2008 (11) TMI 12 - HC - Income Tax

Additions made by the AO on account of the disallowance of commission & service charges paid by the assessee to one M/s CIL, in which the assessee was a director revenue contend that tribunal is not justified in relying on the assessee s own case of A.Y. 1996-97 & giving decision in favour of assessee, because in the year under consideration, increase in sale was less than 15% when compared to the immediately preceding year revenue s plea is rejected & order of tribunal is sustained

Summary

Issues:
Appeal under Section 260A of the Income Tax Act, 1961 against the judgment of the Income Tax Appellate Tribunal (ITA) regarding additions made on account of disallowance of commission and service charges paid to a related entity.

Analysis:

1. Disallowance of Commission and Service Charges:
The main issue in the present appeal revolved around the additions made by the Assessing Officer on account of the disallowance of commission and service charges paid to M/s Chemline India Limited, in which the assessee was a director. The Commissioner of Income-tax (Appeals) upheld the additions, but the Tribunal reversed this decision in the impugned judgment. The Tribunal's decision was influenced by a previous judgment in favor of the assessee for the assessment year 1996-97. The Tribunal emphasized that the growth rate of sales should not be the sole determining factor for the admissibility of expenses on commission. It noted that the commission paid for services rendered should be allowed at the agreed rate, especially when the fact of services being provided is established. The Tribunal highlighted that the Assessing Officer had accepted the fact of services rendered by M/s Chemline India Limited and allowed the commission at the rate of 15%. The Tribunal concluded that the issue of disallowance of commission and service charges was similar to the circumstances of the previous assessment year and, therefore, ruled in favor of the assessee based on the precedent set in the earlier judgment.

2. Tribunal's Decision and Lack of Substantial Question of Law:
After hearing the arguments from both parties and examining the orders passed by the lower authorities, the court found no fault with the Tribunal's approach. The court referenced a separate judgment delivered on a related matter, where the Tribunal's decision was upheld. As a result, the court concluded that no substantial question of law arose in the present appeal and dismissed the appeal accordingly.

In conclusion, the High Court upheld the Tribunal's decision to reverse the additions made on account of disallowance of commission and service charges, citing precedent and the established fact of services being provided by M/s Chemline India Limited. The court found no fault with the Tribunal's approach and dismissed the appeal, stating that no substantial question of law was raised in the case.