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2015 (8) TMI 260 - HC - Income TaxDisallowance under Section 40A(2) 2% out of 5% commission paid by the appellant to Govind Glass Industries Ltd. - Held that - Assessing Officer held relating to the question framed in this appeal i.e. commission of Govind Glass Industries limited, we see no germane reason in the finding of the Assessing Officer in concluding against the appellant. Further, the CIT(A) while partly allowing the appeal of the assessee has again in paragraph No.8 has held that the commission payment to GGL was justified but the CIT(A) has not given any reason why the total sales of 5% should not be granted. Similar mistake came to be committed by the Tribunal. The Tribunal again fall into error while partly allowing the appeal of the assessee. The Tribunal has also not given any germane reasons why 5% interest is not allowed. Further, it appears from the record that the appellant has produced the evidence before the Tribunal. Therefore, the decisions relied upon by the learned advocate for the appellant would enure for the benefit of the appellant. Taking into consideration the aforesaid facts and circumstances of the case and also the principle laid down by this Court in the case of Ashok J. Patel (2013 (12) TMI 1480 - GUJARAT HIGH COURT) & Sarjan Realities Ltd. (2014 (8) TMI 206 - GUJARAT HIGH COURT), it cannot be said that the Tribunal was right in granting 3% commission out of 5% to Govind Glass Industries Ltd. - Decided in favour of the assessee
Issues:
Challenge to order of Income Tax Appellate Tribunal regarding disallowance of commission payment to associated concern. Analysis: 1. The appellant challenged the order of the Income Tax Appellate Tribunal (the Tribunal) dated 30.05.2005, which partly allowed the appeal regarding the disallowance of a commission payment made to an associated concern, Govind Glass Industries Ltd. The Assessing Officer disallowed the commission payment on the grounds of being general, vague, and lacking evidence. 2. The appellant filed an appeal before the Commissioner of Income Tax (CIT(A)), who partly allowed it. Subsequently, the appellant appealed before the Tribunal, which also partly allowed the appeal. The primary issue revolved around the disallowance of 2% out of the 5% commission paid to Govind Glass Industries Ltd under Section 40A(2) without proof of excessiveness. 3. The Court framed the substantial question of law regarding the justification of the Tribunal's decision in disallowing 2% of the commission payment without proof of excessiveness under Section 40A(2). 4. The appellant contended that the Department failed to prove the excessiveness of the 5% payment and referenced a previous case to support their argument. The Court cited a case where disallowance under Section 40A(2) required assessing fair market value and comparative instances for similar services, emphasizing the importance of establishing fair market value before making a disallowance. 5. The appellant also relied on another case to support their argument that charging different interest rates from various parties does not automatically imply excessiveness or unreasonableness. The Court agreed with the Tribunal's decision to delete the disallowance made by the Assessing Officer under Section 40A(2)(b) based on the interest rates charged. 6. The respondent argued that all authorities had ruled against the appellant, supporting the Tribunal's decision. However, the Court found no substantial reason in the Assessing Officer's findings against the appellant regarding the commission payment to Govind Glass Industries Ltd. 7. The Court noted discrepancies in the decisions of the Assessing Officer, CIT(A), and the Tribunal regarding the justification for disallowing 5% of the commission payment. The Tribunal's decision to allow only 3% was deemed incorrect based on the evidence presented by the appellant and previous legal principles. 8. Considering the facts, legal precedents, and the evidence presented, the Court allowed the appeal, answering the question in favor of the assessee and modifying the Tribunal's order accordingly.
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