2011 (4) TMI 189 - HC - Income Tax

Disallowance - Bogus commission - M/s. Laxcon Steels (P) Ltd., to whom commission was paid, had filed income-tax return for the assessment year 2006-07 declaring income of Rs. 1,48,50,705 and had paid tax thereupon - acknowledgment of income-tax return in the case of M/s. Laxcon Steels (P) Ltd. was filed before the Assessing Officer and the same is a part of record book and is glossed over by the authorities below - Decided in the favour of assessee by way of remand

Summary

Issues:
Assessment of disallowed commission payment to another company for standing guarantee.

Analysis:
The appellant, engaged in the business of manufacturing and trading stainless steel utensils, filed a return of income for the assessment year 2006-07, declaring total income. The Assessing Officer disallowed a commission payment of Rs. 31,25,312 to another company for standing guarantee, increasing the declared income substantially. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal upheld the decision, concluding that no services were rendered by the company for the commission paid. They also noted that the company owed the appellant a significant sum, raising doubts about the necessity of the commission payment for a guarantee.

The authorities' findings were based on a thorough examination of the transaction and material on record. The High Court observed that the appeal under section 260A of the Income-tax Act is acceptable only on substantial questions of law, and there was no reason to interfere with the factual findings. However, the appellant's counsel highlighted a significant fact that the authorities had overlooked. The other company, to which the commission was paid, had filed an income tax return for the same assessment year, declaring income and paying taxes on it. This information indicated that the commission payment was reflected in the recipient company's tax filings, suggesting no intention to evade taxes or divert income.

Considering the vital information brought to light by the appellant's counsel, the High Court decided to remand the case back to the Assessing Officer for further investigation. The Assessing Officer was directed to verify the presence of the information regarding the recipient company's tax return in the records and assess the implications of this new evidence. The appeal was disposed of based on this decision to re-examine the case in light of the additional information provided.