of Income-tax (Appeals) reversed the decision based on correspondence and evidence demonstrating that the work was executed by the other company, and expenses were lawfully allowable. The Income-tax Appellate Tribunal affirmed this finding, emphasizing that the absence of a formal agreement did not negate the fact that the other company had the capacity to execute the work and payments made resulted in tax deductions. The Tribunal observed that the expenses were incurred for business purposes and allowable as deduction under the mercantile system of accounting.

The Tribunal further noted that the assessee had received a certain amount from the company, which was not disputed, and the work was executed by the associated concern of the assessee. The Tribunal upheld the order of the Commissioner of Income-tax (Appeals) and rejected the appeal of the Revenue, emphasizing that the expenses were incurred for business purposes and were allowable as deduction. The Tribunal concluded that the concurrent findings of fact by the Commissioner and itself left no room for further examination by the court, dismissing the appeal as there was no substantial question of law arising from the matter for determination.

In conclusion, the judgment revolves around the assessment of consultancy/service charges claimed by the assessee for work undertaken by another company. The Assessing Officer initially disallowed the expenses, but the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal found in favor of the assessee, emphasizing the evidence of work execution and lawful allowance of expenses. The Tribunal upheld the deduction of expenses as they were incurred for business purposes, following the mercantile system of accounting, and dismissed the Revenue's appeal based on the concurrent factual findings by the lower authorities.